The Postal Service is currently facing an unprecedented financial crisis. It predicts a loss of $6 billion this year, and unless emergency measures are taken, it will run out of cash by fall. It claims that Congress needs to step in to provide $2 billion of relief by deferring certain statutorily mandated retiree health care payments and $2-3 billion of savings by allowing the Service to eliminate one delivery day.
While there may be some debate about how much short-term financial benefit will result from these proposals, there is no debate about the stunning drop in mail volume this year. In the quarter ended March 31, 2009, mail volume was down 14.7 percent compared to a year ago. According to GAO, the Postal Service projects an overall volume decline of 10-12% in FY 2009, and further declines in FY 2010, leading to a financial loss similar to the FY 2009 loss and another possible cash shortfall.
Postmaster General Jack Potter has stated that these volume decreases are in part due to economic hard times, which are "cyclical", and he hopes that mail volumes will come back as the economy comes back. But he has also recognized that "electronic communications [are] driving profound and permanent changes in the mail mix," and possibly rendering the old USPS business model obsolete.
Before Congress can decide what kind of relief the Postal Service needs, it needs to ask some hard questions: How much of the current decline in mail volume is due to the economic crisis that will eventually end and how much is due to societal changes caused by electronic communications? How much mail volume will return when the economy recovers? What types of mail will return? Or has electronic media permanently changed how people communicate? And can advertising mail replace personal correspondence and remittance mail?
If long-term societal changes are the primary cause of the Postal Service's distress, then deferring $2 billion of retiree health care payments and saving $2-3 billion by reducing delivery service are band-aids applied to a terminally ill patient. Band aids may help the Postal Service limp through the next round of union contract negotiations, but then it will need much more than band aids.
While there is still a lot of mail to deliver today, I think it is fair to assume that First Class Mail letter volume will not return to previous levels -- just look at the next generation of potential mailers and recipients that prefer to communicate and pay bills electronically. We may not know today exactly how much or how quickly email will replace mail, but that doesn't mean we should ignore or minimize the threat of electronic communications. The Postal Service finds itself confronted with a "disruptive technology" that currently affect just a portion of its mail but could render its entire business model obsolete. Clayton Christensen, in his landmark book The Innovator's Dilemma, distinguishes "disruptive technologies" from "sustaining technologies." A sustaining technology "improves the performance that mainstream customers in major market have historically valued." The FSS machine is a sustaining technology. In contrast, a disruptive technology is an innovation that "results in worse product performance, at least in the near term [and] brings to market a very different value proposition than had been available previously." Email is a disruptive technology for the Postal Service.
Other industries have been transformed by disruptive technologies: wire line telephones v. mobile telephones, offset printing v. digital printing, photographic film v. digital photographic, mainframe computers v. personal computers, to name a few. Disruptive technologies have often precipitated the failure of leading firms. But some companies have survived, and even flourished. So what can we learn from those survivors' experiences?
First, how one manages in an era of disruptive technology is totally different from how one manages in a time of sustaining technologies. Christensen studied how companies faced disruptive technologies and concluded that managers with "great track record[s] in understanding customers' future needs, identifying which [sustaining] technologies could best address those needs, and in investing to develop and implement them," often were the ones that failed when confronted with disruptive innovation -- because those managers "played the game the way it was supposed to be played."
Second, a disruptive technology may require the company to allocate a chunk of resources not to what its customers now say they want but to what its customers will want 3-5 years from now. Most of us would agree that it usually makes sense for management to kill ideas for products that customers say they don't want. But the problem with a disruptive technology is that while customer demand may not keep pace with technological innovation initially, at a certain point, customers will all want the disruptive technology -- and by then it will too late.
Something more is needed -- a long term vision of success and the courage to take risks to achieve that vision. Postal Service managers are often perceived as the proverbial government employees -- managing to avoid failure. No one likes failure, but, in confronting a disruptive technology, someone has to have the courage to make radical changes and take some rational risks. And if risks are taken, Congress and regulators have to expect and allow for some failure.
Many postal stakeholders have faced their own disruptive technologies -- periodicals and other print media come immediately to mind. If you've had such an experience, how did you deal with disruptive innovation and what lessons did you learn? How do you think the Postal Service should confront disruptive technology? Send me your ideas and advice, and I'll share them in my next column. Maybe we can all benefit from your hard won knowledge.
Ms. Leong has both depth and breadth in the postal industry, having represented individual mailers in the financial services and catalog industries, trade associations, vendors, suppliers, and posts (including the USPS). Ms. Leong specializes in negotiating contracts with the Postal Service and obtaining regulatory approvals for these agreements and in representing mailers in rate cases. She has participated in the entire range of regulatory proceedings at the Postal Regulatory Commission, including rulemaking, ratemaking, regulatory approval, and complaint proceedings. She was involved in the passage and implementation of the Postal Accountability and Enhancement Act of 2006. She helped start the American Catalog Mailers Association, negotiated the first competitive contract under the PAEA, and filed the first major complaint case under the PAEA on behalf of her clients. Together with PRC Commissioner Ruth Goldway, Ms. Leong founded Women in Logistics and Delivery Services (WILDS), which has grown into a national network of over 80 professional women in the postal and delivery industry. After serving as a partner at Morrison & Foerster and Sidley Austin (two of the top ten law firms in the world), Ms. Leong founded her own law firm, The Leong Law Firm PLLC, and consulting company, Joy Leong Consulting, LLC. She is a graduate of Harvard College and Yale Law School.
