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 / Autumn 2006 / Issue 44(originally published by Booz & Company)


FedEx Delivers on the Deal

Hearts and Minds
Acquisitive CEOs, similar to conquering generals, have two avenues open to them once the dust of negotiation has settled. Mr. Smith, a former Marine Corps pilot and military history student, is familiar with both. One tactic is to bury all residue of the preacquisition organization; Oracle chief Larry Ellison and Mussolini exemplify this approach. The Ellison/Il Duce method results in mass layoffs and complete management turnover. The other approach is one that Alexander the Great favored. Don’t cut off the heads of the chieftains and soldiers you’ve just beaten; instead, bring them into the fold and give them the authority to govern. Then sit back and watch the empire grow.

Fred Smith was pulling an Alexander the Great. To be sure, Mr. Kusin himself resigned in early 2006, and most of the senior executives ended up leaving after the acquisition closed, but most managers from Kinko’s found a lasting place in the new organization. That was a necessity: If FedEx wanted to build on Kinko’s strength with small and medium-sized businesses, it needed to embrace Kinko’s friendly, well-known brand and the people who had fostered it. And although the hard work of integrating the two companies still lay ahead, Mr. Smith and his team were primed to pull that off. After all, they had been shepherding companies through the integration process since their first major acquisition, in 1984.

In a world where most corporate acquisitions are exceptionally painful, and 50 to 80 percent fail, FedEx has come as close as any company to making the undertaking as efficient and successful — even happy — as possible. In nearly a dozen acquisitions since the mid-1980s involving tens of thousands of employees across the globe, Mr. Smith and his team have honed a process for subsuming companies under the FedEx banner with relative ease and using them to open new fronts for the business to grow. That process combines military precision in implementation with unwavering attention to the softer work of winning the hearts and minds of the newly acquired organization.

“Nobody does it better,” says Art Hatfield, senior transportation analyst at Morgan Keegan & Company, an investment bank in Memphis, Tenn., where FedEx is based. “When FedEx acquires a company, they are very good at figuring out what made that company successful and they leave that alone.” Integration at FedEx involves a much lighter touch than at many other large companies. Fred Smith and his team try to strike a balance between transforming the company they just bought into a FedEx company, with the same drive for efficiency and reliability, and retaining the qualities that made the target company worth buying in the first place. “They also find out what has prevented that company from getting to the next stage, and they bring in the resources to make it happen,” Mr. Hatfield says.

The FedEx way of integration has proved itself over the years. The 1998 acquisition of Caliber System Inc. is just one example. Its subsidiary, the less-than-truckload carrier Viking Freight, formed the basis for FedEx Freight; that business now runs out of Memphis with former Viking CEO Douglas Duncan heading the operating company, which grew revenue an impressive 14 percent on operating margins of 14.5 percent in 2005. Roadway Package System (RPS), another Caliber company, became FedEx Ground, which is still based in Pittsburgh and was run until recently by the same person who made RPS a winner. Today, FedEx Ground is an unquestioned success, with revenue growth of 11 percent and profit margins of 12.5 percent in 2005 — far outpacing competitors.

But Caliber and every other major acquisition, with the exception of Kinko’s, all built on FedEx’s transportation business. Because of similarities, it has been relatively easy to bolt the acquired companies onto the FedEx corporate structure and give them the benefits of FedEx’s highly praised logistics, human resources, marketing, and sales expertise. Kinko’s wasn’t in the transportation business, and photocopying is a very different business logistically. If the other companies FedEx bought in the past fit like pieces from the same puzzle, the Kinko’s piece came from an entirely different puzzle; it presented an unprecedented challenge to FedEx’s well-honed process for smoothly melding companies into an ever-growing operation.

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  1. Gerald Adolph, “Mergers: Back to ‘Happily Ever After,’” s+b, Spring 2006: Why growth through acquisition is becoming popular again. Click here.
  2. Madan Birla, FedEx Delivers: How the World’s Leading Shipping Company Keeps Innovating and Outperforming the Competition (John Wiley & Sons, 2005): How FedEx became a leading global brand by tapping into the creativity of its employees.
  3. Nicholas G. Carr, “Top-Down Disruption,” s+b, Summer 2005: Epoch-making technologies, products, and business models don’t always come from industry newcomers. Sometimes they come from the established leaders. Click here.
  4. Geoffrey Colvin, “The FedEx Edge,” Fortune, March 20, 2006: CIO Rob Carter discusses how FedEx manages to ship 6 million packages a day. Click here.
  5. Charles Fishman, “Face Time with Fred Smith,” Fast Company, June 2001: Mr. Smith on what he learned in the Marines and why he’s obsessed with speed. Click here.
  6. Ellen Florian et al., “Special: CEOs on Innovation,” Fortune, March 8, 2004: Mr. Smith and others weigh in on the need for constant change and open-mindedness. Click here.
  7. Gary L. Neilson and Bruce A. Pasternack, Results: Keep What’s Good, Fix What’s Wrong, and Unlock Great Performance (Crown Business, 2005): Contains a section on FedEx’s culture as an example of a resilient company that learns from its customers’ complaints.
  8. Rob Norton, editor, CFO Thought Leaders: Advancing the Frontiers of Finance (strategy+business Books, 2005): Includes an interview with Cathy Ross, chief financial officer of FedEx Express, describing how culture and controls reinforce each other. Click here.
  9. C.K. Prahalad and Venkatram Ramaswamy, “The Co-Creation Connection,” s+b, Second Quarter 2002: Companies spent the 20th century managing efficiencies. They must spend the 21st century managing the consumer experience. Click here.
  10. Michael Sisk, editor, The Whole Deal: Fulfilling the Promise of Mergers and Acquisitions (strategy+business Books, 2006): Overall guide to world-class M&A strategy for those who would emulate — or surpass — Fred Smith. Click here.
  11. Fred Smith and Brian Dumaine, “How I Delivered the Goods,” Fortune Small Business, October 1, 2002: Mr. Smith explains his management philosophy. Click here.
  12. James C. Wetherbe, The World on Time: The 11 Management Principles That Made FedEx an Overnight Sensation (Knowledge Exchange, 1996): What managers can learn from Fred Smith.
  13. For more business thought leadership, sign up for s+b’s RSS feeds. Click here.
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