Strategic Analysis of Australia Post - Case Study Example

STRATEGIC ANALYSIS OF AUSTRALIA POST By Student’s Name Code + Name of Course Professor/Tutor Institution City/State Date Table of Contents 1.0.EXECUTIVE SUMMARY 3 2.0. EXTERNAL ANALYSIS 4 2.1. General Environmental Analysis 4 2.1.1 Demographic Segment 4 2.1.2. Economic Segment 5 2.1.3. Legal/Political Dimension 5 2.1.4. Socio-cultural Segment 6 2.1.5. Technological Segment 6 2.1.6. Global Segment 7 2.2. Industry Analysis 7 2.2.1. Description of the Industry 7 2.2.2. Industry’s Dominant Economic Attributes 8 2.2.3. Market Size 8 2.2.4. Market Growth Rate 8 2.2.5. Industry Trends 9 2.2.6. Five Forces Analysis 9 3.0. INTERNAL ANALYSIS 11 3.1. Organization Analysis 11 3.1.1. Structure and strategy 11 3.1.2. Components of Strategy 11 3.2. Analysis of Firm’s Resources and Capabilities 11 3.3. Financial Analysis 12 3.3.1. Valuation Analysis 12 3.3.2. Growth Analysis 12 3.3.3. Profitability Analysis 12 3.3.4. Financial Strength Analysis 13 4.0. STRATEGIC ISSUES ANALYSIS 13 4.1. Critical Challenges 13 4.2. Strengths or Weaknesses Analysis 13 4.3. Opportunities or Threats Analysis 14 5.0. Recommendations for Investment in the Australia Post Company 15 Personal Reflections 16 Bibliography 17 Strategic Analysis of Australia Post 1.0. EXECUTIVE SUMMARY Industry Overview Australia Post dominates the Postal services industry of Australia (ACCC 2013, pg. 12). The company has the lawful mandate and monopoly to deliver mail in bulk. Given the numerous opportunities and challenges ahead, the industry is shifting away from the usual business of mail delivery and is now venturing into other businesses. Contrary to popular view, the volume of letters sent in Australia is rising. However, personal letters have dropped, because this only represents 5% of all mail. In this industry, it is critical that companies accordingly develop transport, technological, and supply chain assets to attain the requirements of the sector. The drop in the mail industry has been caused by dropping mail numbers, organizations and individuals change from out-dated letter formats to electronic options (Allen & Powell 2012, pg. 11). It ought to be stressed that the delivery of parcels is a highly competitive sphere. Notwithstanding this difficult economic climate, the Australia Post still makes a net profit. Company profile Australia Post is a government owned entity. Its only shareholder is Australia’s Commonwealth Government. The company runs a commercial business that provides affordable, accessible and reliable postal services to Australians. The company is self-funding and receives no taxpayer financing. Australia Post works in close collaboration with other global international postal entities via the Kahala Posts Group and the Global Postal Union to guarantee efficient and reliable delivery of mail internationally (AUSTRALIA POST 2013, pg. 56). The turning point of the company has been the 2013-2014 financial year. Over the half-year, the company recorded its first loss since being government owned. The cause of this was the substantive losses happening in the company’s mail enterprise. The mail business losses have resulted from dwindling volumes of mails numbers as organizations as well as people switch from outmoded mails to digital options. In addition, heavy costs associated with meeting the firm’s obligations of community services, which govern delivery regularity, pricing, public access and delivery timetables. The drop in traditional mail business has negatively affected the budget of the Commonwealth through a sharp decline in its RoE (AUSTRALIA. DEPARTMENT OF INDUSTRY 2014, pg. 113). Without transformation, there is likelihood that the company will suffer some $12 billion in total losses in mails in the next decades, hampering growth of profit in the corporation and culminating in general losses in the entire business of some USD 6.9 billion (Christensen, Johnson & Rigby 2012, pg. 22). Purpose of the Study This study will conduct a comprehensive strategic case analysis of the company. The strategic analysis will look at the firm’s internal and external environments. Using the tools of Five Forces Industry Analysis and SWOT analysis, this paper will assess the unique situation surrounding Australia Post. The report will summarize with a suggestion as to whether my family should invest in the corporation or not. This will be followed by a “Process Reflections” section, which will outline the difficulties or issues confronted in the assignment as well as the major learnings on strategic management. 2.0. EXTERNAL ANALYSIS 2.1. General Environmental Analysis 2.1.1 Demographic Segment International and Interstate mail and courier services have been described grounded on geographic boundaries. However, the descriptive 'local' inclines to be more subjective. 