United States Postal Service
An Alternative Strategy
To the
2012 Plan to Profitability
Trever Pearson
PA 740 Public Sector Management
Professor Hyde
November 1, 2012
Saving the USPS – Problem Statement
Since the mid-1990s, the decline of print media and the espousal of technology in American’s
homes have adversely affected the United Postal Service (USPS). USPS’s 2001-2005 Strategic Plan
illuminates how the Postal Service assumed that it would be a major player in the “New Economy” by
servicing online retailers like Amazon.com. Improving delivery time within the USPS’ overall brand was
viewed as the key to maintaining market shares. In 2006 the Postal Act was passed, just as mail volumes
began to drastically decrease. The Act required the Postal Service to pre-fund ten years of upcoming
retiree health benefits and also tethered postage prices to the Consumer Price Index, preventing price
adjustments in dominant markets to rise above the Index, despite business costs.
While customer use of the postal service decreased steadily in the 1990s, 2007 marked the first
year of losses. All future calculations point to a steady reduction of volumes and assume a $33 billion
deficit by 2020. The USPS’ conservative projection indicates that volumes overall will decrease by 15%
in 2020, compared to a “worse case” prognosis which estimates a drop of 34%. E-diversion is the driving
force behind this decline, with paper bills and banking statements decreasing by 44% by 2020 as growing
segments of the population turn to digital formats. The only service area without projected declines is
standard mail, with advertising through this medium predicted to either flat line or increase slightly.
Ensuring a Viable Postal Service for America compares to the 2006-2010 Strategic Plan by setting its
goals as “generate revenue, reduce costs, achieve results with costumer focus and performance based
culture and improve service.”
USPS Plan A - 2012 Plan to Profitability
USPS’s current action plan is a multistep strategy designed to save $18 billion by the year 2020
through several specific immediate steps that are within USPS managerial control: 1) product and
services ($2 billion) 2) productivity improvement ($10 billion) 3) workforce flexibility improvements
($0.5 billion) 4) purchase savings ($0.5 billion) 5) avoided interest due to reduced debt ($5 billion).
The USPS plan also aims at larger strategic actions including:
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Increasing prices according to market factors, rather than the Consumer Price Index (CPI)
Eliminating services on the weekend (projected to save $3 billion per year and increase average
volumes during the week back to 2008 levels).
Reducing the number of costly, traditional post offices in lieu of smaller centers housed within
grocery stores and other major retail venues.
The current plan also broadly calls for a more flexible oversight model so that the above suggestions
can be quickly implemented. Instituting a more dynamic and robust oversight systems is seen as essential
to improve products, services, customer service, adjusting prices, and streamline auditing and accounting.
According to the USPS Plan to Profitability, the USPS should know within one year whether the plan
is heading in the right direction, as the plan lists 2011 through 2016 in their scenario comparison of
revenue, revised net income, cash flow, and net cash (debt). The plan includes projections after the
strategic initiatives are implemented. (Surprisingly though, the USPS action plan does not even list any
metrics to show whether the plan is working or not and it just lists 2020 as the target year of when the
savings will be fully accomplished). In total, the short-term actions under USPS management control
would save $123 billion. Beyond that, even if all of these changes are successfully realized, a $115
billion shortfall by 2020 is still expected and must be addressed by the strategic actions noted above.
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USPS Strategy Assessment
According to the Restructuring Objectives outlined in the 2012 Plan to Profitability, preserving
the mission “to provide secure, reliable and affordable universal delivery service” is the top priority (p. 6),
under attempting to raise revenue and maintain adequate profits. In order to meet its stated goals, the
USPS has developed strategic initiatives which include the modification of overnight and elimination of
Saturday delivery, an increase in the price of stamps, the consolidation of facilities, and the institution of
USPS-sponsored health insurance (p. 13). By 2016, a projected workforce decline of 155,000, resulting
directly from the initiatives, contributes toward approximately $20 billion in total annual savings (p. 17).
