71340 Assignment 3, Prepared by Ansell, Ruth Marie; Student ID 4201600

71340 Strategic Management

ASSIGNMENT 3

TRIMESTER 3, 2020 -2021

Prepared by Ansell, Ruth Marie; Student ID 4201600

Word Count (excluding references, in-text citations, headings & subheadings): 3,631

30 January, 2021
 71340 Assignment 3, Prepared by Ansell, Ruth Marie; Student ID 4201600

Table of Contents
1. Background...............................................................................................................................4
2. Environment & Industry Analysis.............................................................................................5
2.1. Macro Trends in Environment...............................................................................................5
2.2. Focused Issues.......................................................................................................................5
2.2.1. Competitors....................................................................................................................5
2.2.2. Suppliers.........................................................................................................................6
2.2.3. Buyers.............................................................................................................................6
2.2.4. New Entrants & Substitutes...........................................................................................6
3. Capability Analysis....................................................................................................................7
4. Strategic Options......................................................................................................................9
5. Complexities of Strategic Change within a Global Environment...............................................13
6. Leading Change..........................................................................................................................16
7. Conclusion..................................................................................................................................19
References.....................................................................................................................................20
 71340 Assignment 3, Prepared by Ansell, Ruth Marie; Student ID 4201600

1. Background

Mainfreight is a logistics company providing land, air & sea transport services, warehousing
and distribution. Bespoke solutions involving bulk, perishables, customs clearance, transitional
facility services, freight forwarding and consultation are also included amongst offered services.

The company was founded in Auckland in the late 1970s and would later go public in the
mid- to late 1990s (mainfreight.com., n.d.). Mainfreight prides itself in areas of focus which it
calls "The Three Pillars of Mainfreight", being Culture, Family and Philosophy (mainfreight.com.,
n.d.). These areas call for attention to people—the staff and managers who are the lifeblood of
the company and make it successful, camaraderie—people working together to achieve
something greater than themselves—a common vision and goal, long-term focus and
collaboration. Today, the company boasts 290 offices globally, employing 8,600 people in 26
countries across Europe, the Americas, Asia, Australia and New Zealand.

According to Mainfreight's 2020 financial report, the company turned a revenue of 3.1
billion in the latest financial year and made a profit of 156.1 million. In July 2020, an "upbeat"
AGM proceeded a record-high share price of $46.95 for the global logistics provider (NZ Herald,
2020).

The company's strategic direction continues to be through network intensification and

growth (Mainfreight Annual Report, 2020).

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2. Environment & Industry Analysis

2.1. Macro Trends in Environment

Political influences must be viewed alongside regulatory in a post-COVID world. Clearly, our
Labour-led government may continue to hold power, so long as COVID remains a global threat.
This means two things: 1. market confidence may sit flat in response to labour policies; 2. COVID
legislation will continue to affect trade operations.

The abovementioned themes also lead into social and environmental trends. There is
growing collective responsibility which is increasingly playing into demands. This means
businesses need to work towards carbon neutral operations and other forms of accountability,
such as health consideration in a pandemic-ravaged world.

Clearly, with COVID affecting the economy, consumption is being influenced multifacetedly.
On the one hand, the average consumer may be struggling, thereby demanding fewer general
goods. On the other hand, consumers may be purchasing higher volumes of goods out of fear.
Another contributing factor to consider is that of greater demand for online deliveries.

Finally, technological advances in the logistics space must not be overlooked. Increasingly,
automation and AI are being interwoven with logistics operations. One such example of this is
Ingram Micro's fully automated packaging system which is able to smart-pick 15,000 SKU's out
of 30,000 pallet places (Ingram Micro Services, 2020).

2.2. Focused Issues

2.2.1. Competitors

In terms of sales volumes, the biggest players in 2019 were UPS (74.8bil), Deutsche Post

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(70.9bil), FedEx (69.7bil) and HNA Technology (47.3bil) (Statista, 2020). This indicates
opportunity amongst air cargo and IT/Cloud computing logistics solutions.

2.2.2. Suppliers

Regarding suppliers, an obvious supply source for Mainfreight is truck suppliers. In 2019,
Daimler earned roughly 50 billion U.S. dollars from truck sales under its Mercedes-Benz, Fuso
and other brands (Mazareanu, E., 2020). It is more than likely that Daimler is a direct/indirect
supplier of Mainfreight, and one with clout which must be considered.

