Strategic Analysis Of Royal Mail Group Plc: Key Issues And Recommendations

Overview of Royal Mail Group Plc

The report aims at providing an insight into the corporate strategy of Royal Mail Group Plc. It is a subsidiary of Royal Mail Plc and is responsible for operating courier and postal service in United Kingdom. The company had its establishment in the year 1516. The company is responsible for mail collection and the delivery of services across United Kingdom. The letters deposited are in either a wall or pillar-box taken to the post office or collected in bulk from various businesses. Royal Mail Group Plc makes sure that the letters are delivered every day except the bank holidays and the Sundays at the uniform charges across all the destinations of UK.. The company puts forward public service and operates as either a public corporation or a government department. According to the Postal Service Act of 2011, major portions of shares of Royal Mail plc were floated in the London Stock Exchange in the year 2013. The government of UN initially tried to retain close to thirty percent of the stake of Royal Mail but sold the remaining shares in the year 2015. The report here helps in identifying three key strategic issues faced by the organization supported by the fact why they seem to be strategic. The report also discusses the key capabilities and the resources of the firm along with identification of the key factors that results in the competitive advantage of the company. The report also identifies how the competitive advantage helps in addressing the strategic issues along with putting forward necessary suggestions for improvement.

First Key Issue: The Royal Mail Group Plc faces a tough competition in the postal market after the act of complete liberalization in business of express packaging (Pooler 2017). The primary competitors in parcel delivery were Deutsche Post, Track and Trace (TNT), and certain airlines provided the express packaging service. The issue is a strategic one since the growing competition badly hit the revenue expectations of the company thereby sending the share prices down to the lowest level. The shares of the postal delivery service fell by 4.5 percent and closed down by 3.43 percent at close to 450 P.  In other words, the company had a weaker performance in the delivery of the parcels that led tighter cost control and higher focus on the letter business so that it achieves a profit forecast of a full year. In fact, the intense competition led the parcel revenue to come down by one percent and volume to go up by one percent.

Key Strategic Issues

Figure 1: Market Data of Royal Mail since Floatation

Source: (Groom 2013)

Second Key Issue: The declining mail market led to the commissioning of a review. The total mail volume for Royal Mail decreased by close to two percent compared to the preceding year. The reason for this has been the e-substitution that involved the businesses in offering the customer with alternatives of traditional forms of mail that included texting through mobile phones and e- bills (Rodriguez, Soteri and Tobias 2018). The government therefore made an announcement on the review of the postal service market of UN in the year 2007 that led to an underlying uncertainty inside the mailing market. Some service were removed with a publication of a long awaited report in the year December, 2008 that mentioned either to modernize or decline postal services based on the policies for maintaining universal postal service. The issue remained a strategic one since close to 87 percent of the mails initially sent via Royal Mail now sent via digital communication thereby reducing the profitability of the company. This also reduced the efficiency of the UK economy in safeguarding jobs in times of the financial down turn. The losses faced by Royal Mail also led to the widening of the pension deficit. The introduction of the European data laws also led to the reduction of letters sent. The new law made it difficult for the companies in sending unsolicited mails to the customers. This led to the slipping of the company’s profits from £ 335 million to £ 212 million in terms of the cost for overhauling parts of business.

Figure 2: The Decline of the Shares of Royal Mail Inc

Source: (Curry 2018)

Third Key Issue: The culture acted as one of the key strategic issues faced by Royal Mail Group Plc. In recent times, the company not only lacked providing the customers value for their money but consistency in higher quality delivery from every member of the company. Royal Mail Group also did not have the flexibility or the freedom in defining prices based on the real costs. However, the implementation of the flexibility could make the company succeed in the newly competitive environment (royalmailgroup.com 2018). The competitors of Royal Mail Group had already targeted the business mail so the company in order to survive required undertaking competition with them on a price as well as the service basis for keeping its universal service in business.

Resources and Key Capabilities

Political factors of a country have a key role in determining the factors that influences long-term profitability of Royal Mail Group Plc (royalmailgroup.com 2018). However, for achieving success within a dynamic industry, it is necessary for the organization to analyze the political stability, the risk of the military invasion, level of the corruption and interference and bureaucracy. United Kingdom represents a successful nation as per application of the rules of the law, effectiveness of the government, control of the corruption and the quality of the regulatory authority

The Royal Mail Group Plc can use the inflation, growth rate and the economic indicators of the industry for determining the trajectory of its growth within its own sectors. However, UK in this respect experiences a robust growth with the highest growth rate recorded at around 3.8 percent during the year 2000 (Cairncross 2013).

According to Ervik and Linden (2013), the shared attitudes and beliefs of the people play a vital role for the marketers of the company in understanding the customers of a particular market. However, in this context, UK has a higher dependency ratio and therefore there is much difficulty in maintaining the standard of living due to the shrinkage in the workforce.

A firm like Royal Mail Group Plc should not only undertake technological analysis but also consider the speed of the technological disruption as it directly influences the profitability of the business. UK, however, experienced advancement in technology with the introduction of the broadcasting, digital and telecom networks (De Prato and Simon 2014).

