Investing in IT for Competitive Advantage

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Table of Contents

Definition of strategic IT systems
The importance of strategic management for FedEx
The competitive strategy adopted by FedEx
Conclusion
Reference List

The advent of computer technologies has revolutionized many numerous spheres of life, including business. The information systems have become an integral element of the companies’ competitive strategies. Understanding the value of information systems, most modern companies spend millions of dollars on development and improvement of their information systems.

A lot of modern companies decide to create board-level committees for controlling their costly IT projects, enhancing their effectiveness and increasing the companies’ gains. This paper will provide a classical definition of strategic IT systems, competitive forces and strategies and apply it to the case of FedEx, one of the leading international logistics companies.

Definition of strategic IT systems

In the modern business world, technology is an important cause and driver in the company’s business strategy which can change the way in which the company competes in its market sector. A strategic information system is defined as any type of IT technologies which enables a company to create a competitive advantage, decrease a competitive disadvantage and/or meet certain business targets.

According to the classical model of competition created by Michael Porter, to succeed in implementing a particular IT project, a company should develop strategies to counter five main competitive forces. The five competitive forces include the intensity of competition within the sphere, threats associated wit the potential entrance of new competitors, threats associated with substitute products which can emerge and capture the market sector, and the bargaining powers of customers and suppliers.

To counter these forces, companies can decide between five competitive strategies, including cost leadership, differentiation strategy, innovation strategy, growth strategy, and alliance strategy. A company can use, one, several or all of these strategies.

The importance of strategic management for FedEx

Founded in 1971 in Memphis, FedEx Corporation is a logistics company which offers transportation and e-commerce services (Berger, 2010). This company is known for introducing the concept of the next-day delivery in 1973 which revolutionized the industry in general.

Having developed an international network and introducing a number of technological innovations, the company gained a competitive advantage (Melville, Kraemer, & Gurbaxani, 2004). However, with the changes in the business environment, the growing number of competitors, globalization and crisis, strategic management becomes increasingly important for FedEx.

Applying Porter’s model of five competitive forces to the analysis of FedEx, it can be stated that the success of the company’s strategies depends upon the complex of these forces. For instance, the bargaining power of suppliers is rather high. The FedEx Corporation depends upon fuel suppliers, shipping materials and vehicle manufactures (Bruner, Spekman, & Crowder, 2008).

For example, in 2008 the fuel prices increased dramatically which led to the increase in fuel expenses estimated at approximately $ 1.9 billion (Berger, 2010). For the purpose of decreasing the bargaining power of fuel suppliers, the corporation decided to renew its air fleet and buy fuel-efficient aircrafts. The same goes for the evaluation of the rest of the competitive forces which should be taken into account for developing an effective competitive strategy.

Understanding that proper use of information technology can help them to gain a competitive advantage, FedEx Corporation spends more than $ 1 billion on IT annually (O’Brien, 2004). The main focus of FedEx is put upon revenue generating and satisfaction of customers’ demands.

In terms of IT applications, FedEx has always been an innovator and pioneer. The strategy selected by FedEx enabled the company to gain a competitive advantage and reduce the competitive disadvantage. Haddad and Ewing (2001) noted that UPS one of the main competitors of FedEx managed to win over FedEx on many fronts due to the effective use of innovative technologies. However, the situation changed within the recent decade after the launch of innovative information projects at FedEx.

The competitive strategy adopted by FedEx

Since its foundation, FedEx has been a leader in technology in its domain. The Corporation adopted a philosophy used by the US Marine Corps, namely ‘move, communicate and shoot’ (Clinton, 2008). Translating this strategy into operation terms, it can be stated that the business strategy of FedEx focuses on starting the package towards its destination (move), providing the customers with opportunities to track its position (communicate) and deliver it to the addressee (shoot).

Similarly to the Marine Corps using intuitive decision making for deciding whether they are winning the battle, FedEx uses a critical analysis of the competitive strengths to decide whether they are ahead of their competitors. This strategy enables FedEx to win over UPS which is highly competitive but less innovative at the moment (Bruner, Spekman, & Crowder, 2008).

A decision to create an IT governance committee was beneficial for the company. Acknowledging the fact that the board of directors should be involved into IT decisions, FedEx proceeded to the development of an appropriate mechanism for enhancing the effectiveness of its projects (Gendron, Banks, & Miller, 2009).

