Adam Hartung in 
Forbes magazine has an article that reaches the nub of the problem with the Postal Service and why the Postal Accountability and Enhancement Act (PAEA) failed. Basically, PAEA did not give the Postal Service the tools to make the shift in its business strategy as the market for mail shifted.
The Post Office didn’t really do anything wrong. The market shifted. The Post Office value proposition simply isn’t as valuable as it once was.
So how does an enterprise deal with market shifts? It transforms itself or it dies. Two Rochester, NY based companies illustrate the alternative paths. Xerox, the creator of the office copier, realized that competition for printing and the growth of smaller ink-jet and laser printers significantly diminished its profits and with the purchase of ACS is transforming its business into a print and e-document service business. Kodak on the other hand stuck to its roots in photography and other forms of imaging and never found a transformation path that worked and today is selling off its patents, trying to find a way to survive.
Two paragraphs later, Forbes puts the blame right where it belongs, Congress.
The Post Office saw this coming. Over a decade ago the Post Office tried to enter new businesses in record retention (medical, income, taxation), automated bill payment, social security check administration and a raft of other opportunities that would provide government delivery and storage services to various agencies and to under-served users such as low-income and the elderly. But its mandate did not include these services, and expansion into new markets required a change in charter which was not approved by Congress. Thus, USPS was stuck doing what it has always done, as market shift pushed it increasingly into irrelevancy.
Source: United States Postal Service
So instead of giving the Postal Service the tools to transform itself, PAEA, through the introduction of the price cap, forced the Postal Service to focus on the only tool in its belt, a knife. While the knife cut labor costs significantly, it also cut capital spending, and research and development. Without a new business model that would have allowed the Postal Service to make transformative investments, programs exploring electronic mailboxes and other non-postal services were shut down. Even the pricing freedoms allowed the Postal Service focused attention on ways to cut costs in order to cut prices and did not allow it to really rationalize its rate structure to reflect market realities and the underlying costs of providing service.
The current financial crisis has forced the Postal Service to add another tool, a hatchet. The elimination of overnight First Class mail is the result. The bills in the House and Senate continue down this path and it could be argued that they add a machete that will allow the Postal Service to cut Saturday Delivery, door-to-door delivery, and a significant part of its retail network. All of these actions will reduce costs and in some cases improve efficiency. However as the Forbes article concludes, cutting to improve efficiency is unlikely to be a successful long-term strategy.
The U.S. Post Office is the poster child for what goes wrong when all a company does is focus on efficiency. More, better, faster, cheaper is NOT enough to compete. Being operationally efficient, even low-cost, is not enough to succeed in fast shifting markets where customers have ever-growing and changing needs. Leadership has to be able to recognize market shifts early, and invest in new growth opportunities allowing the company to remain viable in changing markets.
It is unclear if there is time to put the network restructuring on hold. The snowball has started to roll down the hill and will pick up speed over the next 90 days. By the end of March, nearly all of the evaluations of plant consolidations will be finished and, for that matter, many will be done before the end of the year. Even public comments and the Postal Regulatory Commission’s recommendations have little power to slow what now appears inevitable.
There is time to rethink legislation. Both the House and Senate need to start over and develop legislation that gives the Postal tools that do more than cut costs in order for the Postal Service to make the transformation that is needed. What all bills now propose focuses on cost cutting. Even proposals to modify retiree obligations fall in this category.
Most importantly all legislative proposals include modifications to the business model that are too modest to provide management with a full set of tools. None can ensure that the Postal Service will have the financial wherewithal to meet the nation’s needs for universal postal services beyond the next Congressional election.
What Congress needs now is leadership and it is not clear if that will come without help from stakeholders. Stakeholders and, in particular, the Postal Service’s unionized employees need to make a truly bold transformative proposal for the Postal Service. The proposal has to go beyond the comfort zone of unionized employees and their leadership. It must go beyond fixing the retiree obligation issue and include a real plan that:
- reduces both Congressional and regulatory oversight to what is absolutely necessary to ensure universal service,
- grants the Postal Service broad freedom to offer both electronic and physical non-postal services, and
- allows the Postal Service to raise the capital it will need to modernize the provision of traditional postal services to meet the needs of customers and provide the non-postal services that advertisers, transaction mailers, parcel shippers, and even Aunt Minnie need for decades to come.
However, even this is not enough. Legislation including these components require questioning the viability of the quasi-governmental business model that prevents Congress from including them in legislation. It is time for stakeholders to dream of a Postal Service that never was and ask “Why not?” Otherwise they face the prospect of continuing cuts and can only ask “Why?”
