FedEx Corporation (FDX) Earnings Call Transcript & Summary

Hey, everybody. Welcome to our live virtual event. We are going to be talking today about doing more IT with less, economizing and innovating today's IT organization. We have a fantastic keynote to start us off. I'm really excited about this. In a moment, I'll introduce Rob Carter. He's the CIO of FedEx. We're going to be talking about some of the interesting things that FedEx is doing to get through the current challenges and looking ahead and how information technology is going to be helping the company. Before we do get to that, I just have a couple of things I wanted to get through. Please remember to turn off any of the pop-up blockers that you may have on your screen so that you get a good performance here. If you have any technical problems throughout, if you lose sound or whatever the case maybe, just type your issue into the Q&A window there, and somebody from our team will take care of that. So I am Brian Gillooly. I am the Content Director of Data Center World, and I'm joined today across this entire event by all my colleagues in the enterprise IT group of Informa Tech that includes folks from Data Center Knowledge, Data Center World, Interop, InformationWeek, ITPro Today -- boy, I hope I'm getting them all -- Omdia. But we have just an entirely huge amount of brain power ready to meet up with you in the zones later on after the keynote. And also one more thing. We do have group chats for you to be a part of if you'd like to. We have 2 places you can go. One is the lobby, and you can chat with people in the lobby, or you go to 1 of 4 zones, and you'll see those designated in our zone area. And if you want to have particularly specific conversations on topic -- on different technology topics, go to those zones, and you'll be able to chat with people there as well. So let's kick things off. We're going to be talking to Rob Carter and some of the innovations that are going on at FedEx. Rob and I have known each other, God, Rob, 25 years, I think, now. And he has been the CIO at FedEx, I just learned 20 years now, just this past June, the CIO at FedEx for 20 years. Before that, he was the CTO. And I think, Rob, you're one of the rare people in the industry. And I remember that old adage about CIOs only being there for 1.5 years on average. You've been at it 20 years. And I might point out, too, this is very important. When I was with InformationWeek, we had our annual Elite 100 survey, and we decided 1 year to look back 10 years and see which companies ranked the highest in our Elite 100 over the past 10 years, in other words, showing consistency. FedEx ranked #1 out of all the companies that had been in that survey over the past 10 years, and Rob Carter was the CIO for all 10 of those years. So I think that's a testament to the gentleman who's about to chat with us here in our fireside chat. So Rob, welcome here.

Well, you're clearly dating this, Brian. We both are a little worse for wear and tear over all these years, but it's really been fun watching the industry grow and change these years, applying technology in unique ways for business results. And Brian's one of those people that ask me to do something, and I dwell on it for about a nanosecond and say okay because I just can't say no to, Brian.

Thank you very much. And by the way, we all appreciate it. We were very excited to find out that you were available to do this, so thank you so much.

So let's get started. One of the things that I wanted to talk to you about, we'll cover the gamut of different things. But let's start off with any changes in your approach to IT delivery and implementation because of the COVID challenge. Has anything really changed dramatically? Or is it kind of business as usual from a planning and implementation standpoint?

Well, let's talk about the what and the how just a little bit. The what has been really interesting. I'm not sure if we're lucky or good, but we had been spending a tremendous amount of energy and time and resource in our company preparing for the growth of e-commerce, preparing for onslaughts of volume as e-commerce becomes a bigger and bigger part of how consumers receive goods at their home. That was certainly pre-COVID and pre this world that we find ourselves in. So it was particularly interesting to see all of that work come to fruition. We had expanded our networks from 5 days to 6 days to 7 days of operation; and with that, the technology really had to be adapted to a world that's always on 24/7, not a lot of patching windows or maintenance windows or things like that. So the what we had been deploying was really unchanged as the onslaught came about of coronavirus and work from home. Now the how we were doing, it has changed a lot. We obviously had to send everyone home. Our work-from-home workforce and IT is -- everyone is at home worldwide on our IT teams right now, including the third parties that support us or about 97%, 98% of them. But in the case of our business, we sent almost 100,000 people home not just in IT but across the enterprise to work from home. And fortunately, our agile methods in our CICD pipelines and the critical ways that we had learned to deliver technology in a more spontaneous and responsive way paid off big during that time.

