FedEx Risks It All on Strategic Execution

There are three main reasons why you want your strategic plan to be concise:

  1. So you can understand it.

  2. So your team can understand it.

  3. So all of you can follow it.

Sometimes, that’s really tough.

Sometimes, strategic execution requires sacrifice. And sometimes, it requires you to have confidence in your vision of the world even when it costs you in the short term.

To understand how this plays out, let’s look at what’s going on with FedEx right now. It’s possible that FedEx has boldly started to create its own future. It’s also possible that it has shot itself in the foot.

Focus & Pivot

Fred Smith, who is still the CEO, founded the company in 1973. Back then, their strategic vision was clear: they were the first air cargo company, and they trail blazed delivering packages over vast distances in short periods of time. This required ground transportation as well as air, but since only businesses could afford their services back then, their end-to-end runs were mostly in metropolitan areas, which kept the overall network to a manageable size.

Fast forward thirty years, and the world had changed completely. The Internet caused demand for delivery services to skyrocket, and while FedEx profited from that tremendously, they also let UPS deal with most of the “last mile” deliveries to people’s homes in the distant suburbs. That was a strategic decision: they stuck to their air cargo roots.

But then Amazon began to explode in size and influence. At first, FedEx profited again. Amazon became a $900 million a year client. But FedEx found that the ground transportation side of its business was becoming more and more essential. So they began to build it out. This was another strategic decision: they pivoted their focus from air cargo to point-to-point deliveries so they could deal with the Internet—and serve Amazon.

Keep Your Eyes on the Horizon

But then two things happened that changed the game considerably. First, Amazon got to the size that they could really squeeze their shipping companies, and most analysts think that FedEx’s margins on Amazon deliveries slipped into the low single digits.

And second, Amazon aggressively built out their own delivery capabilities. In 2017, according to the Wall Street Journal, they made about 15% of their deliveries on their own. Last year, they made half of them.

FedEx faced a crisis, and it’s played out this year. It’s pretty clear, judging by the way it did, that a great deal of heated debate took place in the executive ranks.

What would you do if you were FedEx? What’s the strategic move? Would you let one of your biggest customers squeeze you while they clearly intended to fire you as soon as they could do your job themselves? Or would you give up $900 million a year and set out to become the hero of every other company that ships goods off the internet?

That’s not an easy decision, but as you can see, it fits the pattern that we’ve been discussing in my Inspired Management webinar series. It all comes down to understanding your Target Customer and your Core Purpose.

FedEx decided that its Target Customer was not a company that clearly intended to fire them. They decided that their Core Purpose was to deliver packages for companies that needed a delivery service.

Be Fearless

So they dumped Amazon.

Their intention is to hurt Amazon during the interim between now and when they can make all of their deliveries themselves. They hope to shore up the value of their business with other clients, like Target and WalMart, by slowing down Amazon a notch.

Not everyone on the team agreed, and that’s fine. Two of FedEx’s top executives left the company around the beginning of this year. One of them was the heir-apparent who was to take over the CEO position. The other was the head of their Express Unit.

It’s possible that the company’s bold strategic execution had something to do with their departures. At the moment, it looks like the market is not too enthusiastic about the company’s strategy, either. Since those two left, the company’s stock has lost nearly a third of its value.

I have no prediction as to how this is going to play out, but I’m pretty sure that Fred Smith, the CEO, sleeps soundly at night. As the inimitable management guru Peter Drucker once said, “The temptation in business is always to feed yesterday and to starve tomorrow.”

Rather than cling to yesterday’s business, Smith, and those who stayed with him, have made a bold move to create tomorrow’s business. His plan is concise, easy to understand, and clear to everyone—including those who think he’s making a mistake. Whatever happens, you have to admire his team’s courage.