The Cause of the Problems at USPS - Essay Example

STRATEGIC MANAGEMENT ACCOUNTING By: + Table of Contents 3 1.0 Introduction 4 1.1. Problem 4 2.0 Current State 7 2.1. Source 7 3.0 Solution 8 4.0 Conclusion: 13 5.0 Bibliography 14 Abstract The US Postal Service (USPS) has undoubtedly changed countless lives in a tremendous version when it comes to the delivery of mails. Since its inception in1775, hundreds of billions, perhaps trillions, of mails have passed through the corporation. However, in the recent decades it has proved to be a casualty of technology advancement. The once profitable corporation is now languishing in insurmountable debts, gloomy future and on the verge of decline. Having been tasked to look into the issues affecting the government-owned institution, Herr termed the model as broken and likely to bring the corporation to its knees. While many factors could be blamed for the situation, this paper has zeroed in on one issue: the business model. In comparison to other players, like the FEDEX and UK’s The Royal Mail, the evolution of technology was not supposed to have such severe effects on the institution. Besides highlighting these issues, the paper has offered the best model to adopt, and lucidly elaborated what entails. 1.0 Introduction The U.S. Postal service (USPS) is tasked with ensuring the mails sent through their platforms reach their destinations on time. Many American business people and the society expect that no letter sent through USPS will be delayed for whatever reasons. Rather, each is convinced that the institution has the capacity to deliver without the slightest hiccups. However, the situation has deteriorated as evidenced by the number mails that reached their recipients way after their expected period. In a bid to arrest the situation, the USPS management sought to have in place measures that would enable the corporation fulfil its mandate. One of these included laying off of the staff whose retirement period was near. Unfortunately, the situation was not remedied as the immensely experienced individuals were lost not to mention the subsequent workload. Upon realizing these measures were not effective, the management hired other people meaning the cost rose significantly. In light of these issues, this paper seeks to investigate the real cause of the problems at USPS. Further, a prognosis will be offered upon identifying the major issues bedevilling the USPS. 1.1 The problem with USPS A closer analysis of the woes facing USPS reveals that a single problem did not result in its current state. Rather, a myriad of issues including lack of innovation as evidenced by the number of letters that would be sorted by the clerks. Apparently, the process would be done manually, a process that inevitably cost the institution a considerable amount of resources (Ross, 2012). As noted by Teece (2010), it is almost impossible for any institution, whether public, government-run or private to remain afloat without innovation. Secondly, the institution was more reliant on the treasury than own budget and little, or no income, would come from the mail users. Additionally, the people using the institution to send the mails were not fully charged for the service thus creating a loophole for loss of a possible income platform. In short, one could conclude that the problem facing the corporation is to be termed as a model-failure. That is to say, the model adopted by the Postal service is solely to blame for the predicament, and if a solution is to be found, the model has to be changed. 2.0 Current state of affairs A business model normally offers a description of the rationale on how an organization usually creates, delivers and most importantly attains economic, cultural and social value (Sako, 2012). While one could argue that USPS’ model has these attributes, the fact is that it lacked a consideration on the economic part. As noted, the corporation relied heavily on the treasury for its budget, and could not even consider the suggestion of passing the expenses on to the mail users. This approach directly contradicts popular-yet-accurate assertion that any institution need to have a stable source of income, and this has to exceed the expenses. In other words, an organization has to be conscious of how it finances its operations, and ensure there is flow of the same. To have a better understanding of the issues bedevilling the corporation whose first postman was Benjamin Franklin, there are some facts worth highlighting. First, it is with regard to profits the corporation has witnessed; secondly, the losses it has continually experienced. Thirdly, the debts the corporation owes several bodies including the treasury. Also, the projections because as it is, the future seems pretty bleak for the American’s largest mail corporation. Besides having a decline in profitability, USPS has other challenges, which seem to stifle its capacity to have timely delivery. Figure 1.0 Source: Author Quite contrary, USPS has not really made profit since 2006; instead, its loss has skyrocketed to a whopping $46 billion as of FY2013. Further, the corporation has already reached its borrowing limit of $15 billion, has defaulted thrice on the Postal Service Retirement Health Benefit Fund (PSRHBF) prefunding requirement. Worse still, the current defaulted amount has hit the $16.8 billion mark, and it is projected that by 2020, the corporation’s cumulative losses will stand at $238 billion (Ellis, 2012: Herr, 2012: McKinsey, 2010). Of great concern are the implications that USPS’ insolvency will have on the nation since the mail delivery would be a nightmare. Also, the corporation employs 626,764 where close to 490,000 are career with 137,000 being on career (Herr, 2012: Herr, 2011). 