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Managing Change at United Parcel Service ... fast flights vs. cheap ground delivery, ... of the purchases made via the Internet.
HROA/002 IKC

Managing Change at United Parcel Service (UPS) This case was written by Senthil Ganesan, with the help of Sreedhar Babu Kanuri, IKC. It was compiled from published sources, and is intended to be used as a basis for class discussion rather than to illustrate either effective or ineffective handling of a management situation.

2003, IKC. All rights reserved. To order copies, call 0091-40-2343-0462/63 or write to ICMR, Plot # 49, Nagarjuna Hills, Hyderabad 500 082, India or email [email protected]

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Managing Change at United Parcel Service (UPS) UPSer:...As you know, our company is experiencing a series of dynamic changes. We are, more than ever, questioning why and how we do everything associated with running our business. During this time, we have come to realize that many of the traditional processes we have become accustomed to need to change because they continue to increase our operating costs. We all need to admit to...shortcomings and then commit to becoming advocates for the change required to move to a much higher level. -Kent Nelson, Former CEO1

Introduction Atlanta based United Parcel Service (UPS), the largest package delivery company in the US, provided various specialized transportation and logistics services. In 2002, UPS transported more than 13 million packages and documents per business day throughout the US and to more than 200 countries and territories (2002 delivery volume was 3.4 billion packages and documents). It used a fleet of about 88,000 motor vehicles and more than 575 jet aircraft to serve about 1.8 million shipping customers per business day. During peak season- between Thanksgiving and Christmas, UPS delivered an average of 208 packages a second. In 2001, UPS had acquired companies like Fritz Companies (global freight forwarding, customs brokerage and logistics company) and First International Bancorp (leader in the use of US government-guaranteed loan programs). For the year ending 2002, UPS reported revenues of $31.3 billion ($30.3 billion in 2001) and net income of $2.4 billion ($2.4 billion in 2001) (See Exhibit I for segment wise revenue split-up). Managers, employees, retirees, and the founders’ family owned 90% of UPS and controlled 99% of the voting power. UPS had come a long way from a private messenger and delivery service in 1907 to become an integrated supply chain management and logistics solutions provider. It had been successful in translating itself from a small regional parcel delivery service into a global company. UPS had attracted customers by offering them various choices: fast flights vs. cheap ground delivery, simple shipping or a panoply of manufacturing, warehousing, and supply-chain services, etc. The company had a huge transportation infrastructure suitably supported by its expertise in supply chain management and other technological solutions. UPS was also engaged in the delivery of goods purchased over the Internet. UPS had emerged as the preferred carrier for more than 55% (10% for FedEx) of the purchases made via the Internet. In 1994, facing increased competition and technological advancements, UPS had announced that it would focus more on “Quality.” The company had traditionally been focused on operations with not much thought to what a customer actually wanted or if he or she was completely satisfied with the service. CEO Kent Nelson commented2:

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Kathi Decker, Shara Engleman, Tony Petrucci, Shirley Robinson, “United Parcel Service and the Management of Change,” College of Business and Public Administration, University of Louisville. -do-

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Managing Change at United Parcel Service (UPS)

“Change is not easy and the transition from the „Old‟ to the „New‟ UPS while traveling down the „Road to Quality‟ will prove to be long trip for a company deeply grounded in tradition.” Subsequent to the corporate philosophy change, UPS had made significant progress in being attuned to customer needs. But the demands of globalization and the greater expectations of customers remained major challenges for UPS to address.

Exhibit: I Segment Wise Revenue Split-Up US Domestic Package Ground Next-day Air Deferred International Package Export Domestic Cargo Non Package UPS Logistics Group UPS Freight Services Other Total

