7OUTSOURCE

Background

United Parcel Service (UPS), headquartered in Atlanta, Georgia, is the world’s number one package delivery company and the third largest private company in the United States. The company was started in 1907 by James (Jim) E. Casey at the age of nineteen. There was a great need in America for private messenger and delivery services. Personal messages and packages had to be delivered privately. Jim Casey borrowed $100 from a friend and started American Messenger Company in Seattle, Washington. The company did well, despite the stiff competition, because of Jim’s strict policies: customer courtesy, reliability, round the clock service, and low rates. He used the slogan: “Best Service and Lowest Rates.”

In 1913, the company began to focus on package delivery for retail stores. Jim merged with a competitor, Evert McCabe, to form Merchants Parcel Delivery. Charles W. Soderstrom joined the firm in 1918 and helped manage the growing fleet of delivery vehicles.

The 1920s and 1930s were characterized by growth, ingenuity, and change. The company expanded its operations to Oakland and Los Angeles, California. By 1930, delivery services were provided in all major West Coast Cities, and a consolidated delivery service was established in the New York City area. Many innovations were adopted included the first mechanical system for package sorting, and a 180-foot-long conveyor belt was installed in Los Angeles. The company changed its name to United Parcel Service. “United” because shipments were consolidated, and “Service” because, as Charlie Soderstorm observed “Service is all we have to offer”. All UPS vehicles were painted the now familiar Pullman brown colour, selected by Charlie Soderstorm because it was neat, dignified, and professional.

World War II prompted UPS to redefine itself. Retail stores encouraged their customers to carry their packages home, rather than have them delivered because of the fuel and rubber shortages. The trend continued after the war as much of the population began moving into the suburbs, where shopping centres were being built. The convenient shopping made it easy for customers to drive home with their own packages. UPS managers began looking for new “common carrier” rights to delivery packages between all addresses. This included any customer, private or commercial and it placed UPS in direct competition with the U.S. Postal Service.

UPS was restricted from operating in any parts of the country. Federal authority was needed for each state border crossed, and each state had to grant permission for the movement of packages within its borders. It took UPS almost twenty-five years to obtain authorization in all 48 mainland states. In 1975, national parcel delivery service was finally a reality.

UPS began offering two-day service to major cities on the East and West coasts in 1953. Packages were flown in the cargo holds of regularly scheduled airlines. This service was called UPS Blue Label Air and was available in every state by 1978. As the demand for air parcel delivery increased in the 1980s, federal deregulation of the airline industry provided new opportunities for UPS. UPS began to assemble its own jet cargo fleet and by 1985 they were offering overnight air delivery. UPS airline is among the ten largest airlines in the United States.

UPS entered the international shipping market in the 1980s, establishing a presence in several countries and territories in the Americas, Eastern and Western Europe, the Middle East, Africa, and the Pacific Rim. Today UPS operates an international small package and document network in more than 200 countries and territories (Hoover’s Handbook of American Business, 1996, p.1456).

Although UPS has experienced tremendous growth over the past eighty years, increased competition has forced shake-ups in the company’s strategy. After losing business to such aggressive competitors as Federal Express and Roadway Packaging System (RPS), UPS Chief Executive began overhauling the way the world’s largest package carrier does business.

Important issues

An important objective of UPS is to obtain World-class Quality.

Jim Kelly, Chief Operating Officer for UPS, stated, “Our journey toward Quality began with the realization that we were at a competitive disadvantage in several areas.

We needed to improve our time-in-transit performance and customer perceptions of the dependability of our services.

We needed to overcome the misconception that our competitors were more technologically advanced than UPS.
Even though UPS is quickly becoming the high-cost carrier that Kelly referred to, the company is prospering financially.

A shareholder report (November 16, 1996) shows that “revenue increased 8.7 percent for the quarter ending September 30, 1996, compared to the same period in 1995. This growth resulted from higher rates introduced earlier in the year and a 4.4 percent increase in domestic U.S. volume, including a rise of over 11 percent in higher yielding express packages.

International revenue contributed to the growth, primarily because of a 19 percent increase in export revenue. Operating expenses increased by 2.1 percent. The comparison to the third quarter of 1995 was affected by a one-time charge of $353 million in that quarter for the voluntary early retirement and separation programs.