2.1 The source While the real problem is squarely blamed on the model, there other issues that catalysed the situation faced by USPS one of which the lack of invention. Ross (2012) noted that prior to the 70s; the sorting would happen manually, a process that was clearly tedious. However, upon the introduction of advent machines, the process was fast tracked where 22,500 envelopes would be sorted hourly. Then, there is the concern of the corporation’s decision not to engage the mail users in the business operations. In essence, one could argue that USPS erred in adopting a business-like model without fully embracing all the components. 3.0 The solution The solution for the USPS lies in ensuring the business model is changed completely to fit the current trends in the market as well as adjust its operations models. Business models are responsible for all the other decisions made by an organization. This is because a business model entails the strategies, structure, environment, knowledge management and operations (London and Hart, 2011). While many models are applied in various businesses, Lim’s (2010) Environment-Strategy-Structure-Operations (ESSO) would be the preferred one in the case of USPS. Therefore, if USPS changes its model, there is a probability of change in the results obtained. The following section will offer the solution that if applied could see the situation changed significantly. The figure Source: (Lim, 2010) Environment The above figure represents some very important components, which if USPS had applied would have borne different results from the current ones. First, there is the part of environment, which seeks to understand the threats posed by the surroundings as well as the opportunities surrounding a business. Secondly, a business has to understand how the threats and opportunities affect them and their competitors (Caprotti, 2012). One of the opportunities that USPS failed to seize is the large volumes of letters that are posted during the major holidays. As indicated, some would reach the recipients’ months after the intended period. Recently, the UK government allowed the privatization of the largest mail service corporation, The Royal Mail. Comparing this trend with the one adopted by The Royal Mail reveal that USPS failed in understanding the environment. Apparently, one of the things the UK Corporation did was to have some premium services, which would cost more than the ordinary services. The innovation the UK Corporation was necessitated by the demand of the clients, a move that ensure profit margins increased (Parker, 2015). Conversely, there is no indication that the USPS had a similar service; in fact, even charging the clients was not an option to consider the US institution. Both the Royal Mail and USPS had similar PESTEL analysis results because both the US and UK are politically and economically stable. Thus, none could cite PESTEL analysis as the reason for their success or failure. The two did not have serious threats that could potentially affect their services meaning they could be at par in terms of success. Operations Here, this business model entails the major activities, resources, competitors, suppliers, customers and cost and revenue. Also, this section outlines the operational competitive priorities including the cost, quality, flexibility, innovation and time. In the case of USPS, the key activities include the delivery of the mails. Major resources are the machines used in the sorting of the mails, the staff and the means of transport. Suppliers and partners are the people offering the services to make sure the letters reach their destinations. The major customers simply are the people whose letters have to be delivered. Interestingly, USPS perfectly understood this part; the failure occurred in understanding the major competitors and operational competitive priorities. The above assertion is informed by the analysis and comparison of USPS’ expenditure with that of competitors. Apparently, the USPS spends 80% of its revenues on employees’ salaries and benefits; truly, a significant figure since the remaining 20% would not be sufficient to meet other obligations. Conversely, FEDEX (FDC), which is the major competitor of the USPS, spends only 43% on the same expenses (Lyster, 2012). Similarly, another competitor, the United Parcel Services (UPS) spends slightly above 60% of its revenue on employees’ remuneration. More disappointing is that the USPS enjoys government funding unlike the other two competitors, which are privately owned. Clearly, one can only echo Herr’s (2010) findings that the reason behind USPS’ deplorable state and imminent decline is the model. One of the reasons that blamed for the deteriorating situation at the USPS was that the corporation was required to receive and ensure delivery of all mails to any part of the country. However, it is the same with the Royal Mail yet the results vary in terms of profits. In fact, the UK’s corporation has been obligated by law to ensure universal services until 2021. According to Parker (2015), the Royal Mail adopted various services that enabled it to compensate for the long-distance mails. For instance, there is a service called Special service which sees the delivery of urgent parcels where £50 is charged for parcels expected to be deliver by 9am and £500 for those arriving by 1pm (Vinagre, 2012). Another important fact has to do with the workforce comparison between the USPS and the Royal Mail where the latter had 168,000 with 18000 of these being casual (Parker, 2015). Despite having a lower workforce, the UK’s firm is more profitable than the US one meaning there is something amiss. The answer to this query comes down to the level of innovation a company has because as noted, the USPS was not as innovative, did not have own funds and was somewhat nonchalant on the issue of billing the clients. Notwithstanding the funding offered by the government, it is imperative to understand an organization’s growth is mainly dependent on the level of innovation (Popescu, V., Popescu, G. and Popescu, C., 2012). Strategies Because of being a government-owned institution coupled with a relaxation of the need to have a working model, the USPS failure is inevitable. In the strategy part, an organization is concerned with the market opportunities where it seeks ways to ensure sales and subsequent profitability are achieved. Bloss (2013) stated that one of the eight of major challenges faced by the USPS was to be self-sufficient in terms of finances. For this objective to be a reality, similar trends to the ones created by the Royal Mail need to be adopted. Competitive advantage for the USPS supersedes the one for the competitors because of the trust. While the other competitors may assure convenience, the same cannot be said of security and the brand name. Thus, USPS has to come up with strategies on taking advantage of the market. Once the corporation has guaranteed of the timely delivery of the mails, the customer base could significantly improve since it is a widely known firm. This notion is confirmed by the success of the Royal Mail in the UK where a majority of people trust it even now when it is majorly private-owned. The reason for this trust among the UK market is the trend the firm set when owned mainly by the government (Parker, 2015). Therefore, if strategies are well laid at USPS, the situation can change but of there has to be a model overhaul replaced by the one suggested in this paper. Another important aspect of strategy has to do with market access, which talks more of available opportunities. In the case of USPS, being a government firm would have seen government contracts coming their way. Another important point about USPS is the overreliance on the First-class mail to fund most of its operations. The problem lies in the corporation’s inability to realize that there has been a decline on the volumes of this service since 2005. The problems are compounded by projections that the First-class mail will drop as well as the total mail delivery. Surprisingly, the First-class mails will decline by 30% by 2020 where only 50 billion pieces from 80 billion will be available while the total mails will be at 150 billion pieces from 212 (Kosar, 2013). With this information, drastic measures one of which includes a change in the model ought to be set in place to prevent further deterioration. Knowledge Management (KM) It is not clear in the reports concerning the USPS about their way of managing the information that came their way. The fact that two competitors are spent a significantly lower amount on the same expense than the corporation meant a failure in business intelligence (BI). Perhaps one of the major mistakes USPS made was to retrench the experienced individuals without having an apprenticeship program. Secondly, knowledge management demands the need to have information about competitors and customers and utilizing it for the benefit of the organization (Yeoh, 2013). While it is clear USPS perfectly understood the need to assure clients of timely delivery, it failed in conducting the research on other competitors. Upon receipt of information when BI is conducted, an organization is able to create strategies that will help in dealing with the competition. Additionally, it creates the awareness of the technological changes that may affect the business performance (Kamel and Irwin, 2013). Earlier, it was noted that this ESSO model has the environment as the major factor to note. In the case of USPS, it was reported that the substitution means of delivery had significantly affected its operations. Apparently, some clients have preferred the internet as a substitution for sending some documents. For instance, bills, invoices, slips and other documents meaning the volume of mails