15,707 5,349 2,868

15,671 5,433 2,893

3,276 943 461

2,931 907 407

1,024 945 699 31,272

738 741 600 30,321

Source: www.hoovers.com

Background Note In 1907, James Casey realized that there was a tremendous need for private messenger and delivery services. Until that time, most messages and packages were delivered using domestic help (Only few Americans had telephones, and the US Post Office had not yet started its parcel post system). With a seed capital of $100 that he had borrowed from a friend, Casey started his company in Seattle, Washington and named it “American Messenger Company” (AMC). Casey started offering services with six messengers and two bicycles (He later switched to motorcycles and a Model T Ford). AMC’s popularity swiftly increased even though the competition was intense. To build on his company’s growth and popularity, Casey emphasized four success parameters- customer courtesy, reliability, round the clock service and low rates. AMC soon started using the slogan: “Best Service and Lowest Rates.” In 1913, Casey decided to merge his company with a competitor, Evert McCabe, to form Merchants Parcel Delivery (MPD). He realized that there was a good opportunity to offer packaging and transportation services to retail stores and that his company was too small to handle the higher volumes. MPD soon pioneered “consolidated delivery”-- combining packages addressed to a certain neighborhood on to one delivery vehicle. Towards the end of the decade, Casey took a decision to unionize his workforce and invited the International Brotherhood of Teamsters to represent his drivers and part time employees. Soon UPS launched various innovations such as variable start time, minimum work rules, working across job classifications, combinations of inside and outside labor, part time employment for half the work force and mandatory overtime as needed. During the 1920s, MPD grew rapidly and expanded its services to the cities of Oakland and Los Angeles in the state of California. By the end of the decade, MPD had its presence in almost all the major cities of the West Coast. It soon started offering intra-city services in New York City. 2

Managing Change at United Parcel Service (UPS)

During this time, the company changed its name to United Parcel Service (UPS). Casey explained the logic behind the new name: “United because shipments were consolidated, and Service because service is all we have to offer.” Feeling that brown was neat, dignified, and professional, Casey ordered that all his delivery vehicles be painted brown. Casey was a stickler for perfection and professionalism and he laid a strict dress code for his workers- they all had to wear brown uniforms, neatly pressed, with shoes shined. The vehicles were to be well maintained and washed everyday. He operated the company like a military unit, ordering recruits to be polite at all times and meet service commitments. In 1929, the company formulated “The Policy Book” to standardize these practices in all the cities. World War II changed the nature of UPS’ business. In an effort to cut costs, most customers started carrying their packages themselves from the stores. This situation continued even after the war, although for a different reason. With growing urbanization, many people started migrating towards cities that were characterized by neighborhood markets (corner stores) and huge shopping centers. Also impromptu shopping became a part of the urban lifestyle. Since most of the customers had their own cars, it was easy for them to drive home with their packages. Hence, not many were willing to pay for delivery. This change compelled the company to adapt a business model that would weather any possible changes in consumer psychology. UPS decided to be a “common carrier” that would legally allow it to deliver packages between any two addresses in the US for both private and commercial customers. During this time, only the state run United States Postal Service (USPS) was authorized to be such a carrier. As a common carrier, UPS was legally required to serve any shipper who was willing to pay, no matter how small the shipment or how remote the destination address. The strategy was easier conceived than implemented. The problem was that UPS was restricted from operating in most parts of the US. The company had to get federal approval for carrying the packages across each state border. It was not until 1975 when UPS was given authorization in all 48 mainland states. While UPS was trying to gain national parcel delivery status, it also continued to expand its services to all the major cities in the country. In 1953, it started air delivery service using planes owned by passenger airline companies. UPS named this service the Blue Label Air and offered two-day delivery service to major cities on both the East and West coasts. Blue Label Air was an also-ran service for most of the years. Meanwhile new companies like FedEx (started in 1973) were making phenomenal progress. By the late 1970s, airfreight volumes were growing by 1520% annually and FedEx was doubling its profits and tripling its revenues. This phenomenal growth caught the attention of the UPS senior management. The timing was perfect. In 1978, the US government decided to deregulate the airlines and air-cargo industry and this proved to be a blessing for UPS. The deregulation affected two business segments: Common carriers specializing in small package delivery on the ground and Airfreight forwarders Prior to deregulation, common carriers like UPS were not allowed to own their aircraft without the scrutiny (there were restrictions as to how much load an airline could carry) of the Civil Aeronautics Board (CAB). Instead, they had to use passenger and freighter aircraft (operated by carriers like American Airlines, Flying Tigers, etc) or buy small aircraft (Falcons) that were approved by the CAB. Airfreight forwarders (e.g., Airborne Freight) were carriers that were involved in the pickup and delivery of freight to be transported on either commercial or freighter aircraft owned by others. Following deregulation, most common carriers and forwarders purchased their own aircraft and transformed themselves into an integrated air transportation company. To facilitate air delivery service, UPS decided to build a hub in Louisville, Kentucky that would act as central sorting center for all the regional hubs. In 1983, this hub was equipped to handle the large volumes of overnight delivery and also second-day delivery. By 1985, UPS was able to offer 3

