Tuesday, November 23, 2004

FedEx vs. UPS: Network-Centricism and the Long View

It's been a long day of dealing with a family crises amid a host of deadlines and a travel schedule. Tonight, happily, I find myself largely caught up and just hanging around my parents' house with my laid-up-after-surgery step-father waiting on my old high school buddy and fellow political activist to get over here with the Chinese takeout. Rockstar.

While staying up until the wee hours of the morning helping a friend of mine out with a research paper I came to a nifty realization. The topic of the paper is irrelevant, but I came to realize something interesting while comparing FedEx and UPS as business entities. Both businesses are very successful and have bucked the last few years economic downturn. Strikes me that this says a lot about the market for connectivity which is fundamentally what the parcel service industry is about. Interestingly enough FedEx has done better over the long haul and with a great deal more consistency. I know that coincidence isn't causality, but I'd just like to point out that FedEx is built on an entirely network-centric business model from the operator to upper-management level, and that the company tends to grow like a network on all levels. UPS, which has many network-centric components utilizes a somewhat antiquated unionized workforce and seems to have a more stolid and traditional management structure. FedEx has incorporated many of the benefits of being a union employee into its corporate structure, and offset the slight sense of instability with a great potential for upward mobility, drawing its future managers from the line employees. Sparing you any further comparisons, it would seem that almost all market analysts are putting their money on FedEx. Granted that's FedEx to win and UPS to place, since the market for parcels is still emerging into the developing world and there's definitely room for Sharks and Jets in that town, but the money seems to be on FedEx based on one phrase: "Growth Potential." For reasons that never seem to be specified analysts (of many different types) say FedEx has more room to grow. Could it be that the network-centric model simply allows for unlimited potential growth whereas the top-down model eventually reaches a point of critical-mass at which it either divides or collapses? Is that why FedEx has more room to grow? True, both businesses are hybrids of the two models. To be an aggregate network model business FedEx would have to be a co-op, and UPS can't deliver packages efficiently without having a vast communications/transit network, but while UPS clearly draws the line between its business and how it runs it, FedEx seems to believe that networks... well... work. Given that FedEx dumps virtually all of its charitable donations into IT related education facilities it seems that they've even taken it upon themselves to bring about a more network-centric (and thus network-friendly) world. Who do you think has the long view in mind? I know where to bank my retirement money.

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