Failure to Properly Manage the Innovation Function in an Organizational Setting Thesis

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Innovative Function

FedEx had spent the previous twenty years expanding its business, and revolutionizing the way the world viewed the shipping industry. As a result of FedEx's mastery of logistics, the global business community had undergone a fundamental shift in viewpoint. Firms in New York could now do business with firms in Los Angeles as though they were in the same town. Superconductor manufacturers in the Philippines could operate as though they were a day's travel from Silicon Valley because, in terms of shipping time, they were. Yet when FedEx purchased office services chain Kinko's, something happened to FedEx. A firm that just twenty years previous had invented an entirely new concept in the logistics business was unable to implement any semblance of innovation. The result was disastrous, as not only was the Kinko's culture destroyed but the FedEx culture failed to take hold. Ultimately, the acquisition of Kinko's was supposed to result in significant innovation. The synergies that were supposed to result from that purchase were going to represent the next several years' worth of innovation in the simultaneous development of the two businesses. This paper will examine why that innovation did not take place, and why ultimately FedEx resigned itself to that failure to extract synergies from the Kinko's business.

The Required Innovation

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When FedEx bought Kinko's, the result was intended to be the development of significant congruence between the two operations. For that to occur, the two companies needed to exercise a significant amount of converge between their operations. Kinko's was expected to adapt to FedEx corporate culture, but it was also expected to adopt FedEx systems and find ways to alter its business paradigm to become congruent with that of FedEx.

Thesis on Failure to Properly Manage the Innovation Function in an Organizational Setting Assignment

The basis of this rationale was that FedEx was the dominant party in the merger. The Memphis company was at the time one of America's business leaders, a company that had effectively changed the way America did business. Dallas-based Kinko's was a company that had made a significant contribution to the American business landscape. When FedEx purchased Kinko's, there was the assumption that this two revolutionary concepts would combine to create a uniquely innovative entity.

What occurred was the opposite. The cultures at FedEx and Kinko's clashed, dramatically. While on paper there was significant congruence between the businesses of the two organizations, in reality there was little. The combination of the two entities was supposed to generate significant innovation in the business models of both. Yet, when the dust settled, this did not happen. Rather, FedEx renamed the Kinko's operation FedEx Office in an attempt to purge Kinko's thinking from the entity.

Among the expectations that FedEx had when it purchased Kinko's was innovation in its own business model. This would have meant that Kinko's created new ways for FedEx to do business. Neither company was sure what this meant, and ultimately that became the problem. Innovation was expected, but had to impetus.

Lack of Innovation

Each company desired innovation at the time of the merger. FedEx wanted a new revenue stream, and a new way of generating new business for themselves. Kinko's wanted a way to tie their business into the FedEx model of excellence. Neither of these ambitions succeeded. Both companies failed to innovate, and therefore neither company realized any of the innovation that was expected to accrue from the merger. Among the potential innovations that were expected were a streamlining of the process by which a customer would print or copy paperwork and ship it; adding more drop-off locations; and combining technology such that the customer bases of the respective organizations could be targeted for new product or service launches, or combined promotions.

This lack of innovation occurred for a few reasons. The first was a major cultural disconnect between the two companies. FedEx had a corporate culture based on military ideals, founder Fred Smith being a military man himself and having modeled FedEx's logistics system on the military's. Kinko's, on the other hand, had a culture that could almost be described as counterculture. While both firms were successful, they had corporate cultures that were entirely incongruous. The result was that the merged FedEx Kinko's had no basis for innovation. The combined company had militaristic culture imposed upon a counterculture. There are two ways such a clash manifests itself. Either the counterculture feeds creativity and innovation into the militaristic culture, or the latter constricts the former. FedEx was the dominant of the two cultures, having been the purchaser. The result was that ideas from Kinko's were not relevant to the new, merged company. This despite the fact that ideas from Kinko's were supposed to shake up and revolutionize a FedEx culture that had remained conservative.

Another reason that this lack of innovation occurred was a poor sense of direction from above. The acquisition of Kinko's had been spurred in part by the acquisition of Mailboxes Etc. By competitor UPS. That acquisition was fresh at the time, and FedEx management clearly felt that UPS was onto something in terms of business congruence. However, it is clear that whatever sentiment FedEx may have had with regards to potential congruence, they had no idea how it was going to occur. The result was a merger with Kinko's that had no clear implementation plan. The two companies were to combine entities and then something was going to happen from which profits would accrue. At no point in the merger proceedings did FedEx specifically explain what these business innovations would be.

A third reason why the expected innovation did not occur was that FedEx did not push the issue of innovation. This can be related to the notion that FedEx management appeared not to understand the rationale behind the merger in the first place. Ideally, the company would have set up an implementation plan to incorporate the Kinko's operation into their business.

FedEx had in the course of its history absorbed several firms in order to expand its operations. However, they had never absorbed a company outside of the logistics business. Within the logistics business, they had demonstrated an ability to consistently leverage the competencies of their acquisition, apply those competencies to their own business and ultimately derive innovation from that. With Kinko's, however, FedEx seemed to struggle with the notion of innovation. Management seemed only vaguely convinced of the rationale behind and the merits of the Kinko's acquisition. Therefore, there was little impetus to leverage Kinko's core competencies to derive innovation.

What Should Have Been Done

FedEx has faltered in recent years. Its business has dropped due to problems in the macroeconomic environment, but a failure to manage innovation at the Kinko's subsidiary has been a contributing factor. The company has taken heavy writedowns on the unit and finally this spring rebranded Kinko's under the moniker FedEx Office. This occurred because FedEx was unable to find any source of innovation with its new property.

Yet, there is the sense that the FedEx purchase of Kinko's was an opportunity lost. The first thing that went wrong, and therefore the first thing that could be changed, was with regards to the integration of the two corporate cultures. FedEx took the approach that their system was the only viable one. Their management felt that their duty was to professionalize the Kinko's operation. The reality was that Kinko's had been a successful firm in its own right, and had successfully expanded to national size. FedEx management was not wrong in their analysis that there was substantial congruence between the operations of the two companies. The error they did make, however, was in assuming that these congruencies would emerge organically. Instead, they needed to be cultivated. That FedEx so bluntly rejected the value of Kinko's culture directly restricted the potential for knowledge transfer between the two operations. In turn, this stifled any opportunity for innovation.

Another reason that innovation did not take hold in the years after the FedEx purchase of Kinko's was that management did not actively seize the opportunity to promote innovation. Sometimes, firms seem to operate on the premise that innovation occurs in a vacuum. That is not the case. The mere potential for innovation does not inherently result in its manifestation. It needs to be encouraged. FedEx never encouraged innovation at Kinko's post-merger. Yet, that innovation had it occurred would have allowed FedEx to derive the maximum return on its investment. Without actively driving innovation, none occurred and as a consequence the FedEx acquisition of Kinko's resulted failed to result in innovation and the fostering of synergies between the two entities.

Conclusion

FedEx had the opportunity to innovate its operations when it acquired Kinko's. The two firms were dramatically different in culture and operations, but had some congruence in terms of their value propositions to customers. Yet, it was inevitable that to take advantage of these opportunities the firms would need to innovate their operations. Both companies had operated in fairly stable environments for many years, devoid of innovation. This culminated in the acquisition of Mailboxes, Etc.… [END OF PREVIEW] . . . READ MORE

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