Analysing a Company: DHL
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Keywords: dhl, strategy, mission, market
The aim of this strategic planning document is to thoroughly analyze a company and based on the analysis find the right strategy that fits the company's business purpose and mission. The right strategy, depending at what is directed, should help the company strengthen its position on the market; increase profits; help with further development. If a company implements a wrong strategy, it can cause bad damage or it can have huge financial impact on the company which could even end up in bankruptcy, which wipes the company off the market.
The company chosen for this paper is DHL Express with focus on European region. DHL is part of the Deutsche Post DHL (further "DP DHL) brand/group. The reason why I have chosen DHL for the Strategic Planning Document is that I have been working for DP DHL group for four years. I work specifically for IT Services which is the service line that internally supports the whole IT technology of the whole DP DHL group.
ABOUT THE COMPANY
DHL was founded in San Francisco exactly 40 years ago by 3 budding entrepreneurs - Adrian Dalsey, Larry Hillblom and Robert Lynn. It went from small company shipping papers by airplane from San Francisco to Honolulu1 to global company shipping EVERYTHING around the world.
DHL delivers time-critical shipments as well as goods and merchandise by road, rail, air or sea. DHL transports courier and express shipments via one of the world's most extensive networks to over 220 countries and territories. The company employs more than 300,000 employees all around the world.
DHL Express provides wide range of easily accessible services and solutions for their customers; from transport of letters, information to transport of parcels and goods. It operates in more than 220 countries around the world and employs more than 100,000 employees. DHL Express is number one in Europe with 25% of market share.
Brief history 2
- 1969 DHL founded by Adrian Dalsey, Larry Hillblom and Robert Lynn in San Francisco;
- 1974 The first UK office opened in London. Globally, DHL had more than 3,000 customers;
- 1979 DHL extends its services to delivering packages. Only document services had been available until now.
- 1983 DHL is the first air express forwarder to serve Eastern European countries. An international distribution centre was opened in Cincinnati, USA;
- 1985 A state of the art hub was opened in Brussels. More than 165,000 shipments are handled per night
- 1998 Deutsche Post became a shareholder in DHL;
- 2002 Deutsche Post World Net became the major shareholder in DHL and 100% shareholding was completed by the end of the year.
- DHL: Our Company Portrait [online]. Available at www: <http://www.dhl.com/publish/g0/en/about/history.high.html>
- DHL: Steps to success [online]. Available at www: <http://www.dhl.com/publish/g0/en/about/history/history2.high.html>
- 2005 DP DHL acquires Exel, the British logistics corporation. Exel primarily offers transport and logistics solutions for key customers;
- 2008 DHL opens new state of art European air hub at Leipzig/Halle Airport in Germany.
DHL legally operates under Group's title defined as Deutsche Post AG and uses its brand name DHL. As previously mentioned DHL is part of DP DHL group and is formed by 3 divisions: Express, Global Forwarding, Freight and Supply Chain supported by internal services Global Business Services. Mail is a standalone division that is part of Deutsche Post brand. All four divisions together create Deutsche Post DHL as the picture below describes.
- DP DHL: Corporate Presentation, October 2009, p. 3 [online] Available at www. <http://wcms.intra.dpwn.net/wcms/services/folder15912337/bundle1881176>
DHL has a divisional form of structure. The DP DHL group is organized into four operating divisions, each of which operates under the control of its own divisional headquarters. The Group management functions are performed by the Corporate Center.
Management responsibilities are structured in accordance with decision-making, responsibility and reporting lines:
- Board departments
- Corporate departments
- Business departments
- Service departments
DHL Express provides standardized products and services - courier, express and parcel (CEP) - both locally and globally depending on the country. Whether it is document or parcel, road or air, DHL Express provides several different types of services that are divided to four basic groups:
1. Same Day
An immediate pick-up of a shipment by a dedicated courier, with an emergency delivery within the same day via a dedicated network.
2. Time Definite
Express door-to-door delivery by a certain time on an overnight or next possible business day basis.
3. Day Definite
Reliable door-to-door delivery within a certain number of days
4. Optional Services
Shipping convenience with a range of optional services to support your express transportation
- DP DHL: Annual Report 2008, p. 22 [online] Available at www.<http://wcms.intra.dpwn.net/wcmsrepo/repo2836025/repo5006598/repo6566736/repoFolder197166013/deutsche_post_annual_report_2008.pdf>
- DHL: Express Services Good afternoon [online]. Available at www: <http://www.dhl.com/publish/g0/en/services/exp_services.high.html>
Courier Express and Parcel (CEP) services exist in every single country around the world. It is neither country specific nor region specific industry. There are thousands of logistics companies operating locally or internationally around the world and Europe is not an exception.
PESTLE analysis is a view on external environment companies operates in. There are five external factors that influence life of organizations: Political environment, Economical environment, Socio-cultural environment, Legal environment and Environmental factor.
The below PESTLE analysis focuses on CEP companies in European market.
European region is stable environment that is not affected by any significant political crisis in countries and no major changes in political structure are expected in near future. More than half of European states are integrated into European community, European Union and create one of the biggest single markets for trade and investment in the world. EU enlargement has removed border lines and has made trade and business more accessible for its members. It has brought greater opportunities for businesses, wider range of companies and benefits for their customers.