'Local' courier and mail services are commonly taken to suggest a service where an article is taken up and dispatched in a short time span in a set local or metropolitan area. Australia has a high population and twelve cities having populations of over 600,000 people, comprising seven of Australia's territory and state capitals. After these huge cities, the population of Australia is physically extensive and widely dispersed with most regions either not being serviced by mail and couriers entirely or being serviced by a limited number of providers that meet the description of 'local'. Providers in the postal services industry including mail and courier services are found in the four largest cities being Perth, Sydney, Brisbane, and Melbourne. These cities account for 60% of the population of Australia and are the main business centres. 2.1.2. Economic Segment Australia Post dominates the postal services industry. Across the three core business units, the company operates, as a monopoly is several areas and competes in other greatly competitive international and domestic businesses. The letter business sector is monopolistic. However, the parcel/ logistic agency and business services compete with main international organisations (ACCC 2014, pg. 12). Given that the company is the dominant player in the industry, it needs to make great strategic moves as it advances the highly competitive business environment where its future growth and business is to be. Owing a slowing Australian economy and the global crisis in 2012-2013, profitability in the industry and net profits in the industry have dropped by 36.7%. This is opposed to the losses that most global postal companies reported losses over the same period. The business units affected in the industry are the parcels and logistics business units as well as the business to consumer markets. 2.1.3. Legal/Political Dimension The postal services industry is regulated by different legislation pieces. The Broadband Communications Department and the Digital Economy ensures the policy development and legislation to ensure that the economic and social necessities of the Australians. The postal services industry is deregulated and conforms to the 1989 Postal Corporation Act of Australia (ACCC 2013, pg. 13). 2.1.4. Socio-cultural Segment Changes in the socio-cultural demographics of Australia to an aged population has an effect on the Postal services industry. People with limited ability to travel depend on one main point for their insurance, utilities payment and banking needs, which are offered in the industry. This is documented by the fact that retail and agency services was the best-performing business unit in the industry in 2009-11, with an income growth of 3.3%. As the country continues to be a globalised economy with most of its population born in foreign countries or an extensive heritage, logistics and parcels is a mounting area. 2.1.5. Technological Segment Changing technological trends and the wide impact technology has economically and socially have a major effect on the postal services industry into the future. The shift to digital forms from traditional mails has a progressive downward impact on the traditional businesses of the industry (AUSTRALIA POST 2013, pg. 59). Nevertheless, the rise in online business has culminated in the growth, as more packages need to be delivered exclusively to buyers’ homes from sellers. Technology has also allowed the Postal services industry including Australia Post network to provide many financial and businesses through different shop fronts. The dominant industry’s capital expenditure on technology was $275.1 million in 2009-2010. A good part of this was on the system of SAP enterprise as well as other systems comprising point of sale and HR (Godinho & Sing 2013, n.pg.). This facilitated new product offerings, improved logistic movements and aptness to generate a customer focused corporation 2.1.6. Global Segment Given the importance of the postal services business to the nation’s economic infrastructure, its structure and manner of regulation have substantive implications for the global competitiveness of Australian businesses. This has been so given the initiation of electronic commerce and globalisation of trading (Fahour 2014, pg. 17). Firms now shop around internationally for the most effectual delivery and mail services in a similar way that they shop around for the most competitive and efficient telecommunications systems. Australia has an unmatched opportunity to take a major role as a postal hub within the Asian area if pro-competitive and flexible regulatory approaches are assumed. The best-placed provider to gain from this plan would have to be the Australia Post. Postal authorities and governments overseas have also identified the mounting pressure, which advances in telecommunications render on providers of postal services. Christensen, Johnson and Rigby (2012, pg. 29) argue that more commercial attention of postal services in other regions, governments are postal authorities to enable them to compete in other communications markets. 