Product and service innovation plus a customer focused mindset are key factors that differentiate high performers in the postal sector. By Brian Moran and Andre Pharand.
February 1, 2011
Costs are outpacing revenue growth for many organizations, while mail volume has failed to keep pace with GDP growth. Postal services can no longer rely on their letter carrying and bill-paying monopolies. And although new digital technologies and delivery channels herald exciting opportunities, traditional operators are losing ground to nimbler commercial operators. Some organizations see few options. The standard response to ballooning costs – price hikes – drives down mail volumes in today’s highly competitive markets. Indeed, saddled with a mail mix increasingly skewed toward direct mail, revenues for postal organizations are worryingly susceptible to economic and seasonal swings. In addition, traditional players are struggling to service the needs of a younger generation of customers in search of ever-faster access to information and better services. Nevertheless, our latest research shows that some postal companies are not only meeting these challenges but also enjoying real success in the process. In one important respect, the results of the latest study are consistent with those of the first (in 2006). For instance, there are still high-performance businesses among the largely government-run postal organizations. However, this new research also revealed significant changes in the components of the three building blocks that sustain high performance in all the industries Accenture has studied: market focus and position, distinctive capabilities, and performance anatomy. The postal peer group for the research comprised 23 operators from countries in Europe, North America, the Asia Pacific region and Africa. Since this highly competitive business is not limited to government or quasi-government organizations, we included the global express carriers and logistics services providers that have done so much to transform the global mailing and shipping market in recent years. Strategy matters In 2006, it did not seem to matter what sort of strategy a postal business chose to secure its market focus and position – as long as it had one that was clear and consistent. As we predicted then, however, intensifying competition has made a big difference. In 2009, the right strategic choice – specifically, a decision to diversify revenue sources through both geographic expansion and new products and services – has become critical to high performance. We categorized the postal peer group into four broad and to some extent overlapping categories, based on their apparent strategic choices: — Global players that derive at least a quarter of their revenues from well beyond their domestic market — Regional diversifiers with at least 12.5 percent of their total revenues generated in neighboring countries — Innovative service providers that focus on domestic customers but also offer them new products and services — Domestic operators that are primarily focused on the traditional postal business The global players outperformed the overall peer group across all measures. Innovative service providers ran a close second, experiencing significantly more profitable growth than their peers. By contrast, despite strong revenue growth, regional diversifiers were relative laggards, especially in terms of profitability. The widest performance gap of all was between domestically focused, traditional operators and the rest. In fact, the traditionalists underperformed the global players across all performance indicators in our study (see chart). To be sure, local circumstances complicate the performance picture. In continental-size jurisdictions – the United States and Canada, for example – posts struggle to provide a singleprice service. In other areas, underlying conditions are exceptionally favorable. For example, because Singapore Post operates on a small, self-contained island, it has been able to optimize the efficiency of both its mail delivery network and its retail outlets, and it consequently enjoys the lowest operating costs of any postal operator in the peer group. Freedom to compete Traditional posts in highly regulated environments are plainly at a disadvantage. Regulatory constraints, however, are not the decisive issue. Because our research clearly shows that as long as operators are free to compete by diversifying their sources of revenue, public ownership per se is not a hindrance to high performance. Norway’s government-owned Posten Norge, for instance, is a regional diversifier whose Bring brand, which offers mail and logistics-related services to the entire Nordic region, now accounts for 45 percent of the operator’s total revenue and grew an astonishing 33.7 percent between 2003 and 2007. And in exceptionally fast-growing emerging markets, publicly owned posts can do outstandingly well – witness the operational excellence of Brazil’s national carrier, Correios, or the performance of the South African Post Office, which has successfully diversified its product and service offerings. Intensifying competition has also clarified the distinctive capabilities required for high performance in this industry. Cost management and operational excellence, strong leadership and talent are just as important as they were in 2006, but only insofar as they support the clear customer focus that really distinguishes today’s high performers. These high performers maintain that focus, moreover, because they are fully committed to analyzing and understanding customer needs. In an industry where many players have yet to recognize that customer loyalty can no longer be taken for granted, the level of customer insight that this commitment yields is a distinctive capability indeed. Global players like TNT Post, the Netherlands’partly deregulated postal operator, which has leveraged its sophisticated customer segmentation capabilities to specialize in targeted industry segments like telecommunications and health care, have achieved solid growth by leveraging customer insight. Not surprisingly, in the private sector, the global express giants are especially good at turning that insight into improved customer retention – and higher revenues. FedEx, for example, ranks consistently close to the top in surveys of customer satisfaction, thanks to a global initiative that has made enhancing the customer experience a key competitive differentiator. Of course, by knowing its customers exceptionally well, a high performer can offer them exactly the right products and services – ideally, even before they ask for them. Innovation Agenda All the high performers, whatever their business model or level of government control, are successful product and service innovators of this type, offering their customers non-traditional, nonmail services like banking and insurance that can be delivered in new ways, including via cell phones. Indeed, innovation is yet another distinctive capability that puts them well ahead of the competition in an industry where game-changing products and services usually appear only once in a decade. High-performance businesses in the postal industry, in short, are not only more willing to change than their peers – the mindsets underpinning their performance anatomies actively challenge the status quo, and they behave more like entrepreneurs than government agencies. The high performers also support their innovation agendas, for example, by investing in networks of all kinds – sorting facilities, IT, retail channels – and by aligning these investments with their strategic agenda. They leverage technology to manage the business, deliver services and interact with customers. And they enlist the support of employees. When the Italian national carrier, Poste Italiane, became a mobile virtual network provider, for instance, it did so in partnership with organized labor. The Way Forward By diversifying into new geographies, products and services, by putting customers at the heart of their value proposition, and by maintaining a courageous and consistent innovation agenda, the high performers are showing the way forward for the postal industry. The competencies they boast today will become even more critical as the traditional posts lose their letter-carrying monopolies and the industry continues to liberalize. The future, however, will challenge even these high performers. For all the boldness of their revenue-generating initiatives, none of them are yet drawing significant revenue from innovation in digital marketing channels or from so-called hybrid mail products that leverage both digital and physical delivery – innovations that Accenture believes will be key to addressing the needs of a new generation of customers as well as the demands of environmental sustainability. Indeed, as product and service diversification in the postal industry continues to expand and evolve, there will be much to play for.