UPS Case Study

1. Introduction

UPS is an internationalized logistic and shipping company in the US, providing customers with quick delivery of parcels to all over the world. UPS is, unquestionably, a successful company, building a good reputation in the world. This group paper will be divided into four major parts including the analysis of UPS, identification of problems encountered by UPS with two causes contributing to the problems, analysis of three alternatives suggested by the case study and our team with both pros and cons, and the recommendation and justification after analyzing the three alternatives by using business model upon decision making taught in class to make a right choice to help UPS resolve the problems in a rational way.

2. Organizational Analysis
2.1 Organizational Strategy
The strategy of UPS is:
To provide state-of-the-art package delivery services worldwide at low and uniform prices.
UPS provides reliable and efficient services to its customers worldwide. It has always delivered its promise to serve every shipper at unified, low prices, regardless of the package sizes and locations of shipments. UPS has also developed a first-class portfolio of logistics capabilities backed by state-of-the-art technology, on which UPS capitalized to assure the reliability and efficiency of its delivery serves. Moreover, UPS also strives to optimize customer experience. It has constantly expanded customers’ access to its service and increased the transparency and timeliness of shipment information.
Meanwhile, UPS also paid constant effort in maintaining employee relationship. In the early stage of its foundation UPS has established its labor union ahead of the industry. It has also maintained a cooperative and trustful union-management partnership. In addition, UPS highly valued its employee-friendly corporate culture, the success of which is proven by its sustained low turnover rate.

2.2 Organizational Culture

First and foremost, UPS perceive equality as the core value of its company, hiring students graduated from local colleges with the same percentage of white males, females, and minority living in the community. Other examples of promoting equality include executives do their own photocopying, travel arrangements, and scheduling. The board of director, too, shares the same conference room used for managers’ meetings, meaning the company aims to accentuate the hierarchy of employees of different levels creating a harmonious working environment to all the staff.

Not only does UPS underscore equality, it also promotes fairness of the internal development of employees. Each driver has the opportunity to move into full-time supervision and become eligible for ownership in the company by transferring them laterally for exposure to espouse roles and other functions of the company before moving up the vertical path. Individual can, thereby, learn how to get along and manage through personal influence and credibility of experience rather than through title and coercion.

Equality and fairness promoted by UPS result in low turnover rate, which one of the cultures that UPS has. The seniority turnover in Whites Creek and Chelmsford are 22% and 13% respectively, showing these policies imposed by the company help retain talents efficaciously.

Another culture which helps retain talents is that UPS is people oriented. UPS offers no stock to the public but offers it to its employees, thus making them consider their UPS employment to be a lifelong commitment. UPS thinks that this is an incentive to encourage its employees to work much harder because the employees can work for themselves. UPS provides a package of benefits including long-term financial security and immediate health care services for all employees. The above policies and philosophies of treating employees in UPS show how people oriented the UPS is.

In addition, UPS places great accentuation on ‘Humility’ - company ethic. UPS scrupulously underscores cleanliness and discourages ostentatious adornments, buying simple and functional equipment and facilities. UPS has a great influence on its employees as the parking lot of the company is brimming with conservative, mid-sized cars.

2.3 Decision-Making Style

Decision-making style could be regarded as a conceptual and psychometric measure of weighing the alternatives as well as concluding the most suitable decision for any dilemmas. The approaches of making decisions are fourfold, namely autocratic, consultative, participative and laissez-fair, which are determined according to the degree of involvement and the sources of input. Leaders or managers might apply different styles to tackle different circumstances in terms of time availability, adequacy of background information, acceptance level and capability of employees.
2.3.1 Laissez-Fair Decision-Making Style
One of the main decision-making styles UPS utilizes is laissez-fair decision-making style which is a means of group decision-making upon the given situations and limitations. It should be underlined that UPS emphasizes functioning as partners by which most management decisions are made in association with consensus.
According to the meeting of the management committee at UPS, it is apparent that Jack Rogers, chief executive, had come up with the new strategy for enhancing the quality of Information Services (IS) laissez-fairly. In lieu of deciding the choices solely or creating a tentative decision, he commenced the contemplation with inviting Frank Erbrick, head of the IS department, for a presentation about the situations and limitations of the issue IS was confronting with. After that, different arguments and recommendations were shared from each participant in the face of the predicament. During the decision-making process, Rogers likely took an initiative to point out focal ideas and key questions so as to boost the debate efficiency and the quality of in-depth discussion. For instance, Erbrick and Operations Vice President Frank Middendorf was discussing the feasibility of hiring new specialized talent, whereupon Rogers raised the concerns of the anticipated impact of the advice, which substantially facilitate the meeting progress.
The laissez-fair style was required due to the large significance of the issue and the lack of available information about outside hiring. There existed some oppositions from employees. With the help of capable members of the management committee, a satisfactory solution was thus able to be found. As such, the laissez-fair style is often applied to similar level of management problem at UPS.
2.3.2 Autocratic Decision-Making Style
Autocratic decision-making style is another approach of making choices which UPS adopts to certain extent. It is well acknowledged that the style is about solitary decision-making, followed by the announcement of the facts. For the minority of the management decisions which are probably of lower levels, the autocratic style is used for the sake of operation efficiency. An example illustrating the effectiveness of the style could be the case of Christmas packages. In order to ensure all the Christmas parcels could be delivered on time, the regional manager decided himself to pay for high-speed diesel for the shipping without any consultation or request for permission. As a result, it significantly assured the high standard of customer service since a right decision was made in a right moment. It is no wonder that empowering the managers of lower levels to manipulate the operation appropriately appears to be a good practice of management skills. Without frequent notifications or approval processes from departments of higher levels or the headquarters, time of unnecessary information flow and task adjustments would hence be saved.

