exacerbated by the stigma of using public
funds for investment. As a governmentowned company, Royal Mail was bound by
strict regulation that made it difficult to
renegotiate contracts or alter services. It
maintained a universal service obligation that
further limited its ability to diversify from its
core letters business. It also had a pension
plan that accrued large liabilities during the
financial crisis of 2008, which contributed to
making the firm insolvent.
• Strategy response: The response was the
separation and privatisation of the postal
service from the post offices, which remained
under public ownership. The government had
to take up the pension liabilities of Royal
Mail to make its balance sheet solvent and
enable privatisation. This enabled Royal Mail
to reorient its core business, focusing solely
on the service delivered to customers and
implementing intense cost-cutting measures
that resulted in the closure of a third of mail
processing centres and a 10% reduction in
headcount after privatisation. These measures
were successful in returning the core business
areas to profitability, despite minimal revenue
growth from 2011 to 2017. However, Royal
Mail has not yet been able to significantly
diversify, and cost-cutting is unlikely to be a
long-term strategy for generating profits.
Royal Mail has begun to invest in other
geographies and logistic services. These
investments have been small due to the constraints of its low capital reserves and
dependence on external financing, which
prevent large-scale acquisitions of the like
Deutsche Post made in the early 2000s.
• Organisational structure: The separation of
the postal service and infrastructure arms
allowed for more distinct business models to
be implemented. By the Post Office arm
remaining in public hands, Royal Mail
ensured it could act as network infrastructure
for all postal companies, preventing wasted
investment and the potential formation of a
natural monopoly. The new, service-focused
Royal Mail was able to take advantage of its
less stringent regulatory environment to
implement targeted cost-cutting and investment. To assist in this, Royal Mail brought in
a CEO, with significant experience of the
public-private transition, to reform the regulatory context and ultimately make the company more profitable (Fig. 12).
(3) Deutsche Post
Deutsche Post began a large programme of acquisitions to diversify its business after it became clear
that its domestic market would be threatened by
changing legislation. It benefited from favourable
timing and had significant cash flows from its traditional business areas, allowing it to finance its
Fig. 11 USPS remained
under government control
with a top-down regional
structure that helped promote
efficiency in a large operation.
Source Vivid Economics
Special Report 1: A Study of China’s Energy Supply Revolution
61
funds for investment. As a governmentowned company, Royal Mail was bound by
strict regulation that made it difficult to
renegotiate contracts or alter services. It
maintained a universal service obligation that
further limited its ability to diversify from its
core letters business. It also had a pension
plan that accrued large liabilities during the
financial crisis of 2008, which contributed to
making the firm insolvent.
• Strategy response: The response was the
separation and privatisation of the postal
service from the post offices, which remained
under public ownership. The government had
to take up the pension liabilities of Royal
Mail to make its balance sheet solvent and
enable privatisation. This enabled Royal Mail
to reorient its core business, focusing solely
on the service delivered to customers and
implementing intense cost-cutting measures
that resulted in the closure of a third of mail
processing centres and a 10% reduction in
headcount after privatisation. These measures
were successful in returning the core business
areas to profitability, despite minimal revenue
growth from 2011 to 2017. However, Royal
Mail has not yet been able to significantly
diversify, and cost-cutting is unlikely to be a
long-term strategy for generating profits.
Royal Mail has begun to invest in other
geographies and logistic services. These
investments have been small due to the constraints of its low capital reserves and
dependence on external financing, which
prevent large-scale acquisitions of the like
Deutsche Post made in the early 2000s.
• Organisational structure: The separation of
the postal service and infrastructure arms
allowed for more distinct business models to
be implemented. By the Post Office arm
remaining in public hands, Royal Mail
ensured it could act as network infrastructure
for all postal companies, preventing wasted
investment and the potential formation of a
natural monopoly. The new, service-focused
Royal Mail was able to take advantage of its
less stringent regulatory environment to
implement targeted cost-cutting and investment. To assist in this, Royal Mail brought in
a CEO, with significant experience of the
public-private transition, to reform the regulatory context and ultimately make the company more profitable (Fig. 12).
(3) Deutsche Post
Deutsche Post began a large programme of acquisitions to diversify its business after it became clear
that its domestic market would be threatened by
changing legislation. It benefited from favourable
timing and had significant cash flows from its traditional business areas, allowing it to finance its
Fig. 11 USPS remained
under government control
with a top-down regional
structure that helped promote
efficiency in a large operation.
Source Vivid Economics
Special Report 1: A Study of China’s Energy Supply Revolution
61