What Will She Do?

The historic appointment of the first female Postmaster General in U.S. history comes at a crucial time. She has said that “the Postal Service should continue to evolve and operate more like a private sector business.” What does that mean? We’ll find out as Meagan Brennan begins to take over leadership of the organization, but I wouldn’t expect major surprises anytime soon.

Bleeding Postal Blue

Like her predecessor, the next Postmaster General comes from a postal family and has spent her entire career in the Postal Service, primarily in operations.  This has a special and significant meaning (see “The Heart, Soul and Guts of the Postal Service”, June 30, 2014). Perhaps I can describe the postal operating culture with a personal anecdote.

dp1When I first became a postal executive, I left headquarters and went to the field. I was greeted by my new boss, who told me we worked half days. That startled me. His explanation startled me even more. He reminded me that the Postal Service was a 24 hour a day, seven day a week operation, and told me to do the math. He was serious, and he was right.

The Postal Service drives its people hard, and it takes a special talent, determination, and willingness to sacrifice to rise to the highest ranks. Whatever else she may do, she is likely to be extremely loyal to the organization, its ideals and mission. To some, such as Senator Carper, this may not be the best resume, but the Postal Service has done well under the direction of dedicated career professionals who know the business,its employees and its customers.

What Dedicated Career Postal Professionals Mean When They Talk About Operating More Like the Private Sector

Postal operations is the strongest “caste” within the postal culture. The first thing that postal operators mean when they talk about becoming more like the private sector is providing excellent service.

dp2Megan Brennan has presided over the implementation of ever improving and more detailed performance measurement systems. This information is made public and discussed with mailers. Few other agencies or private sector organizations are as transparent. Service performance results are highly visible – and over the last several years have been remarkable, even as mail volume declined and the postal operating infrastructure has been reduced.

The second thing postal operators mean when they talk about becoming more like the private sector is efficiency.

Megan Brennan’s organization has fought this battle reasonably well. Productivity, as measured by “Total Factor Productivity” (a sophisticated measure similar to that used by the Department of Labor) has increased for the past three years and last year reached record levels. Finance is perhaps the second strongest “caste” within the culture, at least during times of tight budgets (and when have postal budgets not been tight?), and in recent years has provided excellent support to operations.

The third thing is that postal operators have also come to realize that the Postal Service exists in a very competitive environment, and have been very responsive to efforts to generate new revenue.

They are well aware of both direct competitors in the package market and indirect substitutes for mailed letters. Postal executives know, however, that the pricing and product development flexibility of the private sector is largely beyond their grasp, at least at the moment. Marketing is not a strong subculture within the Postal Service, but this is not unusual even in private sector organizations. This is not a hit on the many dedicated marketers and customer service employees of the Postal Service. It is just that they are bound by regulations, laws, and other constraints not faced by most other private sector organizations. There is very little support from stakeholders for postal efforts to be disruptive in the marketplace.

No Appetite for Privatization

Postal executives have never had much of an appetite for privatization. While it is true that some of the innovative programs developed in the past, such as work sharing discounts to mailers (the “Quite Liberalization” as one study described it), contracting out on a large scale, or “coopetition” with UPS and FedEx in the package market may have had a similar effect (transfer of postal activities to the private sector). The Postal Service has also attempted to find new ways to offer retail services to customers in areas where traditional post offices were unsustainable.

dp3The experience of other nations suggests that privatization requires strong support from senior postal management and carefully designed processes to move towards privatization, with the support of major stakeholders.  Neither exist in any real degree in the U.S. Postal privatization remains mostly a poorly developed concept based on the theory that somehow private sector incentives will drive more effective behavior. Given that the U.S. Postmaster General is paid chump change compared to many counterparts at foreign posts or to private sector organizations of comparable size, the U.S. has received excellent value from recent postal leadership. Remember also that postage in the U.S. remains among the lowest in the developed world.

More of the Same is Not Bad When the Results are Good

This is my prediction for the next few years under Meagan Brennan: continued service improvements and operating efficiencies; tough labor agreements; some improvements in customer service and employee relations (despite tough bargaining agreements); and a continued willingness to work with the industry and with stakeholders to improve the Postal Service and the mailing industry. We will also see continuing efforts to “push the envelope” to create new revenue opportunities, especially in the package market.

dp4The Postal Service developed a very detailed strategic plan that appears to be working, within the limits of what the organization can control. Senior postal leadership has been using very detailed and extensive process management tools to ensure timely, well-coordinated implementation of the elements of that strategic plan. The new Postmaster General is unlikely to make immediate or major changes to this plan.

Before condemning “more of the same”, consider the most recent monthly financial report. In October domestic mail volume was up nearly 7% over the same month last year, rather than the 2% decrease USPS was expecting. “Controllable operating income” was &647 million, more than double what was budgeted or what it earned during the same month last year. Despite the higher volumes, work hours increased by less than 2% and total expenses by less than 3%.

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By Kent Smith

Kent Smith is Research Director, Ursa Major Associates / Postal Vision 2020. His 38 year career in the Postal Service included Rate Classification Research, Market Research, and Strategic Planning. Ursa Major Associates / Postal Vision 2020 is dedicated to taking a broader, longer-term perspective on the future of the mailing industry ecosystem. The thoughts expressed in this “Point of View” are his own.

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5 Replies

  1. Kent Smith

    Lee,

    I think the new, rich data available to the Postal Service and major mailers could spark a different kind of approach. Rather than a meat cleaver (all Saturday deliveries), the Postal Service can be more surgical. Some routes could be profitable almost every day. Others may be profitable during peak seasons or on key occasions. Others may be served well enough with five day delivery. Alternatively, the USPS could take a fee-based approach, with surcharges for certain delivery densities and demand (similar to what UPS and FedEx do now).

  2. John Callan

    I agree on the three things you suggest the new PMG will do “to act more like a private sector business”, Kent, and would add one more, perhaps to the top of the list and that is “cut substantial costs” any way that she can.

    You imply this in action # 2, but it needs to be said that a private sector company in the dire financial straits of USPS, without specific government entity legal restrictions and a paralyzing politicized authority in Congress, would slash jobs and sell off assets to preserve cash.

    As USPS Chief Operating Officer, Megan Brennan, has been cutting substantial costs wherever permitted, while preserving jobs and this has been primarily through plant closings .In fact, in the “network rationalization” initiative begun in 2012, Ms Brennan has directed the successful closing, or “consolidation” of 141 mail processing facilities.

    “In 2012 and 2013, the Postal Service consolidated 141 mail processing facilities. This rationalization was highly successful, resulted in negligible service impact, generating annualized cost savings of $865 million and required no employee layoffs. The Postal Service expects the completion of this phase of network rationalization will generate an additional $750 million in annual savings.”

    (See “Letter to Customers” )

    And, even before she takes on her new role as PMG in February, 2015, she will commence the direction of closing an additional 82 plants in January as announced in June 2014,

    Unless!!!! – As the new PMG, she is persuaded by Congress to delay this next phase.

    (See )

    Which gets to the the primary answer to your headline question, “What Will She Do?”

    And unfortunately, it is not what any private sector business would do, because they thankfully don’t have to. It is to deal with Congress!

    As the new PMG, with a largely new Congress, Megan Brennan has the opportunity to begin new discussions with her new “bosses”. Her influence and skills at persuasion on The Hill have yet to be tested. So, it is difficult to know “what she will do”.

    But I’m sure we all wish her good luck!

  3. Lee Giezentanner

    Very nice, thorough article. I was hoping Mr. Smith might look at the tea leaves regarding the possible elimination of Saturday delivery. Any thoughts on this subject? -Lee G.

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