A Case Study of the Five Tests of a Sound Strategy

A short time ago, there was no such thing as overnight shipping. Then Federal Express, DHL and Airborne Express came upon the scene. At first blush, these three companies appeared to be competitors but upon closer examination, they each passed the five tests of a sound strategy.

DHL staked out in the international shipping arena so if you didn’t need to send something overseas, there was no need to use them. Their value proposition was simple – “DHL ships overseas and the others don’t.” Because of this, they required a different value chain – one that would allow them to take packages, manage them through customs, get them on a plane to some fairway land and then have some method of getting the package from the airport to the intended recipients. Their activities fit together and everyone in the organization knew exactly what the business model was and how to deliver the business’ value. Finally, DHL, for the most part, chose NOT to compete in the domestic market space.

You may recall Federal Express’ initial advertising campaign. It was simply stated as “when it absolutely, positively has to be there overnight.” Their second marketing campaign was built around the slogan “our most important package is yours.”

These two messages are core to understanding the FedEx strategy. The business model was that you could count on your important package being delivered anywhere in the United States by 9:30 am in that particular time zone provide that the package was in a FedEx drop-off box by 7 pm the night before. The second slogan creatively expressed that Federal Express treats all of our packages the same. There is no differentiation based on who sent it or why or even what is inside. Indeed, the most important package that FedEx was delivering was everybody’s.

The FedEx model was pioneering in the overnight shipping industry because their value chain created a standardized way of assuring delivery overnight of any package. This required a value chain that guaranteed and measured the time by which a package was received as well as when it arrived. The company chose not to promise faster delivery of any package – the package would always be delivered by 9:30 the next morning even if the customer was willing to pay more for special treatment. And everyone in the company knew the model.

I remember when the FedEx deliver person would come to pick up a package at our offices. If the package wasn’t ready when the client said it would be, the FedEx employee would become agitated and sometimes even leave the office without the package if the wait was too long. Boy, were they in a hurry! Our staff never even knew the FedEx employee’s name because there was never any time for conversation. Chasing the clock is very intense work.

And then there was Airborne Express…

There aren’t many who remember their advertising slogan because Airborne chose not to advertise. Airborne’s model was built around custom delivery services. They made business deals with companies that required frequent and ongoing shipments that had to arrive before 9:30 am. Some of their customers were companies that supplied parts and needed to have these parts in a technician’s hand before 9:30 am. Airborne would even build warehouses and acquire roadway services if the customer was large enough so that it could adhere to the promise of customized delivery.

Did the shipping customer pay more? Sure. But for those companies who needed to get staff on the road sooner than 9:30 am, the premium was well worth it. The interesting thing was that if there was a package that was not from an elite customer, there was no guarantee that it would arrive on a certain day, let alone by a certain time. Their most important package was the one sent by the special customers who shipped large volumes of packages requiring special care or timing.

Airborne too passed the test of a sound strategy. Unique value proposition? You betcha. Tailored value chain? Check. Choosing what not to do? Absolutely. Activities that reinforce one another? Certainly. Strategic continuity? Without a doubt.

All three companies effectively executed their strategies and also taught us that you can serve the same function and be successful if you implement a sound strategy.

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3 Comments on “A Case Study of the Five Tests of a Sound Strategy”

  1. Chris Bird Says:

    And then it all falls apart. DHL acquires Airborne, decides to bastardize both models. Not just international any more, no special treatment as the whole express industry has reverted to the mean. Everyone offers the same services pretty much.

    DHL UPS deal really shows how little differentiation there is domestically – that and an overall realization that fast isn’t necessarily important, consistency is. The information and the promise matter. So DHL is focussing on large centers and international – we see closures in small markets everywhere. Back to its roots it seems. Maybe it will go all the way to its roots and do just international again. It is very good at that. After all when you have outsourced the transportation to a competitor, and the competitor has to keep track of the shipments, what value do you bring?

  2. Joe Hanche Says:

    Are you Absoluetly Crazy?!?! I worked for Airborne Express before DHL bought Airborne and all I can tell you is that your page on strategy insight is all *wrong*. Airborne never offered 9:30am service, in fact the only couriers that currently do offer that is UPS. Airborne failed at the domestic level due to not having a sound strategy in the marketplace. So unsound was their strategy that many times I can recall customers saying “Airborne Express? What do you do?”. Ultimately, Airborne Express lost marketshare and sold it’s operations to DHL.

    DHL’s niche in the market was to ship internationally since the cost to build operations in the U.S. would have cost too much to compete with Airborne, FedEx and UPS, until they bought Airborne Express. DHL had a sound strategy in the U.S. but was still losing money annually. After buying Airborne, they started bleeding money due to keeping the staff of Airborne Express, which had already proved their incompetence in the marketplace. All that DHL proved was the theory of not being able to teach old dogs new tricks, as six years later DHL is losing one billion dollars a year with the faulty management style that grew from Airborne Express’s operations.

    FedEx is the model to follow. They do it all, and quite well at that. They advertise, they deliver as promised, they expand operations, they upkeep operations, they chase the clock. At the end of the 1980’s or early 1990’s, FedEx was on the verge of bankruptcy, and garnished a generous loan from the government. They changed their image, their operations, and they changed overnight shipping in the industry and today they are a world-class multi-national.

  3. David Blumenthal Says:

    Joe –

    Thanks for the view from within the company – and especially your passionate response.

    The source for this post is the book, The Discipline of Market Leaders by Michael Treacy and Fred Wiersema. They devoted a case study to Airborne Express’ strategy (see page 143). The book is considered by many to be a seminal work on focus and business structure as it introduces, defines, and develops the concepts of value discipline (a focus on operational excellence, product leadership or customer intimacy) that should help companies become and remain number one.

    As a point of clarification, I do know that Airborne never promised 9:30 am service and I don’t believe that I indicated that in my post. What I hoped to convey was that for preferred customers they offered services geared to what the customers required and that for those customers they would deliver according to the schedules of a particular preferred customer.

    Lastly, assuming for a moment that my source – The Discipline of Market Leaders — was correct, this does not mean that your point is wrong. A strategy may be sound and also fail. Down the road, I hope to speak to the execution elements involved in strategy.

    Thanks again for the comment and insight.

    David


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