Diversification into logistics

Postal incumbents in Europe have encountered during the last decade fundamental changes in their industry environment, which now threaten their very business model: governments decided to liberalise first the parcel market, then gradually the letter market so as to introduce competition. Substitution by electronic means led at the same time to a decline in mail volume. As a consequence, incumbent operators are losing market share in a declining market, whereas new revenue streams would be needed. International and product diversification have become important strategic moves, which can be found among all players. This dissertation therefore examines these diversification strategies with the focus on diversification of postal incumbents into the logistics business. The methodology consists in the application of theoretical concepts to the research question and subsequent confrontation of the findings with expert interviews and the current economic reality. After a competitive analysis of postal incumbents and after a logistics industry analysis, the dissertation carries out strategic analyses for diversifying postal incumbents: it starts out with critical success factors and assesses the attractiveness of the logistics industry, the costs of entry and possible synergies for postal incumbents. The results show that the logistics industry is sufficiently attractive, that the costs of entry are sufficiently low and postal incumbents can profit from relatedness with their historic business to succeed in the business. Relatedness can be found when sharing infrastructure and technology (product relatedness), in network management skills (managerial relatedness) as well as in marketing and sales (customer relatedness). Information technology, network and supply chain management skills, customer and market know-how, area coverage and density, as well as brand/trust are specific critical success factors and therefore relevant for postal incumbents to successfully enter the logistics industry. Within the framework of a SWOT analysis, the following dimensions were tested whether they form strengths or weaknesses for postal incumbents in the logistics industry: products and services, infrastructure, organisation and structure, human resources, and financial performance. Most strengths are valuable resources, but not rare and also imitable or substitutable (resource-based view). Postal incumbents should focus on the quality of their products and services, customer confidence and loyalty, as well as on opportunities for economies of scale in order to outperform traditional logistics operators. As far as strategic groups are concerned, European postal incumbents can be grouped by how their logistics business is positioned and by the share of their logistics turnover compared with total turnover. Both mappings show that German DPWN is the only global player that also operates its logistics businesses completely independently from the core business. Another strategic group includes mainly Nordic postal incumbents that operate on a regional level through an independent logistics business unit, generating a substantial part of their turnover from logistics. Smaller, nationally operating incumbents often add logistics around their core services (mainly letters) whereby the turnover from logistics accounts for a smaller portion of total company turnover. As a result of the analyses, the following set of generic strategies for European postal incumbents aiming at a diversification into logistics can be formulated: "National Hero", "Selective Geographic Expansion", "European Network", "International Player", as well as "Lead Logistics Provider". Logistics business is indeed a promising area of diversification for postal incumbents: the logistics industry is however highly competitive, with very low margins and has not revealed lucrative niches, which could be quickly covered by postal incumbents. Although the market is growing steadily, there are not that many innovation or significant dynamics that would trigger convergence or create new business opportunities for new entrants.

Co-opetition: strategy and performance of firms in standard setting organizations

Farah Abdallah

Co-opetition is a new field of business and of thinking. It occurs when companies collaborate joining their efforts for creating new value, while maintaining their rivalries, aspiring to outperform the other firms in the network. This new perspective advocates companies to create new business strategies and develop new capabilities that deal with the paradoxical behaviors of collaboration and competition simultaneously. The purpose of this dissertation is to investigate the motivation of competing companies to pursue a co-opetitive strategy. A theoretical framework, based on an exploratory case study of the International Postal System (IPS), standard application software to manage the international mail in the postal industry, is developed examining the different co-opetitive strategies for firms in a Standards Setting Organization. It determines the factors, at an industry and firm levels, which affect the firm's choice of a certain level of co-opetition and discusses the possible outcomes for firms engaged in such a behavior. Moreover, the study proposes a model examining the impact of co-opetition on a firm's performance, and identifying three sources enabling the firm to manage co-opetition, i.e., network resources, absorptive capacity and relational governance. The model, by defining the notion of co-opetitive performance based on value creation and appropriation, advances current research on co-opetition. The model also draws on multiple perspectives, such as the Resource-based and the Relational Views, to delineate mechanisms through which each of the examined sources affects common and private benefits, and in turn, the firm's performance. Data was collected by conducting a survey among postal operators, users of the IPS standards. To test the hypothesis, several statistical techniques were used, including multiple linear regressions and structural equation modeling (PLS). The findings are original in that they show that firms pursuing a co-opetitive strategy achieve superior performance as compared to the ones pursuing collaborative or competitive behaviors in isolation. This study also concludes that the collaborative and competitive performances among the firms in a co-opetitive network vary and highlights the need for a firm to develop the appropriate set of resources balancing between these two paradoxical performances. This dissertation makes a unique contribution to the literature of strategy in the area of co-opetition. It advances our understanding about the strategies and mechanisms that firms develop when co-opeting with rivals. It also provides empirical evidence that firms co-opeting with rivals achieve superior performance to firms collaborating or competing separately. The findings have also important practical implications for managers, by providing them with tools to devise the appropriate co-opetitive strategy of the firm and to develop mechanisms to outperform their rivals in the network.

