What's wrong at the U.S. Postal Service - Market Shift
There are few organizations as efficient as the U.S. Postal Service. Really. But it is still going out of business.
Think about the Post Office's value proposition. They send someone to almost every single home and business in the entire United States 6 days/week on the hope that there will be a demand for their service - sold at a starting price of 44 cents! For that mere $.44 they will deliver your hand crafted, signed message anywhere else in the entire United States! And, if you want it delivered fairly close they will actually deliver your physical document the very next day! All for 44 cents! And, if you are a large volume customer rates can be even cheaper.
And the Post Office has been a remarkably operationally innovative organizations. Literally billions of items are processed every week (about 700million/day;) picked up, sorted and distributed across one of the physically largest countries in the world. The distance from Anchorage to Miami (let's ignore Hawaii for now) is a staggering 5,100 miles, which works out to a miniscule .009 cent/mile for a first class letter! Compare that to the Pony Express cost (in 1860 $10/oz and 10 days Missouri to California,) and adjusted for inflation you'll be hard pressed to find any business that has continually improved its service, at ever lower (constantly declining when adjusted for inflation) prices.
And while AMR is filing bankruptcy largely to force a new union contract, the Post Office has accomplished its record improvements wtih an almost entirely union workforce.
Executive compensation is surprisingly low. The CEO makes about $800,000/year. Competitor CEOs make much more. At Fedex (the Post Office delivers more items every day that Fedex does in a whole year) the CEO made over $7,400,000, and at UPS (the Post Office delivers more items each week than UPS does annually) the CEO made $9,500,000. So, despite this remarkable effectiveness, the CEO makes only about 1/10th CEOs of much smaller organizations.
The Post Office understands what it must do, and does it extremely efficiently. It knows its "hedgehog concept" and relentlessly pursues it to unparalleled performance. Yet, it is barred from raising prices, is losing money, and is now planning to close 3,700 locations and dramatically curtail services - such as overnight and Saturday delivery in a radical cost reduction effort.
Simply put, the U.S. Postal Service is becoming irrelevant. In the 1980s faxing was the first attack on the mail, but the big market shift began 15 years ago with the advent of email. Now with mobile devices, texting and social media the shift away from physical letters is accelerating. Fewer people write letters, send bills or even pay bills via physical mail. Are you mailing any physical holiday cards this year? How many?
Even the veritable "junk mail" is far less viable these days. Coupons are used less and less - and to the extent they are used they have to be much more immediate and compelling - such as offerings from GroupOn and FourSquare et.al. which arrive at consumers by email and social media usually through a smartphone or tablet mobile device.
The Post Office didn't really do anything wrong. The market shifted. The Post Office value proposition simply isn't as valuable. We don't really care if the mail delivery comes daily, in fact many people forget to check their mailbox for several consecutive day. We don't much care that a physical letter can transit the continent overnight, because we usually want to communicate immediately. And we don't need a physical legacy for 99.99% of our communications.
The Post Office is really good at what it does, we just don't need it. Not any more than we need a good horse shoe or small offset printing press.
The Post Office saw this coming. Over a decade ago the Post Office asked if it could 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 the Post Office increasingly into irrelevancy.
And that's what happens to most failed businesses. They don't fail because they are lousy at execution. Or because of lousy, inattentive managers. Or even because of unions and high variable costs such as energy. They fall into trouble because they either don't recognize, or for some other reason don't move to take advantage of market shifts. It's not a lack of focus, management laziness or worker intransigence that kills the business. It's an inability to do what customers really want and value, and spending too much time and money trying to ever optimize something customers increasingly don't care about.
To their credit, both FedEx and UPS have shifted their businesses along with the market. Both do much, much more than deliver packages. Fedex bought Kinko's and offers people their "office away from the office" globally, as well as multiple small business solutions. UPS offers a vast array of corporate transportation and logistics services, including e-commerce solutions for businesses of all sizes. Their ability to move with markets, and meet emerging needs has helped both companies justify higher prices and earn substantially better profitability.
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.
My generation will wax nostalgic about the post office. We'll weave in "mail" stories with others about days before ubiquitious air conditioning, when all we had was AM radio in the car and 3 stations of black & white television stations at home. They will be fun to reminisce.
But our children, and certainly grandchildren, simply won't care. Not at all. And we better remember to keep the stories short, so they can be related in 140 characters or less if we want them saved for posterity!