Postmaster general attempts to steer USPS out of the red

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."

In the July 1 issue of Government Executive, Emily Long examines the issues facing the U.S. Postal Service.

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