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Example research essay topic: Trillion Dollars Air Force - 2,853 words

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Q&# 038; A: Fred Smith, Ceo Of The Fdx Q&# 038; A: Fred Smith, Ceo Of The Fdx Holding Company That Includes Fedex Q&# 038; A: Fred Smith, CEO of the FDX holding company that includes FedEx Monday, October 25, 1999 Federal Express Corp. started tracking packages electronically well before the commercial Internet emerged. Now, that infrastructure has been firmly plugged into the Internet, letting customers track shipments in real time and even pull reams of shipping data into their internal systems. Meantime, the shipping giant is taking those lessons into new territory. It has launched a consulting practice that helps manufacturers tighten their own supply chains and reduce inventory requirements by more closely tracking the movement of supplies and finished products.

Related Story: FedEx Delivers On CEOs IT Vision Additional Transforming Business Strategy Stories Transformation Of The Enterprise Home Page Colleagues and outsiders say it was all part of founder Fred Smiths vision, well before the commercial Internet, that the information about the package would become as important as the package itself. Smith, now CEO of the FDX holding company that includes FedEx, spoke with editor in chief Robert Preston and managing editor David Joachim at FDX headquarters in Memphis. Excerpts follow: InternetWeek: How hands on are you when it comes to Fdx's Internet strategy? Smith: Im very intimately involved with our strategies as they apply to information and telecommunications. Im not an expert in them, but I think I have a very good understanding of what they can do and the respective trends under way in those fields.

InternetWeek: How vital is CEO involvement in the Internet strategy of a company? Smith: I think its vital in almost every industry I know of. I mean, I dont know many industries as well as I do my own, but I am constantly amazed at the profundity of IT and the Internet in almost every field and human endeavor, whether its medicine, farming, the military, or any other thing that I brush up against. Its just all pervasive, its changing the face of everything. And those that are not involved in it do so at their peril, in my opinion. InternetWeek: What advice do you have to IT executives who recognize their own company as an Internet laggard but have trouble convincing upper management that there will be serious consequences to that?

Smith: I guess my advice to them would be to either convince them or get out. Theyre going to be toast if they dont. Big businesses, particularly big businesses that are involved in lots of different activities, have a very difficult time dealing with qualitative issues and, I guess as Wayne Gretzky would say, skating to where the puck is going to be rather than where it is now. And its very disconcerting when you know you have to do it but you run your traditional analyses and cant find an ROI to meet demand. But you know that if you dont somebody else will, and youll be in real trouble. Thats why I think that companies run by CEOs that have the self-assurance to make very tough qualitative decisions almost always beat companies that cant do that.

And that is particularly true in the IT era. I mean, you just look at people like Michael Dell and Sam Walton. The reason they can outperform their competition is that they can make very quick, cross-functional decisions, which are very difficult for most traditional businesses to do. InternetWeek: Is there a company, not including FDX, which you admire particularly for its leveraging of Internet technologies? Smith: If you broaden it to not just Internet but strategic use of IT, I mean, you have to say historically the revolution that American Airlines brought about in the airline industry with the Sabre reservation system. The only reason they didnt rule the world with that reservation system is because they were regulatory controlled in the old days and they couldnt expand everywhere.

But had they been able to do so, they would have been, for lack of a better term, the Microsoft of the travel industry years ago. InternetWeek: Can you recall a watershed event that convinced you of the Internets potential? Smith: I do. I remember very specifically, I saw a little article in some obscure publication talking about the University of Illinois and Mosaic. And I sent this item over to our CIO [Dennis Jones] with a little handwritten note, and literally crossing my paper was a note back from him saying, I really need to talk to you about Mosaic. Also, I had a lot of association with the Department of Defense over the years on various commissions and panels and so forth, and I served in the military.

Ive always remained interested in it. And so I was very familiar with ARPAnet and the rationale for what became the Internet. So when the Mosaic story was told to me, that here was this standard TCP/IP application that everyone could use, it was just like, holy moley, thats it. Of course, I wasnt smart enough to get out of this business and go into that one. All I was thinking about was how we could use that in the transportation business. [laughs] InternetWeek: Are there any particular companies or business sectors that you think are particularly vulnerable to the threat of e-business? Smith: I think any business that has the potential to have its supply chain radically re engineered is vulnerable to being, well, Dell, I guess youd call it.