EU has created closer links with immediate neighbors and enables bigger exports, free movement of services, payments and capital for trade and investment. Prior liberalization in 90's there were many national postal operators acting as monopolies. EU decided to start postal reform that firstly completely liberalized CEP market. Liberalization has enabled both national postal operators (Post Offices) and private postal companies to enlarge their business portfolio into parcel and express market.
This happens through acquisitions of well-established companies and smaller national companies. Exactly, as it happened to DHL through acquisition by Deutsche Post in 2002. Full liberalization in Europe will be completed by 2012 which gives current companies time to strengthen their positions, build new networks and gain wider portfolio of customers.
EU has also built up confidence in European political and economical future of each member which enables companies to make longer term decisions, strategies and investment plans. Currently the CEP market is highly competitive and companies have to have capital to establish strong and powerful position in such an environment and have to have built up networks supported by the modernist technologies.
Europe is stable environment where no major political changes are expected. Full liberalization of European postal market that will be finished by 2012 will bring more competition especially on domestic level. However, there is a potential to merge or acquire those companies operating in the local markets and increase market share. Big companies operating on international level have an advantage of built global networks and modern technology behind them.
CEP is highly potential market and its growth is directly related to the level of GDP. Global trade is on the rising level and together with industrialization has made CEP services more important for majority of industries. Additionally, product life cycles have been reduced, quality awareness among customer is growing and in order to succeed companies are forced to maintain high quality standards.
The global economic crises caused decline in economy and it has affected the entire logistics sector. Volume of shipments decreased and the recession slowed down the whole market. Even the big corporations have to fight with decreased revenues and change their investment plans and business strategies.
Governments around Europe support investment plans by structural reforms and programs that encourage investors to invest. During the big economic crisis in 30's this did not happen and governments tended to act individually without multinational or even global cooperation. Today's economies learnt from those mistakes which help to lower the implications, increase customer demand and support start of growth. Due to the crisis companies changed their investment plans but did not stop them. Merges with smaller companies, agreements and strategic acquisitions represent one way of increasing the competitive advantage.
Emerging markets represent big opportunity in long-term perspective. There is potential for investment and development in emerging markets and it is expected that industrialization will bring opportunities, the economy will growth and market for services will accelerate. The crisis negatively affects profits of every company on one hand but on the other hand big corporations with strong brand and position in the market have to exploit this opportunity. Smaller companies do not have potential to expand because they are in bigger risk of losing money or even bankruptcy if they fail. Big corporations are able to absorb that risk much easier.
Companies have started to reduce cost and people have started losing their jobs. Restructuring of company structure is one of the way how to move forward. IT is core element of every company that operates in logistics industry. Companies have to invest huge amount of money to development and maintenance of their IT infrastructure. Recent trend leaves development in Europe and transfers hosting and maintenance of the infrastructure to Asia.
Conclusion from the Economical environment analysis is that companies should not stop their investment plans because of economic crisis. It is important in current situation to strengthen position in the market and expand if possible. Emerging markets represent a potential of rapid economy growth. The risk of loss is the same for all companies but for big corporations is more acceptable. Reduction of cost is evitable for every company and restructuring or outsourcing are the ways of dealing with it.
The third aspect of PESTLE analysis focuses on forces within society. Social and cultural forces affect customers' attitudes, interests and opinions. Companies must be able to offer products and services that aim to complement and benefit customers' needs and wants. If they do not quickly respond to changes in society they will lose market share and demand for their product or service will decrease.
Removing of border lines makes trade and business in Europe more accessible. Emerging markets are place that is constantly developing and rapidly growing. Although the infrastructure is not as developed as in Western countries, there will be improvement with economic growth. It is important for the company to establish its brand and achieve good and reliable image and service quality among its customers. The portfolio of services that is offered in developing countries is not usually complete and focuses on the biggest needs and wants of the business.
Companies do not have the only affect and responsibility to their customers. There are different parts of society they are in contact with. There are needs of employees, investors and the society as a whole. Research & Development department play an important role in this area. Customer satisfaction surveys, employee satisfaction surveys, market surveys help the company to build its brand and image, increase employees commitment and shape public awareness.
CEP market and logistics industry play one of the key roles in the economic growth globally not only within European market. Increases in volumes of goods transport has lead to higher CO2 emissions which according to climate scientists have direct affect on global warming. It is social cost for the society and governments discourage those social costs with fines, taxes and legislation. Companies' responsibility is to decrease these cost and work with more efficient and environmentally friendly means of transport. Social cost have negative affect on customers' spending but could be balanced by larger offer of environmental friendly oriented products.
Social forces affect customers' needs and wants and it is important for the company to know it and benefit from it. Therefore the role of Research & Development is very important. Company has to respond to changes in society quickly not to loose market share and demand for services. Customer satisfaction surveys, market surveys, employee surveys play important role in building company's brand and image in the market.
Border lines have been removed within EU and services are more accessible in the whole Europe. Emerging markets represent an opportunity for companies to enter and establish their brand and image.
Additionally, there are also social costs for the society that companies have responsibility for. The affect on environment is significant and companies' role is to decrease those costs by working with more efficient and environmentally friendly technology which is then balanced by larger portfolio of environmental friendly oriented customers.
