United Parcel Service (UPS)

UnitedParcel Service (UPS)



Section2: Internal Analysis: Corporate and Strategy framework

5(A) Corporate governance

Ordinarily,every company or organization has a system of rules, processes, andpractices which guide the way in which the corporation is directedand controlled. Therefore, corporate governance refers to a processwhere a company balances the interests of its stakeholders, forinstance, the shareholders, top management team, consumers suppliers,employees, the government and the society as a whole (Prokhorova &ampZakharova, 2016).For corporate governance to be effective and met itsdesired goals, agency theory is essential.


Accordingto Bosse &amp Phillips (2016), agency theory is a supposition whichexplains the relationship between the agents who are companyexecutives and the principals or shareholders in any business set up.The theory is primarily concerned with resolving any issues thatmight arise as a result of the different aversion levels to risk orunaligned goals. It is also worth noting that agency theory plays asubstantial role in addressing the discrepancies between the aims ofthe principals and the desires of the agency that will help issuessuch as conflict of interest that is widely experienced in companies. For instance, the manager may have a desire to expand the company’soperations into new and untapped markets subsequently sacrificing theorganization’s short-term profitability for higher earnings andprospective growth in future. Corporate governance has variousmechanisms.


Independentaudit is one of the fundamental mechanisms of corporate governance.It involves the process of carrying out an independent external auditof a company’s financial statements so that they can serve theneeds of internal and external stakeholders (Prokhorova et al.2016).On top of that, the company’s audited financial statementstogether with the auditor’s report are used by the employees,shareholders, investors and the regulators to determine the financialposition and general performance of the company. Independent audit,therefore, gives a view of the company’s internal workingmechanisms as well as its future outlook. It also ensures thatorganizations or businesses comply with the regulations that havebeen put in place or other external guidelines as well as thenational accounting standards (Bosse et al. 2016).

Balanceof power

Thebalance of power mechanism seeks to ensure that no single individualwithin a company has the ability or mandate to overextend resources.That is achieved by dividing the responsibilities between the boardmembers the directors, managers and any other individuals so that theoperations within the company can run smoothly. Creating distinctroles enhances the flexibility of the organization and also promotesoperational changes or ensures that any recruitment or reforms do notdisrupt current operations.

Boardof Directors

Boardof directors’ is corporate governance mechanism which protects theinterests of company shareholders. They also bridge the gap betweenthe shareholders. The board of directors has an oversight role toplay in ensuring that the operations of the company are consistentwith its goals and objectives.

Settingof policies and procedures

Theyare used by a company to protect and control its internal andexternal business interests. The organization sets policies andguidelines which should be followed by all staff members. This formof corporate governance is widely used in large corporations andpublicly held companies to simplify operational complexities(Prokhorova et al.2016).

UnitedParcel Service (UPS) does not have any governance problems becausethe company’s shareholders are consistently working with theexecutive team to ensure that the set goals and objectives areachieved (Brake&amp Grossman, 2015).Theorganization has embraced a culture where its financial statementsare independently audited so that the information available to thestakeholders is accurate and gives a true reflection of the company’sperformance.

5B In the Stock-Based Compensation Discussion

1.How are the CEO and other senior executives compensated?

Ideally,the motivation of senior staff members together with the employees isan essential aspect for the success of the company. The ChiefExecutive Officers and other senior executive members are recognizedand acknowledged through financial compensation and othernon-financial rewards because of the services that they offer to theorganization. That entails salary increments or bonuses (Brake&amp Grossman, 2015). Additionally,the compensation can be in the form of shares or call options of thecompany’s perquisites, stock or any other benefits. It is alsoimportant to note that has put sufficientmeasures in place to compensate its top executive team through salaryincrement and stock rewards.

Forinstance, According to The Wall Street Journal (2016), the totalcompensation for the company’s CEO David P Abney doubled in theyear 2014. That resulted from the base salary increase which Davidreceived when he was promoted to succeed Stock Davis. His salary rosefrom $499,494 in the year 2013 to $674,546 in 2014 while his stockrewards increased from $3.2 million to $5.4 million in the year 2014.

2.Is the CEO’s total compensation consistent with profitability asmeasured by ROIC

Thetotal compensation offered to the CEO’s is in conformity withprofitability as measured by the return on invested capitalprofitability ratio. Therefore, the rewards given to the chiefexecutive officers in the form of salaries, benefits, and powerfulincentives depends on their efforts towards maximizing the wealth ofthe shareholders subsequently improving the financial performance ofthe company (The Wall Street Journal, 2016)

Section4: External Analysis

Part2. Business value strategy using the value creation frontier

Businessvalue strategy using the value creation frontier refers to amechanism utilized by a company to design the most successfulbusiness models in a given industry. Value creation frontier can berealized through differentiation, cost leadership, focuseddifferentiation. uses cost leadershipstrategy to attract more customers and widen its client base.Additionally, the company also uses differentiation strategy so thatit can offer unique products and services to its consumers (Brake&amp Grossman, 2015).UPS uses its resources, strengths, capabilities and distinctivecompetencies to invest in high levels of technology so that it canproduce unique and quality products leading to customer servicesatisfaction, hence implementing the cost leadership anddifferentiation strategy.


  1. Corporate level strategies


Inthis business strategy, companies at the lower end of the pricingpoint in the provision of goods and services anticipate that they canmake up in volume what might have been lost through a higher pricepoint.


Companiesusing this strategy opt to place their goods and services at a highend of the competitive pricing scale. This category of brands onlyappeals to consumers with ample amounts of disposable income who havethe desire to purchase such exclusive products (Bosse&amp Phillips, 2016).


Thebusiness strategy targets a particular group of customers where thegoods or services offered are specifically designed to meet theirgoals.


Thistype of business strategy intends to attract and appeal to a widevariety of customers in different demographic regions.

UnitedParcel Service (UPS) has utilized mass market business strategy tooffer its package delivery services to different regions across theglobe. The strategy has been successful to the company generatinghigh returns and increasing its profitability. The company is now thelargest and the leading provider of supply chain management solutions(Brake&amp Grossman, 2015).


Bosse,D. A., &amp Phillips, R. A. (2016). AGENCY THEORY AND BOUNDEDSELF-INTEREST. AcademyOf Management Review,41(2),276-297. doi:10.5465/amr.2013.0420

Brake,D. L., &amp Grossman, J. L. (2015). Introduction to Amici CuriaeBrief in Young v. United Parcel Service, Inc.&nbspYoungV. United Parcel Service, Inc,66.

Prokhorova,V. V., &amp Zakharova, E. N. (2016). Peculiarities of CorporateGovernance Methodology. JournalOf Internet Banking &amp Commerce,21(S4),1-15.

TheWall street journal (2016), UPSCEO’S Total Compensation More than Doubles in 2014. RetrievedNovember 2, 2016:http://www.wsj.com/articles/ups-ceos-total-compensation-more-than-doubles-in-2014-1427194323