Royal Mail Group Inc.: Modernization Program Analysis

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Introduction

Royal Mail Group is postal service Company based in the United Kingdom. Its core business is to offer efficient and effective mailing services through post office business. Its mailing and dispatch include letters and parcels across London and UK. Following research findings presented to the company’s management at its headquarters in London, Datamonitor identified various limitations of the company that necessitated for change.

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The research used SWOT analysis to examine the position of Royal Mail Group Holdings thereby indicating its strength in various other aspects. The company profile indicates vibrant operation in a wide market covering the entire UK and major European markets. The company has three branches named Royal Mail, Parcelforce Worldwide and General Logistics Systems (GLS) and Post Office. In 2005, Royal Mail Group Inc. continued to hold a significant share of the UK market, commanding up to 99% despite of the government authorization to restrict 30% of the mails market to individual companies.

In 2006, the company underwent full liberalization in its letter delivery markets. The strength of the company includes 14,000 post office branches in the UK (through which it reaches more than 27 million customers) and 30,000 vehicles to handling dispatch. The company’s home operations has led to its expanded market and improved quality in delivery to a turn of 83 million items mainly consisting of letters and parcels.

In addition, recent results of the company’s revenue revealed significant profits in its GLS segment. Unfortunately, behind these series of success stories lies major fault line shown by the analysis as weaknesses, which must be resolved for the company to operate with minimal risk of closure in the near future. This assessment focuses on the evaluation of modernization of Royal mail group as the implanted change used to keep the company productively operational. This follows the provision of 1.2 billion Pounds bail out by the UK government to the Group so that it can modernize its activities (Antonio, 2003, p. 224).

In this critical assessment of the company, we examine and evaluate the modernization programme of the Royal Mail Group. By considering some of the reasons that necessitated for change, we develop an understanding of how the need for change was realized thereby leading to planning for modernization. The main emphasis of this assessment is on the effectiveness of the planning strategies and consequent implementation. Before concluding with the completion process of the expected changes, the assessment identifies factors impeding the proposed changes and evaluates their significance against the success of the company.

Detecting the Change

SWOT analysis conducted on Royal group holdings based on its two financial years indicated some striking revelations in the net revenue and losses incurred by the company. Besides learning about its strengths, the analysis also indicated some shortcomings underlying its poor performance despite commanding a wider market share. Thus, the changes detected declining marginal revenue and profits, overdue pensions for retired employees and declining employee productivity.

All these indicators derived from the weakness of the company in the rapidly changing information transfer platform. The company recorded weak profitability in the financial year ended 2007. Its operating profit fell form a soaring 145 million Pounds to 10 million Pounds in the trading periods 2006 and 2007 respectively. Datamonitor also revealed in its analysis that the trading profit margin of the company had dropped sharply from an impressive 1.6% in 2006 to as low as -0.1% in the 2007 fiscal year.

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The company’s economic analysts projected that this trend would negatively influence growth plans of the company in the future while significantly reducing its investor confidence. It was however difficult to realize this developments because the company continued to realize seasonal profits amidst the downward trend found at the end of the trading period. Therefore, in order to continue with efficient operations, the company required to make some changes to affect its mode of operations thereby leading to cost reduction. Similarly, it need to put changes aimed at improving convenience in delivery of services thereby maintaining demand and relevance in liberalized markets that presented new and increased competition (Grete & Sarah, 2008, p.37)

Key among its proposed changes was a major modernization programme that would lead to restructuring of the entire mailing system because it would affect every branch in its network in some way. Besides, the company faced major set back from it unpaid pensions. This pension had increased gradually from the previous year thereby demanding Royal Group to make more cash contributions toward bridging pension funds and assets. Since this trend would eat into the company’s cash available for trade, it would possibly reduce the cash set aside for working out growth plans.

Another indicator for the necessary change pointed to the company productivity per employee. With about 193,000 employees, Royal Mail Group International recorded about 50,000 million Pounds per work on revenue. Compared to its competitors, UPS and FedEx, its revenue per worker was considerably low. This latter revelation by Datamonitor painted a dull picture of the group performance in the future. In the view of the group’s analysts, this indicates low productivity and inefficiency in its operations.

