Question

1. Are there shifting political factors that impact Canada Post's business?
2. How are changes in the economy impacting Canada Post?
3. What social factors that have impacted Canada Post’s business?
4. Do you think Canada Post has to respond to technological developments?
5. Do changes in the natural environment affect Canada Post?
6. Are there changes in municipal, provincial or federal legislation that will require Canada Post to make changes to how it does business in the future?

Answer 1

Answer: a) Yes, there are political factors that impact Canada Post business. Political factors include items such as taxes, labor law, mandated services and government influence on a particular industry. As a crown corporation, CPC is accountable to its shareholder, the Federal Government of Canada. It is mandated to provide service to all Canadians, including delivery to rural areas as defined in the USO. CPC cannot always respond as effectively as its competition might in certain scenarios because it is constrained by the government mandate and the USO.

b)

The Canada Post of today that finds itself struggling through rotating strikes is a very different organization from the postal service that last saw labor disruptions. Economic factors include interest, exchange and inflation rates, as well as economic conditions globally and locally within an industry or an organization. The economic challenges for CPC are directly related to the high labor costs of its existing union contracts. The aging infrastructure and high fixed costs of the network coupled with declining mail volumes and the USO make profitability an increasingly difficult challenge. The economic downturn in 2008 brought more competition into the B2C parcel delivery market. The competition has begun changing their strategies to accommodate the ecommerce opportunities. CPC must consider these economic challenges when developing similar strategies.

c)Social factors include culture, demographics and social trends. CPC is an iconic brand that is well known throughout Canada. Canadians have all had personal or business experience with the company but that does not always translate to customer confidence in its ability to deliver on their needs. There is a perception that taxpayers subsidize CPC, and this can result in negative customer opinions of the company. In addition, consumers are spending more time online and are increasing the number of purchases they make online each year. Society tends to take the post office for granted, feeling it is entitled to a continued high level of service, while simultaneously showing a lack of respect for the magnitude of the operational challenges of such a large organization.

d) Technological factors include such items as level and acceptance of automation, and the degree of innovation in product development. According to the internal report Canada Post: A Blueprint for Change, which was written in response to a strategic review initiated by the Federal Government in 2008, “Canada Post struggles to compete due to antiquated technology and operating constraints that make it difficult for the corporation to match the speed of its competitors when sorting parcels” (Canada Post Corporation, 2008). As an organization, CPC does not have the best available technology 18 internally, nor does it have it available externally for its customers. The report concluded that outdated technology makes it difficult for CPC to keep pace with technologically advanced competitors who invest hundreds of millions of dollars annually in new technology. This is becoming a dire situation as customers have higher expectations for the use of technology in services and solutions to their business challenges particularly in the parcel delivery industry. Technology is changing the way society lives and works. The shift from physical to electronic mail is a significant threat to the core line of business at CPC. In order to capitalize on the expected growth from ecommerce residential delivery opportunity in Canada, CPC must address the factors discussed above. The PEST forces and the constraints on the organizations drive the need for a strategic shift at CPC.

e)Yes, changes in natural environment affects CPC. In winter when there is heavy snowfall that time deliveries gets post-pond. It resumes once its safe to do so.

f)

Future Viability

The future viability of CPC is highly dependent on its ability to leverage its brand, modernize its infrastructure and technology, and maintain profitability. These three key factors are discussed in further detail below.

(i) Canada Post Brand

In an independent survey by Brand Finance Canada in 2009, CPC placed ahead of other well-known and respected companies. This echoed survey results in 2007 where over 87% of Canadians reported holding a favorable opinion of CPC. (Canada Post Corporation, 2008). The survey results, contained in the “Canada’s Most Valuable Brands 2009” report issued by Brand Finance Canada on April 30th 2009, are based on consumer research into those brands that “are seen by Canadians to represent a special part of Canadian culture” (Canada Post Corporation, 2009). Trust is an issue for online shoppers, and CPC’s brand gives it an advantage area. Consumers have concerns in regards to fraud, product quality, misrepresentation of goods and services and uncertainty in delivery standards. CPC can leverage its brand online and in the development of products and services. Since all Canadians know the 19 CPC brand, it is a good choice for retailers when they are selecting a partner for shipping. A partnership with CPC can signal to the consumer that they can be confident they will receive their parcel.

(ii) Postal Transformation

A significant challenge for CPC is its aging physical network and delivery infrastructure. In order to compete with the more modern operations of its competitors, CPC is undertaking a major program of reinvestment of $2B from 2010 to 2017 called Postal Transformation (PT). This program is comprised of a series of initiatives that will improve productivity, safety and offset the jobs of the 20% of the workforce eligible to retire between now and 2020. This will be accomplished through modernization of the delivery model, automation, and building new plants. As shown in Figure 5, PT incorporates a new delivery model that has been deployed in several cities in 2011. PT will consolidate the two workforces of letter carriers who deliver mail on foot and the drivers who deliver parcels by truck. In the past, as many as five letter carriers and drivers could be on a single route. Through PT this can be reduced to one motorized vehicle and one employee to cover the same territory. To reduce costs and emissions, delivery agents will drive environmentally friendly Ford Transit Connect vehicles to serve routes designed for efficiency. The new model will employ delivery agents with vehicles that will be able to deliver all products in a geographical area thus reducing the number of visits CPC makes to a typical neighborhood.

Greater automation in plants will allow employees to spend more time on their routes serving customers. CPC is investing in sortation equipment and computer systems in numerous cities across Canada. This investment includes new generation mail processing equipment and systems, and newly designed carts and containers for moving the mail safely through facilities. A new plant was opened in Winnipeg in 2010 as part of PT. This plant was the first to sort the mail according to the new modern delivery method. The next new plant will be built in Vancouver in 2013. Other plants across the country are being retrofitted to implement the new delivery method. PT will reduce the number of employees required per route and allow for significant operational cost savings. PT will enhance CPC’s ability to compete against its competitors, offering faster and more accurate sortation and reduced overheads. The benefits of PT to the ecommerce growth strategy are improvements to the speed and accuracy of parcel delivery. In addition, reducing operating costs will allow CPC to offer low price parcel options to the ecommerce marketplace. In this strategic analysis, it is assumed that the changes planned for PT will be implemented on time.

(iii) Canada Post Segment Financial Performance

The key figures used to assess the financial performance of the CPC segment are revenue, volume and cost of operations. Revenue for 2010 for the GOC was $7,453M of which the CPC segment had revenues of $5,929M, with the balance earned by the subsidiaries and joint ventures (Canada Post Corporation, 2010). Revenue of $5,929M in 2010 for the CPC segment increased $89M or 1.5 % compared to 2009, with letter mail comprising 54% of the total revenue as depicted below Mail volume, which includes the three lines of business, declined by 1.8% in 2010 over 2009. The cost of operations for the CPC segment increased by $159M in 2010. Despite price increases that drove revenue upward, the decline in volumes eliminated any potential increase to CPC’s net income. The challenge for CPC is that the declining volumes do not translate into operational savings as the high fixed costs of the 54% 23% 21% 2% Transactional Mail Direct Marketing Parcels Other 22 network, pension plan and workforce cannot be significantly adjusted as volume fluctuates. Therefore the strategy for the future must address changes to the operations and product offerings to maintain its viability.