Tangible Drivers of the Business Model
UPS possesses “a fleet of approximately 101,000 package cars, vans, tractors, and motorcycles” and approximately 600 airplanes (Yahoo Finance1, 2008, p. 1). The company employs over four hundred thousand individuals; approximately three hundred fifty thousand domestically and seventy thousand internationally (Datamonitor, 2008, p 4). UPS maintains an infrastructure of facilities with a price tag high in the billions. These sites are operated using the “hub and spoke” model.
Similar to Airlines, UPS realizes supreme efficiency (see diagram below). This operational model centralizes and consolidates functions and large scale activities in a manner that increases speed; decreases operational costs, facility, asset, and labor requirements; and supports management through policies, procedures, and quality standards. http://supernet. som. umass. edu/visuals/UPS_Final. pdf Another asset that gives UPS a significant competitive advantage is its state of the art IT platform.
UPS is committed to maintaining a cutting edge information technology infrastructure and to capture every potential benefit from it. In fact, UPS’s CIO considers his company “a technology company with trucks”, as opposed to a transport company (Kohli, 2007, p. 199). Intangible Drivers of the Business Model: First and foremost, the UPS brand is a significant asset that has received hefty investments from the company in the recent
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These are all virtues at the core of UPS’s operations, a significant contributing factor of another of UPS’s competitive advantages; organizational culture. UPS’s founder, Jim Casey, was dedicated to the creation of a company that embodied the characteristics inherent to a virtuous organization. This commitment has remained with the company since its inception, and has facilitated and supported UPS’s “legacy of honesty, quality, and integrity” (University of Missouri Business Department, 2006, p.2).
These fundamentals have benefited UPS not only from a brand and external standpoint, but internally as well, as demonstrated by the quality of the employee (University of Missouri Business Department, 2006, p. 2). Further building upon these established principles and personnel excellence, UPS promotes an environment conducive to innovation, efficiency, delegation of broad lower level authority, and consideration of lower and middle level ideas (Soupata, 2001, p. 23).
This combination of values and lower level autonomy creates an environment of integrity, value, and innovation. A focus on information technology is definitely ingrained in UPS’s business model. UPS’s commitment to maintaining and advancing it’s IT capabilities is a major advantage in the market. The company consistently realizes increased efficiency from system reviews, modifications, and effective system use (Kohli, 2007, p. 199). Within UPS, IT capabilities are inextricably linked to the internal value chain.
UPS maintains a rigid and exact business model, part of its success. Perhaps UPS’s greatest success driver is the remarkable flexibility of its organizational culture. The organization could not function so effectively if it enacted strict procedures and a strictly managed culture bound firmly to the exactness of the business model and physical structure (Soupata, 2001, p. 24). This loose cultural binding to the exact physical structure ties in the tangible and intangible in a manner that yields significant competitive advantage.
Forces Impacting UPS There are a number of different forces currently impacting the manner in which UPS conducts business, it’s profits, its strategic direction, etc. Globalization is certainly a colossal force relevant to the environment in which UPS operates, and is extremely advantageous as it presents numerous opportunities. As the countries of the earth continue to see globalization of markets, international business will continue to increase, and the shape of the market will transform into one large global marketplace (Hill, 2005, p.7).
Drivers of increased globalization are decreased barriers; political, economic, and technological advancements; and communication; all offering significant opportunity in the sector in which UPS operates (Hill, 2005, p. 11). Another significant current factors is the economy, and the uncertainty associated with it. Dealing largely with commercial transport and delivery resulting from economic exchange, what kind of impact might the current downturn have on UPS? Another significant impact associated with the economy is the price of oil.
Because of the size of its fleets and the resources required to conduct business effectively, UPS is heavily dependent upon fuel, and fuel prices have a very high impact on the company’s bottom line (UPS4, 2008, p. 1). As fuel prices have increased, UPS has seen a disproportionate increase in its operating expenses (see table below). In order to minimize this impact, UPS is currently shifting to cleaner fuel and low emission vehicles where possible (UPS4, 2008, p. 1). Rising fuel prices also present a significant challenge in UPS’s freight operations, where margins are already cut thin (Datamonitor, 2008, p.5).
Another factor impacting UPS is competition. Smaller scale companies are arising globally, often without UPS’s capability and network, but with significantly less operating costs, and are therefore able to conduct business at a lower cost to the consumer. UPS’s competitors include: United States Postal Service, Deutsche Post (& subsidiary DHL), Deutsche Bahn Aktiengesellschaft, FedEx, and others Freight (Yahoo Finance2, 2008, p. 1). Despite rising oil prices and declining business transactions, UPS has managed to keep operating expenses at and profit at a moderately consistent level.
UPS maintains a strong market position, has historically exhibited strong financial performance, and currently sees opportunities in expanding the Chinese market, European growth, and increased online shopping (Datamonitor, 2008, p. 5). Additionally, as international markets increasingly interact with one another, and as UPS continues to develop its infrastructure, an increasing frequency of opportunities will arise; thus presenting a bright long term outlook for the company.