The drivers for Change

Furthermore, the analysis revealed great opportunities and major threats facing the international company thereby predisposing it to change. The driving forces emerging from the identified opportunities included online trading, inexhaustible growth in the parcel and express market in the EU region and a major restructuring plan. Other agents for change in the Holdings arose from the threats facing its existence in the market. In this category the drivers included, electronic substitution (e-substitution), intense competition and ever-increasing overhead costs particularly the costs of transport.

The company realized opportunity to online retailing supported by broadband technology. Since the group deals in one of the products forecast by economic analyst to experience growth in the near future, Royal Mail Group Inc. could benefit immensely from investing in the state of art technology and modernizing its operations to trade online. The company experienced increased transport cost following increases in the prices of refined fuels. The trend place an increasing cost in the logistics and dispatch of mails and a number of services provide by the group on road.

The uses its own fleet of vehicles, analysts projected that increasing fuel charges would affect the operating expenses directly thereby setting a ceiling on its sales volume. Electronic substitution poses a major threat to Royal Mail Group.

The majority of the society has resorted to internet use sending, receiving information, using electronic mails, and instant messaging through advanced technique such as SMS and e-mails. A significant proportion of previously voluminous mails from institutions such as banks have also adopted digital network communication. The group risk great loses if digital alternatives substitutes traditional methods because its mail volumes would decline (Hooper, & Hutton, 2008, pp. 16-22).

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Similarly, royal mail faces stiff competition from its rivals in the European market such as TNT, UPS, and Deutsche Post. While these companies operate in large scale and can recover fast from losses, Royal Mail could collapse in the event that efficiency of the market tends toward speedy delivery. Inexhaustible growth in the parcel and express market in the EU region motivated Royal group into modernization programme in various ways.

First, Royal group commanded up to 6.1% of the market share in the region and its wanted to retain this market, amid suspicions that changing trends in communications would cause its customers to shift focus from traditional methods to a purely mobile oriented system. In contrast, the group maintained a considerably strong domestic market with a share of approximately 6.5% (Datamonitor, 2008, p. 4).

Most of the reasons compelling Royal Mail to change could classify as quantum change. For example, Royal Mail needed to reduce staff involvement in effecting its operations. Datamonitor had earlier on revealed that the organization spends more money on employees whose output declined based on each workers output. In addition, the Group’s change came in response to foreign forces in its environment. For example, it had to modernize in order to meet the changing demands of its customers. The change also targeted middle class European citizens who form significant proportion of its mails and parcel market segment.

Similarly, the frequency in its fleet operations by GLS faced stiff competition in this market from giant and diversified operators such as FedEx, TNT, USP, World Net and Deutsche Post. Therefore, major restructuring of the Group’s operations was necessary to improve the monitoring of its dispatches and mails against the demand of its customers (Hoskison, Ireland, & Hitt, 2003. p.277).

Effectiveness in planning for modernization

The company intended to integrate its e-commerce in the dispatch of mails and shipment processing. In order to improve the revenue of the company, Royal Mail Group planned to customize its logistics in GLS branch to meet the customers’ specific needs. This followed the urge for change created by the driving forces behind the desired change. The plans to intensify Royal Mails services through scaling up the output at its GLS department would minimize resistance to the proposed changes. According to Lewin’s 3-phase model, this completes phase 1 of the change process termed as freezing.

In this strategy, The Group’s management succeeded in creating an aura for change by projecting its possible collapse if it failed to modernize. Against the opportunity presented by European parcel and express market, the company proposed a number of measures to tap in the growing potential in the region and in such foreign markets. The government’s 1 billion pounds investment in escrow account facilitated the company repayment of pension funds. The governments input in the Royal Mail restructuring plan through grants to meet its pension deficits, had the effect of creating further debts in the future (National Audit Office, 2006, p.17)

The long-term debts acquired through this manner could then predispose the company to closure or major takeover. However, in the meantime the group could still regain its credibility in the face of its retired workers and current employees.

