Discuss about the Strategic Management for Innovation Through Business.
United parcel service was established in Seattle, Washington in the year 1907 by James E. Casey and was initially named as “American Messenger Company”. However, in 1919 the business was renamed as United Parcel Service. After a decade, United Parcel Service established itself as the first package delivery service company which provides air service with the help of private airlines. In the preceding year, the company extended to the east coast began its processes in New York. By the end of 1975 United Package Service developed the first company to serve each address that was in United States and commenced international service by 1985.
In the year 1992, United Parcel Service commenced tracking every ground packages and developed their own websites by the year 1994. With the help of personal digital assistant (PDA) users were provided the facilities of calculating their shipping rates with the help of text messages or any other form of wireless communication device(ups.com 2016). Presently, United Parcel Service is regarded as the leader of parcel transporter and became the major business in the logistics company in terms of the revenues and profit generated.
Competitive strategy of UPS is understood as the process through which a business is splits itself from their competition prevailing in the same market or industry. UPS separates its product through product industry wide differentiation instead of emphasising on the price as the UPS focuses on providing best services to its customers across the industry. The current strategy of UPS is relatively aimed at providing inexpensive service which can assist the customers ship packages practically across any part of the world. Though the prices in recent years have increased but the quality and degree of services provided has not degraded as UPS continuous to provide great customers service and timely delivery of services(ups.com 2016). With the implementation of new and innovative technology UPS have been able to deliver products at the door steps of customers across 220 countries and territories.
The process of market segmentation for UPS is based on industry wise due to the wide range of customers and numerous locations though it continuous to remain reliable. It is evident that its competitors have lowered the cost however UPS defines that it continuous to handle large volume of delivery packages than their customers with the objective of providing guaranteed satisfaction (ups.com 2016). UPS have currently greater strives in delivering customers packages by going ahead of time and reaching out its branches on a international basis. With the growing of business, it has become easier for UPS to reach out its customers and conduct business in overseas markets as well.
Figure 1: UPS cost differentiation strategy
(Source Dagnino 2016)
The above stated business model reflects the cost and differentiation strategy through which the company functions and operates. Originally the company targets the industry wide segment or one segment of the specific market and in the later stages it provides product and services at competitive cost by focusing more on customer’s satisfaction.
To understand the strategic position of UPS within the logistics services PEST and Porters five forces analysis have been conducted to better understand the strategic position including the international services as well (Hill and Jones 2013). These forces help in understanding the ability of the organisation to meet the goals and carry out its strategy in the logistics industry.
Political analysis: Political consists of the items such as taxes, labour laws, mandated services and government influence (Rachet2014.). As a leader of logistics services UPS is responsible to its shareholders and the government of Saudi Arabia. The political factors include
The economic analysis consists of the factors which included interest rates, exchange and rate of inflation along with the economic conditions prevailing within the industry or organisation. The economic challenges for UPS is directly related with challenges high cost of labour and its prevailing union contracts(ups.com 2016). The analysis of economic factors provides an overview of
Social analysis: The analysis of the social factors consists of the cultural, demographics and social trends. The sociocultural factors consist of the consumer spending large amount of time on online mode with the increasing in the number of purchases being made online (Team 2013). The sociocultural factors include
Technological analysis: The technological factors of UPS consist of the level of acceptance and the degree of innovation in the supply of logistics. The technological elements of UPS of consist of the following
Developing nationwide communication
E-commerce
E-shipping
Energy use and cost involved in delivery
Changes made in the information technology
According to Michael E. Porter a business is up with five forces which can create an impact on the profitability of the business and its sustainability within the industry (Bischoff 2016). The five forces are the bargaining power of the customers, threat possessed by the substitute product, bargaining ability of the supplier, threat possessed by new market entrant and prevalent of competitive rivalry among the industry.
Bargaining power of customers: (Low)
The bargaining power of consumers highlights the effect that the create over a business. For UPS the bargaining supremacy of consumers is relatively low since the company has large number of loyalty customers. It is evident because there are less logistics companies that can offer the same service, which UPS can provide (Lee, Kim and Park 2012). Hence, even if the customers establish a business globally they will continue to possess lower bargaining power as UPS is established across the world and there are not many places where UPS cannot provide its service.
Threat of substitute products: (Low)
Threat of substitute goods is referred as auxiliary goods or services, which the customer can use as an alternative of business or services. UPS relatively faces lower threat from its substitute products as there are not large number of companies, which provides the shipping facilities across the globe. A rival company may use his employees to drive the product or packages to required destination however; such measure would be costly and could turn very inefficient process of delivering an item (Dobbs, 2014). Hence, UPS offers its services to those companies and individuals that remain dependent on their day-to-day operations.
Bargaining power of suppliers: (Medium)
The supplier’s force of UPS is termed as medium since the dealers have the control over few characteristics of UPS operations. UPS does not alone own all trailers and delivery vans used in packaging vans as companies like Swift Transportation have bargaining forces while renting their vehicles. Furthermore, UPS has also entered the contract with Boeing Company so that they cannot increase the price of air carrier whereas another supplier have limited control over the gasoline companies. The suppliers are thus restricted on imposing charges on per gallons of gases used.
