Going Postal

We don’t want to overdo this idea that the Internet is killing businesses. That idea has been done before. You may even have heard of this thing called the Internet bubble. : – )

But the fact is that the Internet is now wreaking real havoc in some areas, and organizations sometimes have their head in the sands. As we put it in “Billion-Dollar Lessons,” they have adopted a strategy of Staying the (Misguided) Course.

The latest example comes from a recent report from the U.S. Government Accounting Office about the U.S. Postal Service. Here are some highlights from the report:

“GAO is adding the U.S. Postal Service’s (USPS) financial condition to the list of high-risk areas needing attention by Congress and the executive branch to achieve broad-based transformation. Amid challenging economic conditions and a changing business environment, USPS is facing a deteriorating financial situation in which it does not expect to cover its expenses and financial obligations in fiscal years 2009 and 2010. This year, USPS expects to increase its year-end debt to $10.2 billion and incur a cash shortfall of about $1 billion.

“Another key risk factor is the accelerated decline in mail volume. Mail volume declined by 9.5 billion pieces in fiscal year 2008 to about 203 billion pieces. As of the end of May 2009, mail volume had decreased another 18.5 billion pieces, and USPS expects to end fiscal year 2009 with mail volume of 175 billion pieces—about 28 billion pieces fewer than in fiscal year 2008. Further, it expects flat or continued volume and revenue declines over the next 5 years. These trends expose weaknesses in USPS’s business model, which has relied on growth in mail volume to help cover costs and enable USPS to be self-supporting.”

In response, as reported by the Associated Press, the USPS is considering closing or consolidating nearly 700 offices, out of a total of 32,741.  Think about this: Mail volume is expected to drop more than 10% this year, after a big decline last year, and the Postal Service says it may close 2% of its offices. Does that really sound like they’re addressing the problem?

It’s been obvious for years–at least since that Internet bubble thing–that e-mail was going to take a big chunk out of mail volumes. But the USPS has primarily responded with price increases and, as the GAO report points out, continued to assume growth in mail volume in its business model. We realize the USPS is in an awkward situation because of the federal government’s role, and we’ve also seen the trial balloons that the USPS has floated about, for instance, possibly cutting mail delivery one day a week. Our general sense, though, is that the USPS is fighting a rear-guard action rather than really addressing its problems in a thoughtful, strategic way.

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