New Strategies developed to for change

New goals were developed for UPS’s industrial engineers:

• Become more focused on the external customer;
• Set as a goal a 90% rating for internal customer satisfaction;
• Identify and apply new technology that would improve existing operations and develop new business;
• Decrease time spent on auditing and reports;
• Concentrate on improving operational areas that have value to the external customer; and
• Spend less time on time study, and more time on training UPS management and hourly employees in job methods.

Change of Management & Strategies

In late 1994, UPS CEO, Oz Nelson asked all staff: “Are we using the Total Quality approach to manage all parts of our business?, Do we need to change our strategies to gain more profit and customers ? Not yet. Not completely. But we see progress. We are committed to making UPS quality the best in the world, and we believe our initiatives are the means to achieve the goal.” UPS undertook the sTop management must actively support it. Every department in the organization must be involved. TQM must be a part of the company culture. Suppliers and customers must be a part of the process. Products and services need to be done faster, and they need to be right the first time.

In order to make the development work, empowerment and involvement must take place. Self-managed work teams are an important part of ensuring empowerment and involvement take place. The teams must understand the vision and their role in bringing the vision to life. So information must be openly shared.

Dimensions
The design of jobs revolves around five core job dimensions
1. Feedback
2. Autonomy
3. Task significance
4. Task identity
5. Skill variety

If these dimensions are executed well, then the work teams are more self-directed. In order for self-managed work teams to be successful, the organization must be flat. Senior management must provide a network for support, and there needs to be rewards involved.

Problems with self directed Teams
There are some problems that can occur with self-directed work teams. There is a possibility that the work teams may not fit into the context of the product or service process. There may be morale problems due to a lack of internal promotion from the flattening of the company. A lack of training and rewards can cause problems. In addition, if roles are not clearly defined, execution is almost impossible. Also, if the organization’s leadership does not truly believe it must change, it will not change. It is imperative that job enrichment takes place to ensure that people are energized about the quality of their work.

Solution of Problems
Training
During the DOF training, each managers need and ability to change was assessed. UPS planned to teach TQM principles throughout the entire organization, and felt it was critical to have everyone buy into the process. They surveyed all the employees in the organization to find out their feelings about many areas of interest. The results: 67% were satisfied with their jobs, 13% were not satisfied and 20% were neutral. Only 50% of management surveyed felt it was possible to balance work and personal life at UPS. There were significant communication issues from management to the employees that were identified: 50% felt teamwork took place, 50% felt they could trust the company, 43% felt they received cooperation from other units in the company, 60% responded favourably to the quality of training, and 50% felt there was good opportunity for advancement in the company. Based off this information, UPS employees showed the need for change and the difficulty that might be involved with trying to change such a large, traditional company. In fact, UPS compares the difficulty of the change process to a ship turning around in a bathtub—a long slow process.

Quality Improvement
Then the program moved into quality improvement. Four percent of the customers being dissatisfied, 42% were very satisfied, and 54% were satisfied. Some exercises and presentations were then conducted to teach trust and management led change. Training on empowerment and possible breakdowns during empowerment was conducted. Soft skill development, such as listening, was conducted. Throughout the training, it was mentioned several times that UPS was really good at what it did, but still needed to change. It may be hard, when presented in this manner, to successfully implement an intervention process such as TQM.

Senior management offered their total commitment to the change. A change was needed to move from an efficiency based organization to a customer-driven company. Everyone now had a customer. Whether the customer was internal or external, they were the top priority.

The Quality process started in November of 1994. It started with the highest level of management in UPS. The Atlanta Consulting Group was contracted and started in 1994. The following eighteen strategies were developed in August 1995 and identified as key or critical to UPS’s future success. The first eight are priority initiatives which were started in January of 1996 and will be accomplished first within the first 18 months (by May 1997). The remaining strategies will be worked on after the 18 months (beginning May 1997).

