Achieving High Performance in the Postal Industry

Accenture Research and Insights 2011

Organizations analyzed
North America
Canada Post Corporation FedEx United States Postal Service (USPS) UPS

Europe and Africa

Austria Post An Post (Ireland) Ceska Posta (Czech Republic) Correos (Spain) De Post-La Poste (Belgium) Deutsche Post World Net (DPWN, Germany) Itella (Finland) Le Groupe La Poste (France) Magyar Posta (Hungary) Poste Italiane (Italy) Posten Norden (Sweden and Denmark)** Posten Norge (Norway) Royal Mail (United Kingdom) South Africa Post Office Swiss Post (Switzerland) TNT (Netherlands)

Asia Pacific
Australia Post India Post* Japan Post New Zealand Post Singapore Post

Latin America
Correios Brasileiros (Brazil)

* New to 2010 ** The 2011 study is undertaken post the merger of Post Danmark and Posten Sverige and therefore reflects combined financials and rankings.

Contents
Executive summary Operating pressure The digital dawn Warmer climes Diversification The parcels opportunity Digitalization The rise of service providers Cost management Achieving high performance Follow the sun Next-generation post checklist Contacts 9 11 13 15 17 18 19 20 21 1 4 8

Executive summary

Despite many forecasters heralding the digital age and sounding the death knell for postal organizations in the past decade, the postal industry is still alive and kicking. However, two years of financial crisis and an economic slowdown have taken their toll.
Uncertain markets, coupled with the escalating demand for digital alternatives have meant sustained and progressive mail volume decline is the new reality. Buffered by these compounding elements, postal organizations are accelerating their commitment to the diversification agenda. Indeed, the pressure on the core mail product has encouraged many operators to respond by considering pure digital alternatives. Looking forward, the imperative for adaptability can only increase. Achieving High Performance in the Postal Industry 2011, the fourth report in our research series, explores the impact on postal players throughout a period of severe global recession and the green shoots of recovery. As mail volumes dropped, margins were squeezed, prices increased, and operational improvements were made; but the consequences of economic fragility meant the challenges remained significant. It became clear that, without action, volumes would continue to decline and the postal industry would reach a point where costs exceeded revenues. So where does the compass of progress point next for postal organizations?

Figure 1. Four strategic categories

Global players Criteria

At least 25% of revenue outside domestic market in 2009 Revenue came from more than one continent or trade block Clear strategy of international growth

Regional diversifiers
At least 12.5% of revenue outside their domestic market in 2009 Revenue came from adjacent countries or the same continent Dominant strategy of regional growth

Service providers
Dominant strategy of diversification through convenience and proximity Services beyond mail, shipping, banking and stationery Innovative solutions across channels

Traditionalists
Strategic approach primarily focused on improving the efficiency of mail National focus

Global players Whos who

FedEx, TNT (Netherlands), DPWN and UPS

Regional diversifiers
Itella (Finland), Posten Norge (Norway), Posten Norden (Sweden & Denmark) and Le Groupe La Poste (France), Swiss Post & Austria Post

Service providers
Australia Post, Correios Brasileiros (Brazil), New Zealand Post, Poste Italiane, South Africa and Singapore Post.

Traditionalists
La Poste (Belgium), Canada Post, Ceska Posta (Czech Republic), Correos (Spain), Japan Post, Magyar Posta (Hungary), Royal Mail (UK), An-Post (Ireland), USPS and India Post *

Note: Denmark Post has been removed from Traditionalists due to its merger. * India Post is the new entry in the traditionalists list.

