The following is a postal perspective by Michael J. Riley, DBA. Dr. Riley has served as the Chief Finance Officer for the U.S. Postal Service during former Postmaster General Marvin Runyon's tenure, and now serves on the Board of Directors for Brivo, Inc., a company that provides Internet-based solutions for controlling and monitoring physical access to commercial and industrial facilities. The views expressed are the author's and do not necessarily reflect the views or policies of the Association for Postal Commerce.

In fiscal year 1995, the Postal Service had the largest increase in operating profits of any company in the world and earned $1.8 billion. By 1998, some were complaining that the Postal Service was making too much money. In 2001, the USPS is predicting a $3 billion loss that may be the largest negative change in the bottom line of any company in the world. What happened and why?

TWO MASTERS:

As an independent agency of the U.S. government, the Postal Service is both a large business (in the top ten in revenue in the U.S.) and a government agency. The law requires that it be run as both. I believe that the conflicts between the two are so severe that it is virtually impossible to manage that organization and be viewed as a success. Certainly, the Postal Service is "a house divided against itself." This fact puts Postal executives under tremendous stress.

A Better Way in 1995: The Postal Service rebounded from two decade of horrible results by making good business decisions. With the right direction, Postal People proved that great improvements could happen. Six officers and twelve executives were brought in from the business world. Together with career Postal people (some of the brightest, and best people anywhere) the organization made significant improvements and got results.

Officers listened to the people who did the work and made decisions to make their jobs easier. The simple changes were the best. Perhaps the installation of credit card acceptance machines is the best example. This change made the job of dealing with customers easier. It saved money, improved morale and delighted the customers. And it was done in record time and with flawless execution by career Postal employees.

Budgets were used as a tool to help managers achieve success rather than the traditional government approach. For a while, a good incentive system and excellent managers made up for the shortfall in one area with savings in another. The organization was run like a business. Postal people worked near miracles.

The Postal Service generated profits of $1.8 billion, $1.6 billion and $1.3 billion. Careful analysis, logical decisions and good planning had led to high profits, increased service and rising customer satisfaction. Even Dan Rather was impressed. Morale soared.

However, the law also required that it be run as a government agency and there was criticism. In government, every agency spends every penny of its budget. Many Postal managers turned back budget authorizations unspent. I believe that they managed wisely, but viewed from the government agency perspective, they exhibited unacceptable behavior. "It is as bad to be under budget as it is to be over budget," said those with a government and political perspective.

Earning Too Much in 1998: The criticism that the Postal Service was "earning too much money" seemed valid from those who viewed it as a government agency. The 1970 law was widely interpreted to mean that the Postal Service should only break-even. (It actually says the reverse).

There were and are strong feelings against profits and especially profits by a government agency. Many times I heard, "the Postal Service exists to provide a service, not earn a profit off the backs of the people of the U S." In government, "profit" is a bad word and the word was changed to "surplus." Commitments were made to reduce the "surplus" at the same time spending was increased. Many of the increases would take two or three years to reach their maximum (perhaps 2001 or 2002).

Long delayed capital investments were accelerated. Like most business, the Postal Service used profits to provide the cash for investment. The Five Year Capital Plan was tripled. It made good business sense for a very profitable business since it required large consistent profits to generate the cash. The money required was two to three times the borrowing limit. For the Postal Service, it was the road to trouble.

The Postal Service looked for non-traditional ways to generate cash that all agreed was needed. It embraced a conglomerate/venture capital strategy. There was a list of 157 new revenue initiatives that read like the "In Basket" of a venture capital firm. Like venture capital proposals, each promised fabulous returns; and each required significant cash in the first few years. And, like venture capital results, most didn’t succeed.

There were numerous other proposals for new positions, employees and contract workers. There was a search for breakthrough performance improvements in a very short time. Good people tried to do the impossible. Any payoff will be years in the future.

A $3 Billion Loss in 2001: The Postal Service has predicted a loss of $3 billion in the year which ends September 30, 2001. Some industry experts question how the Service can get this bad. It "only" reported a year-to-date loss of $291 million as of March 23, 2001. Certainly, it is possible to lose $3 billion depending on what is already committed. The long promised layoff of 75,000 employees would likely come too late to help fiscal 2001. And no company has ever found layoffs the key to long-term success. Layoff announcements are counter-productive. One Postal manager said, "People are hiding under their desks."

The Postal Service is being run like a government agency. Spending growth has a strong momentum.

There may be a crisis this year. The last time the Post Office Department was in crisis, the law was changed. Career employees, who previously had been capped at the level of the Assistant Postmaster in a large city, found that every executive job was opened for their potential advancement. In business, a crisis is usually a problem; in government it is an opportunity.

The Postal Service has become more of a government agency and less of a business. Major spending programs have picked up speed. Most of these programs are still in the investment or spending stage with the economic benefits in the future.

The recent announced deal with Fed-Ex is an excellent example. It should solve three decades of operational problems caused by the inability to make needed capital investments and save money. But it causes an extra $500 cash outflow in fiscal 2001.

Political reality prevented the use of derivatives. Risk management techniques such as hedging fuel were considered too risky. Hedging is like a good insurance policy. The cost of not hedging in 2001 is nearly $500 million.

Tremendous Potential: Still, there is tremendous untapped potential remaining. Numerous opportunities exist which could eliminate unnecessary work and make the jobs easier and more interesting. There are programs with short paybacks and long-lived benefits. Failing programs can be cut or slowed. No organization can do everything but the Postal Service is trying. It has made choices in the mode of a government agency required to do everything.

Frustration and Stress: When you talk with Postal Service people you can see and hear their frustration, stress and discouragement. They face a no-win situation. There has never been an agreement as to whether the goal is to run it like a business or like a government agency. The twin value systems tear them apart.

The structure of the Board of Governors is half -business and half-government agency. It doesn’t even have the best elements of both. Both the Federal Reserve Board of Governors and large corporations get to meet in private and the CEO provides the public face. At Postal, each governor is "on-the-firing-line" in public meetings. And over the years, the composition of its members has varied in its perspective from that of a large corporation to that of a Blue Ribbon Presidential Commission.

From top to bottom, the Postal Service takes good people and puts them in positions where they feel they can’t win. Standards change as the Board, Management and the Vision are in constant flux. There is a new governor appointed every year. The average tenure of the Postmaster General is three years. Successful corporations like General Electric, Berkshire Hathaway and Intel have CEO’s who last for generations and boards of directors who last almost as long.

Good business techniques are not viewed as politically acceptable. The standard practices of government are not considered wise in the business world.

SOLUTION:

The Postal Service really needs some clarification in order to survive. I would like to see it run like a business. Fannie Mae, the Canadian Air Traffic Control System and the Australian Post provide excellent examples. The Postal Service can survive and prosper as a business. However, if it is to run like a government agency, then it needs direction and government subsidies. It can’t be both and survive. Certainly, the many changes of direction confuse and frustrate the 783,000 people who have chosen to make it a career.

I suggest that the Postal 783,000 and their 280 million customers deserve better.