Letters From the Edge

With revenues in freefall and a complex business mandate, Postmaster General Patrick Donahoe sets the path out of fiscal crisis.

The U.S. Postal Service is a federal agency in crisis. Annual mail volume has declined by more than 40 billion pieces since 2006, accompanied by nearly $6 billion in annual revenue declines during the same period. USPS posted a $2.6 billion loss in the first half of fiscal 2011 and expects to run out of cash by the end of the year.

To combat declining funds, USPS is improving technology, cutting legacy systems in favor of more efficient processes and downsizing its workforce.

The agency has eliminated 135,000 jobs during the past three years and in March announced a Voluntary Early Retirement plan and $20,000 in financial incentives to select career nonbargaining employees. Reduction-in-force procedures are ongoing. Part of its struggle comes from its mandate to operate as a business within government. The 1970 Postal Reorganization Act turned the federally run Post Office Department into the U.S. Postal Service with four key flexibilities: self-supported financing, collective bargaining, new mail rate-setting procedures and the elimination of politically appointed executives. Prior to the transition, the postmaster general was a member of the president's Cabinet, and many management positions also were filled by appointees.

"They weren't focused on the commercial aspects of efficiency, service and on-time delivery," says USPS Chief Financial Officer and Executive Vice President Joseph Corbett. "It needed to become a commercial entity independent of politics."

Congress in 2006 passed the Postal Accountability and Enhancement Act, which granted more authority to the Postal Regulatory Commission, comprising five appointed members, and an Office of Inspector General; altered the rate-setting structure for certain mail categories; and mandated that the Postal Service prefund its retiree health benefits plans at more than $5 billion annually. Absent that requirement, USPS would be in the black.

Multiple Mandates

One challenge the Postal Service faces is balancing revenue generation to stay afloat with a mandate to remain transparent, all while complying with multiple layers of regulation and oversight, officials say. "It's chartered to act like a business, and yet it's government and has a requirement to be as transparent as possible," says Paul Vogel, USPS president and chief marketing/sales officer. "It's hard to be a business and to be transparent at the same time."

According to Corbett, a key issue is standing up the Postal Service as a commercially funded organization under many levels of operating constraints. The agency is accountable to an eight-member board of governors, the PRC and Congress, as well as the USPS inspector general, the Government Accountability Office, the Office of Management and Budget, and the Office of Personnel Management. Staff often gets caught up on "excessive" information requests from various entities, which makes it difficult to focus on running the business, he says.

"We have the checks and balances of commercial companies," says Corbett. "We're totally transparent in terms of what we do. But on top of those normal transparencies we also have the alphabet soup doing similar things in terms of their reviews. This has a redundant system of checks and balances that combines the 'best' of the [private] sector and government agencies."

In addition to a number of stakeholders both in and outside government, the Postal Service has specific legislation that regulates its operations, says Vogel. USPS is accountable to provisions in the 2006 accountability act, federal statutes that govern its pay and benefits, and the 2002 Sarbanes-Oxley Act, which sets standards for financial reporting and also applies to private industry.

"There is always a series of moving parts every time you make a decision," Vogel says. "Is it legal? Does it comply with laws? How does it affect stakeholders?"

The Postal Service is structured like a commercial entity with an independent board of governors and a leadership team whose fiduciary responsibility is to run the agency in the best interest of customers, says Corbett.

In the weeks after taking office in December 2010, Postmaster General Patrick Donahoe and other postal officials developed a set of strategic goals to guide the agency through its fiscal and operational challenges. In addition to improving the customer experience and growing its share of the package business and other consumer markets, USPS aims to be "leaner, faster and stronger."

To meet these goals, Donahoe initiated a restructuring of the agency's workforce, starting with top executives and trickling down to rank-and-file employees. Besides cutting officer ranks by 16 percent and continuing to drive down overall staffing levels, Donahoe consolidated a 10-member executive committee into the eight-member Executive Leadership Team and shifted top officials' responsibilities to address changing needs.

For example, the marketing and sales team under Vogel zeroed in on business growth and ceded industry, government and consumer relations to the team led by Deputy Postmaster General Ronald Stroman.

The operations group, which formerly oversaw engineering functions and international markets, now is focused on improving day-to-day processes and adjusting to declining mail volume. The information technology team has adopted all customer-facing systems and engineering projects. The only functions that remain mostly untouched are the human resources and legal teams. According to Donahoe, the next step is to develop a way to track progress on each group's core mandate.

"There are a number of things we work together on, and this roadmapping helps everyone understand who is supposed to be in the car on this specific project," Donahoe says. Postal executives agree that collaboration across the organization and leveraging functions in other departments are important steps in addressing the agency's strategic goals. "Regardless of title, we're all part of the sales team," says Chief Operating Officer and Executive Vice President Megan Brennan. "We have to support the sales initiative and work to grow profitable so we're not just focused on one side of the financial ledger. We have to look at both the expense and revenue piece."

Help From Outside

Members of the executive team, several of whom have a long history with USPS, agree that being a career postal employee puts one in a position to merge the agency's complexities with its changing needs.

