FedEx seeks innovation in IT overhaul

From the outside, FedEx looks like a simple shipping company, relying on its orange and purple-painted airplanes to deliver 6 million packages around the world every day.

But the engine that drives its iconic delivery trucks is powered by a newly revamped set of information technology rules, said Dorothy Berry, vice president of the IT strategy management office for FedEx in Memphis, Tennessee.

The US$32 billion company completed a three-year IT overhaul on May 31, streamlining the company so it could absorb a collection of recently acquired companies while preserving crucial IT abilities like data security and constant up-time. Berry described the challenges FedEx faced in remarks on Wednesday to attendees at the IDC IT Forum & Expo in Boston.

In 2003, FedEx customers began complaining that they had to learn different rules to use each of the company's delivery options -- express, ground and freight.

The problem came because the company had recently acquired a collection of smaller firms. Beginning in February 2000, FedEx bought logistics company Tower Group International, tax information firm World Tariff, carrier American Freightways and the retail copy store chain Kinko's. Those divisions were good at meeting one of FedEx's goals, "operate independently," but not at the corollary, "compete collectively."

"Our existing architecture was a spaghetti chart," said Berry, an executive who wore a sharp business suit and who has a soft southern drawl.

The spaghetti chart was a serious problem for a company that was already famed for creating the world's first real-time package tracking system, and for maintaining a huge private communications network in the days before e-mail became prevalent.

So FedEx executives embarked on their "Six by Six" transformation strategy, meeting for 90 minutes every Thursday afternoon for the next three years to measure progress at improving six categories: speed, innovation, service levels, cost effectiveness, business alignment and people.

The team faced a constant challenge because IT vendors lacked products on the street to match their goals, since FedEx is unique in the business world as such a large, transaction-driven company.

FedEx leaders had to persuade each provider to release immature products from research labs, then rely on the FedEx's worldwide IT force of 6,000 people to fit the pieces together.

FedEx may have been a leader in the process, but many companies now face similar challenges, said Frank Gens, senior vice president for research at IDC.

"We've spent the last two decades trying to get business executives to recognize IT as a priority for innovation and now they see it as one," he said.

Most companies have been driven to that decision by harsh economic realities.

"Globalization is putting everybody in the vice of pricing and competition. Innovation is like the yin to that yang," Gens said.

As a result, companies are using creative business practices such as linking their prices to customers' usage (counted by IT metrics like software seats or terabytes of storage), or linking prices to business outcomes (such as increasing sales).

Many companies still use more standard business methods to stay competitive. General Motors Corp. has turned to multisourcing to force car part vendors to keep prices low. And Procter & Gamble has decided to outsource all of its "mundane" business tasks, focusing only on the most profitable ones.

But eventually, all companies will find innovation in emerging technologies like RSS (Really Simple Syndication) data feeds, podcasts and networks that use Wikipedia's model of a community-maintained encyclopedia, Gens said.

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