The holidays used to be UPS’s busiest time. Then came COVID-19
Carol Tomé expected to be doing a lot more gardening when she retired as CFO of Home Depot in 2019. But the board of UPS, where she’s served since 2003, had other plans. So in June, Tomé took off her gardening gloves and took the reins of the storied delivery company. We talked to the new CEO about what it’s like to lead a 113-year-old giant through a pandemic.
This edited Q&A has been condensed for space and clarity.
From CFO to the big show
After 24 years at Home Depot, you walked into a new job in the middle of a crisis. How has UPS been impacted by COVID-19?
Tomé: So, unlike a lot of companies, the majority of UPSers get up every day and go to work. You know, they put on their uniform, right? They can’t work remotely. You can imagine what we had to go through—just imagine hundreds of thousands of package cars, having to make sure that they’re clean. We’ve adapted pretty well based on all the feedback I get. We have had unprecedented demand come our way.¹ In the second quarter alone, we had to hire 40,000 people just to get the packages delivered.²
You helped Home Depot survive the 2008 recession. Are there strategies you gleaned from those tough times that you’re applying now?
We had to make some very hard decisions at Home Depot. We had to make some decisions to close stores, to exit businesses.³ But what we didn’t do was take anything away from the frontline associates who were in the stores every day. We continued to make merit increases, we continued to pay a bonus.
The phrase we used back then is, “A crisis is a terrible opportunity to waste.” Which, ironically enough, is what I said when I came to UPS.
I came here at the height of the pandemic, and one of the things that was getting in our way competitively was time in transit. We weren’t as fast as some of our competitors. We had launched an initiative to tackle that problem,⁴ but we weren’t planning to complete it until June 2021. So I asked, What’s getting in the way? And the team said money. I said, We’ve got money, let’s accelerate it. So we will be done this month. Why waste the crisis, right? Pull forward, make the investments now.
In the second quarter alone, we had to hire 40,000 people just to get the packages delivered.Carol Tomé
While your e-commerce business, which involves a lot of single deliveries to homes, has been growing during the pandemic, don’t you face a challenge of declining large shipments to stores? Those are generally more profitable routes.
A lot of what’s happened in this current economic environment is that business has softened up a bit and the pipeline has been filled up with e-commerce. We’re looking at how we can pivot our business model over time to have better balance in the portfolio. And that balance comes by growing small- and medium-size businesses, who really value our end-to-end network from pickup to delivery. Candidly, we had lost share in the small and medium sizes. Part of the reason why is we didn’t have the fastest time in transit. So you can understand why I was so passionate about accelerating that initiative.
Not all of your important customers fit into that small/medium size category. Amazon is a huge customer⁵ but is also becoming a competitor with its own delivery network.
Amazon’s an important customer, but we have so many important customers. And for us, it’s about each customer having a relationship that’s mutually beneficial. Some customers need us for returns; some customers need us for end-to-end pickup and delivery. Some customers want to use our access points. Our job is to understand each customer’s need and to serve them the best way that we can.
During your tenure as CFO at Home Depot you worked with five CEOs and helped sales increase almost eightfold to over $110 billion. What did you learn that you’re bringing to your new job?
I learned that the answer to really all of the strategic questions facing a company can be found by listening. In the Home Depot world, that meant listening in the stores. So in my free time, in the evenings, on the weekends, I would put on an apron and work in the stores. And I really got to understand the experience through the lens of the customer.
I also learned the power of what they called an inverted pyramid, where the leadership team is at the bottom of the pyramid, because we bear the weight for the actions that we take and the decisions that we make. We bear that weight so that we can free up our associates who are at the top of the pyramid, so that they can take care of the customers. If you bear the weight, you can free up people to do the right thing, to give the best experience.
We have to be intentional. I recall, at Home Depot, I had a senior officer opening and wanted to fill it with a diverse person. I had a bunch of amazing candidates, but [they didn’t fit the bill, so] I kept it open for a year. Ultimately, it happened to be a woman that took that job, and she’s doing an amazing job. But we had to have intentionality.