Technology environment is vital part of every business that rapidly moves it forward. Technological innovations have changed the world and manner in which every business operates. Technology has created society expecting immediate results. Information exchange between customers, companies, people or any stakeholders is faster. That gives benefit to businesses as they can react quickly to any changes in the operating environment. However, the ability to quickly react also brings extra pressure on companies because they are expected to deliver on time and without any delays.
Customers in service industry have to continuously face new challenges in planning, managing and monitoring their business processes. Companies in CEP market (and not only there) started offering customized logistics solutions to meet challenges: for example safety transport of sensitive products such as pharmaceuticals and vaccines to the healthcare industry done within a temperature-controlled environment. Operations in logistics industry is not only about cars, vans and aircraft there are other parts of infrastructure that needs technological development and improvement: posting, collection, sorting, transport, warehousing, delivery and last but not least Information Technologies. IT is core. Speed and reliability are key success factors to be able to meet standards and quality and gain advantage among competition.
It is important to pay special attention to IT area because service industry is fully dependent on it. Companies invest huge amount of money to development and maintenance of their IT infrastructure. As mentioned above IT is one of the key elements for logistics and operations processes. Systems must be accessible and available at all times; security is evitable - unauthorized access to data and data manipulation must be prevented, to ensure that software is not delivered with defects or too late. Companies have to fight with decreased revenue and reduce their cost in times of economic crisis but importance of IT technology is so significant that they cannot stop investing in it. Otherwise there is a threat that they will fall behind and loose their market share.
Outsourcing or in other words subcontracting is a way of reducing cost in IT area. Development of new technologies, software or applications goes to another organization. Usually, the company is specialized in software development. Or hosting and maintenance of applications or services are transferred to another company. The decision whether to do in-house or outsource is often based on achieving lower production cost and usage of available resources in better way and focus energy on the core competencies of the business.
Modern technology and environment is key to success of the company that helps to maintain or gain competitive advantage. IT is the most important technology factor for logistics business because speed and reliability are equal to success. However, there is an indisputable constant threat of falling behind.Investments to the modernist technologies are evitable and in times of economic crisis are much more important then anytime before. Company has to decide if it runs internal IT organization or if it outsources most of the services and reduce cost.
Legal rules play a role in nearly every aspect of company's operation from state regulations through contracts to treatment of employees. Legal factor is very important because companies work within legislative framework where legislation can either place numerous obligations or can create market conditions beneficial for business.
CEP market is regulated by Postal directive applicable in all EU states. Full liberalization process will be completed by 2012 which gives current companies time to strengthen their position, build new networks and get more customers before new competition arrive. CEP market was fully liberalized during 90's and no special license or authorization is required in most of the EU countries. Ten states of EU require companies to receive explicit decision of National regulatory authority that is called "general authorization that enables them to start operating in those countries but it does not represent a barrier. General authorization document contains several conditions that are related to e.g. confidentiality of correspondence, restrictions on transport of dangerous goods, data protection standards, etc.
As I said previously there are social cost for the society that must be balanced by companies' obligations in terms of fines, taxes and additional legislations related to regulation of aircraft noise, regulations concerning emission standards, obligations to reduce greenhouse gas that forces companies to invest into more environmentally friendly means of transport.
Legal factor is important for operations of every company. Companies have obligations like directives, taxes and rules that they must be aligned with to be able to operate in the market. Legal factor can either place numerous obligations on the company or can create market conditions beneficial for business. Liberalization is an example of the benefit. Removal of border lines together with liberalization enabled building and strengthening of positions in the logistics market. There are no special and expensive authorizations necessary in CEP industry which is another benefit for companies. On the other hand there are obligations that balance the above benefits in terms of fines, taxes and directives that are mainly related to environment. Companies are forced to invest into environmentally friendly operations.
Transportation industry causes major impact on the green house gases in the atmosphere. Mobility has increased and brought many indisputable advantages that must be weighed against the social, economic and environment costs it causes. Countries issue legislation that forces companies to reduce emissions.
Companies have started implementing projects that help them to find out ways how to reduce pollutions and to be compliant with issued legislation. Transportation companies are dependent on fossil fuels and to reduce their dependency they have to look for commercial vehicles and aircraft powered differently or non-conventionally. Change of vehicle is not the only option that would reduce air pollution there are other ways that companies could take: to make their business more efficient and effective, to reduce shipping time, to take uniform approach, to offer climate-neutral products or train employees.
Research & Development department plays important role in those projects because it helps to come up with new ideas, technologies, procedures and processes.
Transportation industry has great effect on air pollution globally. It is undisputable fact and companies are forced to fulfill the requirements of governments to reduce their contribution on pollution of the global environment. Companies have started implementing projects that help them fulfill those requirements. Research & Development department is key to the success of it.
Based on the PESTLE analysis I have identified opportunities and threats that will be taken into account during the SWOT analysis.
- Opportunity: Full liberalization of European postal market that will be finished by 2012 brings new opportunities to increase market share by acquisitions or merges with other logistics companies or newly liberalized companies. Established companies wit big market share, global network and technology have competitive advantage.