So as an example for some of our attendees who are looking for insight and ideas and whatnot, there was no knee-jerk reaction, no panic or anything like that, that happened at FedEx. It was -- we've already got our building blocks in place. Let's just change a little bit with how we go about doing this.

Yes. I think we surprised ourselves, though, at the speed with which we were able to deploy. I mean we emptied out every call center. We emptied out all of our inside sales, team members, finance, marketing, audit, you name it, around the world. All those folks went home. And we recently got a survey back that -- from all those people that we surveyed and the responses we got back, 96% of them said that they were properly equipped with the tools and technology that they needed to do their job in a work-from-home environment. Frankly, I laugh about that a little bit if we had surveyed them while they were sitting in their desk at work, we've gotten about an 8%, "Yes, we got what we need." But the reality is, is they felt well equipped as they went home. We had to do some pretty quick things. So we were in the middle of an Okta implementation for multifactor authentication and Zero Trust. And actually, the CEO of Okta was on CNN (sic) [ CNBC ] yesterday with Cramer talking about FedEx and the implementation because we pulled it forward 2 months. We did 2 months' worth of work. We're already in the midst of the rollout when we started, but we just accelerated it big time and equipped the team to be much more secure at home too because that was a big concern of ours.

It's interesting -- when you talk about that accelerating a project, it's interesting. If you can give us some more examples of how you adjusted projects -- the theme of this event is doing more IT with less, and we assume a lot of companies were pulling back on their budgeting. Not necessarily the case for you. In fact, a friend of ours, Mike Cuddy, who's the CIO of Toromont, he actually said they accelerated the spending in some of the areas to get projects done sooner. So can you give us some examples of what FedEx has done in terms of either accelerating or pulling back on projects?

Yes. I think it was more a matter of -- the word crisis, actually, its Greek root kind of means "to sift through things." And so what happened more than accelerated spending was we sifted through the things that we were doing, and we found ourselves much more focused on the things that were most critical. The things that are most critical clearly rose to the top as we were adjusting our networks around the world, and I don't mean our data in telecommunications networks. I mean our aircraft and vehicles and because -- while 100,000 team members were home, we had a couple hundred thousand of them out there serving the world at a very critical time. We were bringing PPN from China. We were serving people in their homes in ways that were vital as they were in work-from-home and sheltered home orders to stay at home. So we had a really important societal role to play, and it was important for us to be able to rapidly shift our networks, our aircraft alignment, fire up charters as this is an important part about how the world changed. Obviously, the passenger airliners pulled down an awful lot of routes and flights. And so that left airfreight, especially critical airfreight, much of which often rides in the underbellies of passenger airliners really on our shoulders. So we had to put a lot of extra capacity in place. And there's a lot of technology and a lot of work to do to make sure that those airline flights -- at FedEx, trucks don't roll and sorts don't sort and airplanes don't fly without the kind of central nervous system represented by the technology that keeps track of where everything is and how it needs to move.

So could you describe then to -- like every company has a business continuity plan or disaster recovery plan. A lot of the IT executives I've spoken with in the past 3 or 4 months said, yes, we -- everybody does, and everybody plans for just about every contingency. I can't get anybody to say, yes, we were ready for a global pandemic. And I'm not saying it critically. I'm just saying make plans for that. So could you describe for us how your business continuity plan kept you in a position to be able to address something that nobody would have expected?

Well...

Unless you're going to tell me that FedEx did expect it.