Threat of new entrant: (Low)
Threat of new entrant is characterised as level of difficulty possessed in the business. For UPS the threat possessed by the new entrant is considered as low there are prevailing barriers of high investment cost to commence operations and economies of large obtainable to UPS (Bischoff 2016). A large volume of investment is mandatory to start a delivery company and with economies of large scale, UPS can afford to charge lower price for packages since the company handles large number of units on daily basis.
Rivalry amongst prevailing companies: (Medium)
Rivalry represents current situations of existing participants in one specific industries that offer the identical goods or service. For UPS the rivalry amongst its competitors is medium since the company faces intense competitions from other delivery companies like Fed Ex, DHL and USPS. UPS though remains the standard-bearer of the logistics industry and well established companies as amazon outsources the flagship service of UPS as the company is known to handle large number of units than DHL or USPS.
It is often regarded as difficult to move outside the core competency and handle logistics to generate higher value customer services. Logistics forms the core competency for UPS as a network of strategically located distribution centres minimises the capital investment (ups.com 2016). Through services provided by UPS helps the company to access the established network and Information technology to gain advantages of cost and services without the capital cost and risk of investing.
UPS network of facilities provides the company with the optimum amount of inventory and helps in reducing the time involved in transit. UPS through its wide spread distribution services network it can reach around 99% of the populations in two days through its ground delivery systems (ups.com 2016).
UPS helps in matching the right cost by reaching its customers efficiently across the country or around the globe. Its customers can rely on the global and transportation services of its experienced staff to design effective solution through its wide network and transportation modes.
UPS Information technology systems offers facilities of tracking shipment and obtain necessary information, which is needed in fulfilling the orders and optimising the product inventory (Hitt, Ireland and Hoskisson 2012). UPS service distribution network offers inbound receiving, storage services, replenishment, standardised management reports, inventory returns etc. Thus, under a new competitive environment, UPS strategy is to sustain the business of core packaging through improved supply chain and financial power provides UPS a competitive edge over FedEx and DHL.
Stakeholder analysis:
UPS consider the stakeholder engagement as an essential element of its corporate governance. The company serves more than 220 countries with millions either of investors having shares in their portfolios directly or through mutual funds. Regular communications with employees, customers, investors, community leaders, public officials and suppliers forms an essential part of the analysis. UPS considers formal and informal channels essential in conducting its business as well as developing and implementing its sustainable strategies (ups.com 2016). One of the oldest logistics company, UPS have been engaged with its stakeholders for decades. The company has the long-standing viewpoint of “constructive dissatisfaction” as it continuously looks forward to help its customers, employees and its stakeholder to do more. UPS believes that this can help in bringing new ideas for the company and conduct an ongoing engagement with its broad range of stakeholders (Chevalier 2016).
|
Stakeholders |
Action/Response |
|
a. Socially accountable investors |
Holding a facilitated session to conduct discussion on material issues which is relevant in European regions |
|
b. Employees |
Generating solicited feedback from employees based on handling of packages and improved tracking. |
|
c. Customers |
Developing questions based on internal market research projects and segmented focussed on high tech industry |
|
d. Suppliers |
Formalising a regional sustainability governance structure to empower small and medium sized enterprise to access global markets. |
Table 1: Stakeholder Mapping of UPS
(Source Chevalier 2016)
Considering the importance of strategic management in gaining competitive advantages in the organization, UPS can develop several strategies in the future years. From evaluation of the effectiveness of Porter’s generic strategies model, it can be stated that competitive advantage takes place from the generic strategies implementation that fits the organizational environment (Watts, Cope and Hulme 2012). The competitive strategies those can be adopted by UPS Company encompass cost leadership and differentiation strategies. From the porters five forces analysis it is served that the power of suppliers of UPS Company is quite low, for this reason, the company can implement product differentiation strategy (Watts, Cope and Hulme 2012).
From the strategic position analysis of UPS Company, it is observed that the company is positioned well among its competitors and the services along with the products offered by the company are highly differentiated. Despite that, to attain more differentiation in term services, the company can consider implementing differentiation strategy (Watts, Cope and Hulme 2012). Another strategy from the porter’s generic strategies that can serve to be effective for the UPS Company is focus strategy. In this strategy, the company can consider implementing cost leadership or differentiation strategy.
To develop effective corporate growth strategies, UPS Company can develop strategies based on Ansoff Matrix in which the company can focus on its present and potential services and the markets (Watts, Cope and Hulme 2012). Ansoff matrix can support in developing a range of strategies for UPS Company that can help it in gaining a competitive edge. For instance, market penetration strategy can serve as an effective strategy for the company in attaining completive advantage in certain countries. Moreover, the marketing strategy and the promotional mix present in the UPS Company require extreme improvement and great focus (Hussain et al. 2013).
