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!
Post office is done in by sprawl. Post office is competitive in parcel delivery but does not need 500k vehicles for parcel delivery.
Adam,
Another excellent blog and metaphor. You see this in companies everywhere that just play defense because they cannot or will not embrace the changes. As food for thought, here are some future orphans: the Post Office (of course), Ticketmaster, Fighter pilots, land-line phones.
Great post! Yeah in the last decade or so, no one has really given the post office much thought once email and Smartphones started taking over our lives. I agree with the statement that most businesses fail due to shifts in the market. That is completely true. Most businesses are just oblivious to what is going on, societal trends, and what people really want and the next best thing.
Adam, I haven’t bothered to leave this anywhere else (although everyone’s been talking …on and on and on….about the Post Office.
Lest we forget (or in the event that we never actually knew) – the Post Office was actually in the business of country-wide socialization. The point was never to make money – it was always about making sure that each and every person living in this country was and would remain “connected” to everyone else (as long as they wanted to – and sometimes even if not).
As such, the great majority of rural areas were (and are) huge loss leaders for the Post Office – but the mandate was to be carried out – and the Post Office did it – and did it (until now) without asking for any taxpayer money.
Indeed the Post Office is obselete, but its obselescence isn’t from something as trivial as losing 1st class mail to e-mail. The fact is that everyone is now as connected as they were intended to be – only now its by wire and/or celluar broadband and the only address anyone needs anymore isn’t on a paved street or a dirt road, but a rather behind a uniquely numbered 12-digit post on the information highway.
The Post Office had a job to do and now that job is done. It’s really been a remarkable feat of long term management given the combination of mandates and constraints involved – and anyone who believes that this is a sad story and the result of managerial negligence should consider that the Post Office is what kept us all connected – the hard way – at no cost to the taxpayer – until we could figure out how to do it better.
Rick Mueller
http://www.linkedin.com/in/decisionscience
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Its sad to hear the news of the United States Postal Service struggling and nearing insovency.
The problem is, Institutions like these have no place for people anymore.
They do not have any need to be loyal when there are other options like UPS or Fedex around.
Also, the need to send first class has decreased over the years what with email and fax options now.
The same thing has happened with the Royal Mail in the United Kingdom.
They originally had the lion share of the market for years but along came better technology, competitors, changes of laws and the market share was gradually lost.
Now this is fine in normal markets as you want to see competition to make fair markets but these are publicly owned companies and these businesses have a responsibility to look after the publics assets.
However, the bosses seem to ride the wave of prosperity and when the stuff hits the fan so to speak, they are nowhere to be seen.
They should have been building contingency plans in the good times to ensure that they, as a business, were evolving with the way peoples buying mindsets were.
The thing that is sad is that the product is an unbelievably well oiled cog.
Six days a week it delivers an average of 563 million pieces of mail—40 percent of the entire world’s volume. For the price of a $0.44 stamp, you can mail a letter anywhere within the nation’s borders. The service will carry it by pack mule to the Havasupai Indian reservation at the bottom of the Grand Canyon. Mailmen on snowmobiles take it to the wilds of Alaska.
If your recipient can no longer be traced, the USPS will return it at no extra charge.
It may be the greatest bargain on earth.
The shame is that people just take it for granted. They probably don’t even acknowledge the lorries driving up and down the country anymore.
It would more than likely also be these same people who comment on how “sad” it is that this great service is going into insolvency, while their printing out a consignment bar code for the Fedex driver they have just called to collect their parcel.
I sincerely hope that the workers who have made this company the great service it is today, are saved of their jobs by the Senate committees and subcommittees that watch over the USPS.
I somehow think however, that it may be too little too late.
Hello, my name is Tina. As I was searching through online, I stumbled upon your page and thought I’d emphasize with you that, post offices, are not like they use to be. They are not fast on their delivery anymore and mail gets mixed up. I used a post office for years, until I came across an amazing international parcel delivery service. I, literally receive my packages on time, as well as them being shipped to where I need them to go on time. No more stress for me! Hope this helps many. Have a great day!