Nolan and McFarlan (2005) stated that a strategy of creating a board-level committee for controlling the IT projects is appropriate not for all firms, particularly for small companies this decision can appear to be a mere waste of time. However, by creating a specialized committee, FedEx managed to control its costly IT projects and contributed to its competitive advantage.

Being a leader in technology, FedEx made efforts to increase the efficiency of its processes, improve the quality of services and reduce the costs by using innovative technologies. The development of Internet Tracking and Powership tools which allow customers to view key shipments, print invoices and reports by accessing their profiles on the Internet can be regarded as an evidence of the company’s attempts to automate the internal processes and take the advantages of the innovative technologies.

FedEx has been using Electronic Data Interchange (EDI) for a certain period of time and pointed out at the benefits of this approach. However, understanding particular limitations of traditional EDU, FedEx made attempts to improve it and broaden its options (Williams & Frolick, 2007).

Combining EDI with Internet applications, FedEx opened up new opportunities in this technology and managed to adapt it to the changes in business environment and increase the value of this tool for business. By creating the innovative solutions using the Internet technologies, FedEx improved the effectiveness of its internal processes and gained a competitive advantage over its main rivalries.

Additionally, due to the specifics of organizational structure of FedEx consisting of a collection of eight companies and different data sets operated by each of the departments for complying with demands of their customers, the enterprise required sophisticated information systems.

For this reason, Tim Robertson, IT manager at FedEx realized the complexity of managing diverse sets of information systems and put the main emphasis upon standardization and simplification of the information systems run by the company.

However, the process of standardization of FedEx systems and unification of the diverse information systems proved to be a complicated and time-consuming task. It took engineers several years to integrate all the information systems and processes across FedEx through the use of an open application server platform (Stair & Reynolds, 2011).

A group of applications developed by Robertson and his team was entitled FedEx Unified Strategic Information Optimization Network (FUSION). FUSION contains elements suitable for shipping, customer resources management and revenues which are the main parts of the company’s business strategy. Going even further, FedEx has recently integrated a web-based system Tuxedo which enables the company to manage millions operations a day through the use of web-based systems.

Tuxedo includes specialized order processing and accounting systems which were fully integrated into the business systems of FUSION. FedEx is satisfied with the efficiency and reliability of FUSION and Tuxedo which allow the managers to economize time which was required for forcing data from different systems and combining it in a complex dataset.

Conclusion

As it can be seen form the analysis of the case of FedEx, a comprehensive analysis of the strategic risks and development of innovative information systems have been beneficial for FedEx and enabled the corporation to gain a competitive advantage, to decrease a competitive disadvantage and increase customers’ satisfaction and revenues.

Standardization of the companies’ numerous and diverse data sets through the launch of FUSION and Tuxedo proved to be a costly and time-consuming process. However, these information systems enabled the company to win over its main competitor UPS which was winning on many fronts according to the data of the year 2001.

Reference List

Aziz, N. & Sparrow, J. (2010). Patterns of gaining and sharing of knowledge about customers: A study of an Express Parcel Delivery Company. Knowledge Management Research and Practice, 9, 39-47.

Berger, A. (2010). Case study – FedEx Corporation. Germany: Books on Demand GmbH.

Bruner, R., Spekman, R., & Crowder, L. (2008). Package war: FedEx vs. UPS. Social Science Research Network. Web.

Clinton, S. (2008). Importance of technology investments in the logistics service providers: A case study of UPS and its use of online tools. Journal of Applied Business Research 24(2), 67-80.

Gendron, M., Banks, D., Miller, D. (2009). Effective strategic alignment of IT: Implications for the CIO as a Member of the C-Suite. Asia Pacific Management Review, 14(4), 393-405.

Haddad, C. & Ewing, J. (2001). UPS vs. FedEx: Ground Wars. UPS’s rapid ascent leaves FedEx scrambling. Bloomberg Businessweek. Web.

Melville, N., Kraemer, K., & Gurbaxani, V. (2004). Review: Information technology and organizational performance: An integrative model of IT business value. MIS Quarterly, 28(2), 283-322.

Nolan, R. & McFarlan, W. (2005). Information technology and the board of directors. Harvard Business Review, 1-12.

O’Brien, J. (2004). Introduction to information systems. New York: McGraw Hill.

Stair, R. & Reynolds, G. (2011). Principles of information systems. New York: Cengage Learning.

Williams, M., & Frolick, M. N. (2001). The evolution of EDI for competitive advantage: The Fedex Case. Information Systems Management, 18(2), 47.

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