Redefining What You Are

Management is key to transformation at FedEx, CEO Smith says.
Just two days before the end of last year, FedEx Corp. chairman, president, and CEO Fred Smith tipped his hand on where his company is heading in 2004. Smith, to the surprise of many, revealed FedEx would pay $2.4 billion to acquire Kinko's Inc., the neighborhood copy shop. Just like that, the package-delivery heavyweight is moving into the retail printing, document-management-outsourcing, and pay-per-use office-space business.

When we met with Smith at FedEx's Memphis, Tenn., headquarters in mid-December, he talked of plans to "broaden" and "deepen" the company's business, but he deferred on just how he planned to do it. "I'm not going to give you the scoop today," Smith demurred. Now we know the plan, or part of it, anyway.

Fred Smith -- Photo by AP

FedEx has become more than an overnight shipper, Smith says.

Photo of Fred Smith by AP
FedEx has recast its business model in recent years to include ground delivery, partial-truckload, logistics, and custom-clearance operations. For Smith, the key to success always involves a closely coupled business-technology strategy and great execution. "That's the difference between almost all organizations--good management," Smith says.

Of course, good management sounds easier than it is, especially when the business agenda calls for revenue growth and cost cutting at the same time. FedEx is in the second year of a three-year business-technology initiative that involves holding the line on IT spending, while rolling out new technologies and technology-enabled services, deploying a companywide transaction-management system, and, now, integrating Kinko's.

To accomplish all that requires squeezing ever-more efficiency from existing technology operations and shifting limited resources to the company's highest priorities, part of a broader effort that aims to transform six organizational processes by 2006 (see "Time To Deliver," Jan. 12, p. 34;). Smith's philosophy is that business technology has become such an integral part of everything FedEx does that it's time to expect more, not less, from his business-technology team. "Having become such a strategic issue," he explains, "you have to think quicker and act more efficiently in a manner that affects the business more profoundly than in the past."

One thing FedEx won't do is pursue its goals in what Smith calls "dim-the-lights" projects, big undertakings that suck up lots of resources. "There have been a lot of enormous screw-ups trying to do that," he says. "We try to do a lot of work on the front end, divide things into bite-size pieces, do things in a more evolutionary way."

The end-game is to make FedEx so valuable to customers that they keep coming back for more services. "What I can do is make the services and systems I offer so easy to use that I'm going to get a real sticky relationship with you," he says. "We want to give you end-to-end visibility and [let you take] cost out of your business."

But where does a copy shop fit into FedEx's airplane-intensive delivery business? Kinko's, it turns out, has been undergoing its own transformation: More than 25% of the documents it prints these days arrive in digital format. Large companies now account for 20% of its business. And Kinko's 1,200 retail locations have become offices away from the office for mobile professionals who use their PCs, Internet access, and videoconferencing services.

"FedEx has become much more than an overnight shipping company, just as Kinko's has become much more than a place that makes copies," Smith said in a Webcast the day of the announcement.

Among many other things, 2004 promises to be a year FedEx redefines, once again, what it means to be an overnight-shipping company.

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