- Opportunity: Border lines have been removed within EU and services are more accessible in the whole Europe. Emerging markets represent a potential of rapid economy growth therefore it is an opportunity for companies to enter and establish their brand and image and gain bigger market share.
- Threat: Role of Research & Development department in the company is very important. Company has to respond to changes in society quickly not to loose market share and demand for services. Customer satisfaction surveys, market surveys, employee surveys play important role in building company's brand and image in the market.
- Threat: In times of economic crisis economy slowed down and revenue decreased. Reduction of cost is evitable for every company and restructuring or outsourcing are the ways of dealing with it.
- Threat: Social costs represent a responsibility of companies towards society. The affect of transportation and logistics companies on environment is significant and companies' role is to decrease those costs by working with more efficient and environmentally friendly technology which is then balanced by larger portfolio of environmental friendly oriented customers. Companies are forced to invest into environmentally friendly operations by fines, taxes and directives placed by governments. Therefore, companies have started implementing projects that help them fulfill those requirements.
- Threat: Modern technology and environment is key to success of the company that helps to maintain or gain competitive advantage. IT is the most important technology factor for logistics business because speed and reliability are equal to success. However, there is an indisputable constant threat of falling behind. Investments to the modernist technologies are evitable and in times of economic crisis are much more important then anytime before. The role of Research & Development is evitable here.
Porter's Five Forces
Courier Express Market is highly competitive market and its growth is directly related to growth of GDP. Customers of logistics companies are demanding. Technology improvements reduce product life cycles, quality awareness among customer is growing and in order to succeed companies are forced to maintain high quality standards.
DHL Express has three biggest competitors in CEP market. They are UPS, TNT and FedEx. As you can see in the Picture 2 below DHL Express has the highest market share of 25% as a single company in Europe. All four major competitors operate internationally and have global network with good and modern technology behind them. The picture below also shows us that third of the European market is dismantled among small and medium sized companies that operates independently.
European market portrait
Customers of logistics companies vary from individuals to big industrial or manufacturing companies. All of them expect that the delivery service will be simple and convenient and that the delivery will be on time without any delay and in a good quality. Customers are more and more demanding because range of suppliers is broadening and they are looking for customized and innovative solutions for delivery of their goods.
- DP DHL: Annual Report 2008, p. 58 [online] Available at www. <http://wcms.intra.dpwn.net/wcmsrepo/repo2836025/repo5006598/repo6566736/repoFolder197166013/deutsche_post_annual_report_2008.pdf>
The range of offered products is wide but could be introduced in three basic categories:
- Courier services are fast, door-to-door pick up and delivery services of high-value goods or urgently required documents.
- Express services are time-sensitive, usually guaranteed services and have delivery time a specific day (in general the next day) and/or specific time.
- Parcel services are the transport of largely standardized packages with usually non-guaranteed delivery time of 2-3 days (Time-definite and Day-definite)
Porter's Five Forces mode will help me to analyze five forces that influence the logistics industry and better understand the environment in which DHL Express operates in and competitive advantage the company has or could gain.
Threat of New Entrants HIGH
CEP market is large and very attractive to business. Everyone needs to deliver package or parcel. Everyone needs to use courier. Logistics industry is important and dominates to the service sector. It is very easy to entry. There are no special legal barriers, patents or licenses necessary to run the business. There are exceptions as described in PESTLE analysis but those exceptions do not represent "impossible to achieve requirements. The market is still growing and there is an assumption that will grow further.
There are no border lines among members of EU which would threaten new companies to enter the CEP market. Company that wants to succeed in such a competitive environment has to have a good network that enables it to operate on local and international level. Good network requires time and financial investment. High technology standard is must.
Companies have to protect themselves from the threats of new entrants therefore it is important for them to find ways to turn disadvantages in their favor. They have to capitalize from their historical experience and try to find better ways to provide their service. Current big players in CEP market are well established leaders that have significant cost advantage that is unavailable for the new entrants. Large companies have buying power that allows them to offer discounts to their customers. Simply, bigger the business is lower average unit cost they are able to produce.Customers' loyalty is another important factor that increases barriers to entry for other competitors. Loyal and satisfied customer will be unlikely tempted to go to competitors or new entrants. Established companies usually do business set on long-term partnerships and contracts. The basic rule says that customers get everything they need or want. There are many advantages that economies of scale gives to big corporations but there are also limitations that must be taken into account. Those limitations give competitive advantage to smaller and medium sized companies. Large companies are very complex and with higher complexity the product range is widening. This makes it difficult to succeed and be the best. Specialization and innovative ideas are crucial. Large companies are also known for their high level of bureaucracy which gives smaller companies big advantage because they can satisfy customer faster and it is what matters in logistics industry. Also large companies have thousands of employees with different labor relations in every country which causes additional legal cost. In case of powerful workers union it can decrease power of the company and make their operation more difficult especially in time of restructuring.
As I have mentioned modern technology is an important factor that significantly helps to increase market share and creates more barriers for new entrants. Outsourcing or off shoring are possibilities for companies to take advantage of other economies of scale and use their buying power and specialization in favor of further development.
In summary, logistics market is large and is attractive to business because when GDP grows the demand for services grows. There is no special barrier to entry. In fact, it is very easy to entry. The market is still growing and there is an assumption that will grow further. Successful companies have built networks that enable them to operate on local and international level. Good network requires time and financial investment. High technology standard is must. Historical experience and appearance in the market is an advantage for companies like DHL.