has declined by a great extent (Kosar, 2013). Unfortunately, despite having this information, the USPS did not strategize on ways to mitigate this technological factor. Most likely, the reason for this action would be lack of finances or the notion that it is a government-owned. In contrast, the Royal Mail in the UK performed more like a business than a government entity. Parker (2013) reported that even before the near-full privatization, the Royal Mail performed aware of the competitors. Strategies were drafted to ensure the firm had an upper hand in its operations. Innovation was evident as were channels to ensure that external factors did not push the firm into oblivion as the USPS faces. Structure Before allowing the firm to be 90% privately owned, the Royal Mail’s major stake was with the government, and this did not have much difference in terms of profitability. Often, a structure does affect an organization’s performance, when the strategies are directly contrary to the values and the objectives. Additionally, if the individuals fail to embrace the core values and work toward achieving the goals set forth by the organization (Alas, 2012). The statement was similar to the one said by Manohar and Pandit (2013) who argued that an organization’s structure is not as important as the strategies. The only time a structure may be a hurdle to an organization’s success is when it restricts innovation and other important strategies. 4.0 Conclusion To sum it up, the USPS has a chance reviving itself and perhaps becoming as profitable as previously the case. In order for this prediction not to become a wish, the recommended strategy in this paper needs to be adopted. The corporation has to consider its strategies especially in light of the expenditure by its competitors. Similarly, it could analyse the strategies employed by the UK’s most successful mail service firm, The Royal Mail. Essentially, all these suggestions are summed up in one word: Business model. Bibliography Alas, R. (2012). Coaching by Values: A Guide to Success in the Life of Business and the Business of Life. Cross Cultural Management, 19(3). Bloss, R. (2013). Automation pushes the envelope of postal mail handling efficiency. Assembly Automation, 33(1), pp.3-5 Caprotti, F. (2012). Environment, Business and the Firm. Geography Compass, 6(3), pp.163- 174. Ellis, R. (2013). Critical Communication History: The Premature Death of Electronic Mail: The United States Postal Service’s  E-COM Program, 1978-1985. International Journal of Communication, 7, 15 Herr, P. (2010). U.S. Postal Service: Mail Trends Highlight Need to Fundamentally Change Business Model (Report No. GAO-12-159). Washington, DC: Government Accountability Office (GAO).  Herr, P. (2011). U.S. Postal Service: Foreign posts’ strategies could inform U.S. Postal Service’s  efforts to modernize (Report No. GAO-11-282). Washington, DC: Government Accountability Office (GAO). Kamel, A. and Irwin, K. (2015). Obscure Business Intelligence OBI: Predictor Analytical Strategies for Maximum Business Performance and Market Dynamics. JOEBM, 3(2), pp.292-293. Kosar, K. R. (2013). The US Postal Service’s  Financial Condition: A Primer. Library of Congress. Congressional Research Service. CRS Report for Congress, R43162 Lim, K. (2010) Environment-Strategy-Structure-Operations (ESSO). Journal Of International Business, 4 (3)pp. 233 London, T., & Hart, S. L. (2011). Next generation business strategies for the base of the pyramid: new approaches for building mutual value. Upper Saddle River, N.J., FT Press. Lyster, C. (2012). Learning from FedEx: lessons for the city. Journal of Landscape Architecture, 7(1), pp.54-55 McKinsey (2010). USPS Future Business Model. New York. McKinsey & Company Available at: http://about.usps.com/future-postal-service/mckinsey-usps-future-bus-model2.pdf (Date Accessed: 13th March 2015). Parker, D. (2015). Privatization of the UKs Public Utilities: The Birth Of The Policy 1979-1984. Annals of Public and Cooperative Economics, p.n/a-n/a. Parker, D. (2014). Privatisation of the Royal Mail: Third Time Lucky?. Economic Affairs, 34(1), pp.78-80. Popescu, V., Popescu, G. and Popescu, C. (2012). Innovation’s Role in Nowadays Society and the Ways to Generate Competitive Intelligence and Accountability: Case of Romania. Journal of Innovation & Business Best Practice, pp.1-3. Ross, I. (2012). What the Postal Service can’t deliver (Fortune, 1973). [online] Fortune. Available at: http://fortune.com/2012/08/05/what-the-postal-service-cant-deliver-fortune-1973/ [Accessed 13 Mar. 2015]. Sai Manohar, S. and Pandit, S. (2013). Core Values and Beliefs: A Study of Leading Innovative Organizations. Journal of Business Ethics, 125(4), pp.667-668 Sako, M. (2012). Business models for strategy and innovation. Commun. ACM, 55(7), p.22. Teece, D. (2010). Business Models, Business Strategy and Innovation. Long Range Planning, 43(2-3), pp.172-174 Yeoh, W. (2011). Business intelligence systems implementation: testing a critical success factors framework in multiple cases. IJBIS, 8(2), p.192. Vinagre, M. (2008). Politeness strategies in collaborative e-mail exchanges. Computers & Education, 50(3), pp.1022-1022 Read More