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Similarly, this input would save the group of its excess expenditure incurred in the process of meeting its pension needs. Initially, these expenses meant minimizing operational cost for the purpose of balance the budgetary needs of both post retirement benefits and the running cost. Consequently, the government input allowed Royal group an opportunity to plough back its initial allocations on unpaid post retirement benefits by embarking on the modernization plan and expanding its operations (Datamonitor, 2008, p. 7).

As proposed by the company, the money could used in expanding the network of the company through computerized distribution system. This would intern, improve the ability of the group to forward track and back track its deliveries. In addition, the ploughed back capital aimed at increasing the frequency of postage in its Post Office branch. In the event that the proposed changes would be carried out, the group forecast reduction in the number of its employees in the Post Office and Royal Mail but maintains a considerable human resource in its fleet’s management branch, GLS (Smith, 2008, 136)

This strategic planning could be highly effective in a number of ways. First, it left Royal Mail Group Plc. as the sole distributor of parcels in the UK with the potential of handling a daily turn of more than 40 million. This dispatch included mails express to Europe and the domestic market. Similarly, the effectiveness of this planning gave Royal group opportunity to a competitive force with its established competitors in Europe, such as UPS, FedEx and World net. In addition, this plan included an underlying possibility of Royal group having an increased capacity in parcel distribution in Europe. This followed other opportunities identified by Datamonitor in expanding Europe express parcels and mail delivery services (International Labour Organizations, 1998, p. 22).

Effectiveness in implementing modernization

Since the modernization programme depended on the government grand of 1.2 billion pounds, the success of implementing modernization strategies required equally significant contribution from its own sources. The second phase of Lewin’s 3 phase model define the change itself. When Royal Mail commenced on changing its technology infrastructure and effecting changes that would lead to staff transfer and promotion, it was clear that the business was moving to accommodate incremental changes associated with solving its present problems.

To a limited extent, the changes would include changing existing infrastructure to conform to major restructuring proposed for its modernization programme. Having outlined the group’s plan to change its methods of operation, certain laws were included in its plan that would facilitate its speedy modernization process.

The first phase of the modernization process targeted its major threats in the industry, which would have otherwise meant it loses its market share. Investment in online feedback and rapid response backed by the already existing broadband technology gave the group the first premier opportunity to set up internet infrastructure running into the doorstep of its clients (National Audit Office, 2006, p.14)

This included frequently updating the customers of the progress made in the delivery of mails from sending on one end to the time when it is received on the other extreme. It integrated internet communication with service delivery thereby combining traditional methods with new developments. In response, this part of the restructuring processes received overwhelming support of the middleclass European citizens.

Particularly those who had been in the traditional system for more than a decade before the modernization processes began. In most cases, a modernized delivery system would meet the expectation of the customers beyond the speed of their anticipations. Therefore, the inclusion of wireless systems and cable net work communication incorporating the functions of voice over the internet protocols (VOiP), lead to improved efficiency of Royal group thus making it more effective (National Audit Office, 2006, p.17).

The timely implementation procedure of its restructuring and modernization reinforced the effectiveness of modern methods used by creating a synergy between the planning process and subsequent implementation. When the group began to realize the returns of using an ultra modern technique in the first quarter of 2009, its net profit doubled that of the previous year. According to the Datamonitor, the new trend in the performance of the group indicated a renewed growth into another frontier that the group had not operated before (Datamonitor, 2008, p. 8).

The modernization process created a virtual central management unit in London while maintaining its braches as autonomous institutions. Consequently, Royal group would experience conditional intensification programme besides its modernized methods of operation. In order to maintain its initial subscriber bases and keep abreast with intense competition, the capacity of its modern output had to continually meet the ranging needs of its now, diverse customers.

Since the group had modernized its facilities to sere in the monitoring of parcels and information from source to destination, it remained with so many tasks in Royal Mail and Post office. Hence, the effectiveness of meeting the projected capacity relied on evaluating the output of modern set augmented with traditional means against a primarily modern method dominated operation with few employees.