Consistent with previous Accenture studies, our acclaimed High Performance Business Methodology has been applied. This methodology uses a quantitative model to assess financial performance. We then employ a qualitative model to determine the drivers of high performance. This qualitative model uses three views of an organization, the building blocks of high performancemarket strategy, distinctive capabilities and performance anatomy. Using this approach, we categorized postal organizations strategies into four main groups: the global players, the regional diversifiers, the service providers and the traditionalists (Figure 1). In the 2011 study, we broadened the list of organizations assessed to reflect market changes and took a closer look at how certain aspects of postal operations appear to be gaining greater visibility. Last years research had shown how the best performing postal players were responding to market trends by adopting a clear strategy of diversification. Whether that strategy was geographic diversification or service diversification seemed less importantas long as the postal organization was entering new markets, it was able to sustain performance. Our 2011 study challenges this finding, exposing a weakness in the geographic diversification strategy; while such a strategy might offer protection from a downturn in a local economy, it struggles to survive a global economic downturn. As a result, 2

2011 proves to be the year in which the strength of the service provider strategy emerged (see Figure 1 for an explanation of our strategic categories). One aspect of diversification in particular is evident from the 2011 studythat of digitalization. Embraced by the high performing postal operators, we can see how digitalization is being used from the basic level of a new channel through a full-blown business opportunity. It is clear that the digital era has dawned in the postal industry. Indeed, the trend of decline in the core product is so pronounced that Accenture predicts that many operators will have no choice but to aggressively pursue pure digital solutions, fending off concerns about the extent to which it will cannibalize their existing core business, to secure their position as postal players of the future. Finally, the 2011 study supports an earlier Accenture hypothesis: that cost management, coupled with a strong focus on sustainability, provides the foundation that will allow postal organizations to weather the storm of future market uncertainties.

Key findings Our 2011 research identified the following critical trends in the postal market and the relationship with high performance:
Diversification is the route to high performance Postal organizations that achieve high performance are focused on growing new revenue streams. They are actively seeking new markets to compensate for loss of volumes in their core domestic markets. Business-to-consumer (B2C) e-commerce offers strong growth prospects in almost all markets and postal organizations are well positioned to take advantage of that growth. Service providers are delivering additional revenues from new products and services while regional diversifiers are generating growth through both geographic and product diversification. Digitalization is being consistently embraced and exploited by the high performers Digitalization is being embraced by all of the postal organizations studied. Digital technologies can provide additional channels to market to offer efficiencies in the operational side of the business and bring value-add services that are clearly understood by all. As the 2011 study highlights, postal operators that achieve high performance are taking full advantage of the digital opportunity by offering digital mail, e-commerce and wider electronic services. Cost management has become a core capability for high performers For decades, the postal industry was able to predict volume growth by following the trend in Gross Domestic Product (GDP). However, as the 2011 study shows, there is a fundamental break in this relationship with the gap between GDP growth and traditional mail volume growth widening. In many markets we now have solidly positive GDP growth and strongly negative mail volume growth. As a result, future prosperity will be dependent upon a reduced and flexible mail-related cost structureand cost restructuring rather than management will soon become mandatory, if it is not already. Postal organizations pursuing a service provider strategy increase the potential for high performance Historically, all forms of diversification have been shown to lead to high performance, yet in the 2011 study the accent is on the strength of the service provider strategy. Four out of our six service providers feature in the top ten performance category and all service providers either retain or improve their rankings. Service providers outperformed peers on revenue, capital spread and consistency of revenue. Overall, service providers delivered the strongest revenue growth platform. Indeed, the indications are that the service provider strategy is more resilient to the global downturn with diversification minimizing exposure. Top performers retain their position regardless of market conditions Postal operators achieving high performance from the earlier research sustain their ranking. Since the Accenture study in 2009, we have seen that postal organizations that achieve high performance outperform regardless of market conditions. Almost 80 percent of the top performers in 2011 are the same as last year, with service providers ruling the rankings. This is core to our high performance methodology and the velocity of change in the postal market confirms the methodology. There are few, if any, markets that have endured as much change as the postal market, yet our high performer list remains consistent. This reflects that these organizations have a culture and a business model that allows them to adapt to change. High performers establish a culture and operating model to sustain high performance Postal organizations that achieve high performance score well in all aspects of their business performance, faring equally well in the parameters of revenue growth, capital spread, employee spread, consistency of revenue and consistency of spread. They focus on both revenue generation and cost management levers, increasing revenue and decreasing costs. These top performers have a culture that puts innovation and customer centricity at the heart of everything they do. This approach enables them to perform well, even when operating in a competitive or liberalized market. Indeed, there is a trend that would suggest that a highly competitive marketplace may provide a stimulus for high performance.

