Fedex Corp. vs United Parcel Service, Inc Case Study Essay Example For Students

Fedex Corp. vs United Parcel Service, Inc Case Study Essay I. Executive Summary In this report we focus on the two main competitors in the package delivery industry: Federal Express Corporation (FedEx) and United Parcel Service of America, Inc. Studying FedEx, UPS and their competitive relationship in the decade from mid 80s to mid 90s gives a good insight for the companies and industrys future. The two companies have different strategic goals and are operating in the same industry but in different main markets: FedEx is working on producing outstanding financial returns and focuses on the overnight air market while UPS is looking for earning reasonable profit and its core business is the two-day ground delivery. However, by 1981, the two companies started to have a strong sense of rivalry with each other and up until 1995 the race seemed to be one of how quickly each competitor could transform itself into the other. It was then when the largest distribution contract ever awarded was given to UPS. The effects on FedEx were strong. This paper is an examination of FedExs and UPSs financial performance from an investors point of view and their managerial performance considering their strategic goals in the mid 80s. We also, take an overview of the rivalry between the two companies and we put our earlier findings in this competitive framework in order to determine whether FedEx or UPS achieved Excellence in business. Our analysis concludes that between the two companies, UPS can be considered as excellent both for its good performance in the decade and for its good perspectives for the future. II. FedEx vs. UPS: The Battle for Value II. 1 The Effects of J. C. Penneys Announcement on FedEx from an Investors Point of View The decision of J. C. Penney to award the $ 1 billion 5 year contract to UPS was clearly the best choice for the company. In 1992, when J. C. Penney went into business, UPS was operating more efficiently and more profitably than FedEx. After J. C. Pennys announcement in 1995, FedExs stock price declined by 2. 33%. The reason for the fall is the investors non-trust in FedEx strength. Whereas it gave UPS secure earnings for 5 years as well as reviled a new image of reliability and stability. Therefore, UPSs reputation increased among the investors, possible future clients and partners while FedExs reputation and customers trust for high future gains declined. Moreover, as the 75% of FedExs common shares were held by institutional investors, it was expected that they would follow discouraging news for earnings decrease that analysts gave for Federal Express in 1995. The stock became less attractive and so the price fell. In addition to that, prior to the announcement, FedEx has undergone few noticeable losses, which de-motivated FedExs investors. Although volume growth remained strong, the declined domestic earnings and the concerns mentioned about the companys financial health discouraged investments. One can say that another reason to FedExs price decline is that the employees and officers of FedEx decided to sell their 10% owned shares when the revenues went down. However, if we consider that FedExs employees were strongly committed to their company, this seems the least possible scenario. II. 2 FEDEX vs. UPS: Business Strategies and Success Factors A- Federal Express We will produce outstanding financial returns by providing totally reliable, competitively superior global-air ground transportation of high priority goods and documents that require rapid, time-certain delivery. (Mission Statement) Referring to the mission as well as a number of FedEx actions such as heavy investments in Information Technologies, and the entrance to international markets through rapid acquisitions in Europe, Asia and Middle-East, one would realize that FedEx is after outstanding revenues through being a pioneer in new markets and technologies. Enabling Factors supporting this statement were clear in FedEx heavy investments in IT solutions as it presented COSMOS and Powership 3 for better package control resulting in an improved quality. In addition to that, FedEx came up with new services such as Saturday deliveries, delivery by 10:30 A. M. , customer interfaces (drop boxes, drive through stations and express delivery stores) and same day pickup of order. This is to distinguish its services. More on that, FedExs philosophy of People-Service-Profit was successful in insuring a union free workforce devoted to customer focus. Salem Witch Trials and New York City EssayUPS proves to be a conservative company with low debt levels. Despite its tight cash/current liabilities ratio, its cash/debt ratio shows a comfortable 1. 43 times coverage (in 1994) showing a good position in covering the most crucial obligations. In terms of Profit and Growth, UPS has high returns with very good profit margins and experienced a predictable annual growth. FedExs profitability ratios are highly fluctuated with a declining trend while saw a good compound annual growth for both its sales and net income. All of the figures are presented in exhibit 2 in the appendix. Economic value added (EVA) is a measurement that focuses on managerial effectiveness in a given year. Therefore it measures the extent to which the firm has increased shareholder value. A firm adds value when it has a positive EVA. FedExs EVA has indicated that the firm is not adding value to its shareholders as it was -1. 361 billion in 1994. During this period, its EVA has dropped dramatically whereas UPS has proved the opposite. UPSs EVA has increased by 1. 616 billion from year 1985 to 1994. This explains the excellent performance that UPS has achieved throughout the years and how successful it was in adding value to its shareholders. Market value added (MVA) is the difference between market value of a firms stock and the amount of equity capital that was supplied by investors. Shareholders wealth is maximized by maximizing this difference. FedExs MVA decreased by 0. 641 billion during the period of 1985-1994 while UPSs MVA increased by 5. 434 billion. II. 4 Business Excellence: Who Finally Achieved It? As proved in many research papers the excellence of organisations can not be attributed to a common set of actions performed by excellent firms. This implies that there is no one magic solution to the challenges of all organisations. However, there seems to be a set of fundamental concepts that many organisations that achieved Excellence in the fields held to be true and committed themselves to be guided by. Customer Focus, Results Orientation, People Development and Involvement, Continuous Learning and Innovation are some of the concepts that help organisations perform better than the rest. The conventional wisdom is that if a firm were operationally excellent, strong financial performance would follow. FedEx has an excellent advantage over UPS: its dedicated employees and its satisfied customers. Employee participation gave FedEx the reputation as a great place to work while UPS suffered from several labor strikes. Also, FedExs customer focused philosophy worked perfectly in real while UPS occasionally experienced lower customer satisfaction. Regarding the companies financial performance, our analysis shows that UPS has a better financial standing in terms of market performance, ratio analysis, value creation and increasing returns and assets. UPSs seems to perform its investing activities according to its statement for a reasonable profit while providing long term competitive returns to shareholders. FedEx on the other hand expanded its business in its quest for outstanding financial returns thus increasing risk and thereby suffering the financial consequences. As UPS achieved a better financial performance and started reengineering its efforts in order to remain competitive in the future, we can say that, for the particular time period, achieved business excellence. III. Appendix FEDEX and UPS Background FedEx and UPS operate in package delivery industry. FEDEX started in the 1970s by Fred Smith and some investors. It applied an innovative approach of hub-and-spoke distribution pattern to provide cheaper and faster service to more locations than competitors. It started gaining revenue in 1981. FEDEX positioned it self as the pioneer in overnight package delivery, quality, and advance IT technologies. Competition by Emery, USPS, and UPS did catch-up. FEDEX therefore attempted price reduction, and expansion to others parts of the world through acquisitions and airport hubs establishment. Some of which have negatively affected FEDEX financial state. UPS is a manager owned firm founded in 1907. It became the largest transportation company in America and owned 80-90 percent market share of domestic small package delivery market. It was foreseen as industry low cost provider yet slow and a market follower. It attempted extensive restructuring and spent around 1. 4 billion $ by 1992 in Information