The sixth case study for CMA (Final) Group 3 students-

Paper 15 - Business Strategy and Strategic Cost Management

CASE STUDY 6

Opportunities, Strengths, Threats and Business Strategies of a Central Government (Government of India (GOI)) Department

The postal department of GOI is trying to develop competitive strategies to make better profits. The chief of the postal department presents the following facts:

 (i) There are many couriers who operate in major cities and offer guaranteed delivery at very marginally higher prices than the postal department and yet manage to make a lot of profits.

(ii) Couriers offer tracking facilities on the e-computer so that a customer knows when his consignment is getting delivered or where it is located at any point of time.

(iii) Many pick up points are available for customers. Even retail customers find it convenient to book their requirements without having to travel much. For bulk booking, the couriers provided pick up facility at no further cost.

 (iv) Couriers are not available in rural and sub-urban areas whereas postal network is very good in these places.

 (v) Couriers in the cities operate until 7 p.m. whereas the corresponding speed posts or registered posts close at 2-30 p.m. / 4 p.m. in most areas and 6 p.m. / 8 p.m. in big Post Offices in Metro Cities/GPO respectively. There are one or at most two centers which operate speed post counters for 24 hours, but there are no 24×7 courier facilities.

 (vi) Postal services for parcels are much cheaper than the courier services. (vii) International courier charges very highly priced for documents and parcels, whereas postal charges are up to 70% cheaper, but delivery is at least 50% slower. Retail customers prefer postal services while corporate houses prefer couriers.

(viii) International courier is mainly parcel services. Documents are not prominent revenue makers due to electronic mode of communication.

 (ix) Staff in courier services is more customer-friendly than the Postal Dept. staff, whereas the Postal Dept. staff are paid much more.

 (x) While wondering how different the scale of profits could be between similar services, the Chief of Postal Department considers that for a Post Office to operate, in addition to document/parcel bookings, banking services like MIS/PF/Savings Account, etc. telephone bill payment services, stamp sale services and other services are being rendered, requiring the necessary hierarchy of approving authority to be present. He is considering opening of more centers exclusively for the equivalent of courier services.

Required:

(a) Identify threats to the Postal Department, GOI.

(b) What would you consider as important strengths of the Postal Department, GOI?

(c) Mention the opportunities that the Postal Department, GOI can profitably consider.

(d) Apart from (x) suggest appropriate business strategies that the Postal Department, GOI may practically apply to successfully run a long-term profitable document/parcel service on the lines of the courier service.

Answer:

(a) Threats:

(i) Couriers are almost replacing document delivery by postal department.

(ii) Couriers could cut price to increase the market share in parcel delivery segment.

(iii) Couriers may fast expand to capture some of the more viable rural areas and satellite towns also. Loss of such customers is a big threat.

(iv) More courier operators could get together to achieve better coverage and lower cost and offer stiff competition as bundled operators.

 (v) International couriers may reset their prices and offer stiffer competition, since already in terms of delivery schedules they have a higher preference. The only prohibited aspect is the price, which may soon be reset.

(b) Strengths:

(i) There is a huge network in rural and sub-urban areas which is no easily affordable by couriers.

(ii) Cheaper pricing tactics with the help of government support and infrastructure usage and inter governmental rates.

(iii) International parcel/document services have a lot of retail customers who prefer this system.

(iv) 24×7 service in select centers which is yet to be copied by competitor effectively.

(c) Opportunities:

(i) Pick up facilities could lure more users.

(ii) Established 24×7 round the clock services in more centers to service more customers in different areas of the country.

(iii) Lower the rates for documents and offer stiffer competition like stay out pricing.

(iv) Parcel packing and pick up services at the customers' door step.

(v) Faster international delivery for embracing corporate clients from competing services, together with mobile phone updates on tracking.

 (vi) Extended working timings for collection centers, especially those that are near railway stations or airports.

(d) Business Strategy:

(i) Tie up with couriers for subcontracting delivery of bundled bulk bags to rural areas by train.

(ii) Set up shift system at strategic centers. Get data on volume of services at different times and enhance availability of services.

(iii) Establish tracking facility on the mobile phones at a price - for example, with BSNL at cheaper rates.

(iv)  Create better pick up facilities at more number of intervals, extend the last cut-off time.

 (v) Cut overhead costs by using skeletal staff at non-pick hours.

(vi)  Award incentives for timely service of staff at critical points. Extra reward for better customer satisfaction.

(vii)Establish a monitoring system and fix responsibility among staff - by customer analysis, repeat customers, customer feedback on why some bulk customers have shifted, etc.

(viii) Additional transport can be outsourced under proper supervision. Fixed costs can be reduced by removing staff without much work or by redistributing and aggregating work so that there no idle time.

(ix) Establish mobile counters in vans for many areas so that more comfort is given for nearby pick up facility and more customers are attracted.

                                                                                                    Source: Suggested Answers - June 2014 by ICAI