Operating pressure

The global financial crisis brought unprecedented disruption to the postal market and, while there are signs of recovery, economic instability remains. Volumes continue to decline in most markets and it is clear we are entering a new era for the postal industry; an era where volume decline is a sustained feature.

Figure 2. Recessionary impact on mail volumes at United States Postal Service (USPS)

1929: Stock market crash 900,000 800,000 700,000 600,000 500,000 400,000 300,000 200,000 100,000 0 1929 (5%)

1987: Stock market crash (Black Monday)

2001: Economic slowdown

2008-2009: Economic slowdown 250,000 (4%)

Strong growth
5% 0% 3%

(2%)

0%

2%

(13%)

200,000

150,000

Strong growth

100,000

50,000 (8%) (18%) 0 2010

1932 Number of employees

1950

1980

1989

2001

2004

2007

Pieces of mail handled (in millions)

Such an environment places enormous pressure on management to increase flexibility in the cost structure of postal organizations, particularly in their operations. As we can see from our research, postal organizations that achieve high performance may be growing their top line but are still focused on managing their cost base. In response to the decline in traditional mail volumes, cost management and simplified business models take center stage with postal operators taking structural steps to realign workforce with demand patterns, optimize their mail value chain and restructure customer touch points. Our research shows that volume trends during the past year varied by regions, with North America and Europe experiencing revenue decline of 2.5 percent and 6.9 percent respectively. In contrast to this, Asia Pacific benefitted from an increase in revenue growth of 9.2 percent.

A more granular examination shows that the latest downturn was not discerning, with both the small and large postal operators experiencing difficulties. Indeed, USPS saw the greatest decline in mail volumes since the Great Depression (Figure 2). Historically, volumes have rebounded after economic contractions. For example, the period between the stock market crash of 1987 and the 2001 economic slowdown was characterized by strong growth. The challenge this time is that a reversal is not anticipated. The outlook for mail volumes for the next 10-year period ranges from negative to significantly negative, depending on the projected e-substitution rate (Figure 3).

Figure 3. Mail volume forecast to 2020 at United States Postal Service (USPS)

USPS estimates
220 210 200 190 Mail volume 180 (billion pieces) 170 160 150 140 130 120 110 2006 2008 2009 2020 2012 2013 2014 2015 2016 2017 2018 2019 2007 2010 2011

Estimates based on three-year CAGR

350 300

Best case 2010-2020 decline: -15%

Worst case 2010-2020 decline: -34%

250 Mail volume 200 (billion piecies) 150 100 50 0

World: -43.4% NA: -49.4% USPS: -50.5% EALA: -34.7% APAC: -30.9%
2009 2020 APAC 2012 2013 2014 2015 2016 2017 2018 2019 2010 World 2011

Best case

Worst case

NA

EALA

USPS

Source: United States Postal Service Annual Report 2010

Source: Accenture research

To give some indication of the significant role that digital will play in the future market, it is helpful to examine the situation at USPS. If substitution continues at current levels USPS estimates that its mail volumes will decline by 15 percent over next 10 years; however, if it follows a substitution rate similar to that of the European market, the decline could be as much as 34 percent (Figure 3). Based on our estimates using the last 3-year CAGR (USPS=-6.2 percent); USPS volumes could decline by a staggering 50.5 percent. In short, these forecasts indicate it is unlikely any postal operators will be able to address the resulting loss in revenues and profits through cost improvement activity alone; product and service diversification is essential to arrest the downward revenue spiral. Perhaps the most surprising discovery is that volume decline does not necessarily affect a postal operators ability to achieve high performance: Poste Italiane registered a 9.9 percent drop in its postal product volume (which translated into a 5 percent decline in postal services segment revenue), but overall revenues increased by 13 percent. This is due to its growth in financial and insurance services.

