(FORTUNE Magazine) – THEY ARE such an integral part of the American landscape you don't really notice them most of the time. They fade into the urban scene like so many telephone poles or fire hydrants. But once you are on the lookout for those boxy, brown UPS delivery vans, you realize just how ubiquitous they are. More than 47,000 of them roll out on city streets and country lanes every weekday, picking up and delivering an average of about nine million packages. They make deliveries for 850,000 mostly business customers, seeking out addresses in the 50 states as well as Puerto Rico, West Germany, and Canada. For the fourth straight year, UPS tops its industry in FORTUNE's corporate reputations survey. With net earnings of more than $700 million on revenues of $10 billion a year, it is far and away the most profitable U.S. transportation company. Competitors try to emulate the reliability of its service; customers applaud the steadiness of its prices -- ground rates have increased only 6.5% since 1982; air rates have stayed the same since the company launched its overnight service more than five years ago. But what makes UPS stand out is its ability to attract, develop, and keep talented people. Top managers, most of whom have come up through the ranks, instill a spirit of winning so pervasive that people who fail are ranked as least best, not losers. Workers, in turn, have almost a Japanese-like identification with the company. Says Jeffrey Sonnenfeld, an associate professor at the Harvard business school who recently spent most of a year studying the company: ''In terms of management development, UPS is up there with IBM.'' This remarkable enterprise, begun 80 years ago as a messenger service in Seattle, has prospered largely by following homespun principles laid down by its quiet, self-effacing founder, the late James E. Casey. Most important, Casey declared, the company must be ''owned by its managers and managed by its owners.'' About 15,000 managers and supervisors own almost all the stock through a generous annual bonus plan, and many who began as clerks and drivers retire as multimillionaires. The UPS board sets a stock price each quarter, based for the most part on the company's profitability and long-term prospects. Employees must sell back their stock to the company when they leave or retire. The closely held nature of the company frees executives to make long-range strategic decisions without worrying about Wall Street's reaction. UPS maintains rigid control over nearly every aspect of its operations. Each task, from picking up or delivering parcels on a route to sorting packages in a central hub, is carefully calibrated according to productivity standards. Workers know precisely what is expected, and deviations are tolerated only rarely. The combination of employee ownership and tight operating controls has worked so well that change has been slow coming to UPS. Most jobs are still performed manually, and many operating systems have been in place for decades. Management is by no means smug about this. ''We like to think we are constructively dissatisfied most of the time,'' says UPS executive vice president Kent C. Nelson, 50. Until recently, however, the benefits of adding expensive new technology or expanding into new businesses did not justify the expense. But UPS is now in the throes of major change, forced into the high-tech era by competitors who have been making effective use of gadgetry to woo new . business. Highflying Federal Express has cornered 57% of the rapidly expanding air-express market by picking up packages the same day an order is placed, knowing precisely where the package is en route, and then delivering it to its destination the next morning. Customers have come to expect such prompt service, and UPS, a distant second to Federal Express with about 15% of the air-express business, is now moving ahead to add to its air fleet and to match technically advanced rivals with such devices as electronic scanners in its sorting centers and on-board computers in its delivery vans. Most industry analysts expect UPS to make the transition to more modern methods successfully. ''This management is extremely demanding, methodical, and thorough,'' says Paul Schlesinger, who tracks the air-express business for Donaldson Lufkin & Jenrette. ''When they decide to move ahead, they can do so swiftly and aggressively.'' As part of the transition to more of a go-go outfit, UPS, long one of the most publicity-shy American corporations, is polishing its public image. The company has launched an estimated $35 million television advertising campaign, its first ever, centered on the slogan ''We run the tightest ship in the shipping business.'' Top executives also cooperated fully in the preparation of this article, the first in-depth portrait of UPS ever to appear in a national magazine. The company will have no trouble coming up with the cash to bring about change. UPS currently carries a scant $114 million in long-term debt on its books, compared with nearly $2.5 billion in shareholders' equity. In recent years the company has been able to finance large capital spending projects -- nearly $1 billion worth in 1987 -- out of cash flow. To expand, UPS will also have to bring thousands of expert employees on board -- pilots, airplane mechanics, computer programmers, and the like. Until now, almost no employee reached senior status at UPS without starting at the bottom and fully understanding the corporate climate. As the company saying goes, you had to ''bleed brown'' to get ahead. What's not clear is how the company will absorb these new hires -- and