Managing Change at United Parcel Service (UPS)

overnight delivery services to almost all major cities in the US. By 1987, the company owned 89 aircraft (plus 13 Boeing 757 jets) and leased 140. It was during this time, that UPS started international operations to several countries in the Americas, Eastern and Western Europe, the Middle East, Africa and the Pacific Rim. During the late 1980s, UPS began to upgrade its technology by installing on-board computers in its vans and cars. In the early 1990s, UPS faced stiff competition from formidable rivals like FedEx, Roadway Packaging System (RPS), USPS and DHL. UPS began to overhaul its image and the way it conducted business. Kent Nelson, CEO during this time, confirmed3: “Gone is the „we-know-what‟s-best-for-you‟ arrogance that was UPS hallmark for decades. UPS will now stress customer satisfaction.” UPS decided to achieve total customer satisfaction by improving its operating quality standards. Jim Kelly, who succeeded Nelson as the CEO, remarked4: “Our journey toward Quality began with the realization that we were at a competitive disadvantage in several areas. We needed to improve our time-in-transit performance and customer perceptions of the dependability of our services. We needed to overcome the misconception that our competitors were more technologically advanced than UPS. And we realized that we were in danger of becoming the high-cost carrier in the small package delivery business.” Between 1994 and 1997, UPS faced serious union related issues. In 1994, the Teamsters union staged a one-day strike (the cost to UPS was about $50 million) to protest against the new perpackage weight limit, which was raised from 70 to 150 pounds. In 1997, the Teamsters organized a 15-day strike that cost the company hundreds of millions of dollars. The union protested against the company’s policy of hiring thousands of part-time workers. The Teamsters gained popularity among the public as the strike rapidly became a rallying point for part-time/temporary workers and those stuck in low-skill, low-wage jobs. Although businesses throughout the US were seriously inconvenienced, public sentiment seemed to be with the strikers. To settle the strike, UPS combined several part-time jobs into 10,000 new full-time positions. UPS also dropped plans to opt out of a pension program for the workers. In addition, the company agreed to give wage hikes, which would average 15% for full timers and 35% for part timers over the next five years. The Teamsters, on their part, agreed to a five-year wage contract, instead of the usual three-year pact. Many insiders suggested that UPS had mismanaged the entire episode and that the company failed to anticipate a strike. Although, the strike cut into profits, UPS fought back to regain the customers’ faith. UPS lowered fuel costs, reduced its US workforce, cancelled plans for new purchases, and boosted its air volumes. UPS also took efforts to strengthen its Internet presence. At this time, more than 50% of all shipment-order information from customers came electronically. UPS responded to this need by introducing UPS Document Exchange in 1997. This was a secure document-transmission service that operated over the Internet. In November 1999, UPS announced a public offering of 110 million shares of common stock at $50 per share, the largest IPO ever by a US company at that time. Also that year, UPS Capital was established as a subsidiary. UPS paid $450 million for freight-forwarder Fritz Companies as part of its push to expand in the logistics segment. The company also acquired Uni-Data, a global 3

Kathi Decker, Shara Engleman, Tony Petrucci, Shirley Robinson, “United Parcel Service and the Management of Change,” College of Business and Public Administration, University of Louisville. 4 Management Conference Highlights, Atlanta, Georgia, 1996.

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Managing Change at United Parcel Service (UPS)

logistics company based in Germany. UPS also expanded its portfolio of services with several acquisitions. These included Hybrid mail, a blend of electronic and physical first-class mail, Flatsthe postal term for mail that was larger than a letter, but typically smaller than a parcel, and UPS Presort, a daily mail pick-up service mainly targeted at small- and medium-sized businesses that did not typically qualify for discounts on postage costs. Following the retirement of Jim Kelly in January 2002, Michael Eskew became the CEO. He began the process of contract negotiations with the Teamsters Union, which represented 210,000 UPS drivers and other employees. The management and the union agreed on a six year contract valued at $9 billion. This contract aimed at increasing wages and benefits for the workers and also add new union jobs. The previous five-year contract was valued at $4.2 billion.

Business Segments UPS operated in the following business areas:

Domestic Services This included Domestic Ground and Domestic Air. Domestic package delivery accounted for 76% (78% in 2001) of total revenues in 2002. UPS handled about 12.5 million daily shipments (domestic). 85% of this was done through its Ground delivery service. Since its inception, UPS had been engaged primarily in the delivery of packages by means of ground transportation. Over the course of its existence, the company had been successful in expanding its service (interstate and intrastate) gradually to all 48 contiguous states plus services to Alaska and Hawaii. The company’s air delivery service also contributed significantly to revenues with Next Day Air and deferred air delivery options commanding prices that were two to four times those of ground service and were growing significantly faster than the ground business. UPS Next Day Air offered guaranteed next business day delivery by 10:30 AM to more than 75% of the US population and delivery by noon to areas covering an additional 14% of the population.