Australia Post saw a 5 percent decline in mail volumes with the impact cushioned by price increases and growth in parcel and logistics and retail and other agencies revenue. Singapore Post saw mail volume decline in its public mail category, yet it retained its high performance by sustaining revenues and profits, largely through a 5 to 6 percent growth in logistics and the retail business. The severity of the volume decline clearly made it more difficult to run a profitable business and will make it even more difficult in the future, even with revenues from diversified businesses helping to soften the fall. Across the board our 2011 study showed that, with revenues under pressure, most postal organizations stepped up the scale and scope of their cost management initiatives. USPS, Royal Mail, FedEx, TNT and most other postal organizations implemented cost saving measures through restructuring and reorganization. One consistent trend is that labor costs were reduced quite significantly by most operators.

Figure 4. Declining trend in mail volumes

Mail volume (billions)

Austria Swiss TNT Finland Norway Royal Mail Spain DPWN-DHL 2.4% -0.9% -4.7% -7.0% -12.1% -5.5% -9.6% -5.9% 5.1 4.6 20.0 18.9 201.1 175.7 Canada -8.2% 11.6 10.7 7.6 7.8 5.1 5.0 4.7 4.5 3.0 2.8 2.6 2.3 19.7 18.6

EALA: Negative impact of crisis

USPS

-12.7%

NA: Larger the player, greater is the negative impact

India New Zealand Japan Singapore Australia

2.3% -7.4% -3.5% 2.2% -5.1%

6.4 6.5 1.0 0.9 22.0 21.2 0.9 0.9 5.6 5.3 2008 2009

APAC: Mixed response to crisis

The digital dawn

So what does our 2011 research tell us about digitalization? Digitalization is now a primary, and perhaps the critical, strategic consideration.
Digital alternatives are diverting volumes from the physical channel and fundamentally disrupting the postal business model. The growth in digital substitution is being driven by all the major customer segmentsconsumers, businesses and governments: Consumers have greater access to a wider range of digital communication mediums and are more confident of the digital platforms which offer them anytime, anywhere access to information at their convenience. Businesses are aggressively seeking out ways to shed costs, placing the emphasis on reducing paper statements by reducing the frequency of statements, utilizing new communication channels and consolidating communications across business units. Governments facing deficits are seeking ways to cut costs and address citizens demands for greater transparency and communication. Governments aim to reach more citizens more often in a cost effective manner and are choosing technology to rethink the way they interact with citizens. The speed and ubiquity of technology is helping to open up digital alternatives. New devices such as the iPhone and iPad are changing the market dynamic across all industries. For example, the newspaper industry has recently started to re-invent itself by finding a model that allows it to charge for online content. For many years, the newspaper industry has been concerned that a viable commercial business in 8 a digital world was unachievable. Consumers expected digital content to be free and the online subscription model proved largely ineffective. With the advent of the iPad, the newspaper industry found a means to improve the quality of the productand charge for it. The most advanced example of this is The Daily,a digital newspaper, which was launched by Rupert Murdochs News Corp for Apples iPad in February 2011. This pioneering launch of a subscription-based, tablet-native national news brand has not only offered a lifeline to existing newspapers, but also stimulated the market. With postal organizations focused on survival and overall traditional mail volume decline projected close to 25 to 50 percent over the next five to 10 years, diversification is no longer an option but a necessity. Indeed, postal players need to take the bold step to introduce digital offerings as a means to move beyond the current diversification spectrum. The question is, are postal organizations prepared to fully commit to digital mail or will they wait for a competitor to walk away with the volume? Accenture believes postal organizations need to create a solution which is the digital equivalent of the physical mail, integrating the digital and physical mail value chains to provide seamless products for senders and receivers. Postal operators can capitalize on their existing assets and sustain their competitive advantage by providing not only complementary offerings to their core products but also endto-end, integrated solutions that blend and enhance physical and digital offers.

Warmer climes
Let us take a more detailed look at some of the conclusions from the 2011 research.

