Evaluating the Diversification Strategy of a Semi-State Company in a Declining Market: A Case Study of An Post

Abstract

This case study evaluated the diversification strategy of a semi-state company, An Post, operating in a declining market. The objective of this research was to evaluate the process by which diversification may take place. A qualitative methodology, using a phenomological and interpretivist approach was taken. Three in-depth, semi-structured interviews were conducted with senior managers within An Post. This data was complemented with a review of a range of contextual documentary sources. The results of these interviews were then analysed through thematic reduction to ascertain the key issues within the organisation relating to the diversification process. The postal market is regulated, and An Post, as a former monopoly, is subject to a number of controls on its dominant market position. This dominance, and regulation, comes largely from the provision of the loss-making Universal Service Obligation (USO) by the company. In order to continue funding the USO, An Post is engaging in a number of different diversifications, through innovation, partnerships and acquisitions. The company is attempting to lower costs, drive efficiencies and increase revenues in the core mails business. However, mail is still a declining market and these measures can only bring limited benefits. The company does not have an explicit diversification strategy. Management, however, are aware of the need for them to discover new revenue streams which can be used by the organisation to fund the USO. Subsidiaries of An Post are generally run autonomously. Air Business, one of the company’s largest subsidiaries, is largely run by local management, with An Post maintaining oversight through the Board. This is mainly due to the perceived culture within An Post as not being conducive to growth and entrepreneurship. The success of these subsidiaries, and the revenue they generate, has allowed the company to achieve its aim of cross-subsidisation. The commercialisation of the Group as a whole, and growing importance of subsidiaries as a proportion of turnover, has changed the nature of An Post over the last decade; the company is less dependent on mails revenue for overall growth. The utilisation of autonomous subsidiaries has created the means for the organisation to achieve more dynamic growth without affecting the core business. Through this growth, whether it comes from related or unrelated diversification, expansion or innovation, the company can maintain the USO without requiring a government subvention. The lack of a formal strategy does not preclude an organisation from being successful in achieving its goals. In the case of An Post, the lack of a strategy to diversify has not been an impediment to successful diversification. However, where diversification has been undertaken, more emphasis should be placed on evaluation of the factors which led to success. The case of Air Business suggests gaining market share should be the priority in any diversification.