2.2. Industry Analysis 2.2.1. Description of the Industry The Postal Services sector was historically the major communication vehicle in Australia. This domination on communications is fading because of technology changes. The industry is in a transitory state as participants adjust to a long-term drop in volumes of traditional mails. Australia Post dominates the industry (AUSTRALIA POST 2014b, pg. 47). The company is the largest logistics company in Australia and is a monopoly provider of particular mail services. Other market players within the industry pay attention to third-party communications services, including bulk mail-outs. The delivery chain, which commences with centralised collection and finishes at the recipient, combines these different entities (AUSTRALIA POST 2014c, pg. 19). 2.2.2. Industry’s Dominant Economic Attributes A thorough comprehension of the main features of an industry assists a firm in preparing for the road ahead. By examining factors such as market size, growth and industry trends provide an understanding of the industry’s economic weather. 2.2.3. Market Size The market size of the industry is vast. The market is both international and interstate. Australia has a high population and twelve cities having populations of over 600,000 people, which provides the market for the mail and courier services. This also comprises seven of Australia's territory and state capitals. The main markets for mail and courier services are found in the four largest cities being Perth, Sydney, Brisbane, and Melbourne. 2.2.4. Market Growth Rate Over the past years through 2013-14, the postal services industry has bounced back to growth after drops over the previous decade, with income forecast to rise at a yearly compound rate of 1.6%. For Australia Post, investing in parcel services and automation is beginning to yield fruit. The promising spot in the sector is the parcels market. Changes in information technology changes have influenced communication and retail (Crew & Kleindorfer 2012, pg. 28). The success in online shopping has culminated in augmented demand for transporting parcels from, to and within Australia. Progressive growth in the volume of parcels transported locally and high advertising and mail expenditure during the federal election are predicted to contribute to powerful growth in the present year of 11.7%, taking industry income to $6.5 billion (Dieke, Junk & Thiele, S 2011, pg. 17).   2.2.5. Industry Trends The Courier collection and delivery services in the industry offers door-to-door delivery services linking businesses to their customers and consumers to each other. Whereas the industry is predisposed to demand from all segments of the economy, in the previous five years, activity in mining and retail has significantly affected industry performance. Development in the Mining segment strengthened the industry in the previous decade, but current drops in mining capital expenses have minimized demand from this section of the economy. In addition, Australia Post’s acquisition of StarTrack Express has shifted StarTrack's activities into the Postal Services industry. These developments are anticipated to contribute to an estimate drop in industry income by 3.8% 2.2.6. Five Forces Analysis Threat of New Entrants Because of the historic and legislative nature of delivery of letters in Australia, there is a minimal threat of new contestants in the letter delivery industry. Australia Post is in competition with all main corporations with a wide customer face-to-face network in the agency services (Castro & Maddock 2013, pg. 69). This comprise insurance companies and banks, which can offer agency services to new and existing clients. Australia Post leads in this market. The major threat is in the logistics and parcel business where main global corporations can enter. Bargaining Power of Suppliers As a main Australian corporation with a monopoly in most of the markets it covers, the suppliers of Australia Post have limited bargaining power. To access the Australia Post shop fronts network for agency and retail services, its demands would have to be addressed. As logistics and parcels is the business’s most competitive business unit, trucks suppliers and other transport necessities including technology providers like SAP has some bargaining power as the firm’s supplier (Crew & Kleindorfer 2012, pg. 39). Bargaining Power of Buyers To moderate Australia Post’s monopolistic position in the letter business, price setting of delivery of mail is fixed by the government department supervising Australia Post and the Productivity Commission. This influences commercial buyers, as this comprises 78% of all letters posted in Australia. A developing field is other commercial buyers with straight marketing communications comprising 15% of postal mail. Logistics and parcel buyers have more power as they can select from other global corporations such as Star Express, DHL, or Federal Express. Threat of substitute products or services The main substitute merchandise is the online communication of information for commercial and individual correspondence (AUSTRALIA. DEPARTMENT OF INDUSTRY 2014, pg. 17). Payment of bills online and delivery of insurance and financial utilities are serviceable online. Substitute products can also move parcel movement and logistics movement. Rivalry among Existing Competitors As previously mentioned, the main competition is in the Logistics and Parcel business unit. Australia Post acquired SAWDS (State Warehousing and Distribution Services) to remain competitive in April 2005. This greatly improved the Post Logistics business, giving the company reputation and SWADS client’s base. There are also strategic alliances being contracted to cover for logistic inadequacies in Australia Post’s network. This comprise with StarTrack Express to address road freight and Australian air Express to augment airfreight and international capacity. 