Deutsche Post World Net Succeeding the Mail Market Liberalization in EU - Case Study Example

Strategic Management - Case Study of Deutsche Post World Net Succeed the Mail Market Liberalization in EU Strategic Management - Case Study of Deutsche Post World Net Succeed the Mail Market Liberalization in EU Titus Rock Manickam Order No. 237450 21 August 2008 Table of Contents Undertake Five Forces Analysis..................... 3 Comment upon the competitive strength.5 Evaluate.8 Evaluations on Strategic Management.10 Assess either DPWN's strategy.12 Comment upon the competitive strength of DPWN14 Strategic Management - Case Study of Deutsche Post World Net Succeed the Mail Market Liberalization in EU Q1. Undertake a Five Forces Analysis for DPWN and discuss the major strategic issues facing the company. Deutsche Post World Net (DPWN) is strategically well placed in the mail market in Germany and Europe on account of its proactive management policies, integration with the latest technologies and competitive forays in Europe. DPWN has is a major player in the European Union, and has bases in France, Netherlands, Sweden and the United Kingdom. Having experienced a successful turn around from a loss making state owned organization to a privatization oriented profit generating enterprise on its home grounds in Germany, DPWN has the experience and resource to make path breaking forays on its home ground and the rest of Europe. It has the advantage of first hand information to strategize into different segments in the mail market, apply low cost high quality technology to generate maximum customer satisfaction, and, as a state owned licensed operator acquire, merge, outsource, contract, invest, enter into partnerships and even establish its own bases in new regions beyond its borders. DPWN's four divisions, viz. Mail, Express, Logistics and Financial Services are functionally diverse and encompass a range of activities that gives it the benefit of looking even beyond Europe as a global player. The revolutionary transformation in the information and communication technology, along with globalization of economy has brought about a sea change in the mail market. The cheaper and faster mode of communication via email and SMS has emerged as the main challenge to the mail market. Their potential is enormous and they present a clear message to the current players irrespective of their size and clout, to shape up or ship out. Even at the low end, the local players have more options to choose from and more means to achieve a global reach. (Porter's Five Forces) Merger and acquisition has made even big players jittery. So unless the big players are constantly on the move to merge or acquire they are likely to suffer the fate of goliath. Strategic alliance in new and emerging markets and good understanding of local cultural and social practices are essential to emerge as a global player. The strategy must be capable of handling shifting loyalties at the ground level and ensure customer satisfaction to achieve long term market presence. The mail market has thousands of agents in every location and they can shift allegiance whenever and wherever better opportunities come their way. It is important to maintain a robust administration and distribution system to discourage poaching and piracy. The electronic and software technology has intensified competition and DPWN must keep abreast of developments in this field because research and upgrades in electronic and software is providing the cutting edge for corporations to continue in the forefront and stay competitive. Superior technological inputs ensure smooth and safe administrative operations, customer relations management, and attract better business prospects. The mail market is a high volume, low cost enterprise. It falls in the category of the basic essential commodities, and as such, it is cost sensitive and ubiquitous. It has tremendous potential to diversity and synergize. Conversely, it is liable to encroachment from any quarter. As state owned entity, DPWN enjoys certain advantages and immunities and these give it an aura of invincibility. However, such complacence could see a large part of its business gobbled up by competition. It is important to have eyes and ears everywhere to espy opportunities and follow up on the latest developments. In the present business scenario, an opportunity lost does not present itself again because someone else is always there to grab it. (Five Forces Analysis) Q2. Comment upon the competitive strength of DPWN using Porter's Value Chain analysis. As state-owned entity, DPWN is a monolith. However, liberalization and privatization has given DPWN a shot in the arm at the right time, and DPWN swiftly moved to consolidate its position from loss making autonomous body to an efficient, profit making organization. Dr Peter M ler, Vice President Strategy for DPWN has good reason to take credit for the turn around of DPWN from ignominious loser to profit generating player, for the turn around has happened in his tenure. Now DPWN is one of the world leaders in logistics concerning mail communications, parcel, express, logistics and financial services. It employs 380,000 people. In any firm, human resource is the most expensive and important asset. The fortunes of the company depend on the attitude and morale of its workforce. In the ultimate analysis, it is human resource and not material assets that determines the status and future of a company. If DPWN has to measure up to the standards and requirements of the 21st century, there is no alternative to a loyal and efficient workforce. DPWN's primary activities consisting of inbound and outbound logistics, operations, marketing and sales, and service appear firmly in place. The support activities of procurement, technology development, human resource management, and firm infrastructure too appear on track. With all these strong factors, DPWN has still to settle down with its well planned strategy to boost economy and generate employment. (The Value Chain) The strategy of DPWN to meticulously study the