Priority Initiatives
Retention, Hiring, Orientation & Mentoring
Cost Factors
Asset Utilization
Training and Education
Measurement
Technology Investment
Communication
Gateway Reassessment

Remaining Strategies
Employee Scheduling
Customer Point of Contact
Support and Service
Peak Season Aircraft (Leased)
Leadership
Employee Involvement
Labour Union Partnership
Planning Activities
Fleet Planning
Regulatory Reform

The “Road to Quality” will be a long one for UPS. The Quality at Work workshop gives employees a clearer vision of where the company is heading and how it plans to get there. The first day of the workshop calls for the instructor to ask the management member class to contribute to three lists: what to take with them on the road to quality, what to leave behind, and what new things to acquire for the trip. This shows the company’s recognition of the need to change the way UPS users think.

The objectives of the Quality at Work workshop were as follows:

• View the world and your work from a systemic viewpoint.
• Compare and contrast the present management method with the new management method, based on systemic thinking.
• Follow the Quality at Work Improvement Process necessary to implement the continuous improvement cycle.
• Begin to use tools to diagnose and improve a process.

The two day workshop helped UPS users analyze and improve their work methods in order to better serve their internal and external customers. UPS is using several methods to follow-up and re-iterates the training that employees received in the Quality at Work Workshop. One method is a weekly E-mail message called the “Quality Update” (Appendix A).

Recommendations
These results lead us to question at least one aspect of the plan for change currently underway at UPS, specifically the timing of employee involvement in team implementation, indeed clarifying the actual intent of teams and their use. The ambiguous responses collected from the team portion of the survey indicate that employees are unclear about the use of teams and whether they truly are a “team” expected to use team processes in day to day functions and in problem solving. TQM uses the term “self-managed work teams” to mean exactly that — teams of people formally organized into teams who have regular team meetings, problem solving sessions, team-specific norms and roles, team goals, and who “manage” everyday work. Obviously employees in this department — despite the “team training” they were given — do not recognize themselves in this description. On August 28, 1995, UPS celebrated its 88th Anniversary. “We enter our 89th year proud of our past, excited by our future, seeing change as opportunity, and most importantly, convinced that our best days are ahead of us. We believe that the way to succeed in the future is to engage all employees within our business—exciting, energizing, involving, and rewarding everyone.” Over a year ago, UPS was encouraging employee participation in guiding the business; however, a framework for formalizing this participation has not been implemented.

The projected schedule of quality change implementation we were given may indicate that the implementation of teams on this level has been reserved for another stage of the change process, that the initial training on team building was only meant to set the stage for later development and reorganization. However, as noted earlier, teams are an integral part of successful implementation of TQM and were cited as a part of the UPS vision of business as well as their culture in the future. This being the case, an emphasis on team structure and teamwork would seem warranted now, not six months or a year from now. Teams need time to develop.

Recognizing this, we would recommend:
• Clarifying the role of teams.
• Stepping up team implementation.
• Bolstering the initial training sessions with follow-up courses in teamwork methods and problem solving.
• Potentially identifying/reorganizing “team” workspaces.
• Implementing team goals with subsequent congruent “team” recognitions.
• Revaluate the priority of the Leadership and Employee Involvement quality initiatives. These should be accomplished by May 1997.

Survey results also reveal a lack of alignment of rewards to the new goals and measurements in quality and customer focus aspects of the new philosophy. Without adequate recognition to reinforce the change effort, permanent changes in individual behaviour or in work processes cannot be expected. People do what they are rewarded for doing — in the words of one respondent: “business as usual.” The only way to achieve business as envisioned is with new recognition, ceremonies, management behaviours, and rewards on both an informal and formal basis. More pats on the back and pizza parties indicate some degree of a change in informal, management recognitions. A new newsletter provides a venue for recognition, if used for that purpose. But these are not as tangible as bonuses for reaching a quality goal, or department wide recognition ceremonies. We recommend redesign and propitious implementation of a reward system that highlights those who display the new behaviours, and honours those who reach the new goals.

Survey responses also indicate that managers are not yet fully displaying the new management behaviours that would reinforce the philosophical changes. Remedial/follow-up training in team methods, quality measurements, and communication processes (especially feedback) seems warranted.

