Word Count: 1759
In a highly competitive industry the structure of a firm is very important to
its success. Today firms are moving away from the centralized structure of the past, and adopting
a more decentralized structure (Management Challenges in the 21st Century p 315). The air express i
ndustry is no exception. FedEx, the leader in the air express industry since the late eighties, is
also leading U.P.S. in the race to become decentralized. Airborne Express is not even in the race.
In order to compete in today’s changing environment, Airborne Express needs to move away from its o
ld fashioned centralized structure and form a more decentralized structure. The old fashioned struc
ture is not the only variable that makes Airborne the follower in the air express industry. The Int
ernet and information systems are transforming the air express market into an electronic commerce ma
rket, and Airborne needs to transform it’s operations to meet this growing market.
This report de
scribes the strengths and weakness of the organizational structure of Airborne Express. Furthermore
, it also gives recommendations for future changes in Airborne Express. The first section of this re
port addresses how the organization of the firm evolved, and what changes are taking place structura
lly in its industry. The second section discusses labor issues in the air express industry and how t
hey affect Airborne Express. The third section addresses the growing electronic commerce market and
how it’s affecting the industry and Airborne Express.
1) Structure of Airborne Express
During t
he eighties many air express companies were formed and many were destroyed. However, three companie
s came out of this highly competitive period on top. They were FedEx, U.P.S. and Airborne Express.
Airborne survived this highly competitive period by adapting to the external forces affecting the i
ndustry. One of the external forces affecting Airborne was the size of the competition. U.P.S. and
FedEx were just swallowing up competitors. So Airborne decided the best way to compete was to be th
e low-cost provider of air express service. Robert Cline, CEO of Airborne explains their strategy “
When you are up against UPS and Federal Express, those guys are so big and so well capitalized that
you have to have a tool to fight with them. It wasn’t going to be size; it wasn’t going to be how w
ell-known we were. So, we decided to be the low-cost operator.”(Washington CEO P 33). However, to
become the low cost operator Airborne had to make many structural changes. One of those structural
changes was that Airborne centralized its organization as much as possible. After all, why pay midd
le management high salaries when upper management can make all the decisions. Furthermore, what CEO
would trust middle management to make decisions during the unstable period of the company’s history
?
Another major change Airborne underwent in the eighties, was to differentiate its service. Un
like its two major competitors, FedEx and UPS, Airborne changed its strategy to concentrate on provi
ding services for large corporations (Airborne Express’s 10-K form p5). This strategic change not o
nly gave Airborne product differentiation and market specialization, but also benefited by taking aw
ay the need for advertising. Therefore, it could save the $35 to $40 million it was spending a year
on advertising, and use it to help become the low-cost operator (Washington CEO p 36).
Airborne
made important structural and strategic changes in the eighties, which contributed to its success.
However, in the nineties, Airborne is reluctant to change with the environment. As mentioned earlie
r, many firms are moving towards a more decentralized structure. Airborne seems to be using the same
structure that got it through the eighties. Consequently, its decision making is still coming from
top management, and no responsibility is being delegated to lower management. FedEx however, has e
xperienced growing success by using a decentralized structure. “Delegation, as demonstrated by FedE
x, can lead to a more empowered work force and resulting heightened productivity and quality, reduce
d costs, more innovation, improved customer service, and greater commitment from employees” (Managem
ent Challenges in the 21st Century p 285). Airborne’s centralized structure is also one the reasons
its been experiencing labor problems.
2) Labor Issues
The last few years have plagued the air e
xpress industry with labor problems that have kept CEO’s of major companies like UPS, FedEx, and Air
borne Express on their toes (The New York Times Nov 1998). Since the UPS strike of 1997, air expres
s companies are fighting to keep good relations with their workers. The Teamsters’ strike with UPS
over part-time and full-time help taught small business not to rely on one express company. UPS is
not the only company having labor problems. With the use of lengthy negotiations and hefty salary p
romises FedEx has settled a labor dispute with its pilots, and are entering the year 2000 without la
bor problems (Institute for Technology and Enterprise P 12). Airborne Express, however, is experien
cing major labor disputes with its pilots. Although under contract, Airborne pilots are not happy w
ith management. A representative for Airborne claims “Airborne management has failed to implement k
ey provisions in the contract”. This failure plus the firing of an Airborne pilot has the pilots an
gry (Traffic World P 1). Since the pilots are under contract, they can not strike, but they can sto
p flying volunteer overtime, which makes up 15 percent of Airborne’s flights. In November of 1998 t
he pilots voted to stop flying overtime (Traffic World P 3). Airborne needs to smooth over relation
s with its pilots soon, because the contract expires May of 2001. Therefore, unless Airborne settle
s this dispute, it will be facing an imminent strike. Another labor issue affecting Airborne is the
Teamsters Union. Airborne signed a five-year contract with the Teamsters Union in 1998. There are
three major provisions in this contract (Associated Press online p 2).