While there may be some debate about how much short-term financial benefit will result from these proposals, there is no debate about the stunning drop in mail volume this year. In the quarter ended March 31, 2009, mail volume was down 14.7 percent compared to a year ago. According to GAO, the Postal Service projects an overall volume decline of 10-12% in FY 2009, and further declines in FY 2010, leading to a financial loss similar to the FY 2009 loss and another possible cash shortfall.
Postmaster General Jack Potter has stated that these volume decreases are in part due to economic hard times, which are "cyclical", and he hopes that mail volumes will come back as the economy comes back. But he has also recognized that "electronic communications [are] driving profound and permanent changes in the mail mix," and possibly rendering the old USPS business model obsolete.
Before Congress can decide what kind of relief the Postal Service needs, it needs to ask some hard questions: How much of the current decline in mail volume is due to the economic crisis that will eventually end and how much is due to societal changes caused by electronic communications? How much mail volume will return when the economy recovers? What types of mail will return? Or has electronic media permanently changed how people communicate? And can advertising mail replace personal correspondence and remittance mail?
If long-term societal changes are the primary cause of the Postal Service's distress, then deferring $2 billion of retiree health care payments and saving $2-3 billion by reducing delivery service are band-aids applied to a terminally ill patient. Band aids may help the Postal Service limp through the next round of union contract negotiations, but then it will need much more than band aids.
While there is still a lot of mail to deliver today, I think it is fair to assume that First Class Mail letter volume will not return to previous levels -- just look at the next generation of potential mailers and recipients that prefer to communicate and pay bills electronically. We may not know today exactly how much or how quickly email will replace mail, but that doesn't mean we should ignore or minimize the threat of electronic communications. The Postal Service finds itself confronted with a "disruptive technology" that currently affect just a portion of its mail but could render its entire business model obsolete. Clayton Christensen, in his landmark book The Innovator's Dilemma, distinguishes "disruptive technologies" from "sustaining technologies." A sustaining technology "improves the performance that mainstream customers in major market have historically valued." The FSS machine is a sustaining technology. In contrast, a disruptive technology is an innovation that "results in worse product performance, at least in the near term [and] brings to market a very different value proposition than had been available previously." Email is a disruptive technology for the Postal Service.
Other industries have been transformed by disruptive technologies: wire line telephones v. mobile telephones, offset printing v. digital printing, photographic film v. digital photographic, mainframe computers v. personal computers, to name a few. Disruptive technologies have often precipitated the failure of leading firms. But some companies have survived, and even flourished. So what can we learn from those survivors' experiences?
First, how one manages in an era of disruptive technology is totally different from how one manages in a time of sustaining technologies. Christensen studied how companies faced disruptive technologies and concluded that managers with "great track record[s] in understanding customers' future needs, identifying which [sustaining] technologies could best address those needs, and in investing to develop and implement them," often were the ones that failed when confronted with disruptive innovation -- because those managers "played the game the way it was supposed to be played."
Second, a disruptive technology may require the company to allocate a chunk of resources not to what its customers now say they want but to what its customers will want 3-5 years from now. Most of us would agree that it usually makes sense for management to kill ideas for products that customers say they don't want. But the problem with a disruptive technology is that while customer demand may not keep pace with technological innovation initially, at a certain point, customers will all want the disruptive technology -- and by then it will too late.
Something more is needed -- a long term vision of success and the courage to take risks to achieve that vision. Postal Service managers are often perceived as the proverbial government employees -- managing to avoid failure. No one likes failure, but, in confronting a disruptive technology, someone has to have the courage to make radical changes and take some rational risks. And if risks are taken, Congress and regulators have to expect and allow for some failure.
Many postal stakeholders have faced their own disruptive technologies -- periodicals and other print media come immediately to mind. If you've had such an experience, how did you deal with disruptive innovation and what lessons did you learn? How do you think the Postal Service should confront disruptive technology? Send me your ideas and advice, and I'll share them in my next column. Maybe we can all benefit from your hard won knowledge.
Ms. Leong has both depth and breadth in the postal industry, having represented individual mailers in the financial services and catalog industries, trade associations, vendors, suppliers, and posts (including the USPS). Ms. Leong specializes in negotiating contracts with the Postal Service and obtaining regulatory approvals for these agreements and in representing mailers in rate cases. She has participated in the entire range of regulatory proceedings at the Postal Regulatory Commission, including rulemaking, ratemaking, regulatory approval, and complaint proceedings. She was involved in the passage and implementation of the Postal Accountability and Enhancement Act of 2006. She helped start the American Catalog Mailers Association, negotiated the first competitive contract under the PAEA, and filed the first major complaint case under the PAEA on behalf of her clients. Together with PRC Commissioner Ruth Goldway, Ms. Leong founded Women in Logistics and Delivery Services (WILDS), which has grown into a national network of over 80 professional women in the postal and delivery industry. After serving as a partner at Morrison & Foerster and Sidley Austin (two of the top ten law firms in the world), Ms. Leong founded her own law firm, The Leong Law Firm PLLC, and consulting company, Joy Leong Consulting, LLC. She is a graduate of Harvard College and Yale Law School.