Big companies and corporations use economies of scale in their favor. Bigger company can provide higher discount and has lower profit. Customers' loyalty is another important factor that increases barriers to entry for other competitors because of long-term partnerships and contracts.
On the other hand there are also disadvantages for big companies that must be taken into account. Large companies are very complex and with higher complexity the product range is widening. Specialization is an answer to it. Large companies are also known for their high level of bureaucracy which gives smaller companies big advantage. Bureaucracy slows down the whole process. Strong workers unions decrease power of the company and make its operation more difficult especially in time of restructuring.
Modern technology helps to gain competitive advantage and be ahead of new entrants. Companies should take advantage of outsourcing or off shoring companies and use their buying power in favor of specialization and development.
Threat of Substitute Products or Services HIGH
Every customer has a choice when and what to buy. Substitute products or services create a ceiling on the price. Any need or want of the customer could be satisfied in different ways and it is up to the customer which company to choose. Threat of substitute products is very high in CEP market because range and price of offered products is similar. Customer can quite easily turn and goes to the competitor.
Research & Development department plays outstanding role for this aspect. It is important to know what customer wants and needs therefore customer satisfaction surveys must be held. Surveys help to identify the problem of substitute products and help to answer what substitute products customer considers. They help companies to better position themselves in the market and among customers, uncover customers perceptions, improve customers loyalty, or help to make technology and product improvements.
For a company to be able to succeed in such a competitive environment it is important to know who the competitors are and what service they provide that could substitute the service they offer. It is also important to consider their benefits, price, weaknesses, constraints, limitations, reason for switching between products and barriers to switch. Based on that information, company can defend the threat easier and attract customer from another substitute service by innovation for example. It is important to communicate and educate customers about services the offer. Customers must be tempted to purchase and if they are loyal it would stop them from switching to another company. Marketing and Advertising is therefore highly important for this factor. Companies have to invest in building their brand and image to gain competitive advantage.
The range of offered products and prices in logistics industry is similar. Therefore threat of substitute products is very high. Role of Research & Development department is important and helps to identify what customer wants and needs, the problem of substitute products or answers what substitute product customer considers. Its role is also to get knowledge about competition and their offer. Based on that information, company can defend the threat easier and attract customer by the added value (innovation for example). Investment in Marketing and Advertising cannot be forgotten. These departments communicate and educate customers about brand and image of the company, about products that are in the offer. They help to gain competitive advantage.
Bargaining Power of Customers HIGH
Logistics industry is highly competitive and there are many companies that offer similar products. Customer has the power to decide if to pay high or low price, to decide between cheaper or more expensive company. And also customer has the power to walk away and make a deal with competitor. Loyalty increases when customers get better value or benefits for the same price. Therefore it is important to build customer satisfaction, build partnerships or provide discounts. Basically, any reduction of the price that customer "negotiates means lower profit for the company.
Customers are very sensitive to price and are willing to switch to the competitor very easily if the service, company offers, does not differentiate from any other service that can be purchased in the market. Price is the magic word that matters. Therefore it is important for the company to differentiate and offer something more. If it cannot be price then for example it can be company's attitude towards environment and using climate-neutral transportation or products.
There always must be value added for the customer.
Suppliers always outnumber customers. This is a market rule. Therefore, customer has the advantage and is allowed to choose from a range of companies who offer the logistics service. The logistics industry offers similar products and customer is able to compare prices and types of services from different companies.
Company has to be differentiable for the customer and unique in some way. As I indicated above price is not the only factor that influences the customer, although it is a strong influencer. It is important to create a tight and loyal relationship with the customer and offer range of services for good price and quality. There are many tools company can use to fasten the customer: special offer, favorable financial arrangements, long-term contracts, etc. Customer's switching costs are dependent on the strength of the cooperation and linked tasks. Therefore companies in service delivery have to invest in modern technologies. Internet could serve as an example. It has completely changed the world of logistics and e-commerce has brought new financial opportunities not only for customers but for suppliers as well.
Logistics industry is highly competitive and the range of products and prices is similar. Logistics companies always outnumber customers and customers very easily switch to competition. Therefore it is important to gain customers loyalty and provide benefits that would tight them to the company. It is also important to differentiate from competition and to provide offer with added value for example climate-neutral products. There are many tools company can use to fasten the customer: special offer, favorable financial arrangements, long-term contracts, etc. Customer's switching costs are dependent on the strength of the cooperation and linked tasks. Modern technologies are able to tight customer to the company and increase switching costs.
Bargaining Power of Suppliers HIGH
In this section I would only focus on bargaining power of suppliers in Information technology area which is the most important factor for the logistics industry. Every company has to invest huge amount of money into IT to be able to stay on top.
There are two types of technology used in CEP market "front-office and back-office. Front-office technology represents computers, telephones, scanners, handhelds etc. and back-office technology is the more important one. It is primarily used for operational purposes of the service, it creates the network. For example: systems that help companies to improve their operational efficiency like GPS or track & trace system that help to locate the parcel for the customer at any time.