International Services UPS started full-fledged international operations in 1975. In 2002, it handled close to 1.2 million international shipments per day. The company provided services to about 200 countries and provided guaranteed overnight delivery to major business centers in Europe and Asia. Some of the services included UPS Worldwide Express and UPS Worldwide Expedited that guaranteed 8:00 AM, 8:30 AM, 10:30 AM and 12:00 Noon next business day delivery to major cities around the world. It also offered complete customs clearance service for any mode of transportation (regardless of carrier), at all UPS Customhouse Brokerage sites in the US, Canada and other regions. In providing international services, the company competed with major players like FedEx, USPS, Airborne Express, DHL Worldwide Express, Deutsche Post and TNT Group. In 2002, international operations contributed about 16% (14% in 2001) of total revenues. Revenues from this service were growing faster than the domestic business and industry experts believed that this trend would continue for the next few years.

Non-packaging Businesses Non- packaging businesses included UPS Logistics Group, UPS Capital Corp and UPS Professional Services. These businesses accounted for the remaining 8% (8% in 2001) of 2002 revenues and were considered to be the fastest growing segment within UPS. UPS Logistics provided supply chain management, transportation services, service parts logistics and logistics technologies. Among UPS’s supply-chain management clients were Nike.com, Raytheon, 5

Managing Change at United Parcel Service (UPS)

Siemens, Bank One, Compaq, Sprint, etc. UPS Capital provided commercial finance products including equipment leasing, asset-based lending, accounts receivable purchasing, corporate finance, inventory purchases, letters of credit, etc. It also owned insurance company, Glenlake Financial, which provided excess value insurance, flexible parcel insurance and credit insurance. UPS Professional Services was set up to provide supply chain management services to medium and large sized businesses. This division also had plans to advise its clients on such areas like product design, sales and marketing, planning, procurement, production and cash management.

Corporate Culture and Organizational Change UPS had spent decades sticking to tried-and-true practices and strategies. For example, UPS drivers were trained on how to quickly buckle and unbuckle seat belts also to put their seat belts on with their left hand while simultaneously putting the key in the ignition with their right hand. Drivers were also required to presort parcels for five stops ahead. UPS ardently followed Casey’s principle up until the 1990s. But over time such techniques had become outdated as smaller upstart rivals and old foes became competitive. UPS soon realized that excelling in operational aspects alone was not enough for it to maintain a competitive advantage in the delivery market. UPS began to examine what its customers wanted and realized the need to change its style of functioning. Traditionally, UPS’s management style had been risk averse. It had emphasized formalized procedures, a highly centralized structure, a higher ratio of superiors to subordinates, formal control systems, seniority more than performance, an aversion to accepting new ideas and a promote-from-within mentality (Kelly started his career as a driver in 1964 and Eskew as an Engineer in 1972). The company felt that such culture could be applicable anytime and that there was no need for change. Senior executives would say: “but we’ve always done it like this...look how profitable we are.” When Kelly succeeded Nelson, the “U” in UPS often stood for “unyielding” or “unbeatable.” Kelly indicated he would change the meaning to “unbelievable” and “unlimited.” UPS looked for ways to make its delivery process more efficient and also wanted to be sure that customer satisfaction be met. As one senior official at UPS put it5: “Consider this scenario. The driver steps from the truck moving quickly inside the office. Handing the employee at the counter a package, the driver requests a signature on a hand-held computer. Chatting amiably they talk about the customer‟s satisfaction with this delivery as well as services overall. Concluding the conversation, the driver steps back in the brown truck setting the DIAD (Delivery Information Acquisition Device) into the DIAD Vehicle Adaptor (DVA) and instantly relays real-time package delivery information worldwide within minutes of the transaction completion. Such efficiency is what UPS is actually aiming for.” Implementation of this idea however proved tough. UPS drivers were more worried about time constraints and meeting schedules rather than customer satisfaction. The company realized that its corporate culture had to change. This transformation started to affect every part of its organization, including employee functions and roles within the organization. Emphasis shifted from training drivers to step out of the truck on their right foot (to save precious seconds of delivery time), to training drivers to interact with their customers and learn their needs. Emphasis shifted from the needs of the organization to those of the customers- both internal and external.

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Kathi Decker, Shara Engleman, Tony Petrucci, Shirley Robinson, “United Parcel Service and the Management of Change,” College of Business and Public Administration, University of Louisville.