2.2.3. Buyers

In 2020, Mainfreight Group saw 4% - 6% revenue growth across its New Zealand, Australia
and Europe operations (EBITDA earnings go up to 27.1%), but lesser outcomes in the American
and Asian divisions due to pandemic and political factors (Mainfreight Annual Report, 2020).
Further study of regional performance may unveil cultural or market advantages.

2.2.4. New Entrants & Substitutes

In terms of threatening substitutes, the largest threat, may come in the form of transport
matching technologies, the likes of Uber Freight, MyTrucking, Convoy, etc. Mainfreight needs to
consider what adaptations they need to make in order to remain current.

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3. Capability Analysis

Mainfreight's attention to people is one of its strengths, emphasising profit-sharing and

internal promotion (Mainfreight Annual Report, 2020, pg. 10). Such emphasis builds up internal
knowledge and capabilities. This can be contrasted with the absence of similar narration from
UPS or FedEx. DHL does have many employment perks but, the perspective is not exactly the
same (www.dpdhl.com, 2021).

Another advantageous feature of Mainfreight is its in-house technology which allows the
company to share information with customers; the company also operates with the support of
the IoT (internet of things), suggesting interest in technological integration (Mainfreight Annual
Report, 2020, pg. 32, 33).

The biggest opportunity for the company is utilizing its existing network, improving
performance and sales. The company has big contracts in place, but growing its customer base
whilst increasing capacity through efficiency improvement may be ways to increase ROI against
competition.

This leads into one of Mainfreight's weaknesses, which--by their own admission--includes
lack of cross-functional buying from customers:

"Of our Top 500 customers, only 31% utilise all three divisions [transport,
warehousing, air & ocean carriage]... (Mainfreight Newsletter July 2019, pg. 2)."

This indicates there may be a lack in cross-sales ability.

The bespoke solutions Mainfreight offers to its customers may be another form of weakness
in the face of technological advances in the logistics space. Such large smart-operations like
Ingram Micro's facility in Sydney are an example of how leveraging scale & mass standardized
services in conjunction with technology can present highly efficient and modernized offerings.
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Mainfreight is dabbling in logistics tech, but will it be able to keep up? When an old company
evolves, its transition and discovery costs are often mammoth in proportion to newer players or
more nimble organizations.

And potential threats include such new tech-logistics rivals as Rappi, a Colombian-based on-
demand delivery service for multi-vertical products, estimated to be worth 1.47bil and
operating in 9 countries across South America; or KeepTruckin which has received 228mil in
funding and uses AI to manage its fleet (Tracxn, 2020). One strategy may be to monitor such
start-ups with consideration of acquisition.

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4. Strategic Options

The three business-level strategic options for Mainfreight could be retrenchment (in the US),
diversification or M&A's. Let's explore the reasoning behind each of these options.

Mainfreight entered the US in 2007 with the purchase of Target Logistics (mainfreight.com.,
n.d.). It now runs under two BU's in the US--Mainfreight & CaroTrans (Mainfreight Annual
Report, 2020, pg. 20). Over the last financial year, sales volume for Mainfreight in the US had
been declining, leaving the American division in uncertainty (Pelletier, N., 2020). Mainfreight is
doing handsomely in New Zealand, Australia and Europe. However, just because it is one of the
largest transport players in New Zealand, this does not mean the company has extensive market
knowledge, brand clout and experience in the US. Let's use the SAFe framework to see whether
retrenchment could be the answer (Johnson et al., 2014).

It has been 13 years since Mainfreight broke into the US market with an acquisition in 2007
and last year's financial report was only able to spin more hopeful narrative around the
combined USA results stating, "expectations are for significant growth". If we look at EBITDA as
a % of revenue for the US division, it is considerably lower than the other divisions.—4.6% for
the US compared with 6.7% for Europe, 6.8% for Australia, 7.4% for Asia and 12.2% for New
Zealand. In terms of suitability, this strategy certainly addresses the threat of the US division
becoming a sour point for investors.

Regarding acceptability and feasibility, the answer is maybe. With the right commentary, any
decision can be explained in a way that generally pacifies the shareholder. Sales of US divisions
would make the books look good in the short run and investors may thus be appeased.
Furthermore, with Mainfreight's M&A history & size, selling off the US business should not be
outside of the company skill-set. This could give the group, the energy to focus on its more
successful operations in Europe, Australia and New Zealand.

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However, having a strengthened network is key to Mainfreight's profitability and success as

the majority of its profits come from distribution, not warehousing (Mainfreight Annual Report,
2020, pg. 7). Maintaining its US foothold while working to improve profitability could be a
crucial part of Mainfreight's global logistics solutions offering.