UPS Company must develop effective strategies to maintain its position as the leading provider of specialised transportation, capital, logistics and e-commerce services. At the time, the product development strategy can bring out effective solutions for the company particularly within the non-convergent communities that focuses on the importance of the development of specialised UPS services to address the demands of the consumers those seek for superior quality carrier and package delivery services (Watts, Cope and Hulme 2012).
Strategic fit of the proposed strategies with business environment and fit with the strategic objectives of stakeholders is evaluated to identify and offer justification for the strategy that can be pursued by the UPS Company in the future years. The table below presents proper evaluation and comparison of the proposed strategies based on Ansoff Matrix and Porters Generic Strategies, in consideration to the strategies suitability, feasibility and acceptability (Banker, Mashruwala and Tripathy2014).
Table 1: Proposed Strategies for USB Company
|
Proposed Strategies |
Feasibility |
Acceptance |
Suitability |
|
Differentiation |
Moderate feasibility as great market research is needed to identify the required resources |
Moderate acceptance as risks are involved in developing new services |
High suitability for USB Company offers differentiated services as per the culture and values of its target market segment |
|
Cost leadership |
Increased feasibility for the reason that bargaining power of suppler is low |
High acceptance for it addresses the objectives of retaining its recent consumers |
High suitability as it effectively deals with low supplier power |
|
Differentiation and focus |
Low feasibility as increased resources are needed for the marketing activities and service development |
Moderate acceptance due to decreased associated risks |
Moderate suitability for this strategy can deal with the threat of substitution at the time service is differentiated |
|
Cost focus |
High feasibility for as no resources will be required for this strategy |
Moderate acceptance from stakeholders for it attains developed objectives. |
Moderate suitability as it can deal with the threat of new entrants |
|
Market Development |
Low feasibility for it needs huge financial and human resources |
Low acceptance for UPS Company has positioned its business in all the suitable markets |
High suitability for it will help in market penetration considering the buying power of consumers is low. |
|
Market penetration |
Low feasibility as it needs to focus on the existing efforts on the available market |
Moderate acceptance as it supports organizational objectives with less risks |
Moderate suitability as it deals with the recent competition and in consideration to the effective marketing |
|
Diversification |
High acceptance as this is extremely risky |
High suitability as it deals with certain concerns such as threat of new entrants |
Moderate feasibility as it will not require huge resources for the company mainly offers services. |
|
Service development |
Low acceptance as such strategy on being unsuccessful can adversely impact the organizational performance |
High acceptance as it is aligned with the culture of the company |
Low suitability as service development requires increased research and development initiatives and marketing strategies |
(Source: Ansoff 2013)
In consideration to the evaluation of the proposed strategies, diversification and cost leadership strategies are deemed highly suitable for UPS Company in gaining competitive advantages. UPS Company can implement both the strategies in order:
After implementing the selected strategies USB Company can make sure that, it has constant focus on its strategic capabilities and competitive advantages. Before implementing the proposed strategies in future, UPS Company is recommended to evaluate certain aspects that can affect effective implementation of its strategic plan (Magretta 2013). The company must make sure that the decided strategic plan can be supported with the existing resources and objective of the company. Execution of the new strategic plan of the company must consider regulate strategic planning, formulation, execution along with regular monitoring and evaluation (Watts, Cope and Hulme 2012).
UPS strategic vision has changed over the years as it is still focussed on serving customers at low cost given the scenario of changing trends and advancement made in technology. During the year 2010, the basic strategy was to be the leading provider of packaged delivery however by 2015 became the global leader in e-commerce. This is because of technological advancement made in transport and communication, which increased the trend towards globalization of supply and markets. This strategically created an impact on the UPS and their traditional consumers, which ultimately opened the opportunity to serve new customers such as online retailers or new customers in other countries (ups.com 2016). Their changed strategy led to the recognition of worldwide business model by advancement made in the technology and internet, which shifted the control from seller to buyer. In this new competitive environment, UPS strategy is to sustain their core package delivery business and preparing for the future by using the technology introduced. UPS aligns with such emergent technological advancement as it facilitates in assembly of goods based on the demand of customers and adjusting the inventory to buffer the demand fluctuations.
Eight years after such emergent change in technology made for air package delivery across the hub UPS has completed a significant $1 billion expansion of World port. The port has increased its sorting capacity to approximately 416,000 units per hour, which represent 37% of its sorting capacity (ups.com 2016). The increasing demand for hub capacity for UPS is driven by long-term growth needs in the company’s overseas express shipping business. The expansion facility will continue to feature the new technology with well-recognised programmes of minority contracting and state of the art equipment.
Conclusion:
To conclude with the report different business strategies with porters five forces along with the collaboration of Stakeholder analysis have been conducted. It is evident from the analysis that UPS is relatively aimed at providing inexpensive service, which can assist the customer’s ship packages practically across any part of the world. UPS splits its merchandise through industry wide product differentiation instead of emphasising on the price as the UPS focuses on providing best services to its customers across the industry. With the growing of business, it has become easier for UPS to reach out its customers and conduct business in overseas markets.
Reference List
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