Can an organization’s IT infrastructure helped to differentiate
the organization strategically in the eyes of its competitors? In
the infamous Harvard Business Review article, IT Doesn’t
Matter (May 2002, author Nicholas G. Carr provides a gloomy prognosis
of this happening today.
FedEx,
however, has managed to create an IT infrastructure that has glowed
brightly in the eyes of competitors since it started in 1971. In 2002,
about $22 billion worth of business passed through FedEx’s extensive
package delivery networks.
Rob
Carter, executive vice president and chief information officer of
FedEx, says that his company’s IT component “is the competitive
glue that holds all of our businesses units together.” While
Carter refers to himself as a classic CIO overseeing applications
development, the network infrastructure, and five data centers, he
sets the technology direction for FedEx’s global IT organization
which has 6,000 employees and operates on a $1.5 billion annual budget.
Carter,
who joined the company in 1993 and has received many industry recognitions,
such as InformationWeek’s Chiefs of the Year. He talks about
FedEx’s technology that built the package delivery business,
FedEx’s educational initiative to devise a major technological
center in the South, best practices and cost models used by FedEx’s
IT organization, and, of course, Carr’s article.
Q.
In David Kirkpatrick’s Fortune magazine opinion piece (May 28,
2003) about Nicholas G. Carr’s Harvard Business Review article,
IT Doesn’t Matter, you say, ‘Everything in the company has
IT inputs. It’s the software stupid!’ Can you explain what
you meant?
Carr’s
basic premise in the article is since the infrastructure is built
out, you don’t need to pay attention to technology anymore. To
some extent that’s true. We have a broad set of technology infrastructure
in place. My comment, it’s the software stupid, refers to the
applications within the infrastructure as the key elements that differentiate
you in customers’ eyes. These applications will drive your internal
productivity.
The
battleground continues to be the application of that technology not
the fact that you happen to have a computer system that runs payroll.
Everything
we do at FedEx has a technology underpinning that supports not just
our internal operations but the information we’re able to provide
our customers about shipments in the FedEx networks. We built the
FedEx brand with a set of capabilities including, not only the operational
excellence of FedEx, but the technology that allowed us to achieve
this excellence.
Q.
Can you summarize the technology that built your company and changed
the competitive climate for well-established companies such as United
Parcel Service?
Our
package tracking system was a unique offering at FedEx. It really
built the industry of express transportation and information about
the shipment. In 1978, Fred Smith, the chairman and founder of Federal
Express (incorporated in 1998 as FedEx), said this great quote which
is worth repeating: ‘The information about the shipment is as
important as the shipment itself.’ Moving packages reliability
was a key component of our initial success, but we were then, as well
as now, about making customers aware of what was happening with their
packages until they reached their final destination. We created that
visibility to go along with the industry philosophy of reliable delivery.
Our
package tracking system kept us ahead of the competition for about
two decades. It wasn’t until the 1990’s that our competitors
started to understand the value of the information and began to build
their technology and information networks.
Q.
If you apply what Carr says in his article, you’re going to have
shorter competitive windows for new, innovative technologies. What’s
your feeling about that?
We don’t
know what yet-to-emerge killer applications will enable us to change
the way we do business. It’s like this: In 1899 when Charles
Duell, the commissioner of the U.S. Patent Office was leaving his
post, he remarked that we didn’t need the Patent Office any more
because everything that can be invented has already been invented.
There are endless things yet to come; there’s no question in
my mind where we are with the application of information and technology.
Today,
competition is more active and fierce than it was when we started
the business. Everyone wants to provide the best possible information
about every shipment moving through their systems.
I don’t
think any technology innovation will have a two decade advantage anymore.
Some may have a couple years advantage as you get new technologies
out there and customers adopt them. A certain first move advantage
occurs. These customers get so hooked on your technology and your
pricing they become so overwhelmed at the thought of switching to
another competitor’s offering.
Q.
You have a gigantic IT organization. How is it organized?
The
majority of our IT organization lives inside of a shared services
called FedEx Services. It provides applications support, and infrastructure
support to all of the operating companies at FedEx Corp.
FedEx
Services has a hierarchy of boards of governance, including an executive
committee and strategic management level. All of the various lines
of business report to the latter.
Our internal business partners work with various IT project management
teams to launch new product offerings and or new business initiatives
and strategies. The different tiers of governance bodies set priorities
and plan the resources for IT for the upcoming months and years.
Q.
Have you been looking at new businesses such as outsourcing transportation
logistics for your customers, such as Ryder does?
FedEx
Supply Chain Services competes with Ryder on that kind of transportation
management function. We go in and run sets of transportation services
for companies.
Q.
Have you adopted certain best practices models such as Six Sigma or
the IT Infrastructure Library (ITIL)?
We know
about ITIL. However, we’ve based most of our governance process
on a component of Six Sigma. We’ve internally developed program
methodology and governance structure that supports the IT component
of our ISO 9000 certification. We’ve used a lot of the best practices
out of the Capability Maturity Model, Six Sigma, and some IT Infrastructure
Library.
I became
quite enamored with the ITIL. In fact, the ITIL set of books are quite
good and their content has provided basic reference points for a lot
of our IT practices. Many of our groups use specific areas of ITIL,
such as change management, but we don’t use it end to end.
Q.
What costs models do you use for IT?
For
the most part, we allocate costs back to the business units based
on usage. This method isn’t as fine grained as charging back
for transactional services.
Q.
A lot of companies got hit by the dot.com bust because they built
out their infrastructure. How well did you folks weather this event?
We continued
to support huge growth in our Internet-based customers throughout
the dot.com boom. Since the inception of FedEx.com in 1994, we’ve
experienced at least 100 percent growth in all areas of our services.
This site has provided us with massive customer interaction and customer
service. We had no down side to that. We built our infrastructure
as fast as we could and customers have continued to adopt it at an
incredibly fast rate globally.
Q
You announced FedEx Institute of Technology. What will be its focus?
FedEx
Institute of Technology, based at the University of Memphis, consists
of a broad array of technology research and practical deployment.
The Institute is a hub for applied IT in all different types of domains,
such as bioinformatics, supply chain research, artificial intelligence,
Internet-based computing, and telecommunications.
The
Institute is a public/private partnership with the University of Memphis,
FedEx, local government agencies, and area businesses throughout the
South. We’ve used schools in the Boston area, such as Massachusetts
Institute of Technology, as examples of how to grow a center for technological
innovations and spin them off to support the local economy.
Q.
To really be competitive, economist Lester Thurow, in his new book,
Fortune Favors the Bold: What We Must Do to Build a New and Lasting
Global Prosperity (HarperCollins), says that major companies need
to have a chief knowledge officer (CKO) who functions like the Central
Intelligence Agency. Do you have such a person?
While
we don’t have a CKO, we abundantly serve this area. For the past
10 years, we’ve made a big investment in gathering intelligence.
In fact, we’ve one of the world’s largest information warehouses.
We also have groups of brilliant PhD’s who are excellent at applying
customer-related information to how the business can be optimized
and how customers can best be served.
Q.
What strategic projects are you putting a lot of effort into for 2004?
One
particular project is the next generation in handheld computing, called
the PowerPad, which we’ll be rolling out throughout the summer.
This revolutionary device takes the edge of computing all the way
out to the customer. Its active communications capabilities enable
it to be on the network. Embedded technology enables it to communicate
with the truck, the printer, and the network components the courier
has with him or her. Use of the device will change the information
access the courier has when he or she is face to face with the customer.
The device will also make the courier more productive while enroute
to each destination.