3.0. INTERNAL ANALYSIS 3.1. Organization Analysis 3.1.1. Structure and strategy The Australia Post organization has a decentralized organizational structure. The firm’s operating structure comprises of different business units: The Group’s CEO and MD-Ahmed Fahour Group’s CEO: Commercial and Corporate Services-Ewen Stafford Postal Services: Executive GM Post Services-Christine Corbett and Robert Black People and Corporate Affairs: Chris Blake. Customer Experience and Marketing: Greg Sutherland. 3.1.2. Components of Strategy Statement of Purpose: “Helping our communities, clients and people build an improved future. Everyone, everywhere, every day.” Primary Objective: To provide efficient and high-quality services to the community. 3.2. Analysis of Firm’s Resources and Capabilities The effectual operation of Australia Post’s processes is the means by which the company delivers value for money to its clients and profits to its owners (AUSTRALIA. DEPARTMENT OF INDUSTRY 2014, pg. 117). The Australia Post is self-financing and uses its resources and assets to earn profits. These profits can be reinvested in the organization or returned as dividends to the Commonwealth Government, its only shareholder. 3.2.1. Tangible and Intangible Resources Australia’s resources constitute both intangible and touchable assets including capacities, which may differ on value and quality. The company’s total assets by the quarter of 2015 were $4401.5 million while its current assets were worth $ 1239.9 million. 3.3. Financial Analysis 3.3.1. Valuation Analysis Valuation analysis ratios show how well the stock of the corporation is doing relative to that of the market and other firms. It is taking the stock price of the company and comparing it to its incomes, book value or cash flow. By mid this year, the firm had a potentially good value play as its share prices were at $46. 3.3.2. Growth Analysis The growth analysis provides information about how well the firm is doing over time regarding operating income, net profit, and revenue. On a collection base, the EBIT losses in the firm’s greatly moderated mail services platform (mostly the firms in nonreserved or reserved letter facilities), rose by about 15 % to USD 328 million (AUSTRALIA. NATIONAL COMMISSION OF AUDIT 2013, pg. 33). This was because of dropping capacities and the fixed-cost attribute of the business. Retails generated about 175 million dollars, which conforms with previous year’s outcome. Express and parcel facilities earned $337.6 million, which represents 20.7 % on previous year (Stumpf 2013, pg. 9). This marks the fourth year of progress in the parcels segment. This got to be in spite a go-slow in ecommerce events and mounting competition within the parcels venture. This year, the company has made momentous improvements to its Android and iOS applications. The approval of the company’s digital amenities was marked by a 22 per cent rise in digital products income from the previous year, energized by a 37 % increase in mail services and redirection of online letters, and 38 % rise in the firm’s Online business. 3.3.3. Profitability Analysis Profitability ratios normally indicate how well the firm’s operations are upholding including the effects of liquidity, asset and debt management. This year Australia Post’s profitability upon taxation was one hundred and sixteen million dollars. This comprises 65 million dollars of expenses linked with the firm’s company reform program (Allen & Powell 2012, pg. 21). This is expected to scale down costs in its corporate platform o that the firm can channel useful resources into other frontline amenities for its clients. The firm’s profit after taxation (without reform expenses) was $177 million, representing 1 % of the previous year. 3.3.4. Financial Strength Analysis This analysis establishes whether a firm will have challenges in paying off its debts. Australia Post’s current ratio for June 2015 was 2.524. This implies that investors can look out for the company, as its current assets are twice as big as its current liabilities . Thus, the firm can offset its current debt through its present available assets. The firm’s debt-equity ratio for June was 0.4786. The figure indicates low risk, because debt holders have limited claims on the firm’s assets 4.0. STRATEGIC ISSUES ANALYSIS 4.1. Critical Challenges Australia Post competes with electronic mail which delivers information instantly and courier firms, which are remunerated a premium to dispatch directly to the customer. Australia Post must maintain delivery standards to compete (Australian Bureau of Statistics 2015, n.pg.). In addition, there exists the challenge of attaining the necessities of full supply chain logistics resolutions as delivered by Australia Post with the help of its strategic associates in Australia and in specific in China. 