We have an electronic commerce consulting capability, where we try to show people how to do this. And our strategy, for lack of a better term, is to have a complete plug-and-play transportation solution that will hook in with you however you want to do it. If youve got SAP or Baan or PeopleSoft or Oracle, we can plug in and then were all of the things that you need to know outside the four walls of your company to manage your inventory in motion. And if you want us to, well take it up to the step where well actually manage the warehouse for you.

We wont go inside the enterprise like the Erp's and all do and start figuring our how many warehousemen or personnel you need. But anything from that distribution center outward or inward, we will do that for you. And so we have developed this consulting capability that allows us to go inside these companies and tell them where we think they can have huge pickups in reductions or obsolescence in inventory turns, reduction in missed sales and things of that nature. And some of the numbers will just knock your eyes out.

Hundreds and hundreds and hundreds of millions, and in some cases billions of dollars taken out of the enterprise where youre in essence substituting information and fast cycle transportation for working capital. And that of course is what Michael Dell has done. InternetWeek: Do you think middlemen are at risk? Smith: I dont know if its going to be middlemen. I think that whether youre a retailer or a middleman, youre going to have to be able to sell everything that you have on your shelves quicker.

And those things that cant be sold quickly are going to be sold through an e-commerce interface. A lot of retailers are coming to the conclusion that well, maybe the best thing is not a total inventory-less environment but maybe what we do is use the Internet in concert with our bricks and mortars. And thats what I think will happen, because you have a lot of things that have very low value, and they dont lend themselves to e-commerce and fast-cycle distribution. Groceries are the best example of that. Now, maybe theres an example where you have an e-commerce interface and home delivery of groceries, but those groceries are not going to be delivered from across the country, and theyre not going to be built on demand for your order. But when you start talking about, well, I want a carburetor for a 1958 T-Bird, theyre not going to be able to stock that for you at a parts location.

Youre going to walk into your local auto parts store, and theyre going to tell you they dont have it, but they can get it to you tomorrow. And theyll have an electronic interface and type in T-Bird 58 and order it for you. So I think e-commerce is going to be used in concert with retailers and distributors to make their product offerings much more efficient. InternetWeek: What cant you do technically today over the Web that youd like to offer to your customers? Smith: Well, I think the biggest thing that we need to do for our customers in the future is simply offer them every possible piece of information about their transportation and logistics operations that they want and in whatever format they want. What that does is allow people to discreetly use that information to manage their business in ways that they did not do before.

Now, theres nothing that we cant do that we want to do given enough time and money to get all the software written and done and what have you. It would be better to have more bandwidth so that in concert with certain of our offerings you can offer faster graphics and faster information, but it literally is just not a matter of can we do it but how much can we afford to do it and how soon. InternetWeek: Are there any elements of customer service that either cannot or should not be automated over the Internet? Smith: Not many. You may have certain applications where theres really a significant or intractable problem thats not dealt with efficiently through electronic means, but even then the interface will trigger the human intervention, not the other way around. So the customer will be interfacing with the EC interface, and a human will only become involved on an exceptional basis.

And the EC interface will get the human involved. InternetWeek: How do you describe FDX? What kind of company are you? Smith: Our corporate mission statement is pretty straightforward. Well provide high value-added transportation and logistics services and related information services. InternetWeek: When you see the dotcom market cap valuations, Im sure youre not telling Wall Street that youre not an Internet company.

How is that message delivered? Smith: Were a transportation and logistics company that uses information as an integral part of the business. I think the term Internet company is like a lot of buzzwords in that its not very well defined. Its sort of like saying, is the Air Force in 1999 still an air force when compared to the Air Force of 1939. I mean hell, they both fly airplanes, they both have pilots and theyre only 60 years apart. The fundamental principles are the same.

But more than the performance of the aviation technology is the performance of the electronics technology. So we are a transportation and logistics company which has as its heart these Internet, information and telecommunications technologies. Just as a modern air force is still an air force but at its heart are all these sophisticated IT technologies. Now, to me, I could describe Amazon. com as a catalog company with a very good electronic interface as easily as I could call it an Internet company.