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Managing Change at United Parcel Service (UPS)

To educate its employees about the change in focus and also enable them to develop the necessary skills and competence to implement these changes, UPS contracted with the Atlanta Consulting Group to conduct workshops. Two workshops were conducted during this time- “Trust & Teamwork” and “Quality at Work.” The objectives of the Trust & Teamwork workshop varied from building teamwork to building self-confidence at the workplace (See Exhibit I). All management and full-time employees were required to attend this three-day workshop, which consisted of lectures, games and various learning exercises. The aim was to show the relationship between trust and organizational performance, and how teamwork required a win/win mindset as opposed to a win/lose mindset. This workshop also dealt with five fundamental (HEART) principles of human interaction: 1. 2. 3. 4.

Hear and understand me. Even if you disagree, please don’t make me wrong. Acknowledge the greatness within me. Remember to look for my loving intentions 5. Tell me the truth with compassion

Exhibit: II The Objectives of Trust and Teamwork Workshop Build teamwork and collaboration in our work with others. Understand the role trust and credibility play in our personal effectiveness. Create an environment of win-win problem solving. Listen with skill and understanding. Take responsibility for producing desired results. Give and receive feedback effectively. Confront others in a caring and constructive way. Build self-confidence. Source: Kathi Decker, Shara Engleman, Tony Petrucci, Shirley Robinson, “United Parcel Service and the Management of Change,” College of Business and Public Administration, University of Louisville.

Each person who attended the workshop received a copy of the book, “Managing From The Heart” and was encouraged to read it and apply its principles to his or her personal and professional life. The HEART principles were considered as a definite indicator of change at UPS because UPS now stressed the importance of “love” at the workplace. Participants, however, had mixed feelings about this workshop. Many employees suspected that the “soft-side” of UPS did not exist. The workshop trainers had to really convince the employees that UPS was indeed serious about this change. During the workshop, the trainers highlighted the need for change: “To survive and prosper in today‟s and tomorrow‟s global economy will be difficult, if not impossible, for organizations in which people don‟t trust each other. Trust is the „miracle ingredient in organizational life- a lubricant that reduces friction, a bonding agent that glues together disparate parts and a catalyst that facilitates action.‟ We believe that trust is the most fundamental fabric of any organization. Without trust, collaboration and teamwork are impossible.” Following the workshop, posters were stuck on the office walls reminding everyone to adopt the principles learned. The summary of the workshop proceedings was also sent as a reminder via office mail. The “Quality at Work” workshop gave employees a clear vision of where the company was heading and how it planned to get there. On the first day, trainers asked the managers to list down three things: what to take with them on the road to quality, what to leave behind and what new 7

Managing Change at United Parcel Service (UPS)

things to acquire for the trip. This workshop helped the employees to analyze and improve their work methods in order to better serve their internal and external customers. The company later used several methods to follow up and reiterate the training that employees received in the workshop. One method was the weekly email message called the “Quality Update.” While concentrating on its culture change, UPS also kept improving its operations. The company adopted a TQM approach during this time. A special management session of DOF (Delivering Our Future- Taking a Leadership Role in Total Quality) was designed to create an awareness of the competitive reasons for Total Quality and the role all managers at UPS would play in the quality process. During the DOF training, exercises and presentations were conducted to teach trust and management led change. Training on empowerment and possible breakdowns during empowerment, soft skill development such as listening, etc., was also conducted. Throughout the training, it was mentioned several times that UPS was really good at what it did, but still needed to change. The Quality process started in November 1994 with the help of the Atlanta Consulting Group. As a result of this process, eighteen strategies were developed in August 1995 and identified as critical to the company’s future success (See Exhibit II). The first eight were considered priority initiatives, which were started in January of 1996 while the remaining were implemented beginning May 1997. One group that was significantly affected by UPS’s transformation was the Industrial Engineering (IE) department. This department was involved in activities such as auditing, reporting, time measurement of the company’s various operations. In conjunction with its transformation plans, UPS started reevaluating its departments and made significant changes. However the IE department was still internally focused. UPS immediately formed the IE Reassessment Group to reengineer IE (which had not been greatly modified since 1962), which was spending more than 80% of its time in activities that did not add value to UPS customers. Which hand the UPS driver should hold his keys in, which foot to use when stepping up into the package car, and how long it should take to deliver one package were not really beneficial to the UPS customer. With help from consultants from Coopers and Lybrand, IE shifted its focus to outcomes such as customer satisfaction, volume development, customer logistics, etc. (See Exhibit III)

Exhibit: III Shift of Focus Priority Initiatives

Remaining Strategies

Retention, Hiring, Orientation & Mentoring Cost Factors Asset Utilization Training and Education Measurement Technology Investment Communication Gateway Reassessment

Employee Scheduling Customer Point of Contact Support and Service Peak Season Aircraft (Leased) Leadership Employee Involvement Labor Union Partnership Planning Activities Fleet Planning Regulatory Reform

Source: Kathi Decker, Shara Engleman, Tony Petrucci, Shirley Robinson, “United Parcel Service and the Management of Change,” College of Business and Public Administration, University of Louisville .