how they will react to a corporate culture that one former chairman described as half Marine Corps and half Quaker meeting. Executives are encouraged to blend in with the team rather than seek individual glory, and all UPS employees are expected to meet grooming standards, which do not permit beards or flowing % mustaches. No one is allowed to drink coffee or other beverages at his desk. The company is almost aggressively egalitarian. The Greenwich, Connecticut, headquarters and the regional centers are located in extremely spartan buildings; in the parking lots, executives hunt for slots along with the hourly workers. Everyone is on a first-name basis, and no one, not even Chairman and Chief Executive John W. Rogers, 54, has a private secretary. He and other top executives share a secretarial pool, but they all do their own photocopying and make their own travel arrangements. ''We have no stars but many bright lights,'' says Rogers. Carl Kaysen, professor of political economy at MIT and a 13-year UPS board member, views the company as a kind of experiment in ''managerial socialism.'' Says he: ''When we have our meetings in Greenwich, we directors troop downstairs to the cafeteria, stand in line, and pay our $2.17 for a tuna sandwich. The only difference is we sit at a reserved table so we can talk.'' LONGTIME UPSers -- most of the work force due to a 4% turnover rate -- talk about their company's ''mystique,'' an aura that generates an unusual mixture of passionate commitment to hard work and a strong identification with the company. Superiors have to chide many low- and middle-level managers to work fewer hours and spend more time with their families. As much as 80% of the full-time work force turns out for voluntary, after-hours workshops dealing with the company's competitive challenges. In part, the company manages to gather such dedicated employees because it starts them young. It employs about 40,000 college students as part-time workers at its sorting centers around the U.S. ''It is the greatest recruiting ground imaginable,'' says Joseph R. Moderow, a UPS senior vice president. The company can look over the budding talent and offer promising workers full-time jobs before the ink is dry on their diplomas. Even with a college degree, the next step up from part-time sorter is van, or package-car, driver. Rogers, along with most other top company officials, spent time on the road. The job is well paid (nearly $16 an hour average) and held in high regard. Says Harvard's Sonnenfeld: ''The drivers are the real heroes of the company -- living, breathing Norman Rockwell portraits. They are 365-day-a-year Santa Clauses bringing the goodies.'' At the next level the romance fades but the compensation brightens. An average midlevel manager with ten years of service at UPS receives a relatively modest annual salary of $54,000. But most years he also gets $14,000 in stock and a $7,500 dividend check. All rewards, at every level, are earned the hard way. Workers at regional sorting centers are meticulously timed according to strict requirements for each task. For example, sorters at the giant UPS hub in Addison, Illinois (near Chicago), are expected to load delivery vans at the rate of between 500 and 650 packages per hour -- and unload them about twice that fast. Drivers are also rigorously timed; each regular stop on each route is studied with a stopwatch, and supervisors periodically recheck to make sure conditions haven't changed. When the driver leaves in the morning, his superiors usually know within six minutes how long his pickups and deliveries will take. In many districts, drivers who somehow manage to do the job quicker still get paid for the hours allotted to the route. UPS is maintenance mad about its huge fleet of vans and trucks. All vehicles are washed every day and are placed on computerized maintenance schedules. The results are spectacular. Package cars remain in service an average of 22 years, and long-haul ''feeders'' often run two million miles or more. Drivers consider themselves small-business men, who manage by pleasing customers, maximizing productivity, and developing new business. ''A driver who establishes a reputation for good service becomes the company's best salesman,'' says Thomas Mitchell, who has been driving a UPS truck in lower Manhattan for 15 years. He knows his customers so well that he changes his Friday pickup time at a restaurant supply wholesaler with the seasons, so that its Orthodox Jewish owners and workers can observe the Sabbath. But today's action is not just on the road. Because manufacturers no longer maintain big inventories, they often want new supplies flown in by air express. Thanks to this trend and other factors, air business is soaring at a 30% clip at UPS, compared with about 7% to 8% annually for ground volume. To keep up, the company is constantly adding to its fleet of 100 planes, rapidly expanding its gigantic air hub in Louisville, and laying plans to build new regional air centers on both coasts. UPS must match Federal Express's technological prowess in order to make big market-share gains. Officials at Federal Express are aware of the UPS threat. ''They will continue to be a presence; they'll push us,'' says Thomas R. Oliver, a Federal Express senior vice president. He adds, however, that so far UPS has taken business away from smaller competitors such as Emery and Flying Tiger without cutting into his company's share. The best guess is that most weaker players will falter as the industry shakes out, and UPS and Federal will wind up in a one-on-one showdown. ON-THE-GROUND competitors include Roadway