Sustainably of the Business Model of US Postal - Case Study Example

U.S. Postal (USPS) The key objective of this report is to assess issues regarding sustainably of the business model of U.S. Postal (USPS). As part of objectives, state of affairs regarding the enterprise is diagnosed; while on the other hand, some prognosis on an alternative and more sustainable business model for USPS are also discussed. Issues are highlighted in a separate manner in order to discuss empirical perspective surrounding each issue in detail. Available strategic alternatives for USPS are also tested in context to their outcome. Finally, three suitable recommendations are also made for helping the enterprise to ensure self-sustaining business operation. Published reports regarding the enterprise are used in order to validate arguments that are presented in the report. Three suggestions are backed by the empirical findings gathered in diagnostic section. On the other hand, it is up to the directors of USPS to decide whether to apply suggestions separately or collaboratively. Table of Contents Table of Contents 3 Introduction 4 USPS: Background 4 Diagnostics of state of affairs 5 Prognosis 8 Conclusion 9 Reference List 10 Introduction In 1973, Fortune Magazine published an article on U.S. Postal (USPS) named as “What the Postal Service cant deliver”. After 39 years, Ross (2012) reproduced the same article in order to highlight that U.S. Postal (USPS) could not operate as a self-sustaining business without choosing any two of the alternatives such as, 1- sacrificing services quality or 2-continuously raising rates for postal services. From business perspective, problem of U.S. Postal (USPS) is quite perplexing due to presence of several interlinked issues and in such context, strategic intervention is needed in order to address problems in suitable manner (Higgins, 2005). As a student of Strategic Management Accounting, the researcher has been asked to submit a report to the Directors of USPS, analyzing the state of affairs and offering suitable suggestions that can allow U.S. Postal (USPS) to adopt more sustainable business model. In such backdrop, following sections of the report will address two issues; such as, diagnosing the state of affairs and offering prognosis on what might be a more sustainable business model for U.S. Postal (USPS). Before going into the main discussion, operations of USPS will be discussed in order to develop thematic background for further discussion. USPS: Background U.S. Postal Service is a self-supporting government enterprise in USA and its service covers more than 150 million residences across the country (USPS, 2013). Service portfolio of the enterprise includes delivery of business mail, parcel delivery, residential mail delivery, postal ticket selling and post office boxes. Operating expenses of the enterprise is covered through postal service charges, sale of postage, auction money and sales of products. At present, USPS has established its presence over 30,000 retail locations and an online distribution channel is routed through website of usps.com of federal government. Annual revenue of the company has crossed the mark of $65 billion in 2012, while more than 60% of the customers of U.S. Postal Service are business clients and companies who frequently use postal services in order to send official mails. Diagnostics of state of affairs Although the future for USPS is presently looking bright; during 1970s, the enterprise had faced numerous problems like, poor service delivery, rising labour and operational cost, stagnating volume growth, controversy regarding federal government subsidiary on postal services of the enterprise and poor financial outcome. Consideration of research works of Homburg, Krohmer and Workman (2004) and Hrebiniak (2006) reveal the fact that contingency and multicolliniarity of macro and micro environmental problems make it difficult for government enterprises to build strategies that can address problems in an efficient manner. Similar kind of arguments held true for contingent business situation of USPS during 1970s, when the company was facing problems not only to improve service quality, but also to ensure sustainability of their business model. Therefore, the essay will diagnose problems for USPS in context to case backdrop being adjusted to operating environment of the enterprise in the 1970s. In the report published by Ross (2012), Postmaster General E.T. Klassen played vital role in identifying concerning issues for USPS. For example, Klassen pointed out that focusing extensively on cost reduction has caused poor service optimization of USPS such as, annoying delay of postal delivery, delivery of letters to wrong address and unnecessary harassment of customers. However, problems for USPS cannot be described in a line; a rather elaborated discussion considering macro and micro environmental perspective is needed in order to assign equal weight to underlying issues. Establishment of USPS is influenced by legal act of Congress and according to Ross (2012); the new establishment was seen as "independent establishment of the executive branch." From the foundation day, USPS was projected as a business that runs in similar manner as other commercial ventures and would be able to provide better services and achieve business sustainability through process efficiency and better management. It is optimistically regarded by both postal management and federal government that while running USPS as