No. Well, here's a little bit of an interesting insight about how I work through this because I sit on the Board of New York Life, the life insurance company. New York Life's 175 years old this year. It's a very data-rich environment. You think of data analytics and data science. I mean actuarial science is really all about data. Well, New York Life had been through many number of pandemics in their history and had sort of a genetic -- the 1918 flu pandemic and other things were part of the ethos of that company. And so they did, in fact, have an extraordinarily robust notion of what it's like to go through a pandemic. And so as I was sitting in those board meetings listening to that, it helped me to respond better and to think more about what were we really making sure was operable and capable for withstanding this kind of an event. But no, I would never tell you we were, at FedEx, prepared for this kind of a pandemic, but we established a task force very quickly to go over every single business continuity plan. And I'd still get weekly reports, as the pandemic has worn on of each business area and their focused pandemic and business continuity plan, not really pandemic plan but business continuity in the event of needing to support a shift of where the processing takes place for cataclysmic loss of data or systems.

Can you describe that task force a little bit, like who was involved in it? Who headed it up? I'd be curious about, too. And how do decisions get made? Because I think that's something a lot of the attendees would love to know about maybe put into practice.

Yes. So our CISO organization, the information security organization is actually focused on governance, risk and compliance as well the GRC functions of risk management are a critical part of what Gene Sun, our CISO does. And there's an officer that works for Gene, who is specifically responsible for governance and risk. And so she headed the task force to review, pull in every business unit and review the specific business continuity plans that were in place. And by the way, she also turned those guns towards our third-party providers because there was huge amount of risk there. So we had to go to -- use a lot of alternative delivery capacity and manage services capacity out of India, for example. Well, we went immediately to them. I had a call yesterday with one of our big providers kind of reviewing, doing a deep dive on how they were faring and what their work-from-home environment was and their business continuity plan was. So it was robust. I can honest -- I was proud of the team for their quick response, but we didn't have to build an organization focused on risk, compliance and governance. We already had that, and they just sort of sprung into action in a new way.

So if we've gone into a conversation about the way the business itself had to shift pretty quickly. One of the things you've described is how a lot of the business side shipping kind of pulled back because of all the companies that we're having to shut down and whatnot. And then the consumer side just started exploding. How did you use technology to make that shift because it had to have been rippling across the entire company?

Well, let's unpack that just a little bit. I think it's a really important question, and there is a big technological component to that. So when you think about route-based systems like ours, where we're running the very dense routes of business-to-business traffic in industries like automotive and telecom and technology and health care and aerospace, you see kind of really big stops and big movements in these business-to-business worlds. You shift the focus to a business-to-consumer e-commerce, and what you see is less dense routes, routes that are -- have lighter weight traffic and smaller amounts of that traffic going to each individual stop, the difference between a consumer and a business. So we have a lot of technology to dynamically route our route drivers in ways that get the most density into the lanes and the routes that we're working through. So our ability to use dynamic route optimization and shift the way that we were running routes to deemphasize. And if you look at our day-to-day operations under normal circumstances, the men and women of FedEx are out there running pretty similar routes every day. I mean they're used to a pattern, a circadian rhythm of delivery and traffic, and that changed remarkably. So equipping them with tools and technology on their handhelds and all the technology, the equipment allowed them to move into unfamiliar spaces and do it quickly and efficiently. And we have had an unbelievable surge. I mean we call it getting slingshotted into 2023 when it comes to the e-commerce traffic and volume, the surge in it, and frankly, we're not sure it's going back. So we were really proud of the fact that we have been working on cost-to-serve models and technology optimization capabilities that help the business to run these kind of routes efficiently. And other than that, it would have probably been mayhem. It's been hard. I don't want to say it was easy, but the technology enablers really helped the business withstand this massive shift in traffic patterns.

