FedEx Success Doesn't Come With Big IT Budget Increase

FedEx believes it can improve the experience of business customers and consumers alike by putting new tools in the hands of its employees and beefing up the customer-facing applications on its Web site. "Our customer needs are going to change," 6x6 project manager Berry says. "We won't be able to continue to be the industry leader if FedEx doesn't change, too."

Over the next 18 months, a new handheld device, the PowerPad, will replace the Supertracker devices now used by FedEx couriers. The new handhelds can display detailed package information at the point of pickup, capture a customer's signature, print via a Bluetooth-enabled portable printer, and receive messages from a FedEx dispatcher. The device is intended to extend information-at-your-fingertips service right up to the point of customer contact. "We're bringing the whole power of the FedEx network out to the courier," Stephenson says. "It's got huge expandability built into it."

FedEx is field testing optical pens, based on technology from Anoto Group AB, that capture images of customers' pen strokes, increasing label accuracy and courier productivity. The pens are used in conjunction with new label-scanning systems that are increasingly being used on the 30% of express packages that are still shipped with handwritten labels. The company is also an early adopter of radio-frequency identification technology and sits on Wal-Mart Stores Inc.'s RFID advisory council.

FedEx's Web site, with 7 million visitors a month, has evolved into a feature-rich, self-service tool used by consumers and businesses. The number of packages shipped via FedEx.com grew 45% this past holiday-shopping season compared with 2002. "Our No. 1 touch point is our couriers; second is our Web site," says Karen Rogers, a VP with FedEx.com.

The site's emphasis has evolved from customer acquisition a few years ago to customer retention and, more recently, to problem resolution, Rogers says. A recently launched option that lets customers access invoices online serves as an example. Not only can customers view electronic bills, they can get package-specific details not available on paper invoices. The company says 10,000 customers already use the application, and it expects a tenfold increase within a year. "Billing is not the most exciting area of our business, but it's one with a lot of labor on both sides, so there's a lot of opportunity there," says Kevin Humphries, the senior VP responsible for most of FedEx's customer-facing systems.

Other self-service Web apps include FedExShip Manager, which lets customers centrally manage domestic and international shipping; Global Trade Manager, which helps users estimate duties and taxes on international shipments; and a tool called Alive that lets customers manage and track ground and freight shipments from Asia to the United States. Technology-based innovations--whether new wrist-mounted bar-code scanners for on-the-go workers or the ability to know the contents of incoming packages provided by FedEx's InSight application--are viewed within FedEx as ways to differentiate the company's products and services.

Only one factor is rated more critical than innovation to the IT team's mission. "We will differentiate on innovation," Berry says. "We will dominate on speed."

Given the state of the market, FedEx needs to excel at both. The company's stock was downgraded in December, from outperform to market perform, by a financial analyst with Raymond James & Associates who expressed concern about a slight decline in the daily volume of domestic packages handled by FedEx Express, which accounts for 72% of revenue. "The effective deceleration in the flagship Express business in what we viewed as a better economic period tempers our outlook," analyst William Fisher wrote.

Other challenges: The proposed Kinko's acquisition failed to excite investors, initially sending the stock down slightly. By the company's own account, it must continue squeezing costs while expanding into new markets such as China. And chief rival UPS is working hard on its own business-technology innovations, while integrating retail acquisition the Mail Boxes Etc. chain.

CEO Smith doesn't seem overly concerned. Smith maintains there's still plenty of room for growth as long as FedEx executes on its objectives. "The markets we are in are so big, we can grow to be an awfully big company without trying to figure out something different to do," he says. "We can broaden what we do and deepen what we do, and some of these [things] are quite technology intensive." Of course, that's been FedEx's secret to success in the past. This time, the IT budget has been frozen, but expectations haven't. That's why so much is riding on 6x6.

All photographs by Ken Schles