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Managing Change at United Parcel Service (UPS)

Nelson felt that the successful implementation of change in the company was due to employee’s receptiveness6: “UPS employees were ready for the change--more ready than you might find in most companies. This is because of the fact that UPS managers and supervisors are also UPS owners. Their life‟s savings are tied up in it. Change meant UPS people would have to tackle their jobs differently. But first we had to change the mindset of our people. In the past, UPS was always focused on how to become more efficient and reliable in order to effectively serve its customers. UPS went so far as to tell its customers why it was in their best interests „to use the services we provide in the way we want you to use them.” UPS started to look at itself through its customer’s eyes. Every application the company implemented had to meet a documented customer need, improve service in a measurable way, and save the company money over time. UPS implemented online self-service applications and an automated voice-response system, to ensure that a customer could reach an associate anytime of the day. Customer satisfaction reports were also obtained through the face-to-face interactions its drivers had with the customers. Drivers were able to use the Internet to report customer needs to the sales team. If a sales person made a sale based on that lead, the driver was given points on a debit card that could be used as cash. This increased sales encouraged drivers to become more aware of customer needs.

Exhibit: IV The new goals for UPS’s IE Team Become more focused on the external customer; Set as a goal a 90% rating for internal customer satisfaction; Identify and apply new technology that would improve existing operations and develop new business; Decrease time spent on auditing and reports; Concentrate on improving operational areas that have value to the external customer; and Spend less time on time study, and more time on training UPS management and hourly employees in job methods. Source: Kathi Decker, Shara Engleman, Tony Petrucci, Shirley Robinson, “United Parcel Service and the Management of Change,” College of Business and Public Administration, University of Louisville.

To keep its employees continuously motivated and embrace the change, UPS improved upon its existing employee ownership plans. The plan was designed so that in profitable years, all employees shared in the company’s profits, earning far more than they would in a normal salary. The company also had in place three profit sharing plans: Thrift plan: For all regular employees who had completed atleast one year of service. UPS Management Incentive Plan: For full time managers and Stock Option Plan: For all employees holding positions equal to or above the division manager level. UPS also offered a host of benefits aimed at providing long-term financial security and immediate health care services to all employees. Both the retirement and health care plans were noncontributory for all employees who met minimum age and service requirements. Even part time employees received retirement and healthcare benefits.

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Kathi Decker, Shara Engleman, Tony Petrucci, Shirley Robinson, “United Parcel Service and the Management of Change,” College of Business and Public Administration, University of Louisville.

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Managing Change at United Parcel Service (UPS)

UPS believed that communication between departments (and individuals) was essential to promote a sense of ownership among everyone. UPS wanted each person to know what the other person’s activities were. To this effect, a publication called “The Big Idea” was produced and distributed within every district to inform employees about national and local UPS news. Weekly Monday meetings were held in the headquarters, where representatives from each department met with the top management committee. Each representative reported on his or her department’s previous week’s accomplishments and the following week’s objectives. Issues like safety, employee recognition, new programs and policies, technology, customer priority, assignment changes and training programs were reviewed. Each spring, a conference involving the Top 200 managers in the company was held for discussing the future strategic plans and present organizational accomplishments. Standard methods like performance appraisals and opinion surveys were used to communicate opinions and performance levels in specified task areas. For verbal communication, districts held Pre-work Communications Meetings (PCMs). A PCM was a three minute meeting held prior to the start of each work day in the hub or package center to discuss either specific questions about work tasks or large issue like competition and strategic direction. For more personal one-on-one communication, a managerial tool called the “Talk, Listen, Act” (TLA) program was used to encourage closer coordination and interaction between managers, supervisors, package handlers, and drivers. A TLA was a scheduled meeting that gave employees protected time to express concerns, make suggestions, or simply establish more informal relationships with their managers. TLA meetings were required and monitored by the company for each employee and his or her immediate manager. Other surveys included the “Quality Performance Review (QPR),” which was an automated 360degree feedback process that was conducted every six months. QPR measured critical skills such as customer focus, financial and internal business process knowledge, people skills, business values and leadership. Before any 360-degree evaluation occurred, HR trainers held a minitraining session with participants to explain the purpose and process of the survey tool. Employees could download information about the process from the company’s intranet. The employees themselves initiated the peer-review process twice a year, asking their peers, supervisors and others to evaluate them. Peers, subordinates and bosses rated managers on a scale of one to seven. Scores were then reviewed with supervisors and direct reports. Based on that feedback, employees decided on their goals for the next six months. The HR department offered additional training or skills development if needed. The employees checked their improvements and results again six months later. Another important aspect of keeping employees attuned to customers was the Community Internship Program (CIP) started in 1968 under James Casey’s direction. Casey started this onemonth program to expose UPS’s predominantly white managers to the poverty and inequality exploding into violence in many cities. The program also aimed at helping UPS managers realize issues related to diversity and culture. Every summer, UPS handpicked about 50 of its middle level managers and sent them across the country to offer community service to local populations. These managers encountered problems like housing, education, healthcare, etc that a lower level UPS employee also would face. This community service helped them realize what problems each UPS employee would be facing at home. Business Week magazine reported7: “By forcing managers to grapple with the same problems, UPS hopes to awaken them to the difficulties many of their employees face, bridging the cultural divide that separates a white manager from an African-American driver or an upper-income suburbanite from a 7