Environmental standards or norms vary across markets thereby affecting the profitability of the organization. Therefore, before making an entry into the newer market it is necessary for a firm like Royal Mail Group Plc in carefully evaluating the environmental standards. Eberlein et al. (2014), the government of UK played a vital role in developing the European environmental standards for promoting sustainable development strategy that put forward a management structure for ecological, social and economic development of European Union thereby enabling integration of environmental directives to other policies.

A firm like the Royal Mail Group Plc should consider the legal framework before making an entry as it might help in defining the competitive edge of the firm. In this context, UK has a strong legal framework. The country however, made changes in the labor law that put across various provisions for the benefit of the workers like minimum wage, combating discrimination and the paternity and the maternity benefits (Larcker and Tayan 2015).

Strengths 1. Offers diverse products 2. Wider customer base 3. Renowned brand with a rich heritage 4. Employees over 150,000 employees	Weakness 1. Stricter regulations influences the efficiency of the organization 2. Usage of emails for the purpose of communication led to the decline in the profitability of the business
Opportunities 1. Have strategic tie ups with the E-commerce firms 2. Conduction of  knowledge transfer session about the brand 3. Expansion into other countries  like the continent of Europe	Threats 1. Presence of private level e-commerce companies 2. Liberalization of the postal service 3. Involvement of the millennial in using postal services

Competitive Strategy

According to Van, Parker and Choudary (2016),  the new entrants in the Industrial Goods and Services brings in innovation, newer means of doing things and  putting pressure on the Royal Mail Group Plc through the reduction of cost, lower strategy for pricing and providing newer value propositions to customers. The firm can however tackle the threat of the newer entrants through innovation of newer services and products, through building the economies of the scale that enables it in lowering the per unit fixed cost and through spending money and building capacities in the research and the development.

According to Afuan (2014), Royal Mail Group Plc can however handle the threat of the substitutes by undertaking service orientation rather than the product orientation, by understanding the need of customers instead of considering what he/she buys and by enhancing switching cost for customers. 

Competitive advantage of the Royal Mail Group lies in its price and quality service. The company offered the best quality and price to its customers (Crozier 2016). Besides, Royal Mail Group also changed their organizational strategy thereby offering various services. Further, the prices and the strategies of the company are quite beneficial in both the short and the long run thereby giving the company an edge over the competitors.

The Royal Mail Group is the key provider of Universal Postal Service in UK providing services six days a week. The company also believes in maintaining a single price across 29 million addresses across UK. The company is one of the largest and operates in very challenging environment. However, the key resources of the company are its employees that define the success of the company. The company employs close to 159,000 people and remains committed in preserving the trust of the employees (royalmailgroup.com 2018). Thus, the commitment of the employees has made it possible in satisfying the need of maximum number of customers thereby helping Royal Mail Group in attaining a competitive advantage.

The key points include (royalmailgroup.com 2018):

1. The Royal Mail Group except the Sundays and the bank holidays is capable of delivering letters and parcels from Monday to Saturday across each of the address in United Kingdom. This implies that a delivery person needs to visit each of the village road and street in all the areas of UK on six days a week basis even when there is a substantial fall in the mail volume.

Recommendations

2.  The Royal Mail Group is capable of ensuring a parcel delivery up to 20 kg. This refers to the ability of the company in delivering parcels and letters to most of the areas within the country on a day-to-day basis.

3. The company is also capable of maintaining a network of the access points at specific density. Royal Mail Group makes an effort in making at least a single collection of letter from Monday to Saturday.  This implies that servicing of the given network for collection on a weekly basis regardless of the number of letters in each of the post boxes.

4. The company is also capable of meeting higher quality service targets that refers to the delivery of close to 93 percent of first class mail within single working day and 98.5 percent of second-class mail within three days of working. This ensures contributing to higher fixed cost based due to the need for the timely delivery on a constant basis across UK. The company however faces regulatory sanctions if there is a failure in meeting the higher quality standards.

5. Royal Mail Group is also capable of providing affordable service at uniform tariff. This implies the inability of the company in more. Therefore, the revenues rose while serving in the low cost urban areas must offset against high cost prevailing in the rural areas.

According to Nixon (2012), the proposed closure of the postal service has encouraged companies like the Royal Mail Group Plc in setting services with small grocery stores that enabled them in maintaining their service at a lower cost. This is because in recent times, the company has incurred loss in its profits from £ 335 million to £ 212 million in terms of the cost. This also had an impact on the shares of the company that came down from 568.2p to 4.86pc.Therefore, the company decided in providing mailing services to the stores even in the rural areas.

In recent times however, the mail volume for the postal service has plummeted due to rise in online coupons, e-mail and the electronic bill payment. As per figures, the mail volume decreased by close to 25 percent compared to the last five years with projections showing increasing rate of this decline (royalmailgroup.com 2018). This left the postal service agency like Royal Mail Group in facing a tough time in terms of the cost structure given the history of the labor contracts offering pension and health benefits and no provisions for the layoff. There were even laws for restricting the abilities of reducing the frequency of the deliverables. However, services provided to the grocery stores do not save the agency but help it in reducing the cost while maintaining its services.

