What aspects of differentiation and integration are illustrated in this case?

Case: Change Competency

FedEx Office and Print Services, Inc.²⁷

Kinko’s (now FedEx Office and Print Services) has come a long way since its humble beginnings as a college town copy shop. Kinko’s was the creation of Paul Orfalea, who started selling pencils and spiral notebooks on the campus of the University of California, Santa Barbara, in 1972. However, when he realized that it cost 10 cents per page to use the photocopy machine in the library, he realized that selling copies would be more profitable than pencils and notebooks. He borrowed $5,000 and opened his first Kinko’s shop in a tiny office measuring 100 square feet. He sold school supplies and made copies on a copy machine that he moved outside when it was in use because the shop was so small.

When Orfalea decided to expand his business into college towns nationwide, he didn’t seek out local entrepreneurs to buy franchise rights. Rather, he invited his friends and relatives to become his partners. These partners enjoyed a large share of the store’s profits, usually around 50 percent. Many of the partners shared profits with their employees. By 1979 Kinko’s had expanded to more than 80 stores in 28 states. Then in the early 1990s, Kinko’s was no longer just serving colleges and small businesses. It established a partnership with Federal Express, and FedEx drop boxes were handily placed in all Kinko’s outlets following a shift in focus to the growing home office market. By then Kinko’s had 420 stores and was positioning itself as “Your Branch Office.” In 1992, Kinko’s formed an alliance with Sprint and introduced videoconferencing services in many of its stores.

In 1996, Orfalea started looking for a group of investors who were interested in reorganizing his company. He realized his organization had become somewhat unmanageable because it had outgrown its original design. Orfalea himself was the hub around which the business ran. His partners relied on interpersonal relationships instead of formal authority and responsibility. Orfalea’s charismatic leadership style had worked early on because very little coordination was needed among the partners.

Clayton Dubilier & Rice (CD&R) was a private investment firm that could see bright prospects for Kinko’s, as long as some organization design changes were made. This new structure was created in 1997. Kinko’s established a highly integrated organization. Many of the decisions that had been made in the stores were now being made by top management. The company was reorganized by geographical region—East, West, Central, and International. (Kinko’s shops had been located in Japan and the Netherlands since 1992.) Partners who owned the largest group of stores headed up their regional divisions. After the reorganization, a search was begun for a new CEO because Orfalea resigned as chairman in 2000. Gary Kusin joined the company in 2001 in that position. Kusin decided to relocate the company headquarters from Ventura, California, to Dallas, Texas, a move that Orfalea criticized as unnecessary. The move was completed in 2002. Dallas was chosen because it was more centrally located in the United States and a less expensive city in which to do business than was Southern California.

All but three of Kinko’s top executives had been replaced by the end of 2002. The common thread in the new top team was that each person was a strong team player, had previously been with a successful organization, and had each held jobs with high accountability. The team members had diverse managerial competencies. Their primary job was to implement the programs that Kusin and his team had put together to improve the overall performance of Kinko’s. The team zeroed in on improving efficiency and reducing corporate overhead in each store in order to reduce costs. Management layers in the company’s hierarchy were reduced from 12 to 6. An executive vice president of operations was named for the retail side of the business. The vice president of marketing and two general leaders for retail operations, operations support, and real estate reported directly to him. These general leaders were put in charge of 18 operations directors, each of whom was responsible for the profit and loss in a distinct geographical market. Seventy-four district leaders and the human resource and technology staff report directly to these operations directors. All 1,100 branches of Kinko’s report up through the individual districts.

Further expansion of Kinko’s commercial business depended on its ability to utilize its store network. The stores had been reorganized into a hub-and-spoke configuration. Spokes were small stores that reported to larger facilities that had extensive capabilities and were open 24 hours a day. Each hub had one or two spokes. Kinko’s also added two other categories to their stores: a flagship and a node. Flagship stores were large hubs in high-demand areas and each one had a broad range of technologies. Nodes were smaller stores that were staffed by one person. These nodes were designed for small and sporadic walk-in customers. They sometimes occupied only a corner in an office building. Nodes had low volume, but they were convenient to use and exposed more and more customers to Kinko’s.

Large, commercial customers were not forgotten during the organizational redesign. Stand-alone locked facilities were built for large batch jobs. By 2003, four of these large facilities were in use, with four per district planned for the future. All stores were connected through the Internet so that jobs could be allocated, distributed, or shared, as the need arose. This was possible because Kinko’s had calibrated all machines in these facilities so that all color copies were identical, regardless of where they were produced. The senior vice president of sales had 18 sales directors reporting directly to him. Each sales director was responsible for profit and loss in his geographical district. Twenty-four digital sales consultants were added to call on clients and suggest money-saving processes to customers. These consultants reported to the sales directors. Ten engagement leaders had been located on-site at the largest Kinko’s facility, and there were 74 sales leaders, all organized by district, who reported to the sales directors. FedEx purchased Kinko’s in 2004 and changed the company’s name to FedEx Kinko’s Office and Print Services, Inc. Kusin stepped down in 2006 and today the company is run by Brian Philips. Also in 2006, the company dropped the Kinko’s references from its name and became FedEx Office and Print Services. Today, FedEx Office and Print Services operates more than 1,950 locations in more than 11 countries. It serves more than 100 million customers each year. It is the only brand that offers customers 24-hour-a-day, seven-days-a-week, walk-in access to a full range of office and shipping services in many of their locations.

Questions

1. What aspects of differentiation and integration are illustrated in this case?

2. What concepts of vertical design are highlighted?

3. What is FedEx Office and Print Services’ business strategy? That is, how does it compete in the printing services industry?