2.4 Organizational Structure
UPS is structured by six elements: work specialization, departmentalization, chain of command, span of control, centralization and decentralization as well as formalization.

Work Specialization
The operational tasks of UPS are separated into different hierarchies, with tasks divided and distributed to regions, districts, later to divisions and to the basic units – package centers. This hierarchical distribution helps break down complex tasks into smaller tasks for units in different hierarchies to perform. By specializing in the precise tasks they are assigned, workers become more proficient and effective in performing that task, thus leading to an increase in productivity.

Departmentalization
UPS adopts two bases in departmentalizing its jobs. Across the higher managerial level, jobs are grouped by functions performed. The categorized jobs are taken up by the 13 departments under the CEO and the Executive Vice President (EVP) such as Engineering and Labor Relations. As for frontline operations, the geographic basis is adopted, with jobs grouped by the regions and districts where services are to be provided.

Chain of command
UPS’s reporting relationships are hierarchically shaped. For frontline operations, the relationship flows from the bottom to the top of the hierarchies. For example, the following chain of command is applied: Drivers->Supervisors->Center Manager->Division Manager->District Manager->Region Manager->Head of Operations Department. On top of the frontline operations, functional departments report to the EVP and the CEO, who finally report to the Board of Directors.

Span of Control
Narrow span of control is commonly observed throughout UPS’s hierarchies. Average spans of 4 to 5 are commonly observed in UPS’s frontline operations. The only exceptions are the Operations Departments and the CEO, who direct 8 regional managers and 13 heads of functional departments respectively.

Centralization and Decentralization
The functionally and geographically dispersed nature of UPS has led to its emphasis on decentralization. Decision making in UPS is delegated to the lowest possible levels, with managers in lower levels of the hierarchies given complete authority to run their operations and do their jobs.

Formalization
Formalization of jobs is valued by UPS. For example, jobs of the route drivers are standardized to facilitate comparison and control. Also, The Policy Book was created and revised regularly to standardize corporate traits and ideals throughout the corporation. More specifically, drivers were given complete instructions and training to standardize how they perform the jobs.
To sum up, the organizational structure of UPS is predominantly bureaucratic, with tasks performed through specialization, grouped into functional departments, clear bottom-to-top chain of command, narrow spans of control, decentralized line of authority, and guided by formalized policies and instructions.

3. Identify the problem that the company faces.
The problem faced by the company is whether to hire employees outside or develop internally to cater for company’s need for high quality employees in Information Services (IS). The company had overlooked the importance of Information Services until recent years. UPS found itself lag behind in computerizing, package scanning and tracking are the cases in point. Though capital expense in IS department has increased tenfold over the past 10 years, the personnel is insufficient to cope with the excessive amount of projects. Inside hiring is consistent with the current career system but it is time-consuming. On the other hand, outside acquisition takes less time but contradicts the promotion-from-within policy.