business like enterprise, the latter could cover its operating expenses by charging full price of services to postal mail service users (Ross, 2012). In such context, Forman and Argenti (2005) pointed out liabilities of private enterprises are far less than public enterprises. Therefore, it becomes more difficult for public enterprises to follow business model backed by profit maximization concept. Milton Friedman is considered as one of the most influential economist in 20th century. Friedman (1970, p.3) had defined responsibility of business as "there is one and only one social responsibility of business -- to use it resources and engage in activities designed to increase its profits so long as it stays within the rules of the game." The question is whether USPS can run its business only for profit maximization or should it follow a business only perspective as a practical alternative. In case of USPS, it became hard to function like a business firm due to multitude of issues (Ross, 2012). Issue 1- USPS had been established for offering postal services to all people across the country. So, the enterprise could not limit its operation to dense areas in the country for profitability reasons like, private firms. Being a self-supporting government enterprise, USPS was obliged to deliver postal service to all people in the country, regardless of heavy operating expenses. Issue 2- while working as business firm, USPS was plagued by rising labour wages and payroll cost (85% of the budget) and in order to reduce labour cost, the firm retrenched many senior level employees and skilful employees. For example, during the job cut period, employee base of USPS was cut down to 33,000, saving $400 million annually. On the other hand, USPS implemented faulty and accident prone mechanization that further created problems for small numbers of employee for processing large volume of mails (Ross, 2012). Issue 3- in latter phase, USPS employed more staff and higher mechanization so as to improve postal service delivery. The new arrangement happened with rising operational cost so much that it became impossible for USPS to compensate it with rise in production through higher mechanization, more efficient routing systems, tighter management as well as better working conditions and management (Ross, 2012). In such context, inelastic demand for postal services made it further difficult for USPS to formulate business models that can secure sustainable business growth. While conducting research on strategic management initiatives, Allio (2005) found that companies fail to understand strategic importance due to ambiguity regarding macro-environmental issues. USPS faced a similar kind of dilemma in understanding precise strategic initiative requirements for addressing rising internal environmental issues. Even in 2000s, USPS had not achieved much success in lowering annual expenses per delivery points. The following diagram can be used to highlight the situation. Figure 1: Operating Data per Delivery Point (Source: Slentz and McCann, 2009) During 1970s, the operating income of USPS was far lower than the abovementioned data point. In such context, USPS had 2 or 3 alternatives to turn the situation in their favour. First alternative- the enterprise could reduce frequency of postal services in planned and ordered manner, but this would invoke frustration among people regarding postal services. Second alternatives- they could increase postal charges in order to recover operating expenses, but such step could negatively affect demand. Third alternative- government could provide subsidy to postal services of USPS by increasing bill to the taxpayer. As major users for USPS are commercials customers, one can question that why would blue collar workers bear additional tax burden for low cost postal services of USPS (Ross, 2012). In order to ensure business sustainability, USPS needed to balance two concerning issues such as, managing rising operating cost and improve postal service efficiency such as timely delivery of mail, improving responsiveness of airmail facilities and delivering mail to right address. Problem for USPS had also been directed by poor administrative structure and unplanned operations. For example, Slentz and McCann (2009) suggested that during 1970s, although the mail delivery system was divided in eighty-five districts of five regions, distance-wise cost variations were still not incorporated in the budget. As a result, allocated budget was insufficient for postmasters to finance all operating expenses. On the other hand, Ross (2012) identified some operational problems for poor mail delivery system such as, non-delivery of sorting equipment, small employee base to process bulk mails, faulty service design regarding Area Mail Processing programs and Managed Mai and lack of coordination in air transportation of mails. On the basis of the above discussion, it can be said that the essay has managed to diagnose certain key issues in state of affairs regarding USPS. On the basis of such diagnostics, suitable prognosis regarding sustainable business model for USPS will be proposed. Prognosis Problems faced by USPS are quite similar to Royal Mail, which is the national postal service provider in UK. Profitability for Royal Mail had declined due to lesser amount of letters sent by people in UK as well as low margin on sales, thereby significantly heightening operating cost for Royal Mail. In order to address the problems, on October 11th, 2013, Royal