1. Provides improved worki
ng conditions for Airborne employees.
2. A Bonus for employees the first year, followed by a year
ly wage increase for the last four years of the contract.
3. At least 50 percent of the current pa
rt-time work force will be changed to full-time by 1999, with the remaining 50 percent offered fulltime positions by 2000.
The last provision is could have consequences for Airborne Express. Using
part-time help is a way for express companies to cut expenses by not having to pay full-time benefi
ts. How will Airborne be able to keep up its strategy of being the low-cost operator if they lose t
he efficiency of a part-time workforce? Airborne Express needs to operate as efficiently as possibl
e if they want to have the capital to compete in the growing electronic commerce market.
3) Electr
onic Commerce Market
Today the air express industry is faced with a technology that will force exp
ress companies to change organizational structure and basic operations. This technology is electron
ic commerce, or better known as the Internet. Presently, Internet sales make up 15 percent of the r
etail market, and are expected to make up 55 percent of the market by 2005 (Institute for Technology
and Enterprise p 1). In order to compete in this growing market, many retail companies are changin
g their operations and selling products over the Internet. Because of this, there is a need for air
express companies that can cater to the needs of online retailers. Express companies need to suppl
y services such as just-in-time inventory or virtual inventory. In order to best describe the impor
tance of this new market to Airborne Express’s future, I’m going to address the way FedEx is changin
g their structure to compete in this new market. One way FedEx is dealing with this new market is b
y providing just-in-time inventory services for companies. FedEx provides this service by connectin
g to an online retailer’s web site, and when a sale is achieved over the Internet, the order is plac
ed directly with FedEx. Once FedEx receives the order, it picks up the product from the supplier an
d delivers it to the customer. This all takes place without the online retailer touching the produc
t (Institute for Technology and Enterprise p 4). FedEx supplies this service for a percentage of th
e online retailer’s sales. There are three air express companies competing for control of this elec
tronic market and Airborne is not one of them. The three companies are FedEx, UPS, and DHL. If the
express industry is affected as much as predicted, Airborne could lose its ranking as third in the
express industry to DHL. Airborne Express might be gambling on the hope that there will be companie
s who will fight this move to electronic commerce, and will give Airborne enough old fashioned expre
ss business for them to succeed. This is a major gamble. “Concepts like just-in-time manufacturing
and mass customization were no longer just theory; a number of firms had carved out distinct niches
in the market place by focusing on developing these capabilities in manufacturing and production. Ti
ght supply chain integration was no longer perceived as a competitive advantage. It was being seen
as a competitive imperative” (The Economic Benefits of Air Transport, 1997 p 23). Airborne needs to
connect to the electronic commerce market before it loses the opportunity.
In conclusion, Airborn
e made some wise changes to its structure in the eighties. These changes differentiated Airborne fr
om its competitors, and allowed it to be the low-cost operator. However, in the last few years with
Airborne’s failure to change with the environment and with labor disputes in its near future, the f
uture for Airborne Express looks bleak. Unless Airborne wants to go back to transporting flowers it
needs to rethink its strategy.
Works Cited
Airborne Express’s 10-K Form. P 29. Edgar Fil
es IRS# 910837469
12 Feb. 1999
Airports Council International. The Economic Benefits of Air Tra
nsport.
P 22.May. 1998
Associated Press Online. Airborne Express, Union Reach Pact. P 2. Dec. 1
998
Online. Internet 16 Feb. 1999 www.associatedpress.com
Institute for Technology and Enterpr
ise. The FDX Group Building the Electronic
Commerce Backbone for the Future. P 12. April 1998 Onl
ine. Internet 3 Mar. 1999 www.ite.poly.edu.com
Management Challenges in the 21st Century. P 315.