Conclusion
The emerging organization of the twenty-first century will be networked, flat, flexible, diverse, and global. An organization transitioning from the old to the new will undergo constant change. This process is not fixed, logical or discrete simply because it has never been experienced before. Today’s managers do not have the tools they need to manage the organization through constant change. Plans are put in place and visions are formed of where an organization wants to be in the future; however, the transformation is not so simple or stable. It is first necessary to understand what characterizes the organization of the future before attempting to understand how to manage change. Kurt Lewin’s model of change, which consists of three phases (Unfreezing, Moving, and Refreezing), can be applied to better understand the success of UPS’s change efforts.

Traditionally, UPS’s management style has been sluggish—based on low risk, with formalized procedures and a high degree of structure and control (Harvey & Brown, 1996). The “old” UPS possesses all the characteristics of this sluggish-thermostat management style: “very stable goals, highly centralized structure, more managerial levels, a higher ratio of superiors to subordinates, emphasis on formal control systems, tendency to value tradition, tendency to value seniority more than performance, and an aversion to accepting new ideas. In looking at the Model of Adaptive Orientation in Organizations (Harvey & Brown, 1996, p. 33), UPS needs to embrace a renewing/transformation management style if it wishes to maintain a competitive edge and even survive. This management style is characterized by proactive steps to take advantage of new opportunities and innovations, increased responsiveness to competitive changes, and more participation in getting commitment and involvement of organization members in the renewal process. It seems as though UPS is attempting this transition. Some evidences are as follows:

• As a result of The Atlanta Consulting Group’s recommendations, the first voluntary early retirement and separation program was offered—4500 management accepted the early-out program. UPS was and still is trying to eliminate levels of middle managers in order to delegate responsibility to those actually serving the customers. This should result in UPS becoming more flexible, entrepreneurial, and effective; however much stress due to lack of experience and expertise in many areas has resulted.
• Empowering employees (Trust & Teamwork/Quality at Work workshops).
• IE Reassessment Group

UPS was always known for its stringent management practices that were characterized by “My way or no way” or “My way or the highway.” This is one area in which the company has realized that it must not only change, but get rid of the looming perception if it was going to get employee support and buy-in to implement changes.

Lewin’s first phase of change–Unfreezing–calls for an organization to realize that the old way of doing things is no longer acceptable and that the past must be separated from the future. The Unfreezing that we have identified are the shift in corporate focus from efficiency to effectiveness measured in terms of customer satisfaction and the identification of 18 quality initiatives.

Lewin’s second step of Moving involves taking the visions and changes identified in the unfreezing stage and devoting the time and resources necessary to accomplish them. The moving tools we identified are the numerous workshops, communication newsletters, Quality Update E-mail, and the “new language” and various changes in culture. However, because of UPS has not established improvement teams, this is the stage where the company appears to be at this present time.

Lewin’s last step is Refreezing, which calls for an organization to reinforce and reward the new behaviours that employees have been conditioned to learn. By refreezing them, the organization is making them part of the corporate culture in terms of policies and norms. By following our recommendations cited earlier, we feel that UPS will be able to move into the Refreezing stage and realize the benefits of undertaking this change process.

In a letter to shareholders (November 16, 1996), CEO Oz Nelson stated: “The timetable for implementing our Quality initiatives is continuing on schedule. The planned training and education phase is nearing completion. While work groups begin to apply what they have learned to improve the way we serve our customers, a major, long-term initiative has begun at the corporate level with the formation of teams focusing on several specific strategic processes that are vital to meeting customer needs and creating competitive advantage. The processes include customer and people development, billing, providing information to customers, and such basic operations as pickup, delivery, and sorting packages. Succeeding with our Quality initiatives is critical to maintaining customer confidence. We remain committed to continuously improving our business practices so that we enhance customer and employee satisfaction, financial performance, and shareowner value.”

References
1. Delivering Our Future. United Parcel Service of America, Inc., August 1994.
2. Ferguson, Gary A. “UPS’s Industrial Engineers Set New Pace for Change by Moving at the Speed of Business.” IE Solutions, May 1995, pp. 28-32.
3. Harvey, Don and Donald Brown. An Experimental Approach to Organization Development. Prentice Hall, New Jersey, 1996.
4. The UPS Story. Online. America on line. 25 Oct 1996.
5. “United Parcel Service.” Hoover’s Handbook of American Business. 1996 ed., p. 1456.