Louis Lavelle, “For UPS Managers, A School of Hard Knocks,” Business Week, 22 nd July 2002

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worker raised in the rural South. This is a necessity for UPS, where minorities--many from poor neighborhoods--make up 35% of the workforce and 52% of new hires. Three out of four managers, meanwhile, are white.” Programs were directed at part time workers (mostly filled by college students) as well. UPS started offering tuition and other financial assistance to recruits willing to sign up with the company and work their way through college. Since the company had a policy of promotion from within, UPS expected that most of the college graduates would consider full time positions at the end of their studies. Through this Earn and Learn Program (started in August 1999), participants received up to $1,500 per semester and $3,000 per year in tuition assistance, with a cap of $15,000. In addition, the program provided up to $2,000 a year in student loans for a maximum of four years, which could be used for housing and other expenses. If the employee worked at UPS for four years while attending college, the company would waive up to $8,000 in loans, making the students liable only for the interest payments. In return for such assistance, employees agreed to work five 4-hour shifts per week during afternoon, evening or late night hours. UPS also made arrangements with 242 colleges to allow deferred billing for tuition, fees and other expenses. Under the deferred billing, UPS reimbursed colleges for classes that were completed by the employees. Participants were required to maintain passing grades to remain in the program. By 2002, the Earn and Learn Program had helped more than 20,000 students attend college. UPS had separate tuition reimbursement programs for full-time employees.

Future Outlook The organizational change implemented in the mid- 1990s had made UPS more attentive to customer needs and also changing market & technology factors. The company’s profit had grown rapidly at a compound rate of about 20% since 1997. It achieved its growth by fast expanding into international markets and by embracing new technologies. As of 2002, UPS operated in 451 markets across the globe. However, the company could no longer count on geographic expansion for the bulk of its growth. Moreover the competitive landscape had considerably changed. UPS’s dominant position as a ground carrier was greatly threatened by the success of FedEx’s ground service unit. Though UPS still maintained a leading market share, the company had announced plans to concentrate equally on its other business segments. Eskew’s strategy was to offer new services to existing customers. UPS’ logistics unit, for example, packed and shipped Compaq computers and Samsung cell phones for delivery, and also handled repairs and returns. UPS expected its non-package businesses to contribute heavily to its top and bottom line. The optimism was based on the general trend that most companies were in need of an expert to manage their goods, be it inventory or goods in transit. Most companies wanted to use a fast and cheaper way to solve these issues. In 2002, the logistics group generated $1.02 billion in revenues out of SCM solutions. The management and several Wall Street analysts predicted an annual growth of about 20 to 30% for the next several years. Since January 2001, UPS had made 20 acquisitions of smaller businesses that handled some form of supply-chain management in areas from banking to customs. UPS was also putting great hopes on its UPS Capital group. According to industry observers, this group had a great potential to finance virtually the entire supply chain for small, medium and large companies. As a finance company, it could finance inventory coming in, inventory being warehoused, and inventory moving out to the end user. It could pick up the receivables created by the deliveries. Many industry experts were of the opinion that UPS Capital was moving in the same direction as GE Capital.

