UPS faced a variety of problems in the near future. UPS had to consider how to develop and grow it’s technology and information services, in order to remain competitive in the market. With that challenge, UPS had to face the challenge of balancing its intent to develop and promote from within, with the need to advance quickly using outside resources. Along a similar vein, UPS struggled with the strategic problem of how to grow their air services business. UPS has to consider whether or not to continue contracting air services from other suppliers, or to acquire another firm.
Acquiring another firm would cause UPS to deal with even more problems with cultural integration. Overall, UPS was dealing with the strategic problem of balancing the need for cultural integration and the need for rapid development. Neither factor could be ignored if UPS wanted to remain a strong contender in the market. UPS had to seriously consider the strength of its competitors as it determines whether slow technological growth and strong cultural integration, or fast technological growth and weak cultural integration.
When considering the seriousness of the Federal Express challenge, there are a variety of factors we should consider. First, we should examine the strengths that Federal Express has, and then consider the market trends which could make those strengths more or less important in the coming years. Next we should look at their respective market positions, and how directly UPS and Federal Express compete with one another. When looking at Federal Express’s strengths, it is clear that they stood above much of their competition in technological advances.
Their CEO was a member of a variety of engineering and technology societies, and employed 95 technology employees within Federal Express. With technological leadership, they were poised for growth in the industry based on technology. Federal Express had developed multiple technology systems in order to schedule, track and sort packages, allowing all information to be communicated back to central hubs quickly. These systems kept customers informed and allowed Federal Express to respond quickly to changes in status.
Market trends indicated that increased technology was giving competitors an advantage. In the case of RPS, their ability to give customers tracking data at any point was costing UPS thousands of packages a day. As Federal Express’s technological strengths grew, UPS could expect to lose more packages to competitors which offered customers advanced tracking abilities. In addition, Federal Express’s technological strengths would allow them to be more efficient, cutting unnecessary costs due to the increase in information they gain from their technology.
Next, it is important to consider their respective market positions. In 1986, UPS was the number 2 US Transportation Company, based on operating revenue. Comparatively, Federal Express was only the number 14 company. While this may seem like a large enough distance for UPS not to consider them a serious threat, there are other important details to consider. While Federal Express had considerably lower operating revenue than UPS, $2. 6 billion and 9. 6 billion respectively, Federal Express had noteworthy net income. In net income, Federal Express ranked #5, while UPS ranked #1.
Federal Express also managed to increase their net income 74% over the previous year. Federal Express was growing fast, and was capable of utilizing their technology to gain strong income from relatively low revenue. Based on this growth, and the market trend toward technology, UPS should take the increased growth of Federal Express as a serious concern. When looking at the IT problem UPS faces, we can see that UPS has a variety of options. The first option would be to continue their policy of internal development and promotion.
This option would maintain their cultural integrity, however it would cause them to continue to be behind their competition, due to the length of time it takes to train new individuals, and the possibility that even with training, their existing employees may not have the skills to propel their technological growth. The next option UPS has is to simply hire the technological employees that they need, quickly and from the outside in order to facilitate growth. While this option gives them the speed they need to catch up with the competition, it goes against the promise they made to their employees to promote from within.
The final option they should consider would be to outsource their information services department. This option would prevent their employees from feeling betrayed, since they were not overlooking UPS employees. It would also give UPS the speed needed to deal with their competitors, without forcing them to learn new skills. By outsourcing, UPS can utilize another company’s competitive advantage in information services. I recommend that UPS outsource, in order to prevent degrading the culture that had gotten UPS so far, while still allowing UPS to grow quickly and compete in a difficult market.