Analysis of the underlying causes of the problem.
1. Lack of IT talents within the company (Was unable to exert influence over any function within the company other than accounting. Been overlooked by IS department and other part of the company Federal Express & RPS adopted IS to enhance the quality of service) Could you please rewrite this sentence? I do not understand this structure(This is just a draft ar , will upload a fine version later)
2. Long, successful career system (Promotion-from-within policy. Exposure to support roles and other functions. Quote from former CEO)
3. Assimilating problems (whether can the new hires fit into the company culture)

4. Propose alternative solutions and state the pros and con
4.1 Outsourcing the Information System (IS) Department
While internal development of IT is limited by the incapability of internal staff, external acquisition is associated with the risk of cultural incompatibility and declined staff morale. To tackle this dilemma, the IS department can be outsourced to external specialized providers.
Advantages
Having the information system outsourced to specialized providers could bring UPS management advantages. (Could you please rewrite this sentence? There is no such structure) Not only can UPS readily get an access to (prep) expertise (should be in noun form) in managing and operating the IS department, it can also free up management time for its managers, which can be dedicated to other more valuable activities such as seeking opportunities for business development.
Apart from management (should be adjective) advantages, outsourcing can also result in cost reduction since the providers usually operate it in a large scale and provide services in bulk. They enjoy economy of scale, and can thus provide services to UPS at a lower cost relative to training employees or hiring outsiders to manage and operate the IS department. Also, as fewer or no employees are to be retained for the information services, labor costs such as salaries, health insurance and retirement contribution can be saved.
More importantly, conflicts between employee incapability and cultural incompatibility can be resolved. Having the IS department outsourced to specialists, the capability of managing and operating the department can be guaranteed. In addition, as the outsourcing process does not damage UPS’s culture of equality and the promote-from-within policy, risks such as declined staff morale can be avoided.
Disadvantages
While UPS can readily obtain expertise in managing and operating the IS department from the outsourcee, the risk of loss of control is associated. As UPS has no direct managerial control over the department, standards or policies of UPS may not be enforced by the outsourcee, thus posing a risk of unguaranteed service quality. Also, as services provided by outsourcee are usually standardized, requirements such as specific needs for individual tasks of UPS may not be met. Due to the loss of direct control, it is difficult for UPS to ask for those needs or make adjustments when there are discrepancies between the outsourcee’s services and its expectations.
Also, as UPS and its outsourcees are not driven by the same culture and norm, cultural discrepancies may arise between the two parties. While UPS emphasizes its culture people-orientation, the profit-driven outsourcee may not comply with such norms. For example, the outsourcee may not provide its employees with adequate retirement or health care for the sake of cost savings. Such discrepancies may jeopardize UPS’s core culture.
Moreover, critical knowledge and skillsets are possessed by the outsourcee, not UPS’s employees. UPS’s employees remains incapable of managing and operating the IS department independently. This creates a vicious cycle of incapability and outsourcing, which may pose threats to UPS’s long-term development by keeping UPS dependent on outsiders for information services.

4.2 Outside hiring
4.3.1 Operating Mechanism
In the face of the challenges outside hiring may encounter including the lack of endorsement from current employees and assimilation problems, the operating mechanism is modified in terms of three perspectives. First and foremost, it is suggested that more opportunities and rights of participation for the existing employees should be provided in decision-making whereupon UPS should recruit outside talents. Another one is about the consideration criteria. It should be worth stressing that the issue of cultural compatibility should be taken into account during the recruitment process. Last but not least, a curriculum of entry and development programmes should be organized to accommodate the newcomers in UPS conventional culture as well as integrating themselves into the working relationship. During the orientation programme, the outsiders were being technically trained for 10 weeks under the supervision and assistance of current employees or managers, which considerably fosters the assimilation process.
4.3.2 Advantages
There are a myriad of benefits from the alternative about outside hiring, with the amelioration of IS quality being the most obvious one. Attributed to the specific purpose of targeting skilful outsiders, the labor standard in IS department would be therefore enhanced. As such, the technological needs, particularly for the package delivery service, could be satisfied since the upgraded IS likely manages to achieve technological innovations about developing and implementing systems, significantly supporting the operations of every department.
Readiness superiority is another advantage from employing outside talents. Not only would the standard of technology and systems be strengthened, the capability of tackling problems and urgent situations would also be improved. As described by Gary Lee, manager of personnel department, the external human resources would be regarded as technically qualified, career-minded, mature, professional, hands-on, results-oriented and adaptable to the culture. Once the candidates are recruited, they might be able to accustom themselves to follow the working tasks and the operations at UPS. Even when coming up against the urgency, prompt solutions would likely be advocated.
Besides, widening labour pool is also the significant benefit of external recruitment of talents. It should be pointed out that the internal IS quality seems to be so weak that the operating systems are falling behind the competition in technological and data programming capabilities. The alternative would make the labour pool of UPS goes beyond the internal source of trained people. Capable workers could be acquired easily to fulfil different technological needs for UPS.
4.3.3 Disadvantage
Despite the support of current workers on outside hiring after the increment in the involvement of decision-making, there are still problems cropping out in implementation of the alternative.
To commence with, cultural incompatibility is one of the concerns UPS faces. Albeit the issue of cultural compatibility has been addressed during the external acquisition of talents, there still exists a possibility that the working situation might go off course. The stringent policies at UPS are one of the examples exemplifying the failure of adapting UPS culture. Some newcomers are discontented by the long hours, no-beard policy that no coffee at desks, beards or long moustaches and only two 15-minute breaks are allowed in the working day. Even though the measures are practical to uphold the image of UPS, they are yet not satisfied by the external workers, which presumably brings about adverse effects on staff morale.
Alongside the problem of cultural inadaptability, the problem of inequality occurs as well. On one hand, new outsiders might be qualified for only junior positions and still required substantial guidance. On the other hand, according to the policy book about the promotion-from-within policy, it should not be the working positions those outside hires deserve. (not clear) Those employees who have heard of their interviews and known the policy would perhaps get confused and disappointed with UPS. In consequence, the violation of promotion-from-within policy might also incur lower staff morale.
With regard to the feasibility of the alternative, outside hiring however is a financially costly and time-consuming practice. As a result of the orientation programmes for the assimilation process, it perhaps involves a certain pecuniary burden for UPS. In addition, current employees who serve as mentors might suffer from more working pressure and workload; there would be difficulties for the personnel department in opting for suitable candidates to fit into UPS culture; adequate guidance and communication skills are probably necessitated for technical training, all of which would spend time remarkably.