Mail was privatized through London Stock Exchange (LSE) share flotation (Economist, 2013). Now, the question is whether USPS could also follow partial privatization initiatives of Royal Mail in order to gather additional finances and secure sustainability of business model. Answering this question is not simple because business environment and strategic objectives of USPS and Royal Mail do not belong to a symmetrical plane. Heide, Grønhaug and Johannessen (2002) and Harrington (2006) suggested that while implementing strategic initiatives, business firms need to audit their resources like, operational capability, employee strength and financial capability. In context to USPS, continuum matrix can be used in order to foreground three prognosis points. Market intensification model- according to Slentz and McCann (2009), USPS could go for public private partnership (PPP) model in order to control the operating expenses. In the PPP model, USPS will possess partial ownership of business services, while floating shares in New York Stock Exchange (NYSE) would help the enterprise to gather additional financial capital so as to mitigate operating expenses. Kosar (2012 and 2013) also indicated that internal governance structure needs to follow USPS private enterprise model in order to streamline business processes. Under public-private partnership, USPS should restructure entire logistic arrangement through proper area distribution, up-gradation in routing and sorting process and mechanization of manual processes in order to enhance speed and responsiveness in postal service delivery. Market leverage model- considering research work of Slentz and McCann (2009), it can be said USPS should bank on alternate revenue sources in order to ensure sustainability of business model. For example, the enterprise could segregate the parcel delivery system from main service portfolio and use multiple price points on different parcel items. In order to augment revenue from business operation, USPS could sell more of collectibles and postal stamps. According to Kosar (2012 and 2013) and Slentz and McCann (2009), operating cost for USPS was increased due to unplanned delivery cycle and lack of control over logistics activities. In such context, the enterprise should empower the private partner to control such irregularities. Internal control- USPS needed to follow optimal employee planning scheme in order to balance the ratio of employee to volume of mail to be processed. Proper human resource management should be established in order to conduct employee planning and monitor productivity of employees in order to take control measures. Conclusion It is evident from the above discussion that problems for USPS cannot be addressed by taking cross-sectional strategic initiatives; rather, directors should make longitudinal strategic arrangements in order to address problems. The researcher has suggested three suitable options that might be used by USPS in order to infuse sustainability in the business model. USPS needs access to more financial capital through collaboration business model, while the enterprise should transfer partial stake in ownership in order to leverage its business. In conclusion, it can be said that problems mentioned in the case study can be treated as strategic decision points for USPS in order to infuse sustainability in its business model. Reference List Allio, M. K., 2005. A Short, Practical Guide to Implementing Strategy. Journal of Business Strategy, 26, pp. 12-21. Economist, 2013. Why is the Royal Mail being privatised? [online] Available at: [Accessed 15 March 2014]. Forman, J. and Argenti, P. A., 2005. How Corporate Communication Influences Strategy Implementation, Reputation and the Corporate Brand: An Exploratory Qualitative Study. Corporate Reputation Review, 8, pp. 245-264. Friedman, M., 1970. The social responsibility of business is to increase its profits. New York. The New York Times Company. Harrington, R. J., 2006. The moderating effects of size, manager tactics and involvement on strategy implementation in food service. Hospitality Management, 25, pp. 373-397. Heide, M., Grønhaug, K. and Johannessen, S., 2002. Exploring Barriers to The Successful Implementation of a Formulated strategy. Scandinavian Journal of Management, 18, pp. 217-231. Higgins, J. M., 2005. The Eight ‘S’s of Successful Strategy Execution. Journal of Change Management, 5, pp. 3–13. Homburg, C., Krohmer, H. and Workman, J. P., 2004. A strategy implementation perspective of market orientation. Journal of Business Research, 57, pp. 1331–1340. Hrebiniak, L. G., 2006. Obstacles to Effective Strategy Implementation. Organizational Dynamics, 35, pp. 12-31. Kosar, K. R., 2012. The U.S. Postal Service’s Financial Condition: Overview and Issues for Congress. [pdf] Congressional Research Service. Available at [Accessed 15 March 2014]. Kosar, K. R., 2013. The U.S. Postal Service’s Financial Condition: A Primer. [pdf] Congressional Research Service. Available at [Accessed 15 March 2014]. Ross, I., 2012. What the Postal Service cant deliver (Fortune, 1973). [online] Available at: [Accessed 15 March 2014]. Slentz, H. and McCann, J., 2009. United states postal service future business model: Analysis & Action Recommendations. [pdf] Davis College of Business. Available at [Accessed 15 March 2014]. USPS, 2013. Postmaster General Urges Congress to Fix Postal Service Business Model to Address Marketplace Realities. [online] Available at: [Accessed 15 March 2014]. Read More