(Mainfreight Annual Report, 2020, pg. 7)

Let's now examine the diversification option. This strategic move is one of Ansoff's growth
strategies, and it can certainly be applied to either the whole group or at the BU level (Ansoff, H.
I., 1957). This option denotes building up operations and capabilities in new areas or product
types in order to hedge current investments.

Could this strategy be suitable for such a global operation as Mainfreight? What
opportunities would this provide? If Mainfreight were to diversify, this could look like putting
money into FMCG wholesale, for example. Freight and storage would clearly be already well
positioned for such an endevour. Certainly, it would be a way of safeguarding the group

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business failures, but does that really make this a suitable option?

The group, on the whole has been performing well, though some divisions better than
others. As it stands, there is simply no need to safeguard against poor investment as this
hedging already exists through the multinational and multi-brand structure of the group. FMGC
wholesale could be an opportunity for Mainfreight, but it simply isn't a present, sensible need.

Around acceptability of this play, shareholders and staff may be delighted to hear of
business growth and job opportunities. However, feasibility is another question. Financially, the
group is positioned to invest in such expansion with proper preparations, and yet the skills and
experience for this type of operation do not directly exist within the business. Talent could be
sought to fill this gap, but this would not change the experience & background of those in the C-
suite. Following review, this option doesn't look very suitable after all.

Lastly, the strategic option of M&A deserves our attention. One of the key issues at hand
relates to threat of emerging technology in the logistics space. Logistics companies commanding
and/or dominating the use of advanced robotics, AI, distribution management software and
freight sales or matching platforms, may quickly reduce the relevance of companies which fail to
adapt. M&A, being able to solve this issue through the purchase of logistics tech start-ups,
appears to be a suitable option in this regard.

Is M&A acceptable and feasible? Given Mainfreight's history of growth through acquisitions,
it is certainly a move the group is experienced in. This will be par for the course in the eyes of
shareholder and workers alike. Customers who benefit will also be pleased. For the above
reasons, it is safe to say stakeholders will find this to be an acceptable plan.

Regarding feasibility, both the experience and size of the group afford it the means to
purchase a start-up logistics company bringing new value to the segment. Mainfreight already
prides itself with a decent technology background, given its in-house systems and IoT
programme (Mainfreight Annual Report, 2020, pg. 32, 33).

Following the exploration of these three strategic options--two of which were selected to

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demonstrate the SAFe test and yet were either less suitable or unsuitable--we have seen that:

1. Retrenchment is not likely to be a valid option for the company as whilst it is semi-
acceptable and feasible, it appeared to be suitable at first, but upon closer inspection,
presented with the potential to be counterproductive to Mainfreight's vision, profitability and
positioning.

2. Diversification would be an acceptable option but generally unsuitable and not likely
feasible without considerable effort outside of group expertise base.

3. M&A seems to be a recommendable option. With Mainfreight's history of growth being

based upon this strategy, it appears this would be acceptable and feasible. Importantly, as
logistics technology is a competitive-edge trump card, this could be the suitable and winning
move that will not only keep Mainfreight relevant and profitable, but also give it a chance to
level-up to some of the dominant leaders like UPS and DHL.

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5. Complexities of Strategic Change within a Global Environment

If we go back to the basics of global operations, some of the first issues which add to the
complexity of international business include geographical, cultural, political, economic and
administrative differences (Morris, S., 2014). Mainfreight is already a multi-national corporation,
but its established nature does not remove such complexities. Deciding to purchase companies
which have pioneered technological advances in the logistics space brings up all the same initial
questions.

Mainfreight will need to decide which country or countries to invest in, following which it
will need to decide which businesses are positioned to be suitable targets for this plan. Next,
consideration will need to be given to what kind of structure or integration will bring this new
company into the fold and how to manage reporting, integration of the new business with the
group and cultural unity & effectiveness.

The side of Mainfreight's business which is floundering somewhat is the US division and the
Americas are also where much of the new logistics tech start-ups have been cropping up. The
US, being an English-speaking nation, home to a culture which leads many of the cultural trends
throughout the Western world, is a prime consideration.

Let's entertain that in 2023, the option has arisen and Mainfreight has selected to purchase
KeepTruckin for $497 million. The AI fleet management system can be used globally, allowing
Mainfreight to make 150 redundancies, resulting in a $12.5 million annual saving on fleet
management labour. Besides this, the purchase brings in a fleet and existing distribution
contracts generating another $10 million per year in revenue at 25% margin. Additional
efficiency savings are estimated to be at $10 - $20 million.

