Change Management at FedEx

Change happens, but managing change to your advantage is another matter. “A capacity to change is indispensable. Equally indispensable is the capacity to hold fast to that which is good,” noted cold warrior John Foster Dulles. Since it began operations in 1973, Memphis, Tenn.-based FedEx has shown an ability to change without losing touch with its essential mission. External conditions such as technology and competition have shifted enormously during that 28-year period, yet FedEx has been able to accommodate them all, introducing new services and systems alike without the wild fluctuations in growth, profitability, efficiency or employee morale that have afflicted most companies.

At the heart of this ability to manage change is an aggressive, even visionary, approach to IT. “One of the exciting things about FedEx is that people at every level of the organization understand the importance of information,” declares Robert B. Carter, the company’s 41-year-old CIO and executive vice president. “IT takes a very prominent place at the strategic business discussion level within the corporation in a way that allows funding, focus and initiative to flow.”

Carter’s role at FedEx is evidence of that. Appointed last year to occupy a position first held by James Barksdale?the James Barksdale who went on to become president of Netscape Communications?Carter leads an IT empire that includes 5,000 employees, seven domestic data centers, and a $1.5 billion annual budget for IT infrastructure, capital and expenses.

FedEx founder Fred Smith, arguably the inventor of the express delivery industry, has always viewed IT as the core element of his company’s business formula. As early as 1979, Smith had this to say about the role of IT in his industry’s future: “Information about the package is as important as the package itself.” Now that’s vision! Smith’s prophecy was uttered around the same time FedEx introduced COSMOS (Customers, Operations and Services Master Online System), the world’s first global shipment tracking network based on a centralized computer network.

The years since have featured one expectation-shattering IT innovation after another. In 1981, the company inaugurated the use of bar code labeling in ground transportation. In 1984, FedEx rolled out a PC-based automated shipping system for customers moving more than five packages per day. In 1994, the FedEx website, www.fedex.com, became the first to let customers track their packages on the Internet. Two years later, that capability was extended, allowing customers to create shipping labels and order courier pickups.

From Within

The most significant recent change at FedEx was a massive reorganization announced Jan. 19, 2000. The company consolidated four of its five operating subsidiaries under the FedEx brand name and moved most of its IT, sales and marketing staff into a new company, FedEx Corporate. At the same time, FedEx realigned the relationships of these companies to one another, aiming to provide customers with a single point of access to sales, customer service, billing and automation systems.

In a change of this magnitude, communication is essential. For this, the reorganization relied on IT. Carter’s staff set up and ran FXTV, FedEx’s closed-circuit television network. The satellite-based FXTV is one of the critical resources available when Carter undertakes a ma-jor project. “We can set up broadcasts at any time and go live with our employees around the world,” he says. “We also use IP multicast technology to pipe that same programming through our intranet into IP-TV viewers that our people have at their desktops.”

Communication about the reorganization was outstanding, says Alex Vergos, a Memphis-based senior technical adviser whose job involves the automated routing of packages through FedEx’s four domestic air hubs. “We were informed of what was happening very early on. All the steps were laid out clearly through e-mail and FXTV. Even when I wasn’t impacted directly, I still knew what was happening throughout the company.” The reorganization was completed by June 1, 2000?on schedule, of course?without any loss in service quality.

Rather than having a distancing effect, video broadcasts create a personal connection, says IT Manager Brodie John-son. “People in my organization think FXTV is the greatest thing in the world because it allows them to get information directly from senior management and that makes a big difference,” he says.

Adds Carter, “Part of getting a large team to go do something is for them to sense some level of passion and urgency. It is not enough to simply have a new work request show up in their cube.”

Change Partners

If only change management were as simple as communicating executives’ directives. The new economy has obsoleted command-and-control methods, says Susan Annunzio, a principal with the Chicago-based consultancy Nextera and coauthor of eLeadership: Proven Techniques for Creating an Environment of Speed and Flexibility in the Digital Economy (Free Press, 2001). “Leaders in the past knew the direction of the company. They could tell people where to go and how to get there because the rules of competition were more predictable,” she says. “Today, good leadership sometimes means admitting that ’Although I have a vision for where we’d like to be, it is a tough world and I can’t say with certainty that we’ll get there.’”

The shifting sands of competition require that companies elicit an entrepreneurial spirit from workers at every level of the organization, communicating the leaders’ vision but leaving the implementation up to individuals. Companies good at change do this well, Annunzio says, but companies struggling with change are often characterized by a lack of information flowing back and forth.

If Annunzio is correct, then Johnson sends FedEx to the front of the class. The company’s goals and operating principles trip off his tongue as easily as his own name. “Our company supports people, service and profit,” he says proudly. “We do that by focusing on collaboration, innovation, efficiency and profitability. Our goals are to grow our core transportation business, our inter-national presence, our logistics services and our e-business.”

To be sure, not every employee is a Brodie Johnson. Yet, according to Annunzio, every organization contains a cadre of change agents who make all the difference. “I call it the 20-60-20 rule,” she says. “Twenty percent of your people are inner-directed high achievers. At the other end are the 20 percent I call ’the miserable.’ Ninety percent of change- management dollars are wasted trying to motivate this group. The key is the 60 percent in the middle. You have to get them to imitate the achievers, to become your allies and agents of change.”

An ally shares in your plans. An agent executes your desires. So, what is the desire of CIO Carter? “The vision I sell to our employees is fairly straightforward: We are the world’s best applied technology team. The business units consider us their trusted partners. We are intense competitors with the best solutions in the world.”

Dollars and Change

The value of change is measured by one rubric: the bottom line. If customers don’t buy the product, then change efforts have failed. “We have an IT team that feels empowered to drive solutions through to the customer,” Carter says, “but the initiator of change is our customer. We run a lot of focus groups and forums in which we talk to customers about their dream applications or their next breakthrough in running their businesses.”

Senior Technical Adviser Vergos concurs: “I get all kinds of encouragement to think more creatively, to do more for the customer,” he says. “The company doesn’t push me from behind, they pull me from the front.”

James Ketner, manager of the General Motors Service Parts Operation plant in Lansing, Mich., sums up the customer’s perspective succinctly: “The more responsive a vendor is, the more chance we have to do business with them. FedEx has been very responsive.” Ketner has been working with FedEx to improve the shipment of small automotive parts from his facility to dealers worldwide. “We had needs,” he says, “and we approached FedEx for opportunities to solve them. They have been very willing to work closely to blend their systems expertise with ours.” FedEx’s IT improvements have cascaded down the supply chain. “In today’s environment, there is ongoing pressure to be responsive to customer needs while maintaining cost-effectiveness,” Ketner says. “Partners like FedEx who can translate their expertise into IT solutions create that opportunity. It has allowed us to serve the customer and eliminate waste from our system.”

This emphasis on IT innovation has gained FedEx a 30 percent share in the highly competitive business to consumer express delivery market, according to Chris Newton, a senior analyst of supply chain strategies for AMR Research in Boston. “FedEx knows that without IT their business is dead,” he says. “When you think about it, point A to point B is a commodity business. Anybody can do it. What’s important are the value-added services you put around package movement, especially the ability to see into the movement itself. That is what FedEx is selling. That’s how they’re positioning themselves with clients.”

Founder Fred Smith couldn’t have said it any better himself.

Mark Gordon is a freelance writer in Barrington, R.I. He can be reached at markgordon@att.net.