UPS at 100: Where Do We Go from Here? Transforming into a One-to-One Business

UPS: Transforming Package Delivery into a One-to-One Business summarizes the CEO’s vision for meeting customer empowerment with transformation.

Michael L. Eskew, Chairman and CEO of UPS, outlined the package delivery giant’s vision for transforming itself into a “one-to-one” business at the Executives’ Club of Chicago’s Enterprise CEO Lunch, 15 February 2007. Before a packed house at the Chicago Hilton, he demonstrated UPS’s creative “whiteboard” marketing campaign and explained its role in communicating to customers the value of the company’s transformation.

The importance of UPS’s vision extends beyond UPS stakeholders because it reflects a shift in emphasis away from industrial efficiency to knowledge-based innovation. Make no mistake, efficiency is mission-critical to every business, but fewer companies can differentiate based on efficiency. To its considerable credit, UPS sees the shift and is striving to empower customers with information as well as delivery services.

A History of Transformation

Mr. Eskew set the context by emphasizing that UPS has a history of transforming itself to meet technology and market challenges:

• Founder Jim Casey began the company as bicycle messenger service in 1907, but emerging technology, in the form of the telephone, began to drive down demand.
• The company shifted emphasis to serve downtown retailers by delivering shoppers’ parcels to their homes via uniformed messengers. This business was subsequently challenged by the automobile after World War II, which gave rise to shopping centers and the fall of the “downtown shopper.”
• In response, UPS changed its focus to business customers, away from retail. It grew its numerous business-focused delivery services on a global scale.
• Today the value proposition is enabling customers’ growth through transparent supply chain services. The company has acquired complementary logistics and supply chain services and made aggressive technology investments in order to deliver as much as its services as customers wants—when and how customers want them. Reflecting the change, the “parcel” dropped from company branding, and the name changed from “United Parcel Service” to “UPS.” The tagline changed from “We run the tightest ship in the shipping business” to “What Can Brown Do For You?” For fun, here is a tagline history.

In August 2005, Mr. Eskew addressed the Asia Technology Summit, and his comments about UPS’s vision beautifully articulated the shift in focus from the Industrial Economy’s efficiency to the Knowledge Economy’s innovation:

When I started with UPS back in 1972, we were a one-dimensional business… we charged one rate… (whether) you were the largest department store in America or a small family-owned business… Residential and commercial rates were all the same. We picked up and delivered packages on our terms, that is, whenever we said we would. We were designed for efficiency and whatever was best for the masses… We came to work every day thinking about how we could better optimize the system.

We didn’t think about how we could help make each customer better; rather, how we could optimize the system better. (1:1 Technology’s Role in Creating Customer Intimacy)

New Customer Focus

Today, UPSers are constantly asking themselves, “How can we make senders and receivers more successful?” Executives are looking at two key forces that drive commerce today: 1) the globalization of labor and 2) the empowerment of the individual. These trends are reflected by the growth of the “small package” business:

• In 1976, the U.S. had $10 billion in foreign exchange per day, and 2% of U.S. GDP involved movement of “small package” freight (consumer pull)
• In 2006, the U.S. had $10 billion in foreign exchange per second, and 12% of U.S. GDP involved movement of “small package” freight
• These figures show that the supply chain is speeding up and becoming more granular and responsive

UPS is responding to these market forces by transforming how it goes to market: rather than “pushing” vertical asset “solutions” to customers, the company seeks to empower customers to “pull” individualized services to themselves. In other words, it is personalizing services, treating each customer, each package and each transaction as if it were the only one, and it has a strong SMB (small/medium business) focus. In connection with this, Mr Eskew cited “the Internet” as a metaphor: on the Web, small companies can look as big as the biggest ones. (The company has about 500 custom-built applications that enhance granular visibility into all aspects of the supply chain, and it makes select functionality available to customers through Web services. For more on this, see UPS Seeks End-to-end.. Visibility.)

Marketing Campaign: “Whiteboard”

However, it isn’t enough for UPS to transform itself; the company must also communicate to customers how it is changing, and what the transformation means to them. Enter “whiteboard,” an icon for brainstorming and creating sophisticated solutions for customer needs. “Andy” is the character that interacts with online customers while at the (online) whiteboard. Mr. Eskew demonstrated some of its concepts and features, live:

• UPS wants to get customers thinking and rolling their own solutions using UPS services.
• Choose time of delivery, mode and cost, and track every package all the way.
• Seamless supply chain solutions can bring global customers (and suppliers) closer.
• Clear customs faster by bundling discrete parcels to clear and splitting them for individual delivery afterward.
• Think of UPS as a “rolling warehouse,” whether over land, sea or air.

Mr. Eskew also stressed that UPS strives to make the complex simple (another way to look at this is that UPS encapsulates complexity. Customers get transparency of service options and shipping information, but they don’t have to understand all the intricacies of how UPS gets the package there).

Wrap-up and Q&A

• Mr. Eskew’s concluding message was, “Don’t let your current success prevent you from transforming your company.” UPS is still here because it’s been willing to transform itself to meet the market.
• One-to-one is how to meet customers today. Mass marketing is less relevant.
• Nimble is more important than size in many cases.
• Running a massively complex company like UPS is possible when you “get out of the way and depend on your people.”
• Chicago is very important to UPS to to its importance as a locus of distribution. UPS will continue to have a strong presence here.
• Regarding competitors, it’s more important to focus on customers.
• Of course, the growth of international trade is very important to UPS. China and India are on everyone’s list, but don’t overlook Europe and the U.S. UPS’s European operations have seen double digit growth over the past decade.
• The global labor shift is fueling UPS’s growth. In the 20th century, companies brought labor to the company (production line), beginning with Henry Ford’s revolutionary assembly line. Today, work flows to people.

Analysis and Conclusions

• UPS’s transformation reflects the shift to the Knowledge Economy in which companies: 1) create most of their value through knowledge rather than products and 2) use customer experience as a touchstone for innovation. For more on this, see The Knowledge Economy: the Ultimate Context for Understanding the Future.
• Supply chains can be defined as processes in which partners collaborate by sharing information and coordinating action. They have material channels and information channels. The latter enable coordination and largely determine the efficiency of the supply chain, which has a powerful bearing on competitiveness.
• UPS does move bits at the end of the day, but its differentiation increasingly comes from the information channel. When customers configure highly granular services (often for their customers), they create options and services for their customers. Many times, information about the movement of packages is worth as much or more than the package itself.
• Metaphorically, UPS and its rivals are the Internet of bits. On the Internet, a piece of data—whether text, picture, voice or video—gets split into packets that travel separately over the network and get reassembled at the receiver’s end. Similarly, UPS can chunk your bits-based packages to make them cross borders more quickly and/or cheaply and disassemble them for individual delivery. Their capabilities are growing in this area, and the increasing granularity of control over information can provide customers with extensive room to innovate.
• UPS delivers an increasingly sophisticated suite of supply chain and logistics resources to customers, many of whom cannot afford advanced supply chain and logistics experts as can large enterprises. Using information effectively, companies of all sizes can minimize the need for warehouse space and safety stock by employing just in time processes.