Unfortunately, the current strategy fails to account for a fast-paced, technological world and bases
its strategy on the premise outlined in its 2011 Annual Report to Congress that “America will Rely on
Mail” in the 21st Century1. While it is projected that Standard and Ad mail may increase, such gains are
modest and are only expected to account for 25 - 30% of all revenue. The largest contribution to revenues,
consisting of 67% of the total in 2011, is First Class mail, which is expected to decline 40% by 2020
(BCG, 2010, p. 7). While the USPS has taken into account these truths, the business plan does not reflect
a shift from mail revenue reliance, attempting to catch up to current trends while ignoring the rapidly
changing external environment. This future environment of 2020 will consist of an American population,
of which 40% will have been born into a technological world, preferring digital communication through
mobile apps and instant connectivity via text messaging rather than standard, hard-copy information
(OIG, 2011, p. 8). Sufficient revenue generation from mail is highly unlikely, regardless of the rosiest
projections.
Additionally, half of the savings projected in the business plan depend upon legislative approval.
If such approval were granted, the USPS could begin to institute changes by January 1, 2013. However,
considering the locally autonomous structure of the “innovation management teams”2 across the
organization, the rate of change is likely to be significantly slower than predicted, cutting into savings and
exacerbating financial loss. By then, costs will have increased and the demand for services will have
evolved into something beyond what the USPS had planned for. Productivity improvements, which make
up the bulk of savings generated from the current plan, would allow the organization to more efficiently
conduct its business, but for the provision of a service that fewer people want. Successfully innovative
changes to bring the USPS into the digital age of the 21st Century would require a significant reevaluation of the concept of the “universal delivery of mail” and a revision to the mission of the
organization. Such changes would also require legislative approval, but would provide the USPS with the
flexibility needed to adapt to an evolving society.
Plan B
As the industrialized world continues to expand into heavier use of digital media, companies
seeking to succeed in shipping and communications markets must follow suit. Doing so merely requires a
re-definition of a few concepts outlined in the “Restructuring Objectives” in the 2012 Plan to
Profitability, available on Appendix A. These goals as written would be highly effective if the initiatives
to support them were placed in the appropriate environmental context. The following outlines such
initiatives to provide the USPS the necessary platform from which to succeed in such an environment
while maintaining its sense of identity and the values that drive its mission.
1
2011 USPS Annual Report to Congress describes the reliance businesses will have on mail delivery services, justifying the continuation of its
provision.
2
Innovation Management teams at the local level have much of their own autonomy to implement and facilitate innovation strategies
(Capgemini, 2010).
3
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Strategic Initiative 1 – Facility Reduction and Consolidation
Strategic Initiative 2 – Reduction in Service Delivery
Strategic Initiative 3 – Establish Kiosks and Retail Outlets
Strategic Initiative 4 – Partner with FedEx/Kinko's in Central Hubs and Kiosks
Strategic Initiative 5 – Creation of the USPS Smartphone App
Strategic Initiative 1 – Facility Reduction and Consolidation
The GAO produced a report demonstrating the actions the USPS had taken to decrease excess
capacity as a reflection of declining mail volumes. However, with First Class mail expected to decrease
from 73 billion in 2011 to 39 billion pieces in 2020 (p. 11), capacity will need to be reduced even further.
With nearly 37 million homes serviced by rural letter carriers in 2006 (USPS, 2010b), the high price of
transportation and delivery for miniscule volumes will return very little revenue in the coming 5 years.
The number of facilities in both urban and rural areas will be unnecessary, and reduction will transform
them into larger centers with expanded services. Facilities will be consolidated into central hubs for rural
regions (one per region) and district hubs for urban areas, depending upon volume and market forces (i.e.,
one per 100,000 people if services rendered are sustainable in large cities).
Strategic Initiative 2 – Reduction in Service Delivery
With digital media replacing the traditional methods in which America does business, the need
for every-day delivery of Standard and Ad mail is becoming extinct. With the majority of ad spending
taking place through mobile and e-mail media (Appendix B), the next five years will see a continued
reduction in the traditional ways companies attempt to reach consumers. With only 25% of current
revenue contribution, reduced service delivery to three days a week would ensure minimal costs.
Such reductions do not necessarily reduce access, however. As in Sweden, the USPS will create a
registration system for customers to receive text messages when mail or packages were received at the
regional or central postal facilities (GAO, 2011). Customers could then decide to pick up items
themselves or wait for local delivery within the next one to two days.
Strategic Initiative 3 – Establish Kiosks and Retail Outlets3
In place of five-day service, the USPS will partner with retailers in strategic areas to expand
access for mail and package delivery where customers frequent most. Grocery stores, malls, transit plazas
and even gas stations would house kiosks where customers would receive their mail upon registration.