How should Mainfreight best integrate KeepTruckin into its business? In terms of structure,
Mainfreight already operates a unique model which is separated into geographical divisions and

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yet allows for some independent operation as with the case of its CaroTrans brand (Mainfreight
Annual Report, 2020). Technology-driven start-ups tend to run on a lean model at a face pace,
uninhibited by bureaucracy. Being that Mainfreight is a public company with a history, although
it prides itself in having a flat structure, the group's operations are not likely to be as uninhibited
as the young KeepTruckin (Mainfreight Annual Report, 2020, pg. 57). Therefore, it is
recommended to allow one-way cross-pollination, with AI fleet management technologies being
shared throughout the group, but the KeepTruckin business and brand to continue with
separate operations for the first 2 years, while its best practices and efficiencies knowledge can
be brought over and utilized as suitable both in the US and throughout the group.

In terms of management, Mainfreight runs well on a culture-based system as is evidenced

throughout the narrative touting its culture of people-focus and commitment to excellence
throughout the latest annual report (Mainfreight Annual Report, 2020). To line up KeepTruckin
with the Mainfreight family, KeepTruckin staff may be "socialised in" by issuing new uniforms of
dual branding, hosting c suite-led road shows, sending out more frequent newsletters via mass
emails and further corporate storytelling to infuse its newly acquired people with the vision and
values of Mainfreight.

The challenge in all this, is--of course--that Mainfreight would be a New Zealand based
company, taking over an American start-up, seeking to culturally integrate it but keep it
operationally separate, and transfer its knowledge and software to the rest of its divisions
globally. With any acquisition usually comes strong resistance of staff at all levels and the
likelihood of losing key management at KeepTruckin would then become high and could result
in the company's value and unique operations falling apart or in the least, floundering for a
number of years, similar to Mainfreight's other US acquisitions.

Again, the key to pulling this semi-integration off successfully will require a unique vision to
be painted for all divisions and holdings. The message could include lavish praise of
KeepTruckin's value. It could celebrate the group's exciting new pathway along the road of being
a logistics technology leader which utilizes cutting edge technology and a strong global network
to bring up the global "team" into a space where it is a market-leading provider.

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This vision must be communicated and motivations set-up to generate buy-in. The group
managing director could produce a series of video messages and a celebration of living-into the
values program could be set up with a reward structure and annual prize-giving dinner hosted in
different countries each year, with international winners being flown in for the event. Finally,
the top leaders should demonstrate commitment to the new changes by continually narrating
the story as it progresses throughout their comms to their respective people.

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6. Leading Change

Throughout the implementation of the recommended strategic move to acquire

KeepTruckin, change management will be vital as people throughout the organisation and
within the acquired one, grapple with the normal, expected uncertainty and resistance that can
be felt through any company change. The first key will be for management at all levels--top,
middle and first line--to exercise influence, visionary leadership, additional communication,
encouragement and goal-setting to inspire and motivate people into the new realities of their
work lives at the organisation (Johnson et al., 2014).

Besides communication and influence, as previously mentioned, suitable structure and

system must be set up for the new changes taking place. This is why a semi-holding structure is
recommended for the first few years, to allow the newly acquired company to continue to
remain profitable, unshaken, with personnel and management of the business remaining to
slowly become socialised into Mainfreight culture, rather than all staff immediately jumping
ship, leaving a shell of office space, bank accounts and process reference manuals. This can
often happen with acquisitions when the parent company is too hasty with integration before
taking the time to understand the value contained within the nuts and bolts of the purchased
business.

The main key with the purchase of KeepTruckin would be to extract the modern
technological and operational advancements without letting the staff from either the newly
acquired company nor other Mainfreight divisions feel that this is what is taking place. Without
a powerful and inspiring rhetoric to fire up the people, there is the potential for massive
disgruntlement, the perception that hollow shark-like business behaviour has taken place, and
that all staff are simply numbers on a chopping block. Regardless of whether or not this is the
actual case, effective business will require such truths to not be perceived so. It is the powerful
vision of a great and value-driven conglomerate that can raise morale and push staff to

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exceptional performance.

Humans require a shared narrative--true or false--to work together collaboratively and

achieve something greater than we could on our own (Harari, Y. N., 2019). Skilled leadership
must band together its people based on such a lofty common prospect, principles and passion.
Incentives and celebrations must target such desired values to show the people of the
organisation what is truly held dear by the enterprise.

