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As Fred Smith grabs a piece of paper and begins illustrating the idea behind the company he founded 36 years ago, it becomes clear that the chief executive of FedEx is not much of an artist.
The resulting sketch looks more like a bicycle wheel than the revolutionary business model behind a $31 billion logistics giant with more than 280,000 employees and operations in over 220 countries.
It is only when Smith puts the pen down and explains his intuition that the hastily drawn wheel springs to life as the 'hub and spoke' model that turned FedEx into an essential cog in the global economic machine.
Smith's initial thought - first articulated, according to FedEx lore, in a piece of college homework while at Yale - was as iconoclastic as it was simple.
He believed that the fastest, cheapest way of delivering parcels was to fly them from the points at the end of each spoke to a central hub where they could be sorted, put on different aircraft and transported with others sharing similar destinations.
When supporters of traditional point-to-point postal deliveries balked at the thought that a package going from New York to Philadelphia might have to take a 2,000-mile detour through FedEx's hub in Memphis, Smith demonstrated the superior efficiency of his system.
"I simply used a mathematical formula about how to connect a lot of points to a lot of other points," the 63-year-old Smith recalls, from a sparsely decorated conference room in the company's Memphis headquarters. "If you take [a single] transaction out of the aggregate, it looks very inefficient. Take the aggregate of all of them, rather than 9,900 couriers connecting 100 points, [and] you have 99. It's more efficient by a factor of 100."
In the ensuing years, Smith used that formula, coupled with his other innovation of stationing trucks at airports to take parcels to their final addresses - to turn an undergraduate essay into the world's biggest express delivery company. Yet FedEx's impact over the past four decades has been felt far beyond the logistics industry.
Reliable, just-in-time delivery of anything from computers to body organs is credited with facilitating an explosion in global trade and enabling a range of other companies - from Amazon to Dell to Wal-Mart - to become corporate icons in their own right.
Credit
From his original vision he eventually established a system that allowed companies to move and track inventory in FedEx's fleet of '550-mile-an-hour warehouses'. But he is at pains not to take all the credit for his creation: the hub and spoke model, he says, had already been used by the French and Indian postal services.
And the inspiration for the integrated army of trucks and aircraft, he maintains, came from his Vietnam war stint as an officer with the Marines, "the only [US armed] service that has both air and ground components".
With his windswept white hair, thickset frame hugged by a brown sports jacket and Mississippi drawl promoting the virtues of teamwork and "bench strength", Smith looks and sounds more like an American football coach than the man behind a business revolution.
Although he is often lionised as the embodiment of the American dream of the self-made entrepreneur, Smith did not emerge from poverty. Born in Marks, Mississippi, about 80 miles south of Memphis, he came from a well-off family, with transport in the blood: his father founded a successful regional bus company.
He went to an Ivy League university, attending Yale at the same time as the future US President George W. Bush and his Democratic challenger in the 2004 election, Senator John Kerry.
And when, in 1971, he returned from Vietnam and decided to go into business, he was able to pledge a $4 million inheritance and secure $80 million from venture capitalists, lenders and family members, to found Federal Express.
As the company grew from handling a few dozen parcels in a windowless room on the fringes of Memphis airport to dealing with more than 6.5 million packages a day, Smith says he had to transform his management style.
Low-key
In spite of delegating day-to-day operations to management, he still maintains a low-key corporate persona - FedEx's Memphis office bursts with pictures of trucks and aircraft but lacks the founder's effigies and words of wisdom seen in so many US headquarters.
"I've never been someone who is shouting orders from the bridge, and expecting the oarsmen to pull a certain way," he says.
Smith even argues that the words "chief executive officer" are a 'misnomer': big companies these days rely on a team of managers. Members of the company's executive committee - which include Smith and his top four deputies - say they strive to reach a consensus on important decisions.
But when they cannot, they call a "jump ball" - the way opposing basketball teams decide a disputed possession - with Smith as the referee. "We have four votes - Fred has five," jokes Mike Glenn, executive vice-president of market development. FedEx insiders say there is little doubt who is in charge.
Although Smith has not announced his departure date and is still nine years from FedEx's retirement age of 72, his succession plans, like the giant screen that displays flight plans at the company's operations centre, are monitored with military precision.
Smith, like every other executive ranked managing director, has had to identify two potential replacements - another practice he imported from the Marines, where officers have a second-in-command ready to take over should something happen to them.
Although Smith's selections are secret, it is a safe bet FedEx's next chief executive already lives in Memphis. Smith's top four lieutenants have been at his side for a combined 90 years. "It's almost inconceivable, given the talent that we have in the organisation, that it would be a requirement to go outside," he says.
Smith is adamant the company "would not miss a beat" if he walked out.
"I don't mean this in a derogatory way at all, but I'm not Rupert Murdoch or Barry Diller, or someone like that who really is 'L'etat, c'est moi'," he says. "This is a highly choreographed industrial company that beats to a very formal management system. It operates like clockwork."
Investors must hope the bicycle wheel at the heart of FedEx will keep spinning even without its visionary designer.
Fred Smith's stewardship of FedEx has taught him a valuable lesson on the ebb and flow of the global economy.
"The only thing you can truly learn is what the good book says: 'This too shall pass'," he says.
Until the current turbulence subsides, Smith must grapple with an unprecedented spike in fuel costs, competition from UPS and Deutsche Post's DHL, and the threat of a recession in the US, its biggest market. This month, the company was forced to slash its quarterly earnings forecast, the second warning in two months.
FedEx's shares have slipped nearly 15 per cent this year, underperforming the Standard & Poor's 500 index and arch-rival UPS - unfamiliar territory for a company whose market value has more than tripled in a decade.
In some ways, problems at FedEx, which owns 669 aircraft, the world's largest fleet after AMR's American Airlines, mirror those faced by commercial airlines, whose profits are threatened by rising fuel costs and the economic slowdown.
But unlike the fiercely competitive air travel sector, Smith's company can count its main rivals on one hand - the advantage of operating in an industry where the huge costs of building and maintaining an integrated road and air transport network represent a formidable barrier to entry.
"The barriers to entry are much greater than [for] a low-cost airline."
Profile: Frederick W. Smith
- Chairman, president and chief executive officer of FedEx Corporation, a $35-billion global transportation, business services and logistics company.
- Smith is responsible for providing strategic direction for all FedEx Corporation operating companies, including FedEx Services, FedEx Express, FedEx Ground, FedEx Freight and FedEx Kinko's.
- Since founding FedEx in 1971, Smith has been an active proponent of regulatory reform, free trade and "open skies agreements" for aviation around the world.
- Smith has served on the boards of several large public companies and the St Jude Children's Research Hospital and Mayo Foundation Boards. He was formerly chairman of the Board of Governors for the International Air Transport Association and the US Air Transport Association. Smith is chair of the Business Roundtable's Security Task Force, and a member of the Business Council and the CATO Institute. He served as chairman of the US-China Business Council and is the current chairman of the French-American Business Council. In addition, Smith was named 2006 Person of the Year by the French-American Chamber of Commerce. He is a member of the Aviation Hall of Fame, served as co-chairman of the US Second World War Memorial Project, and was named Chief Executive magazine's 2004 "CEO of the Year."
- Born in 1944 in Marks, Mississippi, Smith attended Yale University, where he earned a BA in 1966. Smith served as an officer in the US Marine Corps from 1966-1970.
- Source: news.van.fedex.com
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