mail markets in other states of the European Union and execute moves in accordance with the political, economical and social situation in each country shows the company's maturity in its approach. DPWN has four corporate divisions - Mail, Express, Logistics and Financial Services, and five business divisions, viz., Mail Communication, Direct Marketing, Press Distribution, Value Added Services, and Mail International. DPWN calls the shots in the domestic market as a state owned unit and also as an efficient, profitable entity. However, privatization can eat away large portions of the market in the coming years. Not much is revealed about DPWN's organizational structure. However its impressive turn around indicates thorough overhaul in its rank and file. This overhaul has been good enough not only for the domestic market but also for forays into other countries in the European Union. One of the factors to consider in privatization is competition. In the domestic market, the main threats are from express and courier services. Even the presence of small time operators in large numbers in these services could take away a sizable part of the business. Externally, DPWN has established bases in France, Netherlands, Spain and the UK. The challenges facing the big players in the mail market in these countries are similar to DPWN's. Strategically, the European Economic integration under the European Union regulations must provide ample opportunities for DPWN to use its expertise and competitive edge in all of Europe. The main opportunities will come from value added services, B2C market, and large corporations accounting for bulk direct mailing services. DPWN's proven track record and strategies to prepare for future events augurs well for its business. Globalization and market liberalization has introduced radical changes and patterns in the arena of business operations. No company can hope to survive without the foresight to diversify, outsource, enter into partnerships, joint ventures, merge and acquire, and constantly remain alert to seize opportunities and explore new avenues. New markets are also emerging outside of Europe with ample potential for good return on investments. The widespread network of mail market gives it enormous clout to attract business from almost every big and small business. Q3. Evaluate the extent to which DPWN's strategic development can be considered prescriptive. Not much is divulged by way of information to explain the factors responsible for DPWN's successful turn around. Apparently, the development is the outcome of pragmatic measures the management planned and executed as a result of liberalization of the mail business in Germany. The whole process began in January 1990 "when restructuring and commercialization of Deutsche Bundespost was facilitated through a change in law concerning the structure of postal services." (Didwania, Jiten et al, p3) In the following year Deutsche Bundespost was rechristened "Deutsche Post AG" and the process of privatization saw modernization of the organization with state of art technology to improve services and enable acquisitions, investments, and partnering strategies in Germany and across Europe all of which yielded phenomenal results. The DPWN success story is unprecedented because no other postal body, or any other state owned body for that matter, has ever attempted to craft a change anywhere in the world in a strategy that calls for uninterrupted discipline, dedication and alacrity. The whole exercise appears to be one big success from the word go. Nevertheless, the attitude of the management is surprising given the musing of Dr Peter M ler before he is to meet with Dr Klaus Knappik and other board members. In this meeting, Dr Peter M ler is expected to outline the strategy to compensate for the potential losses in Germany's mail market! The bosses in DPWN are not unduly concerned about the future of their mail business. Past performance is no guarantee for future returns on investments. The sweep of liberalization has positively impacted DPWN in about a decade and a half after its implementation. However, euphoria of success seems to have reached the plateau. The days ahead will prove to be the litmus test for the top players as they engage in a new liberalized economic front. The term "liberalization" is not as innocuous as it appears to be. It is a wind that knows no friend or foe. It is a jungle where the mighty rule along with the wily. One can be prepared for surprises. Liberalization, in tandem with globalization, has already seen corporate giants taken over by minnows. Unwary banks with centuries old traditions have got wiped out. Strong business houses have been forced to change policies and methods of operation in order to survive. Insignificant markets like China and India have suddenly become hot investment destinations. In the circumstances, all is not lost for DPWN. DPWN's case is exemplary. However, compared to DPWN, all other European states barring the Netherlands have liberalized their postal operations only recently. As of date, none appear to be heading towards the scale of success DPWN has achieved. The DPWN story is relevant for state owned organizations and large corporations because it reveals the essential factors and parameters of the day to maintain healthy balance sheets. The DPWN story must be seen in the context of the big picture of liberalization. DPWN made the right beginning with acquisitions, investments, partnerships figuring in its agenda. These factors are volatile and subject to the uncertainties of market forces and behavior. In the current business scenario, surviving with a reasonable margin of profit is dependent on several factors as important as core competencies. First of all, the switch over to paperless communication, that is, preference for electronic mail communication is going to hit harder and deeper into paper mail business. Perhaps mail business operators all over the world must seriously consider delivering other items of daily use like milk and vegetables to compensate for losing revenues