The UPS that new CEO Dave Abney inherits has few if any financial problems to deal with, yet he is faced with some subtle but important strategic decisions.
Prominent amongst these will be how to respond to the effects of e-commerce on UPS core market. According to the company, over half of its small parcel volumes are due to e-commerce. However, as seen during the 2013 holiday season, the company will need to prove its agility and to improve upon forecasting, planning and collaborating with customers if it wants to continue this growth. Customers can be forgiving but competition is on the increase – FedEx, USPS, regional small parcel providers, as well as potential new entrants such as Amazon – and they may jump ship if a repeat such as this past holiday season occurs again. While this is a US-focused concern, how to expand this e-commerce growth beyond the boundaries of the US and Europe into such markets as China will be another strategic decision facing Abney.
Abney has already been quoted as stating that, “Our number one goal is to grow our international business.” However the question is how to do this.
Admittedly business outside the US has increased to around 25% of revenue whilst International Express has grown substantially and now represents 22% of revenue, yet UPS is still dominated by its core US domestic businesses. This is not for want of trying. The failure to buy TNT Express was caused by the odd politics of the EU whilst UPS has been expanding its footprint in China. David Abney has strongly indicated that he will look to drive expansion outside the US through major acquisitions. Certainly the money to buy assets is there, the question is, does UPS have the strategic ability to wield such assets effectively?
This is a question with added piquancy when the experience of UPS’s entry into the freight forwarding and contract logistics sector is recalled.
A profound aspect of this issue is the US dominance of its management. Running a business stretching from Shanghai to Stuttgart requires a different approach to that of the domestic US.
The issue of information technology is a not entirely dissimilar problem. Of course UPS has a huge installed base of IT in great part focussed on managing operations. Yet the real transformative power is at the strategic level.
Again the issue that Mr Abney will have to face is whether the UPS senior management has the depth to re-orientate its business at the speed required to adapt to a world that relates to its customers through constantly changing technology. Not only does UPS have a very US management culture, it is also a very operationally focussed one.
Deutsche Post-DHL appears to have edged ahead of both UPS and FedEx in both the re-orientation of its Air Express business and of the wider group towards e-commerce, although executing such a strategy is another thing. However UPS probably has to realise that the two other big Express groups are no-longer its only rivals. Indeed there are possibly even more serious competitors and problems to be over-come if the US giant is not to lose some of its dominance in the coming decade.