Package Systems, a subsidiary of Roadway, the trucking conglomerate, and the U.S. Post Office. Under Postmaster General Preston Tisch, the Postal Service, which annually delivers about 1.4 billion packages vs. UPS's 2.3 billion, has streamlined some parcel services and cut rates to become more competitive. UPS officials fret about the Postal Service's tax-free status and have continually argued before the rate commission that its competitor is illegally subsidizing its parcel service with profits from its monopoly first-class-mail business. Typically, UPS is making the transition to high-tech in methodical fashion. First, the company acquired two small computer firms, one a software outfit and the other a computer design shop with good hardware manufacturing facilities. After a year of working with these two subsidiaries, UPS recently began field-testing an array of new devices at a small 35-car messenger service it owns in Los Angeles. Dispatchers can follow the progress of each car in the field by way of electronic tracking devices, and they can relay messages to the vehicles through on-board computers. The drivers have access to computerized routing directions and can record all transactions electronically. If the system works out, package-car drivers will carry a kind of computerized clipboard. Customers will sign for their packages on the keyboard, and the signatures will show up on a small display screen. At the end of the route, the driver will plug his clipboard into the central computer, downloading all the day's transactions, including high-resolution signatures. Electronic scanners, able to read bar graphs on each package, will be introduced into some sorting centers during 1988. These scanners will greatly improve the flow of packages through the labyrinthine central hubs, and they will also allow the company to tell customers exactly where their packages are during the delivery process. THE PROBLEM of assimilating all this new technology, along with its attendant work force of outsiders, could disrupt the company's relentlessly efficient operations for a while. But Harvard's Jeffrey Sonnenfeld argues persuasively that the company will eventually absorb the changes without any serious cultural damage. ''You've got to remember there is an enormous reservoir of internal good will to be tapped,'' he says. ''People will make sure things work out because they want their company to succeed.'' Sonnenfeld points out that freewheeling employees at the newly acquired software subsidiary, Roadnet Technologies Inc., took quickly to the UPS culture. The shipper had a tougher time getting its West German employees to adapt. When the company introduced ground service there a decade ago, the language barrier and cultural differences nearly sank the operation. UPS eventually hired some German managers and learned to cater to local tastes, an aversion to working overtime, for example. The German operation is now profitable, but UPS, while serving 16 European countries as well as Japan with air service, has held back on complementary ground coverage. If a specter haunts UPS dreams, it is surely labor relations. Founder Casey, recognizing the inevitability of union activity, invited the Teamsters to organize his drivers back in 1916. Though no significant strike has taken place in the last decade, signs of unrest are starting to appear. This summer UPS union employees turned down a three-year contract by a slight majority. UPS executives explain the rejection by pointing to the 40,000 union members -- more than one-third of the eligible membership -- who did not bother to vote. The company line is that most of the no-shows would have opted for the new contract. The national Teamster leadership solved the problem by invoking a constitutional provision that requires a two-thirds majority to reject a contract offer. The main issue seems to involve the company's tough productivity standards, which management refuses to bargain about. Says Dan Darrow, director of the Teamsters national UPS unit: ''The company is continually trying to increase productivity and employees feel they are doing enough for their wage, so it's a never-ending battle.'' Teamsters for a Democratic Union, a militant splinter group within the brotherhood, takes a much tougher stand. Rick Smith, a top TDU organizer, argues that the Teamsters national leaders, fully aware that UPS is the largest and best-paid unit within the brotherhood, have developed a ''cozy'' relationship with management. As for productivity standards, Smith contends they amount to ''harassment'' of the workers and must become part of negotiations. Apart from dealing with rebellious Norman Rockwell characters, UPS managers must worry about long-term trends in how people communicate. One promising field is electronic data transfer. Federal Express jumped into the business with its widely publicized Zap Mail program, but scrapped the costly notion and took a reported $190 million after-tax write-off. UPS is undeterred and figures that transferring information electronically will eventually become a huge business. Says UPS strategic planning manager Wesley Hughes: ''In ten years we will be a big player in the field.'' Just as it expanded its reach by marrying the boxy brown van first to long- haul carriers and then to airplanes, UPS is confident it can make the leap into electronics. That assurance seems well placed. This company, with its uncommon culture and considerable quirks, clearly inspires employees on all levels. Says Jeffrey Sonnenfeld of Harvard: ''They feel their mission is pure, and they seem to find that exhilarating.''