Do different cultures lead to different outcomes? – A personal perspective on the major express integrators
Paul Jackson, Non-Executive Chairman, Triangle Management Services, Mail & Express Review February 2009
The Origins of Express
The costly entry into, and exit from, the US domestic express market by DHL/Deutsche Post deserves further analysis and reflection on how differing corporate cultures have impacted on the mighty integrators: where they have come from, how they have developed, and, in consequence, how global they can really be.
Back in the 1980’s the express market was really DHL worldwide, Federal Express in America and TNT in Australia. UPS joined the party a little later. A lot has happened since.
Not many predicted the huge growth of express given that in those days it was a product that had previously not existed, was quite often technically illegal, and sold arrival rather than what everyone else was doing – despatch.
Yet three of the four main integrators subsequently built phenomenal “global” networks.
UPS and Deutsche Post had their home market domination to provide the cash for the initial global push. Federal Express had the vision, early advantage and in those days never paid a dividend. TNT arguably over expanded and as a result became less of a global player.
These developments beg a number of questions. Do you have to be global? Are there alternatives? Is the integrated business model sustainable?
This article argues that in part the differing levels of global success of the big four essentially reflect differences in corporate culture; and that perhaps one has only to look at their different roots to understand why they are where they are today.
TNT, born in Australia, and the most sales led of them all, grew by being more entrepreneurial, and quicker in its market responses. Yet, as already stated, it over expanded. This led to TNT being rescued by the post of that most global of small countries, the entrepreneurial Dutch. Its government had already allowed, way before others, the post office to acquire companies outside its core business and regular product lines.
However, the Dutch Post did not have, and still does not possess, the home based cash cows of the other players. (Indeed, its longstanding pursuit of Britain’s Royal Mail is in part probably an attempt to redefine that home base.) In consequence, the renamed TNT Post has been constrained as to how far it too can afford to invest in a genuine global network.
TNT Post is a soundly run business still enjoying high margins on the mail side but vulnerable to being absorbed by one of the other three integrators. Given that the corporate culture was, and still is, so opportunistic, that would be consistent with developing and selling on in part or whole, especially as it is now a stock market quoted company.
There is a precedent in its exit from logistics a couple of years ago. It wrestled with logistics and forwarding, which have two distinct cultures miles apart, yet put them together, and they both were sold on, admittedly at good prices. Logistics is about individual cost based contracts and forwarding is so different because it is essentially a brokerage.
DHL and UPS seemed to have understood this although they too had some painful lessons to endure first. FedEx, who we discuss next, has broadly ignored this sector which with its flexible cost base is likely to do well in the current world recession.
FedEx’s culture is much more akin to that of an airline with a high level of customer focus. It is operationally led, driving time definite schedules and owning virtually everything so it can best control the customer interface. Particularly in a recession this model is surely vulnerable to the loss of the premium or “business class” air express revenues that have as a support product travelling in the same planes lower yield commodity air freight which can easily move by alternative means at lower prices.
Even worse for FedEx there appears at the moment to be a dramatic switch of parcels from air express to road in Europe and the US.
FedEx is still too dependent on its original core. It faces formidable competitors, UPS in the US which has 70 to 80 % of the ground market, and TNT and DHL which have strong road networks in Europe.
As stated its culture is to own everything, when perhaps it should be franchising its network far more and operating less of its own aircraft. Its future is still bright because of its strong customer relationships but it would still be better in a downturn to have a more flexible network.
So what about DHL, a phenomenal company that created an international market by branding and decentralisation, only to then wrestle in the 1990s with the challenges of integrating a global network and in doing so run out of money to invest in networks, systems and technology?
Then along came Deutsche Post (after Lufthansa and Japan Airlines) as a full acquirer, with a corporate culture that was based on control from Bonn. An early decision was to apply the carefully nurtured front of office DHL brand to everything else in the group outside Germany. This caused dismay with staff as well as confusion for the customer.
DHL’s traditional culture had been marketing led and the business was run by local entrepreneurs almost like a franchise. Its acquisition by Deutsche Post imposed an opposite culture, process led, focussed on corporate control from the centre, and with a reliance on expensive external strategy consultants.
This led in the end to the ill fated acquisition of a US freight forwarder, Airborne, which operated planes. Airborne called some of its products express, but it was not really an express carrier. Its culture was not premium, it had little branding, and it had no reputation for top end quality. Not surprisingly it proved impossible to change the culture, even under new management, and despite a lot of investment funding . On top of this, the combined DHL Express/Airborne was not able to compete with FedEx on economies of scale in the US, let alone match its fantastic express culture. It also lost out to UPS which we now discuss.
Many compare UPS to a glacier, moving slowly along a defined track and unstoppable. This comparison to a glacier is valid, and reflects a culture based on engineering and systems rather than the sales culture of TNT, the marketing led culture of DHL (at least as it used to be), or the airline/customer culture that is FedEx.
UPS’ huge cash cow, its long established dominance of the US package market, has funded massive development globally. Of course UPS has made mistakes along the way. These have been mainly cultural, such as imposing a US approach on reluctant companies that were acquired, but such mistakes have proved small hiccups in the scheme of things.
The glacier carries on and on, and being still largely employee owned a unique feeling of working together for the whole comes through. Management moves regularly across the network which fosters a down to earth approach of looking first second and third at the system costs and at efficiency, rather than rushing to open a new market. Personal empires are not built or encouraged, another unusual aspect of the culture.
UPS is, of course, also customer focussed but like DHL now tends to offer the products that come out of market research, arguably the way it has to be with such high volumes and focussed operational systems. Inevitably not all customers fit which provides opportunities particularly to TNT and FedEx.
So if the entrepreneurs are in TNT, the service operators are in FedEx, the consultants in DHL and the engineers in UPS what is the message from this analysis?
The lesson is do not listen to the highly paid strategic consultants!
It seems to me that they come from theory rather than practice, ignore the existing management and particularly the culture of acquired companies, and spend their high level time with their paymasters at board level looking for the next assignment and acquisition. Culture does not appear to come onto the radar screen. Recognising the world is different and meaning it is the first lesson to learn in building a global network. The major freight forwarders have known this for years: are the integrators and their advisors still learning?!
Maybe it is just down to seasons. TNT is springtime with orange entrepreneurial buds coming through; FedEx basks in the summer, enjoying the warm and going purple instead of making the changes to its network to be ready for the rainy days ahead; DHL’s original bright green leaves of local entrepreneurial culture are turning to the duller yellow leaves of a corporate regime; whilst maybe UPS is the company you would want to take you through the dark brown winter, making every penny count, and with plenty of dollars to pay the fuel bills!