Equity markets demand that success leads to more success, a forever abstract target of compounding growth that seems thoroughly attainable and innately unattainable at the same time.
One of the downsides to this expectation of growth is that the bigger a company gets, the more it has to gamble. As a company grows large, an investment in one area of its business becomes a high stakes bet, because the scale needed to upgrade is immense.
And one of those areas of investment that can be downright scary is technology. Case in point: DHL Global Forwarding.
The German-based company Deutsche Post-DHL operates the world’s largest forwarder by revenue. DGF’s reach spans the globe, leveraging the brand name recognition of its express and parcel divisions, along with the cross-selling opportunities across its many logistics services.
That size brings with it tremendous benefits in terms of services to customers. But it also brings some inefficiency—offices spread far and wide, often using different and duplicative systems.
So the company years ago set upon a path to bring its forwarding division into one system, called the New Forwarding Environment (NFE). The initiative was problematic from the start, and in late October, DHL said it was writing off the project to the tune of $345 million.
Let’s quickly put that in perspective—$345 million is a decade of revenue for some midsized forwarders. For DHL, it was an unpalatable, but ultimately necessary write-off.
As the investment bank Stifel put it in a mid-November note to its logistics and transportation investors: “The company tried to shift its business to a more mobile and online platform with the idea to move away from the office and local area manager infrastructure; however, this approach failed to deliver the desired results, so they are reverting back but with an aim for better systems and processes.”
DHL’s failed effort to harmonize its forwarding environment via one system should prove a cautionary tale. The company’s heart was in the right place, but the task was probably too ambitious to pull off. UTi Worldwide suffered similar heartburn when it spent years implementing a home-grown IT system to better integrate its forwarding branches across the world—the company was recently acquired by DSV as it began to right the ship.
Goodness knows we’ve harped upon the need for companies to become more
automated and to use centralized platforms, and to merge systems when possible. But there’s a size and scale every company reaches where the mere act of trying to build a system to accommodate everything becomes too much. It either occupies too much of a company’s bandwidth (as in UTi’s case) or it just doesn’t work out (as in DHL’s).
There are a couple instructive lessons here. For one, a smaller forwarder that is intent on building its own technology is probably better suited to do so because the development and implementation of that system is less cumbersome. A forwarder with 125 employees could feasibly take input from almost every employee about what a backbone system needs and actually incorporate most of the good ideas.
That becomes less feasible after a company reaches a certain size. Just as democracy becomes less representative with every million constituents added, more employees and geographic regions and business lines create layers of complexity that are hard to integrate into a single system. That’s especially true for a business in motion. Building and implementing NFE must have been like trying to build a congested highway in the middle of an already existing congested highway.
The second lesson is that large forwarders really need to think hard about whether building a proprietary system is worth the hassle. Off-the-shelf systems can sometimes be a bear to implement—especially if you’re operating in multiple continents across several business lines—but software providers have moved swiftly with the times. They recognize that speedy and pain-free implementation is often as important as the product itself.
For a company the size of DHL Global Forwarding, any sort of IT overhaul would have included its share of bumps and bruises. But the painful lesson from the failed NFE experiment may be one that we’ve stated over and over again: focus on core competencies. Just as forwarders tell their customers that they are the ones who usually understand transportation the best, most forwarders ought to recognize that software developers usually build technology the best.
After all, $345 million could have bought a lot of off-the-shelf software.