Diversification Postal organizations that achieve high performance adopt a strategy of revenue diversification. Product and service diversification has been the preferred diversification route for high performers.
A consistent conclusion from all our studies is that postal operators on the path to high performance diversify their revenue streams. Postal operators diversify in two waysproduct and services or geographically. Diversification of products and services covers both related and unrelated business areas. For example, extending existing parcels and logistics services and catering for the multi-channel needs of customers to gain a foothold in the logistics industry. In contrast, postal operators are also using their existing networks to diversify into unrelated businesses such as retail services, financial services, government services and mobile services. With respect to geographic diversification, postal operators are expanding into new regions that offer better growth opportunities than their existing home market. They are seeking out high growth potential areas, such as emerging markets, or offering specific products, such as parcels, across geographies. Across the international marketplace, postal operators are diversifying in five main areasparcels and logistics, mailrelated services, retail and financial services, emerging services1 and government services. Parcel, retail and financial services are the most popular areas of diversification with service providers. Service providers have predominantly diversified into financial services and retail, while most regional diversifiers have diversified into parcels and logistics. Broadly speaking, high performers also target specialized industry solutions and niche products. Our survey shows that Norway Post offers simplified Customs clearance for its parcels and Finland Post offers specialized cold storage logistics for grocery. DHL also has a specialized offering to protect temperature-sensitive pharmaceutical products. International players often develop logistics offerings targeting small- and medium-sized companies (SMEs), given their relative weight in international trade. Norway Post offers integrated SME logistics and IT solutions (Figure 5). Postal operators are extending financial services diversification. The uncertainties of the financial crisis opened up a window of opportunity for postal operators to continue their entry into financial services as customers chose to engage with non-financial institutions that were safeguarded by government support. But as the economic landscape improves, postal operators will need to aggressively innovate to maintain a competitive position. The financial services market is highly competitive and innovation is a critical to success. Not only will postal organizations need to expand their financial services offerings to cover areas such as insurance and mortgage credit, they will also need to provide new products and channels. For example, Singapore Post has a shortterm mortgages offering and Swiss Post has a credit card business. La Poste (France) has insurance and asset management, in addition to its retail banking offer and is now entering the consumer credit market. Poste Italiane offers
1 Examples include: Telecommunications (provision of Internet and/or telephony services) , E-commerce (online shopping and associated tradefacilitation services) and Business services (consulting and outsourcing services such as information systems) not associated with other areas (i.e., logistics or mail-related services)

Figure 5. Diversification by postal operators

Global players have the highest degree of service diversification followed by regional diversifiers.
Global players
100% 90% 80% 70% 60% 50% 40% 30% 20% 10%

Most of the service providers have diversified into financial services and retail.
Service providers

Traditionalists have the least degree of diversification and are lagging in parcels and logostics capabilities
Traditionalists

Regional diversifiers

Singapore

DPWN*

Posten Norden

Norway

Austria

South Africa

Hungary

USPS

UPS

TNT

Swiss

FedEx

France

Finland

Australia

Spain

Belgium

Canada

New Zealand

Royal Mail

Czech

India Mail

Italy

Others

Retail

Financial Services

Logistics

Parcels

Note: *Sold Postbank in 2010 Source: Company websites, Annual reports, Accenture analysis

Figure 6. Diversification journey of Poste Italiane

Revenue broken down by activity
Others 2% Financial 26%
Insurance accounted for 37% and Financial services accounted for 26% of revenues in 2004. Insurance accounted for 47% and Financial services accounted for 25% of Revenues in 2009.

2002-2005
Insurance 37%
Sharpened focus on retail, introduced consulting room for financial services The launching of Paccocelere Internazionale (and the agreements signed with the French postal operator regarding the use, for the delivery of parcels abroad, of both the logistics network designed by the latter and the Fedex and Chronopost groups) is aimed at increasing market share in the international parcels sector.

2006
Poste Italiane launched a customer relationship management program. Aimed at improving customer strategy, standardising processes across its business units and providing a unique multi-divisional view of customer information, the initiative was designed to both diversify the postal operators business and help the sales force to better understand customer behavior. Poste Italiane has the technologicalprowess to be able to offer innovative products and services for e-commerce and e-business. In 2005 the Raccomandata Online service was supplemented with an important new access tool further simplifying use: Microsofts Office application.

