The Right Strategy – the Right Stuff

Volume 2 Letter 3

In the late 1980’s Federal Express was experiencing exponential growth. Started by Fred Smith in the early 70’s Federal Express had nearly gone bankrupt in 1975. But they persevered and in 1975 they launched the FedEx Courier Pak over night mail delivery service. The envelope size package would drive the bulk of FedEx’s revenue and profits over the next decade. The strategy was almost flawless and the case is still studied by MBA students around the world in marketing and strategy courses.

The perfect strategy however would be made obsolete in the late 1980″s by the advent of the fax machine and later email. The Courier Pak that had fueled much of FedEx’s spectacular growth was being pushed out of business by new technology.

Much had changed since 1975 when FedEx introduced the Courier Pak. Back then FedEx was virtually unknown with a small fleet of airplanes, delivery vehicles and energetic flight and ground crews. By the late 1980’s FedEx had become a well-known brand with a large network of airplanes and delivery vehicles shipping packages across North America within one business day and around the world within two business days. But the Courier Pak that had lifted FedEx to prominence could no longer be counted on to fuel the spectacular growth that FedEx had experienced.

FedEx however, saw a market opportunity with service businesses that needed goods in strategic geographical locations in order to fulfill service commitments. For example, imagine a company that promises to have a customer’s machine up and running anywhere in the world within two working days – a competitive advantage for this company. In order to fulfill this commitment the company would have to stock machine parts in strategic locations all around the world. The cost of inventory could be excessive.

FedEx saw an opportunity to become this type of company’s transport provider. By promising next day delivery, many of these service businesses could eliminate warehouses in remote locations reducing both real estate and inventory holding costs. FedEx’s product strategy shifted from Courier Paks to Boxes and today boxes deliver the bulk of FedEx’s revenue. FedEx remains well positioned for the future as Television and Internet shopping make their way into the main stream of our lives.

Since the market is forever evolving, a business strategy must also be adjusted and modified. FedEx originally found a solution for business users who needed a more accurate and timely method of transferring important documents. As fax machines were introduced they modified their strategy to focus on larger items and FedEx Boxes took over from Courier Paks as their main product focus. Today, as the household consumer market grows because of Internet and TV shopping, ground transport is becoming more important as it is more cost effective for cost conscious consumers.

As FedEx discovered, strategy is situation specific. There is no one good business strategy. A strategy that is successful today could prove disastrous tomorrow in a different business environment. The right strategy is one that is developed and adjusted over time to meet the changing needs of the market.

Some questions to ask:

1) What issues do my customers’ struggle with? What issues are they likely to struggle with in the future given changes in the technological environment?

2) Sociological environment?

3) How might these or similar changes affect our business offerings?

4) What are our core competencies and how can we leverage them to solve these problems?

5) How many companies have the same or similar problems and how big is the potential market?

6) What’s it worth to a customer should we solve this problem?

7) How do we best introduce the new product or service to the potential customers?

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