Finding the secret sauce for success: the recipe, says FedEx's Fred Smith, is equal parts savvy and intuition

Chief Executive, The, Oct, 2004 by Jennifer Pellet

Chief executives are fascinated by the intellectual challenge of building a business. They know they have different tools such as technological innovation, leadership and customer focus. But in the final analysis, there is no one cookie-cutter approach to creating a great business, and success can't be achieved purely by adhering to budget numbers. "All businesses are a combination of quantitative and qualitative issues and lots of industry-specific details, but there's also no small amount of indescribable art in there," FedEx CEO Fred Smith told fellow chief executives at a roundtable cosponsored by Chief Executive and Accenture in New York. "Successful businesses have it, and unsuccessful ones don't."

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The margin of error is extremely thin, meaning that success can turn into failure in a hurry. "When companies lose it by making a wrong turn or putting in the wrong leadership at the top, it usually ends up being quite spectacular," said Smith, who is the 2004 CEO of the Year and who built FedEx into a $25 billion business from scratch.

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So the question is, what is the "secret sauce" that allows one company to respond to customers' feedback and even anticipate their needs with the Next Big Thing when another company that trics virtually the same approach ends up with the Next Big Flop? The victors typically share a combination of elements fundamental to success, as well as the ability to bring those components in line when recognizing, developing and executing on market opportunities.

"The litmus test is combining the dots," explained Bernd Beetz, CEO of the beauty-products firm Coty. "The ingredients--technology, people, customers, leadership--apply to all industries, although the weighting of those factors may be different. But on their own, none of those things will get you to the next innovation, to that next product you have to bring out. You have to find a mechanism to get that spring in your step because that is the lifeblood." A full 20 percent of Coty's products have been introduced within the past 12 months, and that drives Beetz's organization to keep coming up with new perfumes and skin-care products. (See sidebar, page 56.)

For Donald Peterson, CEO of Avaya, an enterprise-focused telecom equipment provider that was spun off from Lucent Technologies, timing factors heavily in the mix. "There are moments when technology is an advantage," he noted. "Then it becomes commoditized. To me, knowing how to move forward to the next value proposition is what distinguishes a lot of companies."

Avaya has a track record of navigating the rapid swerves that characterize its industry. Responding to market shifts, over time the company moved away from manufacturing equipment such as circuit boards and processors toward purchasing them from lower-cost, specialized providers. Today, while Avaya designs, sells, distributes and services telecom equipment, all manufacturing is done by others. "We don't have a single factory," said Peterson. "We have people who make our plastics, circuit boards and every other component. Our value add, while it has always included system design, has now moved up the value chain. The same is happening in many businesses. As the things you did earlier become a given that everyone has, you have to move on to the next value proposition."

For savvy companies, a single innovation can produce a daisy chain of products and services as modifications and new applications spawn additional sources of revenue. At FedEx, for example, the development of a laser bar-code tracking system providing visibility through the package transportation process has since enabled the company to offer its customers far more than shipment transactions. "I wish I could say that we understood all along that once we could do this, it would be migrated into customers' offices and allow them to run their supply chains," said Smith. "But it wasn't until that system was in place that it dawned on us that if we could give that information to our customers, they could substitute information for inventory and take a lot of mass out of the business." In the 1980s, FedEx did just that, providing customers with PCs and the ability to track packages and manage their inventory through access to its proprietary system.

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In the decades since, FedEx reinforced its market position by continually adapting to address new market opportunities. "It's been a reinforcing cycle," Smith said, noting that the Internet brought the system to "nirvana"--a standardized, low-cost, ubiquitous protocol. "As the technology curve came down, we put more and more utility in the software. And the better we got at getting the information, the better people were able to utilize our systems. So we went from that fundamental position in the marketplace and migrated it starboard and portside, broadening the portfolio through product extensions, geographic extensions and acquisitions to reach where we are today."