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Managing Change at United Parcel Service (UPS)

With such increased focus on its non-package businesses, there was also wide spread concern that UPS was moving away from its core transportation business. However, in an interview to Business Week magazine Eskew defended the company strategy8: “We‟re not looking to do everything for every company. We‟re still largely in the smallpackage delivery business. That‟s roughly a $60 billion market in the US. But the worldwide supply-chain and logistics market is about a $3 trillion market, so that‟s where we‟ll see much of our growth. We‟re not talking about moving ore from the mines to the blast furnaces. We‟re talking about streamlining inventories. It can be taking cars to dealers from the factory, as we do for Ford Motor Co.—we‟re taking about $1 billion annually in inventory off their books. The idea is to let our customers focus on their core business and let us run the distribution networks. We know better than anyone how to wrap information around goods so that businesses can better see what‟s coming.”

8

David Shook, Q&A: The Man Who‟s Repackaging UPS, Business Week Online, 03rd June 2002

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Managing Change at United Parcel Service (UPS)

Bibliography Magazines/Journals/Newspapers 1. Kathi Decker, Shara Engleman, Tony Petrucci and Shirley Robinson, “United Parcel Service and the Management of Change,” College of Business and Public Administration, University of Louisville. 2. Jeffrey Sonnenfield and Meredith Lazo, “United Parcel Service (A),” Harvard Business School Publishing, March 23, 1992. 3. Avital Louria Hahn, “Men in brown: A growth story,” Investment Dealer’s Digest, 13 th December 1999. 4. Kelly Barron, “Logistics in Brown,” Forbes, January 10, 2000. 5. Brian O’Reilly, “They’ve Got Mail,” Fortune, February 7, 2000. 6. Charles Haddad, “Big Brown’s Big Coup,” Business Week, September 18, 2000. 7. Philip Seikman, “New Victories in the Supply Chain Revolution,” Fortune, October 30, 2000. 8. Stephanie Wilkinson, “It’s All in the Delivery,” eWeek, November 13, 2000. 9. Lea Soupata, “Moving People to Jobs: Lessons from UPS’s Transportation Plan,” Workforce, February 2001. 10. “UPS Vs. FedEx: Ground Wars,” Business Week Online, May 21, 2001. 11. Richard Stice, “Industry Surveys: Transportation (Commercial),” Standard & Poor’s, July 12, 2001. 12. Amy Tsao, “Can UPS Deliver in a Downturn,” Business Week, July 26, 2001. 13. Charles Haddad, “How UPS Delivered Through the Disaster,” Business Week, October 1, 2001. 14. Julia Kirby, “Reinvention with Respect: A Interview with Jim Kelly of UPS,” Harvard Business Review, November 2001. 15. Roger Morton, “Small parcel’s big 3,” Transportation and Distribution, March 2002. 16. Kristin Krause, “One UPS Face,” Traffic World, March 4, 2002. 17. David Shook, “FedEx Keeps Delivering,” Business Week, April 26, 2002. 18. Sidney Rutberg, “Financing the supply chain by piggy-backing on the massive distribution clout of United Parcel Service,” The Secured Lender, May/June 2002. 19. “UPS Is Constructively Dissatisfied,” Business Week, May 13, 2002. 20. Jon Birger and Michael Eskew, “A Big Question for Big Brown,” Money, June 2002. 21. David Shook, “Q&A: The Man Who’s Repackaging UPS,” Business Week, June 3, 2002. 22. Brian Grow, “UPS Doesn’t Deliver for Part-Timers,” Business Week,

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Managing Change at United Parcel Service (UPS)

23. Louis Lavelle, “For UPS Managers, A School of Hard Knocks,” Business Week, July 22, 2002. 24. Robin Ajello, “Big Brown’s Big Deal With Workers,” Business Week, July 29, 2002. 25. Paul Miller, “UPS Guarantees Residential Ground Deliveries,” Catalog Age, September 2002. 26. John Schulz, “Teamsters Ok UPS Six-year Deal,” Traffic World, September 9, 2002. 27. William Armbruster, “UPS to Repackage Logistics Operations,” Journal of Commerce, November 11, 2002. 28. Dale Buss, “Up With Brown,” Brandweek, January 27, 2003. 29. Daniel Fisher, “Free Flight,” Forbes, February 3, 2003. 30. “UPS,” FSB: Fortune Small Business, April 2003. 31. Charles Haddad, “UPS: Can It Keep Delivering,” Business Week, April 8, 2003.

Websites 1. www.ups.com

2. www.businessweek.com 3. www.cnnfn.com 4. www.couriermagazine.com 5. www.economist.com 6. http://finance.yahoo.com 7. www.forbes.com 8. www.fortune.com 9. www.hoovers.com 10. www.multexinvestor.com 11. www.time.com

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