Investments to modern IT technologies are big and every company has to decide if it runs internal IT organization or if it outsources most of the services. In the latter case, decision of using expensive but highly skilled company or cheaper and badly skilled company is essential because it could potentially lead to higher cost in future. IT knowledge and skills are the core for success of the company in logistics industry. What is modern yesterday is out of date today. The threat of falling behind is present.
Usually, company contracts with few companies for longer period of time. Global companies tend to supply from already existing suppliers. It is beneficial for both sides. Both supplier and the company can use buying power in favor of specialization and development in their sectors.
Suppliers in IT have an advantage of skills and importance. Every company in logistics industry is dependent on its network and IT systems. Therefore companies and specifically the large companies spent big amount of money for development of Information Technologies to be able to stay on top. Company can either use internal IT organization or outsources the services. IT knowledge and skills is the core for success of the company in logistics industry. There is a constant threat of falling behind.
Rivalry Among Current Competitors HIGH
Rivalry among the big players is high and is very intensive especially on international level. There are many middle or small companies that represent danger and increase rivalry on local or international level. As mentioned several times it is very important for the company in order to succeed to differentiate from its competitors. One of the ways, they can do, to come up with innovative ideas. The role of Research & Development department is then inevitable. Therefore it is important to employ skilled and committed people with new ideas that help the company to increase its competitive advantage.
Porter's Five Forces summary:
Based on the Porter's Five Forces analysis I have identified opportunities and threats that will be taken into account during the SWOT analysis.
Threat of new entrants is very high in CEP market but existing big players have built national and international networks that provide competitive advantage against new entrants. Historical experience and appearance in the market is an advantage for companies like DHL and customers' loyalty increases barriers to entry for other competitors because of long-term partnerships and contracts. Big companies and corporations use economies of scale in their favor. Bigger company can provide higher discount and have lower profit. However, bureaucracy that exists in large companies gives smaller organizations competitive advantage. Bureaucracy slows down the whole operating process. Outsourcing or off shoring are used to reduce cost and suppliers' buying power is used in favor of specialization and development.
Threat of substitute products is very high because the range of offered products and prices in logistics industry is similar. Role of Research & Development department is crucial and helps to identify what customer wants and needs and solve the problem of substitute products. Investment in Marketing and Advertising is important because these departments communicate and educate customers about brand and image.
Bargaining power of customers is high because range of products and prices is similar and customers very easily switch to competition. Therefore it is important to gain customer loyalty and provide benefits and differentiate from competition. Customer has to experience the added value. Customer will not switch to competition if there is a linked relationship and dependency that would increase the switching cost.
Bargaining power of Suppliers in IT is high. Logistics companies are dependent on network and IT systems. IT knowledge and skills is the core for success of the company in logistics industry. There is a constant threat of falling behind. Therefore it is important to choose right supplier.
Rivalry among current competitors is high because all four biggest competitors are successfully established on international level and have experience with competition. Local or international competitors represent third of the European market and must be taken into account as well. Therefore differentiation and innovation are important for the company. The role of Research & Development department is indisputable here.
Internal Analysis serves as a tool that tells me if company is capable to use opportunities and defend from threats that were found during the analysis of external environment.
From the analysis of external environment I know that CEP market is highly competitive. Customers are demanding and request effectiveness, efficiency, speed and quality. Company that wants to succeed in this environment must have good operational network and modern technology that would support it on local and international level. Successful companies work on development of their competencies to become core competencies to get bigger competitive advantage.
DHL Express has been in logistics business for 40 years now and it has built its brand and business on tradition. It provides wide range of easily accessible services and solutions for their customers; from transport of letters, information to transport of parcels and goods. It operates in more than 220 countries around the world and employs more than 100,000 employees. DHL Express is number one in Europe with 25% of market share. It wants to become a Logistics company of the world.
The advantage of operating globally, using of fixed routes and standardized workflows for delivery is enormous. DHL Express operates in tight cooperation with other divisions (Mail, Global Forwarding & Freight and Supply Chain) which helps to better address customers' needs. Modern Information Technology stands behind the success without any discussion. Customer and service support serves 24 hours a day and 7 days a week.
DHL Express has built its success on committed employees and experts. DP DHL group belongs among the five most admired companies in the world in logistics industry. It is on fourth place just behind FedEx, UPS and TNT according to the Fortune magazine. It invests huge amount of money onto research and development area and has come up with several interesting projects aimed on employees, shareholders and customers, environment and innovations. DHL pays special attention to Marketing & Sales area and presentation of their brand and image. DHL knows that educated customer and employer will bring future benefit.
Core competences represent competitive advantage of a company. They help to differentiate, be more profitable, be more successful and gain more market share. DHL works on its competences very hard to gain the competitive advantage and be the best in the Express market. They say that size is not enough and they are not the best just because of the biggest market share but also because they are able to provide the best service, innovative solutions and achieve customers' satisfaction.
DHL Express' core competency is guaranty of the fastest delivery in a good quality anywhere. As I said in previous text the trick behind that is the network in which DHL Express operates consisting of more than 220 countries, standard routes, modern technologies, standardized procedures and processes and last but not least more than 100,000 committed employees. Further more DHL's aim is to continue in improving its core competencies and continue in innovation, quality and productivity and provide career development opportunities for their employees. And in the same time be seen as socially responsible organization.
