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Assess the value of strategic value in helping P&O to formulater its strategy for the future?

P &O is a large established company operating across channel ferry services for passengers and freight. In addition, it owns and operates a number of pods. In the first half of 2004, passenger ferries lost P&O £25m. In contrast freight crossings, which transport lorries carrying goods between UK and the rest of Europe, earned £74m in profit in the same period. In the late 2004, P&O announced plans to reduce its passenger ferry workforce by 1200 employees. The move was designed to reduce capacity and cut costs in its cross channel passenger ferry services. The job cuts are part of a larger strategic review of operations that P&O has been conducting since the start of 2004. This was not the first time P&O had reduced the size of its operations. It has spent the past decade slimming down. In the past, it has been criticised for being over-large ............ with a vast range of interests in property, entertainment, holiday resorts, in addition to its ferry services and ports. It has gradually shed its diverse interests and concentrated on its core activities of ferry services and ports. The city was pleased with the proposed job cuts. P&O’s share price climbed 5% following the announcements of cuts. Some analysts suggested it was only a matter of time before P&O rid itself completely of the passenger ferries and focused on the thriving ports and freight parts of the operation. However, union leaders criticised the proposed job losses and the lack of consultation, warning P&O bosses that they faced industrial action if they went through with the proposed cuts. Bob Crow, the Rail Maritime and Transport Union (RMT) General Secretary, said: “our members are devastated by the cuts. We urged the company to consult with us properly, but instead they kept, us guessing for weeks. We found out about the job cuts through the media after the decision had been taken. We are happy to talk about ways we can improve efficiency, but we will not tolerate any compulsory redundancies.” Another union lender claimed that P&O’s management was acting “like rabbits facing the headlights” in response to the passenger ferries losses. “they should seek imaginative and bold strategies for the future, rather than opting to cut costs in this knee jerk way”, he said. A number of factors have made it increasingly difficult for P&O to run its passenger ferries profitably. In recent year, it has experienced a decline in day trips, where passengers bought cheaper beer, wines, tobacco products and gifts on board or during a short stay in France. This decline has occurred for a number of reasons: •The opening of the Channel Tunnel in 1994; •The abolition of tax free sales of alcohol and tobacco products on board ferries in 1999; •The French government’s decision to raise tax on cigarettes by 50%; •Increasing sales of cheep beer and wine in UK super markets. At the same time the growth of low cost airlines opened up more exotic destinations for UK travellers. In addition, P&O claims it does not receive the same kind of help as some of its competitors. Two of the main rivals, Sea France and Brittany Ferries, are basically owned by the French government and, consequently, are under little pressure to deliver profits for shareholders. Also, Eurotunnel, which operates services through the Channel Tunnel, continues to run at a loss with little, chance of generating a return for investors. So it is no surprise that P&O has been under intense pressure to slash prices of its crossing in order to stay profitable. “We are not asking for subsidies from the UK government, but we do not have a pretty uneven playing field”, said Mr Woods, P&O’s chief executive. Bill Moses, a former boss of Hoverspeed, one of P&’Os competitors, argues that the ferry companies have been reluctant to reduce their capacity as the overall market has shrunk and changed in nature. Total ferry passenger numbers from the UK to France are set to halve between 2000 and 2010. “The industry needs to match capacity to demand – something its never been good at , he said. “In the past, in a growing market, its not been an issue. In truth, P&O is a fat cat and needs to tailor its service more to customer needs and customer volumes”, he added. It isn’t all gloom at P&O. Ports and freight services have been consistently profitable. The company expects freight services to contribute 51% of total revenue for 2004, and the freight market as a whole to expand by 6% a year. This growth in freight is partly due to the fact that the volume of freight traffic increases as the economy grows stronger and is also likely to be boosted by the expansion of the European Union. More than half of total imports into eastern European countries are from established EU countries, so freight traffic between established EU countries and the new entrants could expand considerably. P&O is attempting to ....... freight business from Latvia, Hungary, and the Czech Repu

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