Royal Mail: Business Model - Essay Example

? Financing and management of risk Contents Contents 2 ROYAL MAIL: Business model 3 Evaluation of risk exposures of Royal Mail 4 Stakeholder group analysis in respect of risk exposures 5 Employees 5 Shareholders 6 Subsidiaries 6 Management 7 Risk management tools and techniques 8 References 10 ROYAL MAIL: Business model Royal Mail is a postal service company owned by the government of UK. Royal Mail offers postal service in Great Britain and Northern Ireland and also engaged into worldwide parcel services. Royal Mail Holdings Plc. has the ownership of Royal Mail Group which offers postal services and delivery of letters under the brand name of Royal Mail and also distributes parcels across the world under the brand name of Parcelforce Worldwide. The Post Office Ltd. and General Logistics Systems are wholly owned subsidiaries of Royal Mail Group. Post Office Ltd. runs the post office counters and the General Logistics Systems is a global logistics company. The company employs around 2 lakh people working for the organization with a net income of ?300 million. Royal Mail has a network of around 14000 post offices. The network of Royal Mail distributes millions of letters and parcels everyday all over the world. The Royal Mail services include collection of mails and letters from all parts of the world and distribute the same to the respective postal addresses. The letters are posted by the senders in the wall posts which are collected everyday and despatched to the communication addresses. The first class deliveries take one day’s time to reach the address of the receiver. On additional payments, there are special deliveries to the receiver that reaches by 9 a.m. or 2 p.m. on the next day. Royal Mail also has provisions for insurance of the items sent to the receiver. In case the receiver is not present at the time of delivery, an information card is left for the receiver to be noticed. The special deliveries are used by the business houses, small businesses and consumers for prompt deliveries and insurance covers are taken for protection of the items sent by post. Royal Mail also runs a business mail service separately which offers provision for the business houses to send letters, parcels and items at reduced price. The network of distribution for deliveries consists of large fleet containing 40000 vehicles on the road along with the operation through air and rail network throughout day and night. The mails are collected from the wall boxes and collection points, sorted and delivered to the recipients. The various stages of the network through which the delivery is done include collection of mails in major three mail centres which are then passed to the network hubs where it is sorted and delivered across various parts of the country. The collection and delivery services vary according to the requirements and volume. The network of collection and delivery is finalised according to the work plan and targets of operation. Evaluation of risk exposures of Royal Mail The risk exposure to the operations and business environment of Royal Mail could be understood by analyzing the operational issues faced by the organization. Despite maintaining a large fleet for its operations, there are several risks faced by Royal Mail services depending on the location of collection and delivery, time of operations, existing infrastructural issues, etc. The operations of the Royal Mail pertaining to services for collection and delivery of post are carried out in areas which involve huge traffic congestion. Heavy traffic conditions in the localities affect the time of delivery of the postal service. Due to the existing local conditions, the company bears the risk of delay in delivery of items despatched. The collection and delivery services of Royal Mail from the heart of the city and other localities occur at congested situations during peak traffic conditions. The fleet of workers who are responsible for collection and delivery within the stipulated times face tough operating conditions in order to meet the deadline or target timelines of delivery. These logistic conditions and barriers cause operational risk to the company. Part from this the operations of the company in overnight conditions face obstacles due to road blocks or closure of network due to work under process. Unavailability of timely and accurate information of road works and repairs causes damage to the planned execution of deliveries (Luckman, 2006, p.10). Thus the infrastructure, network and barriers to transport facilities affect the business on collection and deliveries of items sent by Royal Mail. The employment benefits like retirement benefits, etc used to take place before in the mode of cash payments from the post office counters. Due to quickness of delivery and elimination of errors, the earlier cash payments are now done through bank transfers. Again, this led to the loss of revenue for Royal Mail and poses financial risk to the organization. Due to advancement in technology in financial transaction, the customer have shown a declining preference of using services of Royal mail as compared to the IT enabled services. This led to the reduction in customer base which is due to the technological risk. Stakeholder group analysis in respect of risk exposures The stakeholder group analysis for Royal Mail includes identification of the stakeholders