Ultimately, Royal Group would continue to dominate its markets by having few employees working in the modern set up with a significant majority of persons in its fleet of vehicles. This would also reduce its cost of wages and salaries while improving the effectiveness of human resources because the division has few people to manage. Besides the management uses wireless communication to delegate and follow up the functions of its staff (World Bank 2006, p. 132).

Dealing with the barriers to Change

Effecting the changes involved confronting some barriers that stood in the modernization process, particularly in the implementation part. Retrenching workers in the government main employing body was threatened by possible industrial action. However, the government involved the entire concerned stakeholders in negotiation that gave way to compromising position of most workers, especially those who were almost retiring.

Those who lost their jobs accepted send off packages issued in bits. Freezing strategies of Lewin’s model played important role in evaluating outcomes and making constructive modification. Consequently, Royal Mail engaged its staff and shareholders in extensive communications drawing to its efforts the expertise of marketing consultants and various managers. The freezing phase reinforced the intended changes so that Royal Mail got better chance of dealing with both environmental and organizational change. Royal Mail also strategized on actions aimed at build staff-cohesion amidst rapid changes occurring in this market.

Since Royal Mail Group Inc. was primarily formed to handle items in the traditional communication industry, adopting the new changes such as modernization stirred conflict with organizations already in this market such as World net and TNT. While these operators could file suit with Royal Group, the group found itself between an action plan that would mud its credibility in the information services industry and efficiency in the face of its customers.

Ultimately, new laws enacted by the government and ratified by EU allowed Royal group to embark on its modernization programme. Modernization programme created more space for both employee and customer’s participation in Royal Group’s activity by including their views in marketing decision through wireless communication (Michael, & Paul, 2002, p. 363).

Conclusion

The modernization programme of Royal group was timely. Having noticed salient indicators for change witnessed in looming threats from giant competitors and possible new horizon of opportunities, the group had only a few actions left; to Modernize or decline. Its weakness was clear in economic and financial terms. Therefore, the effectiveness of its modern operation was the main concern in order for it to remain operational into the future.

The government played a plausible role in revising its laws and enacting policies that lead to legalization of the Royal Mail’s modernization programme. Since communication had developed to include speed as the overriding factor in information transfer and frequency in account for business profits, the modernization process now keeps the operations of Royal group at the desired competitive edge with its competitors in the industry and in the region.

Reference List

Antonio, L. J., 2003. IT-based management: challenges and solutions. London, UK: Idea Group Publishing. pp. 223-225.

Datamonitor., 2008. Royal Mail group plc. Company profile. London, UK: Datamonitor.

Grete, R. & Sarah, S., 2008. Information and communication technologies in rural society: being rural in traditional society.Milton Park, OX: Routledge, Taylor & Francis Group. pp. 35-38.

Hooper, R., & Hutton, D., 2008. ‘Modernise or Decline’. Norwich: Information & publishing solutions (TSO). Web.

Hoskison, E. R., Ireland, D. R. & Hitt, M. A., 2003. Strategic Management: competitiveness and globalization. Mason, OH:Thomson/South-Western. p. 277.

International Labour Organizations, 1998. Structural and regulatory changes and globalization in postal and telecommunication, the human resource dimension. Geneva: International Labour Organizations. Pp. 20-23.

Michael A. C. & Paul R. K.,2002. Postal and delivery services: pricing, productivity, regulation and strategy. Norwell, Massachusetts: Kluwer Academic Publishers. pp. 352- 363.

National Audit Office, 2006. Improving the Efficiency of Postal Services Procurement in the Public Sector. London, GB: Great Britain National Audit Office. pp. 14-17.

Smith, I. R., 2008. ‘An independent review of the UK postal services sector’ in Crew. M. A.,2010. Heightening Competition in the Postal and Delivery Sector. Cheltenham, UK: Edward Edgar.pp. 135-140.

World Bank, 2006. Global Information & Communication. 2006 Information and communications for development: global trends and policies. Washington, DC: International Development Bank for Reconstruction and Development. pp.125-132.

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