While this is a major change from USPS’ current structure, it is demonstrated that nearly 80 percent of
consumers would benefit or adapt if such changes were made (USPS, 2010a, p. 13). Such a structure
would reflect many foreign posts in Europe and would eliminate the need to physically travel to each of
the 150 million addresses in the United States.
Strategic Initiative 4 – Partner with Fed-Ex/Kinko's in Central Hubs and Kiosks
In addition to providing postal services, a local printing and scanning office in the same facility
expands the availability of what customers can do with mail in the digital age. The ability to scan
documents to send electronically or print and copy items for delivery reduces shipping costs and provides
instant gratification for the shipping needs of a new generation. With parcel shipping projected to increase
40% by 2020 (USPS 2011, p. 8), building upon the strengths of FedEx and the extensive USPS address
database ensures expanded access and increased revenue. Additionally, partial leasing of postal facilities
will reduce fixed costs.
3
The combination of three-day delivery service and kiosks in retail centers will initially work to save the USPS short-term revenue while the
organization adjusts. Over time, as digital media evolves even further, these initiatives are intended to lead to the elimination of home delivery
altogether.
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Strategic Initiative 5 – Creation of the USPS Smartphone App
The digital revolution has seen a rapid increase of mobile computing over the last five years with
no signs of slowing. The Economist (2012) notes that mobile data traffic will be 21 times greater in 2017
than it was in 2011, with the number of mobile-broadband subscriptions jumping from 900 to 5 billion
worldwide in the same time period. Creating an app allows customers to track packages, add postage and
more on the go, while providing an avenue for business to reach customers wherever they are.
These 5 initiatives would change the way the USPS does business, allowing it to adapt to growing
trends in the market and respond effectively. It requires however, a complete redefinition of the concept
of universal mail delivery service from the physical delivery of ink-on-paper documents at every address
in the country to digital information at other convenient locations.
Unfortunately, such changes will not come without major resistance. Congress has been strict on
facility closures as well as service levels, holding that rural mail delivery service could drop no lower than
those in 1983 (GAO, 2012, p. 7).
Additionally, from a universal
access perspective, reports indicate
that 25% of the US Population does
not use the internet while a third
does not have high-speed access
(OIG, 2011, p. 22). The resulting
implications for a digital postal
service could experience initial
challenges until the digital divide
decreases, although poses no threat
to the initial 3-day delivery service
levels of traditional mail. The
bigger challenge is in addressing
the poor and the elderly, those
without mobile phones or the
ability to pick up their own mail.
As few as this number might be,
partnerships with other carriers
could be used as a way to facilitate the delivery process (Meals on Wheels, UPS and FedEx, etc…). In
either case, political resistance around these issues is likely to be substantial. However, it is imperative to
implement strategic initiatives within the first three years to curtail the loss in revenues and to catch up to
existing market demands. See Appendix C for metrics and timeframe.
Internally, resistance is likely as well with a large number of unionized workers facing layoffs
and remaining employees taking on new skills. A change in organizational culture would be necessary,
requiring a systematic management approach to facilitate the transition. The consolidation of facilities and
the partnership between other companies would dramatically alter the traditional organizational structure,
forcing employees to adapt to new and unknown methods of work. Additionally, the attachment to
traditional values of universal mail delivery will leave employees, stakeholders and members of congress
quick to reject proposed changes. Ultimately, it is up to Congress to decide the fate of the USPS in light
of societal changes. Failure to do so would result in either the complete bankruptcy of the organization or
an appropriations system where it would depend upon federal funds. Neither situation is optimal,
although the timeliness and appropriateness of Congressional response is questionable.
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Of all the proposed strategies adopted and attempted by the USPS since the early 2000s, none
address the underlying problem regarding the rapid pace of change of the external environment. Each
anticipates downward trends in mail volume and upward projections in labor and fixed costs while
attempting to compensate by improving productivity and current services. Such changes fail to note the
coming extinction of the entire market on which the business model is built: ink on paper mail. Even
UPS and FedEx, known as competitors to the USPS, have jumped into markets associated with online
shopping and parcel shipping, with hand-held mobile devices to conduct day to day tasks.
This plan seeks to address those challenges by moving the USPS into a position where it can
effectively respond to the growth in digital media while maintaining its capacity to deliver what little first
class and standard mail might exist in the future. Unlike its previous plans, this one requires the USPS to
change its business model, focusing on the concept of communication and shipping, rather than on mail.