Yes. It's funny because we've talked in the past a lot about how FedEx is in such a great position from an IT standpoint because you've always been able to innovate. You've got -- you've had very good budgets for IT innovation. You've got a CEO who is absolutely onboard with the implementation of IT advancements and whatnot. So you're in a great position. If there are companies that are not as -- and I'm not saying -- like you said, it's not easy for FedEx. I'm just saying you're well equipped to get stuff done. For companies that aren't in that kind of a position, what might be some things they would need to do to better position themselves for the future? You mentioned 2023. And I want to follow up on that as well. What might they need to do for better long-range planning, budgeting innovation, that sort of thing?

Yes. I think it's getting more and more obvious in the world that we all serve as technology leaders that the digital revelation -- revolution and innovations are actually helping businesses grow. They're helping businesses get better. The use of data, the use of technology, the strategic applications of tapping into the right resources, cloud resources, software resources is a strategic growth driver for the business. And so I think as technology leaders, it's incumbent on us to make sure that the leaderships of our companies isn't looking at technology and digital as some kind of just a cost center. When we talk about -- because we've known each other so long and have this conversation so much, I'm crazy fortunate to have a CEO like Fred Smith, who's an information architect. I mean he said back in 1979 that the information about the package was as important as the package itself and started really a revolution of custodial chain visibility and automation and the ability to keep track of things that were moving through our networks and that DNA is probably one of our best attributes. But companies in situations aren't exactly like that really have to begin to understand that the large -- the companies with the gigantic market caps today are the ones that spend the most on technology, not the least. And there's an inverse relationship between crimping and cramming down IT budgets and thinking that's the right thing for the profitability of the company. And so there's a lot of data. Gartner has data on that, that says, look, don't just constrain your IT spending in a way that hampers the growth of the business because in this digital world, your technology is a critical strategic enabler.

You mentioned earlier managed services and you mentioned cloud and whatnot. And under our theme of doing more IT with less, do you think, generally speaking, across business, in general, that there will be more of a reliance on things like managed services, outsourcing, cloud platforms that sort of that shadow IT approaches, anything like that? Do you think there's going to be a shift that we'll see over the next couple of years?

Well, here's the way I think about it, Brian. I mean it is shifting and the world of technology, I mean, when I started in technology 35 years ago, I mean, there was -- everything was custom crafted. Everything was in your data center and your technology and writing -- there were very few packaged apps at all. There was no ERP. And today, more and more, it's a tap into world of technology. You get to tap into the things that matter the most. You can tap into compute. You can tap into network. You can tap into software, services and capabilities in the ways that really accelerate your ability to do things and to do more with less to the theme of the conference. So for the things that we build inside of our company, we're building them in that cloud-native style of delivery and execution because instead of building big vertical applications inside of an enterprise anymore, we just build capabilities, and they're componentized capabilities that allow us to create horizontal business processes that unlock value. And many of the things that we're tapping into in those horizontal processes are not things that we wrote. They're APIs and services and micro services that we can simply tap into. But that's also true for compute. We don't believe that the enterprise and data center has an infinite life. I mean we think -- now we do think that there is a hybrid model that's emerging that's very clear that uses exascale colos to deploy your technology into. We deploy a lot of our baseload technology into colos these days like Switch, where we have the ability to use unbelievable infrastructure and Infrastructure as a Service and put our workload in there and then have the ability to tap into public cloud. So our deployments there are private cloud, and what we've tapped into is public cloud on the other side of that. And that's what hybrid looks like to us in the future. Even though we still do have a few enterprise-class data centers out there at FedEx, we've closed the vast majority of them already.

Yes. It's interesting. The rethinking of how IT is thought about and deployed and whatnot is so cool. I remember the number of times we came down to Memphis with information. We -- and we'd be sitting in your conference room, and you'd always have this terrific plan. Here's our new 3-year plan moving out, and it was always rethinking how IT is done. And I learned so much from that sort of stuff. So is -- do you have any sort of long-range plan that you've been crafting? Has it changed at all because of what we're going through? How is your thinking going these days?