EPFL2011

Socio-Economic Assessment of Fusion Energy Research, Development, Demonstration and Deployment Programme

Denis Bednyagin

Providing safe, clean and affordable energy supply is essential for meeting the basic needs of human society and for supporting economic growth. From the historical perspective, the constantly growing energy use was one of the main factors, which drove the industrialised countries to the current level of prosperity. Meanwhile, in recent decades, the issue of global energy security became a topic of increasing concern in the international policy agenda. On the one hand, the world is facing the problem of exhaustion of most convenient and cheep fuel reserves. The situation is becoming worse, because of the constantly growing demand in developing countries, and the oligopolistic behaviour of major energy exporting countries. On the other hand, the society is becoming more and more sensitive to the environmental pollution problems, caused by the excessive consumption of fossil fuels. In the face of energy security challenge, national governments ought to implement adequate strategies aimed at liberalisation of energy markets, diversification of energy supply mix, enhancement of energy efficiency, encouragement of investments in energy infrastructures, and promotion of innovation in energy sector. In a longer term perspective, the latter point becomes increasingly important, because the world is relying currently on the consumption of non-renewable fossil fuels, and the development of new safe, clean and resource unconstraint energy technologies is vitally needed. In line with this strategy, the major world economies pursue the joint R&D programme on thermonuclear Fusion technology, which represents numerous advantages due to its inherent safety, avoidance of CO2 emissions, relatively small environmental impact, abundance and world-wide uniform distribution of fuel resources. Considering the importance of the projected environmental and economic benefits of Fusion, the questions are raised whether the current level of financial support is sufficient, and what could be the optimal strategy to proceed with the demonstration of Fusion technology, given the time span and potential risks of Fusion RDDD programme. To put these questions into the context, one has to consider the current trends in energy R&D funding, which has seen a drastic decline ( ~50%) over the last three decades. The liberalisation of energy sector poses additional problem due to the fact that free markets partially failure to provide public goods, such as basic science and R&D, because of the so-called spillover effects meaning that the firms are not able to appropriate the integral results of their R&D investments. Regarding the thermonuclear Fusion technology, the decision makers responsible for national energy policies and allocation of public R&D funds may face the following specific questions: What is the expected net socio-economic payoff (social rate of return) of Fusion R&D programme, including both internal and external costs and benefits? What are the reasonable economic arguments that could justify the increase in public funding of the ongoing and future Fusion R&D activities and would stimulate greater involvement of the private sector? What additional value can be obtained through undertaking a more ambitious Fusion R&D programme (accelerated development path), which requires bigger number of experimental facilities, increased funding, and more intense overall efforts of international scientific and industrial community? In order to provide sound arguments for policymakers seeking to optimise public R&D funding, a robust socio-economic evaluation of the whole Fusion research, development, demonstration and deployment (RDDD) programme is needed. At the present stage, prospective analyses of Fusion technology have been emphasised mainly on the investigation of technological issues, estimation of the direct costs of Fusion power and analysis of its potential role in future energy systems. Meanwhile, methodological tools and practical studies aiming at a more comprehensive socio-economic assessment of global long-term energy R&D programmes, such as Fusion, are still incomplete. The primary difficulty concerns the evaluation of positive externalities that may reveal through different types of spillover effects, including but not limited to knowledge, network and market spillovers. While the presence of these effects has been identified in the economic theory and confirmed by empirical studies, their quantitative analysis in the specific case of large scale energy R&D programmes represents some methodological lacuna and deserves further investigation. Another problem relates to the methodology of cost-benefit analysis, which oftentimes ignores the hidden value of R&D projects arising due to the possible flexibility in managerial decisions. In fact, throughout the course of any R&D project, its prospective cash-flows can be significantly improved by pro-active management of different implementation stages, e.g. expanding the production, if market conditions are favourable, or abandoning, if R&D process appears to be unproductive. As a result, the strategic value of any R&D project normally exceeds its net present value (NPV) calculated with the traditional discounted cash flow (DCF) method. Although this strategic approach to capital budgeting, known as Real Options, has been propagated recently in several publications dealing with appraisal of lumpy irreversible investments, its practical application in the context of Fusion RDDD programme has not been mastered yet to the required extent. A particular challenge consists in the need for adequate treatment of different types of uncertainty in the model structure, parameters and input data. Accordingly, the main objective of this thesis consists in complementing the existing studies with an in-depth analysis of the positive externalities (spillover benefits) of Fusion RDDD programme and calculation of its strategic real options value subject to different managerial strategies throughout demonstration and deployment stages. Net social present value of Fusion RDDD programme and potential impact of Fusion R&D activities on the economic performance of the involved private companies are estimated using an integrated modelling framework, which includes the following components: (1) assessment of technological potential for deployment of Fusion power plants based on the simulation of multi-regional long term electricity supply scenarios with PLANELEC model; (2) economic evaluation of Fusion RDDD programme and analysis of different implementation strategies using Real Options model; (3) estimation of the economic value of spillover benefits from participation in Fusion R&D projects at the microeconomic level with the help of financial evaluation model; (4) strategic evaluation of Fusion RDDD programme, taking into account both spillover benefits and real options value, and policy recommendations.

EPFL2010

Co-opetition: strategy and performance of firms in standard setting organizations

Farah Abdallah

EPFL2011

Socio-Economic Assessment of Fusion Energy Research, Development, Demonstration and Deployment Programme

Denis Bednyagin

EPFL2010