due to decreasing volume of paper mail business. Extraordinary challenges must be addressed with extraordinary and potentially strong alternatives. Q4. Evaluations on the extent of the DPWN's strategic management The liberalization of the mail market in Germany provided the state owned postal entity the right impetus to forge a state of the art strategy which yielded positive results. Prima facie, no stone appears to have been left unturned to ensure a turn around for the better of the ailing monolith. The management went so far as to set sights not only to the full extent of the country's border but well beyond all over Europe. With economic integration envisaged by the European Union to serve as springboard, DPWN went all out to carve out as big a niche as was possible in the mail market in Europe. The strategy of acquisition, investments, and partnerships worked favorably with clocklike precision. The robust German marketing machine encountered no obstacle in its mission as other nations did not exhibit any inclination to compete. France, Spain and the UK liberalized their mail markets more or less at the same time during the turn of the century. However, none of them have embarked with a turn around program with the same level of efficiency and urgency which Germany had. It is not as it these nations are unaware of the benefits of liberalization. The economies of these nations are highly competitive and are among the wealthiest not only in Europe but at the global level. Their inaction betrays a certain amount of disdain towards the business world. Perhaps they have taken to heart the former British prime minister, Lady Margaret Thatcher's dictum that "it is not the government's business to be in business." At any rate, liberalization is a seamless concept. It is a relative term. In business terms, liberalization is rewarder of those who diligently seek to excel. It may the government's prerogative not to indulge in business. However, when bidding adieu to its existing business entity, the government is not going to be a loser by organizing a honorable send off. DPWN is the product of liberalization legislated in the right time in the right manner and in the right sharing of responsibilities between the political and economical leaderships. There cannot be a better case study where the law of the land took the initiative in facilitating a success story after realizing the full potential of the liberating legislation. (The Strategic Planning Process) No government can abdicate its responsibility to rule for the sake of silver and gold. It is not possible to forecast whether the government may one day entirely snap ties with DPWN. There may not be the need to do so. DPWN's tryst with liberalization is by no means over. It now depends on the present DPWN management to envisage and build on fresh strategies. The strategies to carry on business at the domestic and international levels are in place. But they do not appear to be enough to tide over the storm in the wake of liberalization. In the present economic scenario, it is imperative to take a look at the distant horizon to explore for opportunities. How can one venture into deep seas without knowing how to swim in shallow waters DPWN management has done well to foresee potential losses in the German mail market. A strategy has its limits, no matter how successful it is hitherto. The time may have come for the management board to rework its policies and programs. Sometimes it is good strategy to retreat to be able to return another day for the fight. After all, liberalization is not only all about strategies but also diversification and synergies. (Scribner, Susan) Q5. Assess either DPWN's strategy for diversification and acquisition "We are until now well positioned in the most important mail markets. But it does not mean that we sit around idly. We will continually increase our market position." These words from Dr. Klaus Knappik, DPWN's board member responsible for the International Mail Business conclusively sums up the mood at DPWN at the highest levels. (Didwania, Jatin et al, p2) Dr Knappik is dependent on the information from Dr Peter M ler to zero in on the strategy that will see DPWN make up for the 5% business loss to competition as a result of full liberalization of the mail market in Germany, and license for DPWN extending to letters weighing up to 50 grams only. DPWN is focused on value added service for corporate customers such as banks and publishers. DPWN is also eyeing emerging important mail market segments such as delivery of unaddressed items, and entry into European markets outside Germany. As of now, DPWN has had strategies working to its benefit. However, the reason cannot be totally attributed to its strategies alone. DPWN had license protection which ensured that it was safe in the market for letters up to 100 grams. The downscale in the license protection for letters up to 50 grams may hit DPWN harder than what it expects. The major solution to the problem is the way DPWN handles the market for letters between 50 grams and 100 grams. With the benefit of experience and resource it holds, DPWN is in a position to reduce the business loss to even less than 5% to competitors. One way of beating competition may be by price reduction which the competitors are going to do anyway. (Gere, Professor Franois) The mail market holds tremendous potential. There are promising strategies in every segment, be it B2B, B2C or C2C. Each segment wants to reach out to fulfill its own purposes and needs. And each segment will weigh the options offered by the competing mail business operators. Naturally, the customers are going to be forthright and demanding. (Introduction to Mergers and Acquisitions) As mentioned earlier, the mail market is high volume, low cost business. Nonetheless, a significant number of customers may not be averse to pay more for quality as in the case of quick and reliable courier service. The successful strategy depends on maintaining tabs on different components of the mail business such as ordinary mail, quick service mail, bulk