Conclusion

The Royal Mail Group however is one of the trusted and preferred postal delivery service companies in CSI Brand Business Tracker in the survey undertaken between 2016 and 2017. 

The strategy for business and the corporate social responsibility (CSR) of Royal Mail Group shares the same goal of generating the sustainable value of shareholder. The CSR however remains an integral portion of the business model of Royal Mail Group (royalmailgroup.com 2016). The CSR helps in supporting the business for delivering social and economic benefits to the community, sustain active support of the employees and in managing the use of the resources in a sustainable manner thereby ensuring carrying out the operation with integrity.

The resource and capabilities of the company enables Royal Mail Group in providing advantages of Universal Service to the customers. Irrespective of whether the customers are within UK, they benefit from the company’s commitment towards higher quality collection and reliable delivery of the service. However, in the year 2013, Ofcom, the regulatory service, mentioned that the postal service was not only affordable but met the needs of the business users and the individuals (royalmailgroup.com 2014). The surveys undertaken by Ofcom, showed how people recognized the social benefit received from Universal Service that included support extended to the rural communities and in supporting the elderly population. This reflected the difference in usage patterns amongst the households with post holding a significant importance amongst users in the age group of 65, housebound and the disabled users and those people belonging to the offshore and the rural areas. The wide societal benefits of Universal Service enabled it to earn the status of VAT exemption on specific services and Royal Mail Group being a Universal Service Provider was no different. However, the provision allowed the company in delivering services at a reduced price to the users.

The Royal Mail Group remains not only committed and responsible but also understands and manages the impacts and embeds the principles of sustainability in the way of doing business (royalmailgroup.com 2010). As one of the key postal operator of UK, the company also recognizes in having a significant role in the wider sustainability agenda. The company therefore builds its approach based on the five primary objectives that includes:

1. Ensuring an effective structure of governance structure in place for driving the company towards its ambition

2. Developing partnerships and engaging with the employees, stakeholders and customers and for delivering a lasting change.

3. Avoiding and reducing the negative influence across the value chain and adding economic, environmental and social value.

4. Adapting the businesses to the influence of the climate change

5. Ensuring continuous improvement of the approach towards sustainability through the review of strategy

Royal Mail Group is a business focused on the stakeholders. As the provider of Universal Service, the company has the ability of delivering to close to 30 million addresses by operating six days a week. The company belongs to the part of the social fabric of UK. The stakeholders who remains vital in defining the company’s success and the ongoing sustainability of the business includes the local communities, consumers, government, businesses, charities, suppliers, NGOs and media associations(royalmailgroup.com 2018).

The feasibility of Royal Mail Group is determined by its value chain that helps in analyzing the internal activities of the firm and acts as the differentiation advantage to the firm that on improvement can provide a competitive advantage (royalmailgroup.com 2010). Some of the key facts include:

1.  It delivers and processes close to 71 million items across 28 million addresses for the lowest price. The company had a network of close to 12000 branches of Post Office that serves close to 20 million people. Besides the company’s European and domestic parcel business handles close to 400 million parcels.

2. The company also produces and designs special products and stamps for celebrating vital occasions.

3. The company now close to 700,000 cars, home insurance facilities and 2000 installed ATMs that are free to use. Royal Group is also one of the leading suppliers of foreign currency in the UK market with close to 25 percent share of the market. The company also issues close to one million policies of travel insurance along with facilities like savings, credit cards, mortgages and cash to the debit cardholders of UK.

Figure 3: Value Chain Analysis of Royal Mail Group

Source: (Rothaermel 2015)

The initiatives undertaken for improvement with focus on cost are as follows:

• Improvement  of the efficiency in the logistics network via  use of telemetry
• De layering of the  management structures
• Reducing the number of air and road  routes
• Reduction of facilities and ensuring the fact that the company has an accessible delivery of office network across UK
• Ensuring continued progress of the progress efficiency in using shared delivery of resources for collecting mails from lower volume post boxes
• Bringing down the cost in the central functions

The initiatives undertaken for improvement with focus on technology and improvement

• Rolling out newer personal digital assistant (PDA) technology in the core network
• By introducing newer functionality to the newer postage service by making it easier and quicker in buying online postage and printing of the address labels
• Through the development of the shipping solution on a global scale through usage of the cross border capabilities
• Allowing customers in printing delivery and the return labels with the help of the mobile phones at the customer service points

Conclusion:

To conclude one can say that, Royal Mail Group represents one of the affordable and most trusted mailing service providers of UK. The report conducted an extensive analysis of   Royal Mail Group and explained the findings that indicated the strategies that the company implements that provides it with an advantage and edge over the competitors in the courier and mailing service industry of UK. The research also indicates that the service put forward by Royal Mail Group is somewhat superior to the competitors and it covers a greater geographical area compared to the competitors.

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