Leader of the pack: for revolutionizing how business absolutely, positively gets done, Fred Smith of FedEx is the 2004 CEO of the year

Chief Executive, The, June, 2004 by William J. Holstein

Fred Smith likes to quote Pogo the Possum, who once said in a cartoon strip, "If you want to be a great leader, find a big parade and run in front of it."

There's no question that Smith, chairman, president and chief executive officer of FedEx, is running in front of a huge parade. FedEx, the company that Smith founded as a start-up in 1971, is now a $25 billion giant, soon to become even bigger because of its acquisition of Kinko's. FedEx is at the heart of how the American manufacturing base is globalizing, allowing all manner of parts and products to arrive from mostly Asian destinations in a just-in-time way. "In the high-tech and high-value-added sectors in particular, but also in the lower-value-added sectors, the location of production is almost irrelevant," Smith says. "It's simply a cost/time trade-off. That's all."

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Not coincidentally, FedEx is at the bleeding edge of how companies are targeting supply chains and logistics as the key to competitiveness. Companies don't want to carry one more penny's worth of inventory than they have to. They don't want to have to deal with multiple suppliers to ship documents, parcels and larger loads. They want all that to be integrated, and they want to be able to find out, at any time, where things are. FedEx literally invented that capability.

And imagine what Internet-based commerce would be like if there weren't a reliable, speedy way for customers to get books and CDs from Amazon.com or laptops and PCs from Dell. The whole phenomenon might never have happened. But as etailing continues to grow, the demand for more shipping is certain to expand as well. "We're running in front of these enormous forces," Smith says.

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Of course, he isn't just running in front of the parade. His company has been a leading organizer of this transformation of the economy--a grand marshal, in fact.

In recognition of what Smith, his top management team and 240,000 employees and contractors have accomplished, Chief Executive's panel of CEO judges has chosen Smith as the 2004 CEO of the Year. "Fred Smith is an outstanding executive and entrepreneur," says AIG's Hank Greenberg, 2003 CEO of the Year and chairman of the selection panel. "He took FedEx from being just an idea to being a great company."

The fact that Smith created something from scratch is what impressed so many judges. "The great issue for him is the longstanding, continuous performance he's had in developing an entire industry and altering the business model," says Kevin Rollins, the new CEO of Dell and also a judge. (For other judges, see page 10.)

Smith, who turns 60 this year and has undergone heart bypass surgery, doesn't show any signs of wanting to slow the parade down so that he can relax with his 10 children and assorted grandchildren. "I like what I'm doing at FedEx for a very fundamental reason," he says in his office on South Shady Grove Street in Memphis. "It is an important industry that sits right at the middle of almost everything else that's going on. It is vitally important to the commerce of the country and the world."

And now that he has assembled a Strategy Management Committee consisting of the heads of FedEx's operating companies and top staff functions, Smith can concentrate on what he likes doing--thinking big thoughts. "FedEx Corporation today is a lot more fun for me" than it used to be, he says. "I can spend a lot more time on strategy. Management functions are largely delegated to a very capable group of executives."

Managing this new FedEx is a great deal more complex than it was just a few years ago. (See sidebar, page 34.) There are now four major operating companies, or "op co's" in FedEx speak. FedEx Express is the traditional heart of the company, but acquisitions have been key in creating FedEx Ground, FedEx Freight and now FedEx Kinko's. Integrating the people, processes and technologies of these players in just the right way is the No. 1 challenge facing FedEx.

On one hand, Smith wants each of these units to operate independently so they can best serve their market segments. "If you blended it all together, you'd get an average service that doesn't service anyone well," says Doug Duncan, CEO of FedEx Freight.

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Yet Smith also wants the company's various arms to cross-sell each others' services. That way, corporate customers can get precisely what they want and not have to contend with the traditional silos that have fragmented the transportation industry. And retail customers, whether sitting at home or at a FedEx Kinko's, can ship documents and parcels through the same company.

FedEx also wants its operating companies to appear seamlessly integrated to the world. Whether it's a document, parcel or larger so-called "less than truckload" shipment, customers can track the item on www.fedex.com. A centralized central sales force of 3,000 manages relations with corporate customers, so that the operating arms don't trip over each other.