Turning the Delivery Business Upside Down with UPS

Delivery icon UPS has a whole lot of cash to allocate, reporting $51 billion in revenue in 2016. With more than eighteen thousand operating facilities that serve every address in North America and Europe and deliver to more than 220 countries, that equates to a lot of decisions to make as to where to put that money and requires a coherent philosophy to drive those decisions. Enter senior vice president of corporate strategy Michael McLary, who has, in a sense, helped turn the company upside-down.

Working for a global company with such far-flung interests, it seems apt that McLary has roamed the world during his sixteen-year tenure with UPS. After spending four years in the company’s Atlanta hub as global director for marketing strategy, he set out for Singapore, where he developed and executed daily operating plans across forty-three South Asian countries, from India to New Zealand.

In 2015, McLary returned stateside and took on his current role, which involves identifying growth opportunities, figuring out where to compete, and deciding how to allocate resources. It might seem logical for a global company focused on consistent services and quality to centralize such decisions, but McLary says UPS works with a different model. “

Historically, companies take a top-down perspective,” McLary explains. “They look at global trends at the corporate level and work down from there. But one of our big pushes is to have not only a corporate lens, but also a bottom-up view.”

To do that, UPS breaks down its global business into twenty-seven planning units. Every year, each unit completes a marketing and competitor assessment and customer analysis. Those planning views then go backup to the corporate office, which mixes them with its own broader, global perspective to determine strategy moving forward.

Field input comes in, market assessments pick up long-term trends, and then the organization looks at where they might have overpenetrated or underpenetrated and where they see growth going. Because of the nature of the business, where, for example, a Chinese airline is running between the United States and China, not all investment of capital can be attributed to a specific business unit. But the on-the-ground perspective is crucial to inform those decisions.

“We hear the voices of the people that actually run the business and roll that up to see commonalities and how that can feed into the ultimate objective of the organization: to satisfy customers and drive shareholder value,” McLary says. “Based on that intersection, we start to develop global themes that we can think about over the next decade.”

To do that, McLary and his team need to figure out how to differentiate themselves from the competition, deciding which markets to focus on and the right products and services to offer. When looking at where cash should go and how much, they first analyze global trends and threats, and they then place businesses into four quadrants.

The first quadrant is markets in high-opportunity areas where they are currently making a lot of money and want to accelerate growth. The second quadrant groups businesses where the market opportunity isn’t as great and doesn’t generate as much return. In that quadrant, they want to focus less on growth and more on improving return. The third quadrant comprises mature markets with low growth and high return. The fourth quadrant marks where profit margins need to be improved. Low-risk and high-risk investments are then made accordingly.

“Breaking down the business in this way allows us to identify where we want to focus, what guidance we provide, and what we do to feed the overall portfolio,” McLary says. “It’s about finding the right set of investments to generate and where we need to concentrate on investments to generate a balanced return across the portfolio.”

The bottom-up approach that fuels those decisions creates an atmosphere where everyone lobbies for their needs. Depending on what quadrant the business is in, arguments for resources have to be made accordingly and demonstrate how they factor into the organization’s long-term strategies.

“Cash is finite, and the matrix helps,” McLary says. “If a business is in the lower left, where growth will shrink but profitability improves, that might be a better investment for the organization than the top-right quadrant, which takes advantage of market growth but reduces profitability.” With such a huge organization, topdown analysis still matters, but McLary notes that the integration of both top-down and bottom-up views leads to the organization’s continuing success.”

We still do a lot around rates and forecasting, but there may be broader insights in the United Kingdom—for example, something they’re seeing that you don’t pick up in a metric model,” he says. “You get communication back and forth between the business unit and the corporate office saying, ‘Here’s what we see and how we can work together,’ and we come up with a UPS better answer.”