St. Paul Minnesota: West Publishing
Company. 1995
The New York Times. UPS Walkout: For Small Bu
sinesses, Big Problems. Sec. C-6.
Aug. 1997
Traffic World. Pilots Airborne Sue. P 1 1998
Onl
ine. Internet 16 Feb. 1999 www.northernlight.com
Washington CEO Network. The Underdogs Deliver. P
36. 1997
Online. Internet 16 Feb. 1999 www.waceo.com
word count highly competitive in
dustry structure firm very important success today firms moving away from centralized structure past
adopting more decentralized structure management challenges century express industry exception fede
x leader express industry since late eighties also leading race become decentralized airborne expres
s even race order compete today changing environment airborne needs move away from fashioned central
ized form more decentralized fashioned only variable that makes airborne follower internet informati
on systems transforming market into electronic commerce market needs transform operations meet this
growing market this report describes strengths weakness organizational furthermore also gives recomm
endations future changes first section this report addresses organization firm evolved what changes
taking place structurally second section discusses labor issues they affect third section addresses
growing electronic commerce affecting during eighties many companies were formed many were destroyed
however three companies came highly competitive period they were fedex survived highly competitive
period adapting external forces affecting external forces affecting size competition fedex just swal
lowing competitors decided best compete cost provider service robert cline explains their strategy w
hen against federal those guys well capitalized that have have tool fight with them wasn going size
wasn going well known decided cost operator washington however become cost operator make many struct
ural changes those structural that centralized organization much possible after middle management hi
gh salaries when upper management make decisions furthermore what would trust middle make decisions
during unstable period company history another major change underwent eighties differentiate service
unlike major competitors changed strategy concentrate providing services large corporations form st
rategic change only gave product differentiation specialization also benefited taking away need adve
rtising therefore could save million spending year advertising help become operator washington made
important structural strategic which contributed success however nineties reluctant change with envi
ronment mentioned earlier firms moving towards more seems using same through consequently decision m
aking still coming from responsibility being delegated lower experienced growing success using deleg
ation demonstrated lead empowered work force resulting heightened productivity quality reduced costs
innovation improved customer service greater commitment employees challenges century reasons been e
xperiencing labor problems labor issues last years have plagued with problems kept major companies l
ike their toes york times since strike fighting keep good relations their workers teamsters strike o
ver part time full time help taught small business rely company only company having problems lengthy
negotiations hefty salary promises settled dispute pilots entering year without institute technolog
y enterprise experiencing disputes pilots although under contract pilots happy representative claims
failed implement provisions contract failure plus firing pilot angry traffic world since under cont
ract they strike stop flying volunteer overtime which makes percent flights november voted stop flyi
ng overtime traffic world needs smooth over relations soon because expires therefore unless settles
dispute will facing imminent another issue teamsters union signed five year teamsters union there th
ree provisions associated press online provides improved working conditions employees bonus employee
s first followed yearly wage increase last four years least percent current part time work force wil
l changed full remaining percent offered full positions last provision could consequences using part
help expenses having benefits will able keep strategy being lose efficiency workforce operate effic
iently possible want capital compete electronic commerce today faced technology force organizational
basic operations technology better known internet presently internet sales retail expected institut
e enterprise order retail changing operations selling products over because there need cater online
retailers need supply services such just inventory virtual inventory order best describe importance
future going address changing dealing providing just inventory services provides connecting online r
etailer site when sale achieved placed directly once receives picks product supplier delivers custom
er takes place without retailer touching product institute enterprise supplies percentage retailer s
ales there three competing control them affected much predicted could lose ranking third might gambl
ing hope fight move give enough fashioned business them succeed gamble concepts like manufacturing m
ass customization longer theory number firms carved distinct niches place focusing developing these
capabilities manufacturing production tight supply chain integration longer perceived advantage bein
g seen imperative economic benefits transport connect before loses opportunity conclusion made some
wise these differentiated competitors allowed years failure environment disputes near future looks b
leak unless wants back transporting flowers rethink works cited form edgar files airports council in
ternational economic benefits transport associated press union reach pact associatedpress group buil
ding backbone april poly challenges century paul minnesota west publishing york times walkout small
businesses traffic world northernlight washington network underdogs deliver waceoEssay, essays, term
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