And we need to reach behind us and pull those people up with us. I have done that, and we’ll continue to do that. The first executive officer I named here at UPS was our chief communications officer, Laura Lane. This was an executive vice president job I created; the first job I created since I joined [went to] a woman.
Putting her stamp on it
Now that you’re a few months in, what are your biggest goals as CEO?
To impact people, help them get to their highest potential. I view that as job number one. Job number two is to get the stock price moving.⁶ That’s a lot about business model and capital allocation. And job number three is whenever I get ready to retire, that I have CEO succession-ready candidates.
There are several things that should not change, that are super important to who we are as a company. We landed on five. Our values. The dividend is an important part of the value proposition that we give to our shareholders; we’re committed to paying our dividend and increasing it over time. Our solid credit rating. Our brand relevance—and relevance is about doing good, be it our approach to social justice, or philanthropy, or diversity and inclusion. And then the last is the importance of our dual class share ownership. Those are the five things that shouldn’t change. But everything else in our portfolio is under review. And I mean, everything else is under review.
You told the analysts on Wall Street that you want to make UPS “better, not bigger.” Any examples of what maybe was making the company bigger—not better?
An example: I had the leadership team together and we put all our initiatives up on the wall around the conference room. I gave everybody 10 green dots and 10 red dots. Green were for those initiatives that we thought were wildly important. Red were for those we should stop doing.
All the green dots went up. No red dots. I said: You have to. So we went around again, and everybody used the red dots, which is very helpful, because it allowed us to say this is not important, right? We can put that on the shelf right now.
It allowed us to narrow our focus. It’s so critically important. You know, what is Lewis Carroll’s saying? “If you don’t know where you are going, any road will get you there.” That’s effectively where we were. We’re getting much tighter on what the action is that we’re going to take.
So we’re looking at how we can use technology to automate some of the manual processes in our facilities. How we can introduce technology to eliminate the people tasks? A really good one is robotic labeling. Rather than people putting labels on packages, having robotic arms putting labels on packages. We have that under a pilot, and it’s progressing nicely.
As the first outsider CEO, what have you noticed so far about the UPS culture—what needs to change?
I knew the company as a board member, but the truth is as a board member, you fly pretty high. As CEO, I started to go deep. I’ve been able to spend some time out in our facilities. I believe the answers to everything can be found inside the facility, talking to folks and talking to customers.
I believe the answers to everything can be found inside the facility, talking to folks and talking to customers.
What I see are some opportunities from a culture perspective. One of those is the happiness factor. We measure employee satisfaction based on likelihood to recommend the company to others. Last fall, in our survey, our likelihood to recommend score was not good at all: 51%. That means 49% of UPSers wouldn’t recommend us to their friends or family. Nope, nope. That’s not going to work for us.
What’s the root cause? It’s a lot about recognition, celebration, building financial plans so you can pay people bonuses; that’s an important part of it. And I don’t think it’s going to be that hard to move the needle.
Between the lines
(1) They’ve got mail: UPS handled an average of 21.1 million U.S. packages per day in Q2—typically a slow period—a 23% increase from the previous year, and almost reaching the blockbuster 23.1 million packages per day average of the 2019 holiday season.
(2) Parsing the Parcel Service: At the end of 2019, UPS had 495,000 employees, more than 1,000 package facilities, 125,000 delivery vehicles, and 261 planes.
(3) A different sort of renovation: Home Depot’s revenue plunged $13 billion during the 2007–2009 recession, and it closed 15 stores. It cut 2,000 administrative jobs and closed its Expo home design centers, laying off another 5,000 workers.
(4) The need for speed: Starting in 2019, UPS added Sunday pickup and deliveries, ordered dozens of new airplanes, and poured money into expanding its ground fleet and logistics systems.
(5) Customer and competitor: As of January, Amazon, which has its own delivery business, accounted for roughly 12% of UPS’s revenue.
(6) UPS stock performance: Shares have doubled since Tomé took over on June 1.
Oct. 7, 2015: $102.24
Oct. 7, 2020: $174.99
A version of this article appears in the November 2020 issue of Fortune with the headline, “The Conversation: Carol Tomé.”