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Published: August 28, 2006

 
 

FedEx Delivers on the Deal

What he didn’t say at the time of the purchase, but would later say privately, was that the Kinko’s purchase answered a challenge from United Parcel Service Inc. Two years earlier, FedEx’s biggest competitor had made a similar move and paid $180 million to buy Mail Boxes Etc., some 4,300 franchised stores, most of which were rebranded as UPS Stores after the acquisition. “We took a look at Mail Boxes Etc.,” says Brian Philips, now COO of FedEx Kinko’s and a 12-year veteran of FedEx. “We didn’t want to get into the franchise business, so we passed.” FedEx wanted it all: the copying business, the real estate, and the 20,000 employees. That was why Mr. Smith declared it “a match made in business heaven.”

If it was, there were skeptics, including Moody’s Investors Service, which placed FedEx’s ratings on review for a possible downgrade because of the strain on the company from the all-cash purchase. And there was the larger question of what a transportation company was doing getting into the retail copy business. Wall Street knocked $1.50 off the share price of FedEx the day after Mr. Smith announced the purchase.

Putting It Together
If Wall Street was initially nonplussed, the employees at Kinko’s were not. FedEx already had drop boxes and even full-blown shipping counters in 134 Kinko’s stores. These included some of FedEx’s highest-performing outlets. “We had already been working with FedEx for 15 years,” says Sally Mainprize, a senior manager with Kinko’s during its CD&R period and now director of commercial marketing and strategy at FedEx Kinko’s. “It made perfect sense to us, and it also made it a more comfortable transition; they were already our partner.”

Also comforting was the knowledge that Kinko’s wasn’t being absorbed by a competitor, which would then institute the usual merger “efficiencies” that do away with redundant departments and employees. Practically everyone could keep their job. And besides, this was FedEx, a company admired universally for its customer service, great technology, and flawless execution. The company is routinely listed among the best places to work and has shown phenomenal growth year after year. Who wouldn’t want to join Fred Smith’s operation? As Ms. Mainprize says, “Everyone was very excited to go work there.”

While the lawyers and bankers were merging the two companies legally, FedEx’s team was preparing to do so practically; a definitive plan was in place before the two sides were allowed to talk to each other. On the day the deal was finalized in February 2004, the integration team was ready to parachute into Kinko’s Dallas headquarters. The initial goal was to have all 1,200 Kinko’s stores rebranded and 20,000 employees retrained, so that every FedEx Kinko’s could open its doors with shipping services by May 24 — dubbed “Day One” by the integration team. On “Day Two,” October 4, they would add packing services — something new to FedEx — all leading up to the peak holiday season when shipping volumes can quadruple.

FedEx has built its business on getting things done quickly, enabled in large part by the company’s military-like management structure. A group at the top oversees strategy, and eight operating companies (FedEx Express, FedEx Ground, FedEx Freight, FedEx Custom Critical, FedEx Trade Networks, FedEx Supply Chain Services, FedEx Services, and now FedEx Kinko’s Office and Print Services) pull it off. That arrangement allows this huge company — 260,000 employees in more than 3,000 offices covering 220 countries — to move with agility.

Most mergers get bogged down by an inability to make decisions; while newly wed companies are dickering over product lines and staffing levels, their competition can clean their clock. FedEx avoids that kind of failure with a clear chain of command that is structured to take in new companies without losing a step. At the top sits a strategic management committee made up of Mr. Smith, the CEOs from the major operating companies, and senior executives from FedEx corporate. They meet every Friday in Memphis without fail to discuss strategy and execution. If an issue can’t be resolved at the operating company level, give the executive committee a week and they’ll give you a decision.

 
 
 
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Resources

  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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