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The basic aim of privatisation of Royal Mail was to eliminate the inefficiencies from the business in the face of highly competitive industry landscape while ensuring financial sustainability. Over the last one year since privatisation, the organisation has continued to face several challenges of sustaining the profits, while reducing the costs. An important threat faced by the organization is the TNT’s decision to adopt direct delivery operations, which are estimated to reduce Royal Mail’s profits by £200 million in 1017-18 (Royal Mail, 2014). Based on these challenges, this memo presents the current environmental analysis and a proposed strategic direction for future.
The competition in the industry is stiff with the presence of competitors like TNT and UPS, amongst many others. At the same time, Royal Mail faces several regulatory constraints as identified by the PESTEL Analysis. These constraints relate to pricing and universal service obligations which require the company to operate six days a week and cover all of the UK, unlike its competitors (Royal Mail, 2014). Furthermore, the digital and technological revolution has negatively affected the letter’s segment of the business, while boosting the parcel segment because of increase in online shopping (royalmailgroup.com, 2014). These technological and socio-cultural changes offer threats as well as opportunities to the traditional postal value chain. Nevertheless, Royal Mail’s biggest strength is its expertise in logistics, which can help turn the threats into opportunities. The digital age has changed the value chain of the postal industry due to mail substitution- a phenomenon whereby a continuous decline in mail because of substitution by email is threatening the revenues (Finger and Bukovc, 2014). At the same time, customers are gaining higher bargaining power because of the multitude of options available to them. High costs of operations, due to huge headcount, greater operating hours, and obligation to serve all areas of the UK, inhibit the ability of Royal Mail to compete and retain its competitive edge.
These intense environmental and competitive challenges call for robust strategies that capitalise on core competencies of Royal Mail to improve its value chain. First, it suggested that in order to reap the maximum advantage of the rise in parcel segment, Royal Mail should adopt a vertical integration strategy of partnering with the e-retailers to offer them logistics services, which constitute a key strength of the business. This will not only be cost efficient because of existing logistics capabilities Royal Mail has, but also diversify the revenue stream. Furthermore, to manage the declining letter market, the company should transform its value chain to amalgamate the physical with the information value chain (Accenture, 2012). This entails including hybrid mails and upstream and downstream extensions of the physical value chain. As for reducing costs, the organisation should realign its workforce to reduce employee costs, outsource support services, streamline operations, and logistics optimisation. Being a universal services provider, Royal Mail cannot opt for focused st rategy, unlike its competitors. Therefore, it must differentiate itself from its competitors through offering end-to-end services based on its logistics and supply chain strengths, while striving to reduce its costs by transforming its value chain.
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