The performance of the three aforementioned alternatives in the areas of skills and quality of work, readiness, cultural compatibility, hiring costs, trainings cost and control are rated in the table below: | Quality | Readiness | Cultural Compatibility | Hiring | Training Costs | Control | Totals | | | | | Costs | | | | Internal development | 50 | 10 | 100 | 80 | 20 | 100 | 360 | Outside hiring | 85 | 80 | 20 | 60 | 70 | 80 | 395 | Outsourcing | 100 | 100 | 100 | 70 | 100 | 30 | 500 | Outsourcing + internal development | 100 | 100 | 100 | 80 | 100 | 100 | 580 |
The alternative of outsourcing the information system has the best overall performance. While outsourcing the IS function will assure its quality and readiness at reasonable costs, it also avoids any cultural incompatibility within the company. However, it is worth noting that in the short run UPS will risk loss of control in its system development as it lacks expertise in communicating its needs and monitoring the quality of system.
More importantly, in the long run, UPS will risk heavy reliance on its outsourcee. Without developing an in-house IT team, it will eventually suffer from loss of IT competence as a crucial capability in the delivery services industry. At worst UPS may suffer from information security issues as outsourcing the IS system may lead to leak of information.
Recommendation: Dual-Track System – Outsourcing and Internal Development
To secure sustainability as well as the control of its IS system, UPS should adopt a dual-track solution. G the urgent need for IS system, in the short run UPS should outsource its IT function. Meanwhile, UPS should also nurture internal talents and establish an in-house IT team. Thus, while having the IS system established with state-of-the-art technology at early availability, the in-house IT team can meanwhile acquire knowledge and latest skills from its outsoucee. To avoid overreliance on outsourcing and to ensure information security, UPS should shift its IT function to its in-house tem in the long run, when there is adequate expertise.
Moreover, given that the in-house IT team is internally developed, not only will UPS avoid any cultural incompatibility, but it will also reduce hiring costs and gain full control of its IS system in the long run.

Risks and Mitigation
This part discusses the feasibility of the solution and proposes corresponding mitigation strategies.
Transition Risk: Shifting reliance from outsourcee to in-house team involves high level of difficulties and technical knowledge. Given outsourcee’s tendency to retain customers, IS systems are usually designed with high level of technical knowledge to bar customers’ imitation. Also, the system will be designed to fit the culture and practices of the outsourcee, instead of UPS. Consequently, the IS system cannot be emulated at ease without high level of technical skills. Modification of the system, which aims at increasing its comparability with UPS, also adds difficulty to the transition process.
Foreseeing the high level of technical skills needed in transition, UPS should not only provide ongoing training for its IT team, but it should also actively participate in the developmental process of the IS system carried out by outsourcee. Apart from acquiring technical knowledge, UPS, therefore can also retain reasonable level of control in developing the system fitting its culture and practices.
Loss of Intellectual Capital: In the process of system development, the operational model and needs of UPS have to be communicated to its outsourcee in details. Propriety secrets like the operational procedures and their weaknesses will be leaked to a third party. Consequently, UPS will be at risk of facing opponents’ attack.
To prevent unnecessary leakage of business information, UPS should plan ahead in identifying its sensitive information. Adequate training should be given to employees in effectively communicating its company needs and to avoid revealing unnecessary and unrelated company information.