of the organization, risk exposure affecting the stakeholders and the impacts of such risk on the stakeholder group. Employees The Royal Mail has a wide network of postal operations that includes collection and delivery services across UK, Ireland and logistic services all over the world. The timeline for collection and delivery of items and letters are achieved due to the efficient operation of their postmen and employees. The risk exposure of Royal Mail due to technological advancement of the competitors, effective and smooth financial transactions by banks have created market preference of substitute products of Royal Mail. Due to this, Royal Mail witnessed loss of revenues and net income. This eventually exposed the employees to the business risk as their salary compensation and other employment benefits depended on the performance of the organization. Royal Mail group operations have been hampered by the strikes demonstrated by the employees for reduction of pension and other benefits. As a result of the conflicting interest of the employees, Royal Mail decided to launch employee stake ownership in the organization by which they decided to encourage ownership stake of the employees. This would help to mitigate the risk as accountability to the postal service and logistics business would bring out the best performance in the competitive market and would mitigate the effects of technology and modern finance. Shareholders Royal Mail is a state owned organisation of UK. Thus the risk exposure of the organization directly impacts the government revenue earnings. The government is the single largest stakeholder in the organisation. The losses incurred by the organization have to be shared by the treasury. The government has thus undertaken policy reforms to improve the performance efficiency of the postal services. The government considered privatization of its stake up to 90% of the total holdings although the same has not been implemented. The changes in traffic rules relaxation in specific areas for easy access to the wall post boxes of Royal Mail for collection has been implemented. These changes are likely to bring about changes in the present scenario of business slowdown of Royal Mail which would eventually mitigate the impacts of risk exposure to the government as the major stakeholder. Subsidiaries The Post Office Ltd. and the General Logistics Ltd. are the wholly owned subsidiaries of the Royal mail group. The performance of the post office and the logistics company is highly dependent on the efficiency of the networks in UK and broad. The despatch of the letters and parcel of items are affected by the barriers in network communication like traffic congestion, road closure, road strikes and other logistic barriers. This risk exposure again impacts the revenue earnings and net income of the subsidiaries. In order to mitigate the impacts of risk exposure in national as well as international services, Royal Mail introduced access services and mail tracking services that aimed at providing higher quality service. Management The slowdown of operations of the Royal Mail due to the risk exposure of the organisation impacts the management of the state-owned company. The structure of the management of Royal mail is given below. The loss of revenues and market share of the company would talk on the accountability of the management of not being able to adjust according to the changes in market conditions. The management thus decided to separate Royal Mail sales from the Royal Mail postal services although both would use the Royal Mail network as given below. The Royal Mail sales would focus on end to end sale of postal services to the customers. This would help in reviving the volume of postal services and would thus mitigate the impacts of risk exposure to the organization. Risk management tools and techniques The risk management tool to be used by the Royal Mail is adoption of the strategic policy of commercial equivalence. This means that the company would set up a separate division of retail sales apart from the postal services of the Royal Mail. The Royal Mail sales would focus on the end to end customer sales that would help to expand the postal services of the company. By adopting this strategic tool, the company would be able to revive their business revenue that has slowed down. The effective techniques of risk management include the use of insurance products in financing business risks. The business risks could be covered by insurance products. The insurance products would provide finance to meet the liabilities in the event of losses in the business. Taking into consideration the capital structure of the company, legal, regulatory and taxation characteristics, Royal mail could adopt a mix of debt and equity financing in order to mitigate the risk of capital structure. Selling some part of the equity to the public would lead to sharing of risk at the cost of sharing of profits. Also raising funds by acquiring debt would not compromise the ownership structure but would allow the company to reduce interest payment due to the tax shields and tax deductibility feature. There are some of the risk management tools and techniques that could be adopted by Royal Mail. References Luckman, A. 2006. Royal Mail Transport Operations. Available at: http://trg1.civil.soton.ac.uk/sf/SF_0805_Luckman.pdf. [Pdf]. [Accessed on 9 May, 2013]. Read More