service, etc, and using the information as base to improve quality and customer satisfaction. DPWN also needs to look beyond mail business and diversify into other existing and emerging markets. It already has presence in financial services. In the current economic environment, it not only makes sense to lose some and gain some but it is necessary to diversify and gain for survival. In other words, since you lose certain amount of business to competition, it is necessary to work your way to compensate for the loss from competition. Training manpower is another important strategy to stand up to competition. The friendly neighborhood postman needs modernizing. The current information era has seen sea changes in almost every aspect of social and business life. The management hierarchy has changed, the work place environment has changed, the education system is changing, and the whole office system has changed from departments to desktops. It is high time mail business is recognized for its useful and stimulating effect on society. (George Smart) Q.6 Comment upon the competitive strength of DPWN using SWOT analysis DPWN's has a remarkable grip on its core competencies and evidently the management did not waste time in implementing much needed reforms at the first opportunity presented by liberalization. The management bided its time until liberalization and it goes to prove that both at the ministerial level and within the managing board there was information on what ought to be done to make the monolith move to its full capacity and capability. DPWN has tremendous adaptability and hold in its sphere of operation. The execution of its strategy is second to none and it has outperformed every competitor in Germany and in European countries where it established base in niche markets. Its performance has been robust and it displayed class and skill to maintain its high ranking ever since the process of liberalization of mail business began in Germany in January 1990. DPWN's source of strength lies in its long time experience in mail business and the empowerment that goes along with it as a state owned unit. Side by side with its domestic responsibilities DPWN has closely followed the sequence of events in the European Union. Its meticulous familiarity with mail business in important EU member states has given it the cutting edge in establishing and maintaining its presence in these states. The management information system, delegation of responsibility and authority, systems coordination, knowledge of market trends, and the entire ramification of the mail business reflect the preparedness of DPWN to meet challenges and grab opportunities. The advent of liberalization was also responsible for uncertainties in the business world and mail business was no exception. It is not so easy to perform in free market as it appears. This is one of the reasons why the erstwhile socialist states in Eastern Europe are finding it difficult to come to terms with modalities for operating in a free market after having been in state control for decades after the Second World War. The straitjacket mentality takes time to get accustomed to operating in versatile conditions. In its preoccupation with the challenges and opportunities in the mail business DPWN appears to have paid less attention to business prospects by way of diversification and synergy. Even while facing possible downtrend in the mail business, there is little information to suggest the management is seriously considering investments in growth-oriented businesses with long-term prospects like retail and real estate. Liberalization in isolation does not offer much scope in business terms. However, together with globalization and information technology, there are better chances for innovation and consolidation in new ventures. By and large, the postman is a symbol of friendliness and trust, and business houses fall over each other to project these traits before the world. The current economic environment favors business with good product lining instead of the traditional adherence to a single product or a few products. Such traditional concepts cannot hope to last long. Competition will not allow close fisted operators to thrive. Business modus operandi has changed. Corporations are downsizing and outsourcing jobs. Promotions and customer relations are given over to direct sales agencies and call centers. Management by objectives and empowerment of employees has assumed fresh identity with emphases on maximum customer calls and meeting customers' requirement in minimum time span. Now the customer wants to take all his requirements from one stop. DPWN's insistence on pressing on with a dying system is the biggest threat to its business. There are big time and small time players waiting in the wings to woo the impatient customer with plethora of benefits at very economical costs. The competition is not only from the big ones, but the small operators spread across the globe. (SWOT Analysis) Sources: Didwania, Jatin et al, Case Study, Deutsche Post World Net Succeed the Mail Market Liberation in EU, WHU Excellence in Management Education, DPWN.pdf Five Forces Analysis, http://www.marketingteacher.com/Lessons/lesson_fivefoces.htm George Smart, Strategic Development, http://www.strategicdevelopment.com/georgesmartresume.php Gere, Professor Franois, Europe in search for Strategic Protection, http://www.diploweb.com/protection/english/europe.htm Introduction to Mergers and Acquisitions: Firm Diversification, http://www.prmia.org/pdf/Merton_Notes/Chpt15.pdf Porter's Five Forces, http://www.quickmba.com/strategy/porter.shtml Scribner, Susan, Introduction to Strategic Management, http://www.lachsr.org/documents/introductiontostrategicmanagement-EN.pdf SWOT Analysis, Minds Tool, www.mindtools.com/pages/article/newTMC_05.htm The Strategic Planning Process, Strategic Management, http://www.netmba.com/strategy/ The Value Chain, Strategic Management, http://www.quickmba.com/strategy/value-chain/ Value Chain Analysis, http://www.marketingteacher.com/Lessons/lesson_value_chain.htm Read More