"Career postal employees understand what our limits are, and that's important," says Chief Information Officer Ellis Burgoyne. "They also know our requirements better, they understand what we're looking for, and that's important because we do have some restrictions and institutional knowledge is important in knowing what those boundaries are."

Officials note, however, that spending decades with the Postal Service isn't a prerequisite for succeeding as an agency leader. USPS infuses external talent to help it evolve in response to changing customer demands and new technologies.

"It's always helpful to know where you've been and to know where you're going," says Donahoe. "But it's good to have new people come in with new thoughts because you could get stale, you could get stagnant if you never make those changes."

Hiring from the outside is particularly important in the chief information officer's division, says Burgoyne, noting that employees from the private sector, many of whom worked as contractors for USPS, balance out the existing institutional knowledge with new ideas for streamlining technology and operations.

"We do manage big," says Brennan. "It is a testament to the fact that over the years the organization has been good about identifying and developing future leaders. It's a priority."

To boost its career workforce, USPS has developed a comprehensive succession planning process, as well as strategies to recruit talent and develop future leaders. One selling point for employees is the chance to work across multiple job areas, move around the country and take on a lot of responsibility in a short period of time, officials agree, adding that employees are encouraged to try several career paths. Most members of the leadership team note they worked as letter carriers or on the mailroom floor before taking on supervisory positions at multiple levels of the organization.

"Because of the size and scope, there are opportunities for people if you're willing and you're flexible," says Brennan. "There are opportunities for you to take on complex assignments and cross-functional training, and if you have transferable skills you can work in other functions or departments."

USPS seeks talent both internally and externally for entry-level jobs all the way up to executive positions to ensure roles don't go unfilled. It hires interns in anticipation of future needs, provides career development opportunities for current employees to address more immediate needs, and turns to the private sector when they "need it tomorrow and there's no one there," says USPS Chief Human Resources Officer and Executive Vice President Anthony Vegliante.

According to Vegliante, much of the postal workforce is retirement eligible, which gives other employees opportunities for promotion but also highlights the importance of succession planning. To address turnover, the Postal Service focuses on building a deep leadership bench as well as facilitating learning and mentoring opportunities for the workforce. The transition between employees is an opportunity to introduce new ideas and processes, he notes.

"We don't wait until someone is an executive, we start when they enter management," says Vegliante. "This whole strategy on recruitment and retention has to do both with how we hire from the outside and . . . having a process that pushes people to learn more. I worry less about super-skilled talent. What you need are people who get the job done, revisit it and make it better."

Officials also point to the Postal Service's pay-for-performance system as a tool for driving continuous improvement. USPS in 2003 overhauled its compensation structure to better evaluate workers' productivity and increase transparency. According to Vegliante, the new National Performance Assessment measures an employee's contribution as an individual as well as to their work unit and the organization as a whole instead of ranking them on a six-level scale ranging from "poor" to "outstanding." Incentives are based on that contribution, and employees determined to be noncontributors aren't eligible for raises.

"If you miss your goal by a little, you get a small reward," he says. "If you exceed your goal by a lot you get a large reward. There's no finish line. Next year all the goals go up and the target keeps improving."

Pay for performance works because it self-funds through revenue generation, Vegliante says. The system eliminates cost-of-living adjustments, step increases and other entitlements available to other federal employees and allows employees to track their performance against their goals, he adds.

The compensation system creates a culture of achievement and drives efficiency, customer service and productivity, officials say, noting that many of the objective criteria on the performance assessment score card are related to those goals. "When you put a system like that in place, you create a very competitive organization where everyone wants to be at the top of the list," says Corbett. "It's all about establishing a system and rewarding people with that system. The only way you get anything is to achieve."

According to Vegliante, keeping the workforce focused is key to driving performance. Managers need to "keep the chaos off the workroom floor" and regularly provide employees information, he says.

"Communicate, communicate, communicate, and when that fails, communicate," says Donahoe. "Most people can take bad news as long as they hear it. It's when they get no news and are in a vacuum that rumors start."

Looking Ahead

Despite the Postal Service's current fiscal crisis, executives are optimistic about lessons learned and the agency's ability to move forward. USPS can stay competitive by keeping pace with technological advances, continuing to invest in developing products and services, and ensuring progress isn't limited by self-imposed constraints, they say.

USPS leaders also have been pushing for cost-saving changes outlined in the agency's 10-year strategic plan, released in March 2010. They want the flexibility to reduce delivery days from six to five, authority to close post offices for economic reasons and a reprieve from the requirement to prefund retiree health benefits. Lawmakers have yet to take action on the proposals, however.

In the face of the legislative constraints driving huge deficits, the Postal Service will continue to meet its core mandate-to deliver mail-and pay its employees and suppliers to keep operations intact. A culture of continuous improvement, as well as positioning the organization to address new challenges, will keep it from landing in a similar crisis in the future, executives say.

"I don't know that we're ever going to be there again," says Vogel. "I don't think any industry is going to be as complacent as they were even five years ago. But we've got a burning platform, and it's not going away."