As Frederick W. Smith, the youthful architect of Federal Express Corp., heads for his 40th birthday, he has placed himself on the verge of yet another ambitious plunge: a $100-million electronic document transmission service that will use facsimile machines linked by satellite to guarantee delivery within two hours throughout the country. Known internally as Gemini, the new service is scheduled to go into operation early in July.
For Smith, however, the Gemini project is less a bold gamble than a prudent and natural extension of the market sense and entrepreneurial impetus that made Federal Express the $1.2 billion success it is now, just 13 years after its founding. His approach to the launch of the new service offers an unusual insight into his attitudes toward starting and operating a business. For example, despite the $100-million price tag, he doesn't consider the Gemini project particularly risky.
"I think it's unfortunate that to some degree the word 'entrepreneur' has taken on the connotation of gambler," Smith said in a recent interview. "I don't see it that way at all. Many times action is not the most risky path. The most risky path is inaction.
"I don't think that there is that great a risk in Gemini," Smith continues, "because it's a very well-planned program and because of the talent we've gotten involved in it. It's being very well executed. The risk is in not doing Gemini."
Like Smith's assault on the air courier business, Gemini has the advantage of careful advance work -- almost five years' worth. Gemini will initially use some 2,000 facsimile machines, producing copies of unprecedentedly high quality at a rate of up to 30 pages per minute. The new service aims at a market even more time-sensitive than the one Federal Express currently serves, to include such legally binding materials as contracts and architectural drawings. A Federal Communications Commission filing for the Gemini service projects a $1.3 billion market for the service by 1988.
"Of course, you have to take regulatory filings with a bit of tongue in cheek, because it's done according to a formula that the FCC makes you put in there," Smith hedges. "We'd prefer not to make any revenue projections. We believe the market for same-day transmission is a multi-hundred-million-dollar market. We just projected forward at potentially what we could do in that time frame."
Despite that expectation of growth, Smith sees the new service as a complement to, not a competitor with, Federal's overnight delivery business.
"For purposes of our planning," he says, "we said that Gemini transmission could dilute -- that is, what could have been transported, will be transmitted -- our overnight letter traffic to the extent of approximately 15% to 20%. However, my guess is that it may not be diluted at all. Communications tend to engender communications. Telephone calls create letters; they're not in lieu of letters. Meetings tend to create memos, not eliminate them, and that sort of thing. So I'm not even sure that [a 15% to 20% dilution] will be the case.
"We have been attracted by the offensive and defensive potential of the electronic product," explains James Barksdale, Federal Express executive vice-president and chief operating officer. "Many people wondered if the revolution was going to take away from Federal's overnight delivery. We tried to be as pragmatic as we could be, and it tended to bear out that such a market can be constructed by such a company, consistent with our image, our capability, and our size. People believe Federal can do this sort of thing. They take us at our word. We have a very high quality. We don't plan to dwell on this. How we do it is magic."
The process of the decision, however, was fairly direct.
"You have to understand the way Federal Express operates," says Smith. "The way the Gemini project came about was with the recognition in the late part of the 1970s that technology could move documents faster than 'absolutely, positively overnight.'
"Unbeknownst to a lot of people, Federal Express is now a huge telecommunications company and always has been. So our management group is just as comfortable talking about automatic call directories and on-line terminals as it is talking about the engines on DC-10s.
"That's one reason there wasn't a great deal of trepidation on the part of anyone. And I personally tried to take a lot of pains to surface those concerns if they did, in fact, exist. When we were formally making the decision, we used things like a consenser, a device with two knobs that you put around a table where there are 12 or 14 people. You can vote yes or no and as to the intensity of your feelings. So in developing our strategy, we used a lot of those methods to surface things. That's why there wasn't any opposition to [the decision]. The decision was made in a logical way, reflective of the group's thoughts, not any one individual."
If that sounds more corporate than entrepreneurial in approach, Smith sees no contradiction between the two.
"I think I'm an entrepreneur," he explains. "I think that a lot of people don't think entrepreneurs can be managers. I think that's wrong. I think they're two very different traits. You can have someone who's a very fast runner who can also speak foreign languages very well. They're not mutually exclusive. I view myself primarily as a professional manager. I've always felt that way. The fact that I am also someone who saw an opportunity was coincident to that, not the other way around. I'II let the record speak for itself on the professional manager side."
But he doesn't think Federal Express has altered the important elements of its managerial approach.
"I think that Federal Express is very entrepreneurial," he says. "Oh, sure, there's a difference between running a $1.2-billion organization and running a $1.2-million organization. There are some principles that remain the same, but there are an awful lot of others that change dramatically. What really separates people that are entrepreneurs and managers from those that are strict managers from the Harvard Business School -- it's simply knowing what those changes are.
"One of the biggest principles is that you've got to take action. Most large organizations reach a static point. They cannot take any action, because there are all types of barriers to doing so. There are institutionalized barriers that weren't there when the company was considerably smaller. What changes is your knowledge and your appreciation of how to deal with those institutional barriers, to eliminate them or use them to your advantage in achieving those changes. There are myriad number of changes that have to take place in the management style for the company to continue growing."