Why Is Royal Mail In Decline?

Why have Royal Mail seen a fall in profits of 72% on the same period during 2009?

2. Background

Half year profits in Royal Mail’s plunged by 72% on the same period during last year, due to a £66 million loss in their letter division (Independent, 2010). This is considerable because Royal Mail’s letter division accounts for 70% of total revenue (Hooper, 2010)

The market in which Royal Mail operates is very competitive with a number of rival firms; there are 51 licensed operators within the UK industry (Postcomm, N.D.). Of these 51 companies, Royal Mail is the only licence holder who is required to offer universal delivery of letters to anywhere in the UK.

3. Research Question

The problem chosen by the researchers is an investigatable question surrounding the operation of Royal Mail which has been widely publicised in the media.

3.1 Idea/topic

The topic area for this research is to investigate why there has been a fall in profits for Royal Mail. This question has arisen from the broadly documented demise of Royal Mail within the media. An article within the BBC was the foundation to the generation of this idea (BBC, 2010).

3.2 General focus research question

Why has Royal Mail’s profits fallen?

3.3 Research objectives

The researchers are going to investigate why Royal Mail has seen such a sharp fall in profits. They will look at possible changes in consumer trends and market conditions; Royal Mail’s operating efficiency and the competitiveness within the industry.

To identify why Royal Mail has become less profitable the following questions will be analysed:

What is the impact of modern technologies on Royal mail?

How has the increase in competition in the letter industry affected Royal mail?

Are Royal Mail’s operating activities conducted efficiently?

4. Academic Literature

4.1 Porter’s Five Forces

Porter’s Five Forces model is used to determine and analyse the intensity of competition within a certain industry. This in turn helps to assess the attractiveness of an industry and profitability in the long-run. The model depicts the interaction of five competitive forces;

External FactorsThe threat of entry of new competitors

The degree of rivalry between existing rivalry

Internal threatsThe threat of substitute products

The bargaining power of buyers (consumers)

The bargaining power of suppliers

It is necessary to use this model to analyse the competitive nature of the letter industry and to assess whether Royal Mail has lost its competitive advantage. (Porter, 1979)

4.2 SWOT Analysis

A SWOT analysis is used to evaluate strengths, weaknesses, opportunities and threats that face a particular firm. ‘Strengths and weaknesses have an internal focus and are typically evaluated by operations people. Threats and opportunities have an external focus and are typically evaluated by marketing people. SWOT is often regarded as the link between organisational strategy and operation strategy.’ (Stevenson, 2005:43)

This form of analysis can be used for the basis of matching Royal Mail’s strength and opportunities to measure their competitive advantage in the postal industry. It can also be utilised to identify Royal Mail’s weaknesses and threats the company faces and to adapt these finding to identify where improvements in their operations can be exploited.

4.3 Oligopoly Theory

An oligopoly is a form of market structure situated in between the realms of perfect competition and monopoly. An oligopoly market exists where there are a few large firms dominating the industry. A key assumption of this form of market structure is that each firm is interdependent, in the sense that each firm must take into consideration the reactions of rival firms when deciding a change in business operations. (Sloman, 2006)

4.4 Ansoff’s Matrix

An Ansoff Matrix was developed to plan product market growth strategy.

“The ‘product’ strategy, the route by which to reach your long term product objectives, will need to be developed specifically for each product or service. But, in general, there are said to be four basic product strategies for growth in volume and profit…

4.5 PEST Analysis

“Pest analysis looks at likely changes in political, economic, socio-cultural and technological factors and seeks to predict the extent of which change is likely to occur and its possible consequences for the organisation.” (Worthington and Britton, 2006:475)

This will be a beneficial method of analysis for assessing the external factors which will influence the operations of Royal Mail.

4.6 Operations Management

‘Operation management is concerned with any productive activity, whether manufacturing or service, public sector or private sector, profit making or not for profit. It is concerned with ensuring that the operations are carried out both efficiently and effectively.’ (Rowbotham et al, 2007:xiii)

This theory will help the researchers to evaluate the question whether Royal Mail, a public sector business, operates efficiently compared to privately owned competitors.

5. Methodology

This section of the report will summarise the methods used during the project. This will include research philosophy and research methods as well explaining the way in which data will be collected.

5.1 Research Philosophy

‘Empirical research is the process of developing systemised knowledge gained from observations that are formulated to support insights and generalisations about the phenomena under study’ (Lauer and Asher, 1988:7)

The researchers shall be using empirical research as the conclusions found will be derived from data opposed to intuition.

5.2 Research Design

The research will be carried out within the postal sector, more specifically the letter division. The research will also look into substitutes for postal services such as online social networks and e-mail.

The researchers will use a combination of sources for their research, which will include conducting a survey and the use of secondary data in order to formulate a conclusion. ‘The survey strategy allows you to collect quantitative data which you can analyse quantitatively using descriptive and inferential statistics.’ (Saunders et al, 2009:144). The target population will include business and domestic users as this will account for most of, if not all, potential user of the postal service.

This sample will generate a cross-sectional data set. “A cross-sectional data set consists of a sample of individuals, households, firms…or a variety of other units taken at a given point in time.” (Wooldridge, 2009:5)

The sample size which we will be using will be 60 questionnaires, including 30 individuals and 30 business users. This will ensure that the data is representative of the population.

Secondary data is “Data used for a research project that were originally collected for some other purpose.” (Saunders et al, 2009:600) Collecting secondary data will allow more efficient gathering of the required information. It will include reports, surveys and newspaper articles.

We need to write about the use of a deductive approach. Saunders

Need to write about ethical issues.

6. Timescale

6.1. Gantt Chart

The researchers will be using a Gantt Chart (see appendix 2) to coordinate and plan their activities whilst conducting their research. “This provides a simple visual representation of the tasks or activities that make up your research project, each being plotted against a timeline. The time we estimate each task will take is represented by the length of an associated horizontal bar, whilst a task start and finish times are represented by its position on the timeline.” (Saunders et al, 2009:pp43-44)

Need to write what each member will do

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