When does a company need a different operating model? FedEx Freight CEO John Smith believes his company has reached that point.
The new independent company, which spun off from FedEx earlier this month, has annual revenue of about $9 billion and operates one of the largest small truckload networks in North America. Until recently, however, it was housed within a parent company with nearly $90 billion in annual revenue.
That difference in scale shaped everything from capital allocation to technology investments, Smith told me in a recent interview.
“Rightfully, the bulk of it will go into the mother ship,” he said, noting that investment decisions naturally flowed into FedEx’s much larger package business.
One theme came up again and again in our conversation: control. Control over the company’s capital allocation, technology investments, sales organization, and approach to growth opportunities in healthcare, food and beverage, and small business customers.
For years, FedEx Freight was integrated into the broader FedEx organization with technology, finance, sales and back office functions. As the freight market has evolved, many of these systems have become increasingly optimized for parcel delivery rather than the needs of the LTL market.
In Smith’s view, separation is less an end point and more a starting point. He quickly shifted the conversation to the work ahead: modernizing technology, building a dedicated sales team, using AI and machine learning to improve network performance, expanding in healthcare, and winning back small and medium-sized customers. He believes that independence creates the freedom to pursue these priorities without competing with the needs of a much larger package company.
An example of this is the massive amounts of operational data transmitted over the company’s network. FedEx Freight already collects dimensional data on freight shipments, enabling it to determine not only how much a shipment weighs, but also how much space it takes up in a trailer. The opportunity now is to use AI and machine learning to transform this information into smarter decisions about capacity utilization, routing and pricing.
Small and medium-sized businesses represent another big opportunity. Smith said FedEx Freight has historically performed poorly in this segment because it has often been difficult for customers to do business with the company. Healthcare is another area of focus. The plan is to expand on relationships built elsewhere within FedEx while expanding deeper into medical devices and other specialty freight categories.
The tension he describes will be familiar to many executives. Large organizations benefit from size, shared resources and centralized systems. However, over time, individual companies often develop their own technology requirements, customer expectations and competitive pressures.
The separation of FedEx Freight offers an answer to this challenge. The underlying argument is that a company can be large, profitable and strategically important, but still require a different operating model to reach the next phase of growth.
Whether this bet pays off will be seen in the coming years. For now, the company’s spinoff raises a question that many executives will face at some point: When does the structure that helped build a company become the very thing holding it back?
Ruth Umoh
ruth.umoh@fortune.com
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