Caso Federal Express

Federal Express – delivering the goods
Kevan Scholes

This case study looks at how new business models can create vast improvements in competitiveness.
However, the models must be suited to the business environment at the time and will have a ‘shelf-life’
as the business environment changes. The case study looks at one on the world’s most successful
adopters of a new business model thattransformed the airfreight and package delivery sectors worldwide. But the advent of the internet in the mid-1990s meant that the FedEx business model had to
change or the company would decline. This is also the story of how it rose to that challenge.
lll

In 1965, Yale University undergraduate Frederick
W. Smith wrote a term paper about the passenger
route systems used by most airfreightshippers,
which he viewed as economically inadequate.
Smith wrote of the need for shippers to have a
system designed specifically for airfreight that
could accommodate time-sensitive shipments such
as medicines, computer parts and electronics.
In August of 1971 following a stint in the
military, Smith bought a controlling interest in
Arkansas Aviation Sales, located in Little Rock.
Whileoperating his new firm, Smith identified the
tremendous difficulty in getting packages and other
airfreight delivered within one to two days. This
dilemma motivated him to undertake research on
how to resolve the inefficient distribution system.
In an interview with Fortune Small Business in 2002
he explained his business model for solving the
problem:
My solution was to create a deliverysystem that operates essentially like a bank-clearing system does. Put
all points on a network and connect them through a
central hub. If you take any individual transaction,
that kind of system seems absurd – it means making at
least one extra stop. But if you look at the network as
a whole, it’s an efficient way to create an enormous
number of connections. . . . If, for instance, you want
toconnect 100 markets with direct point-to-point

deliveries it will take 9,900 direct deliveries. But if you
go through a single clearing system it will take at most
100 deliveries. . . . So you’re looking at a system that
is about 100 times as efficient. Back in 1971 my belief
was that you could run small, high-value-added
[packages] through this hub-and-spoke system. Also I
did somethingelse a little bit unusual, which was to
combine the airplanes and trucks into one delivery
system. This didn’t seem to me to be controversial, but
all the traditional people thought that it was highly
iconoclastic. So that’s the genius of Federal Express.

Thus, the idea for Federal Express was born: a company that revolutionised global business practices
and now defines speed andreliability. It offered a
service to ship packages of many sizes over both
short and long distances. The company began
operations in April 1973, with the launch of 14
small aircraft from Memphis International Airport.
On that night, Federal Express delivered 186 packages to 25 US cities. Company headquarters were
moved to Memphis, Tennessee, a city selected
for its geographical centre to the originaltarget
market cities for small packages. In addition, the
Memphis weather was excellent and rarely caused
closures at Memphis International Airport. The
airport was also willing to make the necessary
improvements for the operation and had additional hangar space readily available.

This case study was prepared by Professor Kevan Scholes, Sheffield Hallam University, from published sources.It incorporates some of the work of S. Poovadan – undertaken as part of the MBA programme at The University of Strathclyde. It
is intended as a basis for class discussion and not as an illustration of either good or bad management practice. © Kevan
Scholes, 2004. Not to be reproduced or quoted without permission.

CASE STUDY

ECS_05W.qxd 1/11/2004 10:58 Page 1

ECS_05W.qxd 1/11/2004...