In the global race to grow business and gain market share, the mantra of "better, faster, cheaper" is commonplace among companies that are serious about gaining on the competition. Products must be better and run faster, customers expect heightened service more quickly, and every facet of doing business must cost less. There are numerous examples of corporations that have done a superb job of integrating better, faster, cheaper into best practices, and government posts and independent mailing houses are no exception.
One unequivocal way to reduce operating costs is to outsource. The practice has been in place since the turn of the 20th century, becoming most prominent in the 70s and 80s namely in payroll and accounting. Today, outsourcing has seeped into virtually every type of industry, function and service. And the development of technology and software has not been left out of the loop.
Further, business practices and rules surrounding outsourcing are evolving. For instance, Business Transformation Outsourcing (BTO) is used to reduce operating costs but is also fully expected to support the strategic direction of the outsourcing company. Heavier reliance on the expertise of strategic partners, combined with their willingness to support corporate strategy, relieves the burden on internal resources. This reliance also brings with it increased levels of risk.
This is the exact point where companies and suppliers are forging new territory - both are accepting or offloading risk. For example, a company that is outsourcing software development risks not having direct control ofthe development process in exchange for realizing lower research and development costs. Likewise, suppliers, absorbing the cost of research and development, are now offering enterprises a higher level of comfort.
Applying Risk Offloading to the Postal and Mail Operating Industry
The mailing industry is taking strident steps to become more responsive to change in the marketplace. Industry executives recognize the need to be more agile in a changing postal business environment that is experiencing increased competition, changing customer behaviors and uncertain mail volumes. Postal operators and suppliers are implementing a two-faceted business model. First, the post invests in universal automation solutions that are accurate, fast, flexible and cost effective. Second, they re-evaluate how suppliers are paid for automation solutions.
For instance, progressive posts are now interested in software solutions that are not tied to specific hardware. Instead, they are demanding modularized systems that can be implemented into existing systems either in whole or in part. Suppliers are responding to marketplace demand and offloading risk from the post by integrating universal Optical Character Recognition (OCR) technology and pairing it with incentive contracts. The result: postal entities are provided an opportunity to integrate higher performance technology with little risk, saving money through increased efficiency.
Here's how a universal OCR solution creates an affordable alternative. Over the past two years, the European Committee for Standardization appointed a committee to make OCR/VCS sub-systems suppliers independent, so that postal operators are able to work with different suppliers for needed replacements or expansion to sub-systems without incurring significant engineering costs.
Today, universal OCR technology currently on the market is specifically designed to process all types of mail, dramatically increasing the effectiveness of automatic sorting solutions. It also increases accuracy, improves adaptability and helps mail providers to sustain profitability through cost savings. Most importantly, the universal OCR solution represents the foundation from which a software development supplier can equitably offload risk from the enterprise while being certain the end product will meet project criteria.
The second part of offloading risk runs akin to applying the utility model (based on water or electricity) to postal entities. Incentive contracts are written to ensure that the performance of the technology defines the cost of it. While the specific criterion of an incentive contract is proprietary information, the concept outlined below is based on recent experience of significant incentive contracts with posts worldwide.
First - the post pays nothing up front. Second - when the software is installed the post immediately starts saving money and the supplier receives the pre-determined compensation. Finally - the reverse also holds true. If the post does not save money, the supplier receives nothing.
Experience suggests that success of incentive contracts works best when the incentive is large enough for the supplier community to be motivated to work on a program with higher associated risk. Further, shifting risk to the supplier relieves the post of the burden of two primary problems: 1) adequately outlining the project specifications prior to the start of the project, and 2) overloading already lean resources.
A variation of the incentive contract model involves pay-as-you-go agreements. This means the post or processor only pays for each finalized mail piece. This model is successful where mail volumes are stagnant, future mail volumes are uncertain or the post or commercial processor is looking for ways to limit its capital expenditures. It also works well for reject mail because it eliminates up-front costs.
Global posts and mail operators will continue to demand solutions that will support a growth strategy, and suppliers will respond with better, faster and cheaper solutions. Both are rising to the challenge of growing their businesses by executing razor-sharp business models that equitably share risk to meet imperatives. It is proven that posts and suppliers who have offloaded risk from each other by integrating universal OCR technology paired with incentive contracts are realizing financial success. Bottom-line: as a result of these emerging agreements, postal entities are equipped with first-rate automation technology and are able to save money. In turn, suppliers create solutions that meet marketplace demands and are paid for their efforts. Offloading risk creates a win-win situation for posts and suppliers.
With 22 years of corporate strategy and sales management experience, Mr. Buck has led new product development, created business venture opportunities and managed national sales teams. His expertise encompasses a variety of industries including: government, financial, retail, telecommunications and utilities. As vice president for business development at