I think the closest thing to an Internet company, to my thinking, is America Online. But I could also describe AOL as a narrow cast telecommunications company. So, I think that term has been overused, and in time everybody will be an Internet company, at least directionally. The Internet will fundamentally change almost every business directionally if not profoundly. InternetWeek: What do you think of some of the market valuations of some of these Internet companies? Smith: Theyre absurd.

Itll probably shake out. I mean, at the end of the day, the markets will go back to being valued by what makes money and what produces cash. But everybody today is simply making bets on who the winners will be. And if you have many different participants in a lottery, things get bid up. In fact, the lottery is a good example of that. I mean, if you sat here and rationally said, would you give me $ 200 and you have a 7 million-to- 1 chance of winning a lot of money, you would say, youre crazy as hell, Im not going to do that.

But people do it every day. If youre sitting there with a company that has a market cap of $ 10 billion or $ 12 billion, and you want to go in and buy some of those shares, what youre really saying implicitly is, is this the next AOL, is this the next Cisco, is this the next Microsoft. Because Microsoft has a market cap now approaching, what, half a trillion dollars? Cisco a quarter of a trillion dollars. AOL, a hundred billion dollars. The market caps for Internet companies go way down from there.

Now theyre still crazy as hell compared with companies that are valued on cash flow and on earnings per share. But its not like its 20 percent of the market capitalization of all financial instruments in the country or in the world. Its a tiny percentage. InternetWeek: You describe FDX as a transportation and logistics company. Is that strict definition changing?

Smith: I think the thing that comes to mind is when I was on the board of General Mills years ago. The big thing there was that they had to have a new product every once in a while, or else people arent going to buy our products. Weve got Wheaties and Betty Crocker, but we need new super non-sticky pops for kids. In the restaurant business also, theres always this effort to create a new concept, like Red Lobster, Chinese takeout or what have you.

Well, our business is a little bit different than that in that it is at the heart of all of the goods-producing businesses that are in any way related to the high-tech or high value-added sector. Its always humorous to me that on CNN, whenever they talk about international trade they always flash a picture of a container ship with big containers on them. Well, mostly whats going into those containers is waste paper and logs, very low-value commodities. Theyre just big. and traditionally international trade is moved in ships. Well, almost 40 percent of the total value of international trade today is moved in planes.

And if you take agriculture and petroleum out, its well over half of it. Fifteen years from now it could be 80 percent. Were the clipper ships of the computer age, not some damn ship that takes three weeks to get across the ocean. Intel is giving us semiconductors out of Malaysia and the Phillipines and Brazil and Scotland or what have you, and they want them there tomorrow or the next day. So anything that has to do with anything that is technologically based or high value-added and what I mean by high value-added is things like Benetton sweaters or other finished product. Any kind of high value-added, were the way those things get moved.

McKinsey did a study not long ago that said only about 20 percent of items that are manufactured today are sold across borders. But by 2020, 80 percent of all production goods will be sold across borders. People will make things where its logical for those things to be made, without regard to where theyre sold. So when you look at that way, best as we can tell we have markets that over the next 20 years are probably worth a half a trillion dollars and Im not talking market cap, Im talking revenues. So, we dont think that we have to develop new non-sticky pops. We just need to do what we do better and better, with more and more information utility and more and more integrated with our customers information systems.

We have plenty to do for the next quarter century. InternetWeek: Given the universe of who you say your competition is, it seems that unlike companies in a lot of other industries, you dont feel particularly vulnerable to any kind of Internet startup. Smith: Quite the contrary, its a huge generator of traffic for us. We have some of what we call express mail business still, but weve been operating on the premise for a long time that everything that could be transmitted, would be transmitted. So, a lot of what is our, quote, express mail business, its not for documents at all.

Its just packaging for small things like circuit boards or what have you. Its a tiny part of our revenue. So as the Internet produces more and more small shipments that go direct from production or distribution to consumption or use, that will be the biggest propeller of our business. Return to Transformation of the Enterprise Main Page


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