To start with, the managing director may wish to release a series of comms around the
future of Mainfreight as a lean, technology-driven company, yet with people at its heart. To this
end, the highlighting of a profit-sharing programme may be circulated promising to share
dividends with or issue shares to employees, based on the profitability gained out of the new
endeavor with KeepTruckin.

In terms of the redundancies to be made following the acquisition, this will be a difficult
time, but due process, accompanied by a message of compassion, following a firm stance to do
what is right and necessary to bring Mainfreight into the future, will be an effective way to lead
through this unsettling change.

There are several types of strategic and organisational changes. In this case, due to the
importation of AI fleet management, though KeepTruckin may be left to run as a separate
company for a time, due to the other changes across Mainfreight internationally, we would
consider this to be an "Organisation-Wide Change" (WalkMe Team, February 17, 2020).

The change-leadership required for this move should be persuasive in order to build the
wide "base of understanding" required by all organisation members as redundancies and
system transformations roll out. Besides this, the leadership should also be transformational--
captivating, invigorating, unique & invoking commitment--in order to inspire staff around the
bold plan for Mainfreight's future (Johnson et al., 2014, p. 468; Clegg et al., 2011, p. 223).

Furthermore, a measure of situational change-leadership will be required through the

individual steps and phases of the business changes and at varying levels of management. For

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example, first-line management and middle management may be involved in redundancies.

Employees should receive due process for this internal business action and both persuasion and
participation styles of leadership will be required of managers through the consultation and
employment outcome announcement phases (Johnson et al., 2014, p. 468). While this may
require considerable effort, this process is simply an expected aspect of carrying a legitimate
business through a restructure process, as such, the work and energy behind it must be input
nonetheless. Suiting management's approach to the task will only make the endevour more
effective.

In terms of overhauling the company system in order to incorporate AI fleet management

world-wide, a collaboration-style leadership could be useful, in order to ensure new measures
proposed are working effectively and make sense for the people on the ground, the truck
drivers, despatch, loaders & unloaders, etc. Clearly, the AI system and its use to optimise
trucking routes, minimise downtimes, etc. will present a form inadvertent authority over
organisation members, allowing some remaining aspects of assembly to be under the
ownership of individuals, creating feelings of empowerment and autonomy.

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7. Conclusion

In summary, Mainfreight is a successful multinational corporation born out of New Zealand,

currently with growing global operations that have touched the shores of four continents. It is
facing the same immense political and economic challenges put to many businesses in the wake
of COVID-19's havoc wreaked globally. In keeping with modern culture, the business equally not
immune to social responsibility pressures. As a logistics operator, the demands of climate
impact will be a continual pressing issue to balance with pursuit of profit.

However, the biggest matter facing the company is how it--as a large and comparatively
cumbersome corporation--can remain in step with technology advances into our revolutionary
automation-integrated future. Our suggestion is to acquire logistics tech start-ups after the first
few years of their running, once they have proven to be onto something profitable, but before
they have become exorbitantly expensive and to then shift the developed tech and lean
operation insights into the Mainfreight business.

This test will not be easy for the organisation, but it will have past experience to draw upon
and with the right change-leadership to bring it through such a transformation, the group is
poised to ride the next wave of modernisation and innovation in the logistics space to the point
of potentially standing alongside mega-logistics-giants like UPS, DHL & FedEx.

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References

Ansoff, H. I, Strategies for Diversification, Harvard Business Review, Issue 10, 1957

Clegg, S., Carter, C., Kornberger, M., & Schweitzer, J. (2011). Strategy theory and practice.
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Harari, Y. N. (2019). Sapiens: A brief history of humankind. London: Vintage.

Ingram Micro Services. (2020, September 15). Sydney, Australia: Locations of Ingram Micro
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Johnson, G., Whittington, R., Scholes, K., Angwin, D., & Regner, P. (2014). Exploring strategy
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mainfreight.com., n.d.

Mainfreight Annual Report, 2020

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Morris, S. (Producer). (2014, March 4). International strategy [Video]. Retrieved from
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NZ Herald. (2020, September 21). Mainfreight shares hit record after upbeat AGM. Retrieved
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Pelletier, N. (2020, May 26). Mainfreight posts $148m profit but future is uncertain.
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https://www.rnz.co.nz/news/business/417644/mainfreight-posts-148m-profit-but-
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Statista, E. (2020, July 06). Shipping companies: Ranking based on sales. Retrieved January
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Tracxn. (2020, February 20). Top Emerging Logistics Tech Startups - 2020. Retrieved January
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