DP DHL group and subsequently DHL Express have rolled out strategic programs and initiatives that they believe drive the company forward to the future and are based on core competencies:
- First Choice program is focused on improvement of business processes based on customers' needs. The rationale behind is to strengthen customers' loyalty and intensify and broaden business with current customers. DHL also wants to change the corporate culture of DP DHL group and improve collaboration among employees across divisions and regions to provide better value to their customers.
- Roadmap to Value program is focused on transparency, profitability, cost reduction, performance, organic growth, sustained increase in the company value, etc. This program is aimed to make DHL first choice for customers and employees and also for investors.
- As mentioned several times in this paper environment and social costs are closely connected therefore DHL has rolled out a program focused on climate protection and disaster relief. It is called Go Green. The company itself set a goal to achieve 30% improvement in CO efficiency by 2020. Therefore it has implemented measures such as fleet optimization (both aircraft and ground vehicles) and expand range of climate-neutral and climate-friendly products. Additionally, the company is an official partner of United Nations organization and provides logistical support during natural disasters.
The main driving force behind the programs and initiatives are people, the human resources, the organization itself. People are the great benefit that DHL Express has. Educated, skilled and smart people are the core competence that helps to move the company towards future. DHL rolled out an initiative called Discover logistics to present logistics as an exciting industry that looks into the future and introduces DHL as attractive employer. DHL uses an online career portal that is taken as an adequate and fitting recruiting tool in the age of internet.
Position Audit will tell me if DHL Express is able to take advantage of opportunities and is able to mitigate threats that were identified previously.
The analysis of External environment revealed an opportunity for DHL to increase market share by merging with other logistics companies or newly liberalized companies. According to the Picture 2 third of European market is dismantled among small or medium logistics companies. Through mergers and acquisitions DHL could enlarge its network and result of having better and efficient facilities with loyal customers. DHL has assets that allow the company to go that way.
Another opportunity that appeared was entrance into Emerging markets. There is potential of rapid economy growth and profit. DHL has already entered in these countries and through Marketing is working on establishing of its brand and image there.
Modern age has brought changes and constant development of technology and demand. This represents a threat for the company that will not be able to quickly react to those changes and the company may loose market share. As indicated in PESTLE analysis role of Research & Marketing is evitable and represents must for the company. DHL invests into this area and mitigate this threat quite successfully.
Economy crisis has brought slow down of economy and decrease of revenue. Every company has to deal with that threat and mitigate it. DHL is aware of that threat and is convinced that strong brand makes them safe and well-equipped for difficult times. Therefore, they plan less investments and have started working on lowering of indirect costs by cost-cutting. Therefore, they have started with restructuring and initiatives that improves cross-divisional cooperation.
Social cost and responsibility of companies represents another threat for companies in terms of fines, taxes and customers' perceptions. Logistics industry has significant negative effect on environment and companies' responsibility is decrease the social cost by working with more efficient and environmentally friendly technology to balance it. DHL has come up with their goal Living responsibility and initiated several innovations and programs to deal with this threat (e.g. Go Green program). Research & Development has played an important role in it.
21st century is the age of modern technologies and namely Information Technologies. Logistics is based on technology because speed and reliability are basics for success and to fall behind is relatively easy. DHL Express mitigates this threat by strong internal IT organization that supports the whole DHL network. Additionally, DHL uses knowledge of IT companies like Hewlett Packard and IBM to use the modernist IT tools and technology. Additionally, DHL also outsources highly skilled specialists to cooperate on innovations and innovative ideas. Roadmap to Value program helps to mitigate that risk.
Threat of new entrants is very high in CEP market and DHL has to mitigate the risk and does it very well. It has built strong national and international network that provide high competitive advantage. Experience and strong brand increase loyalty and create barriers for new companies to entry. DHL has 25% of European market share which brings an advantage of economies of scale. Possibility of more favorable prices offer, higher discounts bring new customers and help to build long-term partnerships and contracts. DHL knows about the advantage and work on it with help of Sales and Marketing and Research & Development department programs First choice and Roadmap to value help to mitigate that threat.
On the other hand the advantage of DHL as a big corporation has also brought more bureaucracy and slow down of processes. This is a fact and I can only confirm it as a DHL employee. Program like Roadmap to value helps to mitigate it and brings more transparency and performance. DHL has started with restructuring of the company organization that also brings cost reduction. First choice program brings more collaboration between employees and consequently brings innovations.
The range of offered products in logistics industry is similar. Therefore the threat of substitute products is very high. DHL works on mitigating it through Research & Development and through First Choice program. The result of the initiatives has brought identification of customers' wants and needs and help to solve the problem of substitute products. DHL continues on improvement of the products and services that are in the offer. High quality together with speed and reliability are key success factors. Standardized systems, processes and workflows enable the DHL sales force to increase productivity. Again the programs Roadmap to value and First Choice is an answer to the threat of substitute products.
Bargaining power of customers is very high in logistics and threat of losing customers is significant. DHL knows that therefore invest in Marketing & Sales and in constant communication and education of customers. It has built well-established and well-managed brand that is one of the most valuable assets of any company on national or international level. First Choice program helps to align processes with customer needs and subsequently bring cost efficiency.