Yes. You'd be disappointed if I said no, and of course, I won't say no. I mean I probably have more time these days, because I have such a great team working for me, to think about what the future holds for us. And I'll give you -- hopefully, this isn't too deep of a dive for a call -- for a webcast like this. But we've got a framework that we're working on right now, and it has 3 pillars to it. It's called demand shaping, environment shaping and resource shaping, and here's how that works. In demand shaping, we've shifted the entire enterprise into using the business agility frameworks to say, okay, one of the most critical things you can do is understand demand, where it's coming from, have prioritization, economic value drivers inside your demand shaping. So what you work on is really important. Resource shaping is really about the people resources that you have at your disposal to deliver value for the business. So we have a large team of excellent IT practitioners at FedEx, but we also tap into a lot of additional resources out there in the resource shaping and managed technical services world. So we run -- frankly, we run about a 50-50 mix in resource shaping, but those are -- shaping that model is a critical thought process for CIOs and technology leaders, and the onshore/offshore ratios, all of those kinds of things are really important notions of how you shape resource. Then environment shaping is the technology and tools, data centers, network, storage, how do you deploy the environments, and that's where we would get into the conversations like what we just had about colo deployments in Singapore and in Ireland and in Las Vegas that really matter about how we can apportion the environments and connect to them and be effective in that space. So the framework that we plan in right now are those 3 things and is proven to be a really useful way to think about, including -- to be a little bit long, including how we talk to our business partners. They get that. It's not a hard concept for them to get. We're working in those dimensions to try and manage cost and capability, make sure we're working on the right things in an economically effective way.

Do you anticipate a shift or change of any kind in the way your IT organization is shaped or managed as a result of that 3-pillar approach? Like will you have, for example, more business people coming into the organization to help you make sure that those 3 pillars are being implemented in the right way?

Yes. I don't -- well, other than in the business agility, well, business agility is not an IT thing, and it's not just agile. It's a set of constructs that the President of our corporation and I sponsor, the enterprise business agility frameworks, he and I both are the co-CEOs of our shared services company. We're all marketing in IT and sales and much of the finance organizations and things like that operate, but Raj Subramaniam, this guy that I'm talking about, he is a great business partner. We sit side by side driving demand shaping through the business agility framework. And business agility is not a -- just a term or philosophy. It's a thing. It's a very specific set of capabilities, processes, architectures that we work through to make sure we're working on the right stuff. So there's a lot of no-code and low-code work going on as well, and many of the system capabilities that we've built are oriented to be data driven for changes rather than code driven for changes, pricing and customer systems, things like that. We try not to have to write a whole bunch of code to allow the business to adapt products and pricing and things like that. So -- but I mean the most important thing I've learned over all these years is that if the business teams and the technology teams are aligned and are pulling together, then my job gets easy. All I have to do is get out of the way and watch great things happen because it's just the way it is, but conversely and all too often, when business and IT, you're pointing fingers and blaming, and then it's, frankly, an insult to glaciers to say that things move at glacial speed at that point. And so that's the places that I run to, is when I sense those kind of misalignments. And I have some personal capital with my business partners after all these years to go in and say, "Hey, this is -- if you would like to not see your pet work and your critical projects get done and let's allow that to happen. If you'd like to see great things happen, let's make sure that our teams are aligned and working in a trusted and collaborative fashion."

So speaking of teams, it's obvious that a lot of companies have had to disperse their workforces to work at home. And I know it's a particular -- I was going to stay struggle, but I think FedEx has done a great job in implementing that, but those people who work at home -- and I see you and your beautiful fireplace in the background there.

You said it was going to be a fireside chat, Brian.

Fireside chat, that's right. Yes.

If it wasn't 97 here in Memphis today, I would have lit the fire, but it's July, [indiscernible].

Yes. I've got the air conditioning blowing on me right now. But yes, in terms of the workforces, the people working at home, is there any particular concern or risk that there are greater threats to your IT organization because of people -- like have you had to retrain people on not being risky about how they're using technology or transferring data around the organization or anything like that?