4.2. Strengths or Weaknesses Analysis Strength The strengths of Australia Post is not merely its monopoly in letters, but is a strong brand with the Australians. The strategic positioning and thinking of the management’s business units to address future challenges is another strength. Australia Post has established strong relations in the Asia Pacific area to deliver an integrated logistics answer to its customers. The collaboration between China and Australia Post enables the delivery of an end-to-end supply chain that attains cross-border business operations. This enables delivery from warehouse to customers directly from China, which is Australia’s main import/export partner. Australia Post is the top third major importer of goods to Australia. Weaknesses With the legislative mandate of providing letter, services may cost the company in the future if it becomes impracticable. The company has moreover over stretched itself in its attempts to provide agency services. The company in 2006 put numerous resources into selling Jetstar tickets, but eventually ended up withdrawing it after realizing that it would have to be exempted from requirements of travel agent licensing. Over stretching on agency services is a weakness in this case. 4.3. Opportunities or Threats Analysis Opportunities There are numerous opportunities in agency services through the Australia Post network, if well managed and with a sufficient fit. This is obvious in its venture into general insurance. This could be risky as a report by a consultancy firm USB found that clients are unwilling to abandon existing recognised financial firms (IBIS World 2015, n.pg). Shifts into car insurance is another opportunity to supplement present over the counter banking, global money transfer, and identity checking and bill payments. Threats The main external threat in the letters industry is from the social tendency of lowering the usage of paper letters. This is seen in international trends in recent years. Australia Post recognizes that this is only viable with a rise in common postage rate, which push the prices of letters out of the industry. Another threat is the shift from a global player in the complete end-to-end logistics market, which is offered by Post Logistics. 5.0. Recommendations for Investment in the Australia Post Company The submissions of Australia Post show that its financial and operational achievements make it to be a low-cost and reliable mail service (Boston Consulting Group 2014, pg. 12). The main energizers of these outcomes are productivity growth, industrial harmony, the freeze on the rate of standard letters and enhanced delivery performance. This has enthused mail growth in the previous years. These accomplishments provide the basis for significant investments into the company. Despite the challenges faced in this industry, the company’s current ratio for June 2015 stood at 2.524 (Ambrosini, Boldron & Roy, 2006, pg. 30). This suggests that the company has potential for investments because its current assets are twice as big as its current liabilities. According to the company’s self-assessment against its commercial goals, the company seems to be performing well. The Australian community reinforces this conclusion that the company provides acceptable quality services in most cases. The environment in which Australia Post operates is also important to understand its performance. Different submissions about the company also demonstrate that the despite growth in the internet and electronic mail, the company has chances of growth. Improvement of productivity has been attained by modifications of labour application. Similarly, capital investments into the company can yield into more productivity. However, the recommended investment into this company will shift from the mail to parcel business segment. Given that, Australia Post already has investments with several joint venture firms such as Sprintpak Pty Ltd and Postcorp Developments Ltd joint ventures, a new investment into the company can improve the financial standing of the company (Copenhagen Institute for Futures Studies 2012, pg. 24). Personal Reflections The research report on strategic analysis is one area that has challenged me in this unit. Before the assignment, I had no idea on whether there was a format for strategic analysis. In addition, studying for the assignment to comprehend its content was a hard task. Nonetheless, the main problem in the assignment was finding relevant data for the task and starting the assignment. In order to address these challenges, I consulted with my friends who provided me with samples of analyses of firms done previously. Luckily enough, I found most material about the task online and this enabled me to start well. At first, the task appeared cumbersome, but I managed to push on and completed the task successfully. From the assignment, I have learnt major lessons on strategic management. The task has furthermore enhanced my knowledge on analysing the internal and external environments of firms to see how they perform financially. Most importantly, the completion of this Research Report as a part of my degree requirements has comprised my engagement in a greatly motivating and challenging research experience.  