Suppliers play an important role in logistics business, their power is high especially in IT. Information technology is a key success factor. All systems must be accessible and available at all times; unauthorized access to data or data manipulation must be prevented, and it is important to ensure that software is not developed with defects. The success of IT depends critically on employees and suppliers. DHL uses its internal IT organization and as mentioned above DHL also uses knowledge of IT companies like Hewlett Packard and IBM and outsources highly skilled specialists to cooperate on innovations and innovative ideas. Investment in that area is high but it is worth it. DHL uses knowledge and core competencies of other companies in its favor.
Rivalry in CEP market is high and DHL is aware of it. DHL Express has started working on tighter cooperation with other divisions; uses cross-divisional synergies and works on improvement of products and services through differentiation and innovation and invests in research and development. Additionally, DHL has competed to gain highly qualified specialists and managers and through First Choice program "fight successfully with competition. Surveys, improvements, innovations, transparency, cooperation and restructuring is a way for DHL to mitigate the risk of high rivalry and sustainable work on maintaining and extension of its market share.
- Mergers and acquisitions
- Investment in Emerging markets to strengthen market position and gain new market share
- Investment into strategic programs
- Active Sales and Marketing department
- Improvement of products and services through innovation
- Specialization of products
- Improvement of collaboration cross-divisionally
- Deepen relationship with suppliers to be able to use their buying power
- Differentiation from competition (e.g. expand offer of climate-neutral and climate-friendly products)
- Intensify and broaden business with current customers to increase their dependency
- Customized solutions for every customer
- Increase productivity by strengthening of standardized systems, processes and workflows key factors quality, reliability and speed
- Education of customers
- Communication to customers
- Build more transparent organization by restructuring and cost-cutting initiatives
- Outsourcing or off shoring
- Be seen as socially responsible organization
- Become First Choice for employees
- Become First Choice for customers
- Slow down of economy due to economic crisis and lower profit
- Social cost and impact on environment
- Threat of falling behind in IT due to technology development and rapid changes
- High dependency on network and IT
- High threat of new entrants (doing business in highly demanding and attractive environment)
- High threat of substitute products
- High bargaining power of customers
- High rivalry among existing competitors
- History and experience
- Strong brand and image
- Strong financial position
- High market share
- Cost advantage
- Global network and standardized workflows
- Cross-divisional experience and cooperation
- Standardized product portfolio
- Portfolio of loyal customers
- Broad portfolio of quality IT suppliers
- Very good customer support
- Established and strong Research & Development department
- Strong Marketing & Sales
- High level of technology
- Skilled and committed employees
- Very potential employer
- Committed employees and highly skilled specialists
- Official partner of United Nations
- Third of European market is dismantled among small and medium companies which weakens the power of DHL Express
- Bureaucratic environment (danger of slower processes and potential loss of customers)
- Wide range of customers' portfolio (from individuals to big companies)
- Wide range of product portfolio (worse identification of targeted customer)
- Customers easily switch to competition
- No major differentiation among the major competitors (network, history, experience, customer portfolio, product portfolio)
SWOT analysis is process of minimizing or mitigating threats by turning them into opportunities, turning weaknesses into strengths, and matching of strengths with opportunities.
Economic crisis has brought slow down of economy, lower number of shipments and consequently lower revenue and profit to the organization. DHL Express is strong organization with strong brand and good financial situation that make it safe for the time-being. It is an opportunity for DHL Express to work on making the organization more transparent, less bureaucratic and restructure its organization. These initiatives would bring cost-cutting and help to financial health of the company for the future. It is also an opportunity to outsource or off shore some of IT services from suppliers and use their buying power in terms of competitive advantage.
There is a big threat of falling behind due to speed of technology development and high dependency on IT and network for DHL Express. It is not possible to avoid that threat but it is important for the company to minimize it. DHL Express uses broad portfolio of quality suppliers like HP and IBM that help to minimize the risk of falling behind. Thankfully, the dependency is two-sided. It is not only for DHL Express but also for the suppliers. It is important to deepen the cooperation and create stronger dependencies. This could be done through innovative projects held through Research & Development department.
As previously indicated the threat of new entrants is very high in CEP market, however, DHL Express mitigates this risk very well. It has built strong global network. It has experience, history, strong brand and very good image in the market. As a big company it has financial advantage and can offer more favorable prices and discounts to the customers. Sales & Marketing and Research & Development departments help to minimize that threat. Strategic programs that work on improvement, innovation, education and communication cross-divisionally, among employees and customers are the success factors.
The threat of substitute products is very high in logistics and it is important to fight with this threat and differentiate for the customer. Customer is interested in quality, reliability and speed; therefore it is important for DHL Express to work on specialization and provide customized solutions for customers. Good and recognizable brand brings image of quality and this is strengthen through Marketing & Sales activities - communication channels, advertisements, commercials and further initiatives.
Customers have strong bargaining position in logistics industry because all logistics companies provide similar portfolio of products. There are many competitors on domestic and international level that are not easily recognizable for customers and therefore it is relatively easy for them to switch to competition. Customers very often rely on image of the company and its historical experience which is a big advantage for DHL Express. Therefore the investment into Marketing & Sales is important and work on further development in