It requires a re-identification of what the postal service needs to be in order to provide customers with
what they truly want. Consequently, this plan is not a mere attempt to improve current productivity but to
completely change it. By drawing from ideas adopted by other postal service carriers around the world
while working alongside domestic partners, this plan innovates more than it improves by forcing the
organization to evolve. While these ideas are not new to the field, for the USPS, they are completely
foreign.
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Appendix A – Current Restructuring Objectives4
Source: 2012 USPS Plan to Profitability 5- Year Business Plan
4
All Plan B strategic initiatives support the goals of the Restructuring Objectives in the USPS’ current plan. All initiatives, placed in the context
of the external environment of the 2010s, seek to serve these purposes. While the USPS has historically focused on what they are currently doing
to support these aims, Plan B focuses on how they will be able to support these aims in the future. It may be appropriate to note that “Fairness to
employees” could be debatable by USPS’ current employees, who face either termination or an uphill battle as they re-identify with their jobs and
duties moving forward.
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Appendix B – Changes in Marketing Spending by Medium 2007-20095
Source: Office of the Inspector General. (2011). Postal Service Role in the Digital Age. Part 1: Facts and
Trends. Washington, D.C.
5
Note the rate of chance: 30% increase in mobile and 20.8% increase in email advertising media in just a two-year time frame. Such change is
indicative of a very rapid speed at which technology is replacing the standard forms of business to consumer communication. A one or two-year
lag is significant for businesses that fail to adapt.
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Appendix C – Metrics
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Strategic Initiative 1 – Facility Reduction and Consolidation
o Reduce Capacity by 60% by 2015
Strategic Initiative 2 – Reduction in Service Delivery
o Reduce delivery service rates to 3 times a week on January 1, 2013
o Eliminate physical home delivery by 2020
Strategic Initiative 3 –Establish Kiosks and Retail Outlets
o Expand Kiosks and Retail Outlets 500% by 2015
o Expand Kiosks and Retail Outlets 1000% by 2017
o Expand Kiosks and Retail Outlets 2000% by 20206
Strategic Initiative 4 – Partner with FedEx/Kinko's in Central Hubs and Kiosks
o 25% of all USPS central facilities leasing to FedEx/Kinko's (or similar company) by
2015
o 50% of all USPS central facilities leasing to FedEx/Kinko's (or similar company) by
2017
o 75% of all USPS central facilities leasing to FedEx/Kinko's (or similar company) by
2020
Strategic Initiative 5 – Creation of the USPS Smartphone App
o USPS Smartphone App created and released by December 31, 2013
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6
Expanding Kiosks and Retail Outlets is essential for the replacement of home delivery by 2020. Expanding the current number of kiosks twenty
times, while ambitious, is essential for sustained levels of access. However, this projection is doable. One contract with Safeway would allow for
a kiosk at every Safeway, for example.
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References
Boston Consulting Group, Inc. (2010). Projecting U.S. Mail Volumes to 2020. Boston, MA.
Capgemini. (2010). Innovation Management in the Postal Industry – the Key for Business
Transformation. Paris, FR.
The Economist. (2012). Geography matters as much as ever despite digital revolution, says
Patrick Lane. Retrieved October 27, 2012 from http://www.economist.com/news/specialreport/21565007-geography-matters-much-ever-despite-digital-revolution-says-patricklane)
Government Accountability Office. (2012). U.S. Postal Service – Mail Processing Network
Exceeds What is Needed for Declining Mail Volume. Washington, D.C.
Government Accountability Office. (2011). Foreign posts’ strategies could inform U.S. Postal
Service’s efforts to modernize. Washington, D.C.
Office of the Inspector General. (2011). Postal Service Role in the Digital Age. Part 1: Facts and
Trends. Washington, D.C.
USPS. (2000). Five-Year Strategic Plan FY 2001-2005. Washington, D.C.
USPS. (2005). Strategic Transformation Plan 2006-2010. Washington, D.C.
USPS. (2010a). Ensuring a Viable Postal Service for America: Action Plan for the Future.
Washington, D.C.
USPS. (2010b). Rural Free Delivery. Retrieved October 24, 2012 from
http://about.usps.com/publications/pub100/pub100_020.htm
USPS. (2011). 2011 Annual Report to Congress and Comprehensive Statement on Postal
Operations. Washington, D.C.
USPS. (2012). Plan to Profitability: 5-Year Business Plan. Washington, D.C.
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