My key learnings from this financial report has enabled me to assess Australia Post’s results for the year, comprising its present financial standing, the firm’s outlook in the future and the value of its assets. To gain a deep comprehension of the financial report, I had to read and make accompanying explanatory notes. This has enabled me to reflect on the way internal and external factors affect profitability and productivity of the firm. An important aspect of this assignment is a consideration of decision alternatives due to firms in respect to the evaluation of SWOT factors. SWOT analysis are critical to all companies as they provide the basic framework for analyses of operational contexts to support strategic decision-making. The strategic analyses for Australia Post assisted me in coming up with recommendations for improving the company. The five forces analyses enhance SWOT assessment and its outcomes to ensure the prioritization of alternative strategic decisions. This has benefits to the use of the SWOT-outcomes in the process of decision-making. These methods also assist in establishing the action line options, which are grounded on the identification of the most critical operational environmental elements and their likely interdependencies. Overall, all the pertinent areas have been addressed in this strategic analysis. The secondary data I obtained were from reliable sources and the findings of the report have been discussed critically. Bibliography ACCC 2013. Assessing the cross-subsidy in Australia Post 2005-06: An ACCC report, Canberra, Commonwealth of Australia. ACCC 2014. Australia Post price notification for its ‘ordinary’ letter service, February 2014. ACCC Decision, Canberra, Commonwealth of Australia. Allen, D. E., & Powell, 2012. Industry market value at risk in Australia. Australia Post. Ambrosini, X., Boldron, F., & Roy, B. (2006). Universal service obligations in the postal sector. In Progress toward Liberalization of the Postal and Delivery Sector. Springer US. AUSTRALIA POST 2013. Statement of Corporate Intent 2013-14 to 2016-17, Melbourne, Australia Post. AUSTRALIA POST 2014b. Annual Report 2014, Melbourne, Australia Post. AUSTRALIA POST 2014c. Submission to the Senate standing committee on environment and communications inquiry into the performance of Australia Post and Licensed Post Offices, Melbourne, Australia Post. AUSTRALIA. DEPARTMENT OF INDUSTRY 2014. Industry Innovation and Competitiveness Agenda: An action plan for a stronger Australia, Canberra, Commonwealth of Australia. AUSTRALIA. NATIONAL COMMISSION OF AUDIT 2013. Report, Canberra, Commonwealth of Australia. Australian Bureau of Statistics 2015. Producer price indexes for postal and courier services within Australia. Available at :< http://www4.statcan.ca/english/voorburg/documents/2005%20helsinki/papers/2005-12.pdf> [Accessed 26 Oct 2015]. Bajkowski, J 2014. Australia Post profits plunge into digital abyss: Government News. Available at: [Accessed 26 Oct 2015]. Boston Consulting Group 2014. Australian and International Postal Services Overview: Background Report. Sydney: The Boston Consulting Group. Castro, M & Maddock, R 2013. The Universal Service Obligation for Post: Some Australian Calculations. In Managing Change in the Postal and Delivery Industries. Springer. Christensen, CM, Johnson, MW & Rigby, DK 2012, ‘Foundations for Growth: How to Identify and Build Disruptive Businesses.’ Sloan Management Review, Vol. 43, pp. 22-31. Copenhagen Institute for Futures Studies 2012. Communication Trends and the Role of Mail: report for the International Postal Corporation. Copenhagen Institute for Futures Studies. Crew, MA & Kleindorfer, PR 2012. Commercialization of Postal and Delivery Services: National and International Perspectives. Springer Science & Business Media. Crew, MA & Kleindorfer, PR 2012. Regulation and the Nature of Postal and Delivery Services. Springer Science & Business Media. Dieke, A., Junk, P & Thiele, S. 2011. Universal Postal Service and Competition: Experience from Europe, Bad Honnef, Wik Consult. Fahour, A. 2014. Australia Post at a Turning Point. Australia Israel Chamber of Commerce. Sydney: Australia Post. Godinho, V & Sing, S 2013. Technology Enabled Financial Inclusion and Evidence-Based Policy for the Underbanked: A Study of Remote Indigenous Australia. Available at: [Accessed 26 Oct 2015]. Stumpf, U 2013. Providing universal service in competitive postal markets. Springer US. Read More