2007-2008
Poste Italiane (PI) launched PostMobile to offer basic mobile services such as voice and messages, standard value-added services such as news, entertainment, music and games, and distinctive mobile banking, mobile commerce, mobile payment and mobile postal services. PosteMobile is one of the early pioneers that contributed to the growth of mobile commerce in Italy. It was launched in November 2007 and by the end of 2009, the number of its customers reached 1.2 million. In 2008 acquisition of the Offset Printing unit of Baioni Stampa SpA was completed, with the goal of boosting the Groups presence in direct marketing and commercial printing.

2009

2010
Insurance 47%

Mail (including parcels) 35%

The UPU (Universal Postal Union) also assigned Poste Italiane to guarantee the security of the digital communications on POST, the domain created in 2009 for all postal operators of the world. Made the news in 2009 with a prestigious Postal Technology International Award as best Service Provider of the year.

a wide array of financial services and is utilizing its mobile business as an access channel for those services. New dimension of diversification: Mail-related services are on the verge of being redefined. Postal organizations that have created complementary mail services through digital offerings such as hybrid mail, online postage, and e-stamps may find they struggle to counteract the unprecedented volume and margin decline for traditional mail. By adopting a transformational approach through embracing a complete digital mail solution, postal operators can create a new stream of diversification opportunities, one where mail services are 10

able to shift seamlessly between physical and digital mail value chains. Diversification success story: Poste Italiane has diversified successfully by increasing the contribution from financial and insurance services. The Italian postal player is continuously innovating to make its operations more suitable for additional revenue streams. It has introduced financial consulting rooms at post offices to up-sell financial and insurance products, and introduced Postemobile to offer mobile postal services, thus creating linkages between mobile phone and financial services offerings (Figure 6).

An Post
Others 3% Financial 25% Mail (including parcels) 26%

The parcels opportunity

As noted in our 2010 study, while the core postal product may be at risk, B2C e-commerce is witnessing sustained growth. The burgeoning opportunity created by B2C e-commerce growth is in the parcels space (Figure 7). For instance, TNT handled the economic crisis by changing from its international (Premium) Express products to Economy Express products, a structural change that appeared more pronounced as customers sought to control costs.
Factors which are emphasizing the parcels potential are the increasing confidence in online security, online retails strong growth trajectory and Europe pushing for an integrated economic zone. Indeed, online retail is increasing: in the United States (10 percent CAGR), Western Europe (11 percent CAGR) and Asia (11 percent CAGR) over the next five years. The B2C segment growth is more favorable for posts than for express and logistics players as they have the deepest last mile ownership of the logistics distribution. Postal operators also have an advantage due to their expansive retail network, which is an asset in supporting product returns. Deutsche Post and Swiss Post have capitalized on the parcels opportunity by offering customized services for consumers. Deutsche Post has introduced Packstation and Swiss Post has introduced PickPost to allow customers to specify a delivery time and place. Customers are informed via short message service (sms) and e-mail about convenient delivery pick stations. Of course, there are challenges in the parcels business. Limited product offerings, automation or tracking capabilities can have a negative influence on the customer experience. Combined with pricing constraints, limited international shippingservices or other global issues, postal organizations certainly have some hurdles. The parcels market is appealing with strong long-term growth projected in the B2C market. Postal organizations have natural strengths in the B2C segment with pervasive retail networks and relatively low-cost delivery networks. But postal players often have weaknesses in their product offerings and the international competitors are adapting their operating models to focus on the B2C segment. Postal operators have a window of opportunity to strengthen their position, but this will require investments in capability to ensure market-competitive products.

Traditionalists

Royal Mail Canada Belgium

7% 3% 2% 2% 12% 1% 5% -9% -18%

12% 20% 35% 38% 2% 4% 14% 15% 15% 27% 6% 7% 53% 57% 92% 84% 40% 22% 76% 71%

Service providers and Singapore Regional diversifiers Australia France Global TNT UPS DPWN-DHL FedEx

Upward trend in parcel contributions

2004 2009

-5%

11

Figure 7. The parcels opportunity

12

Digitalization Postal organizations that achieve high performance are leveraging technology to introduce new products, countering substitution and helping to optimize postal delivery. High performers are not only digitizing postal services, but are using a transformational approach to create new digital businesses.
Postal operators are adopting information and communications technology to create digital solutions across traditional and new service vectors to help customers or consumers shift seamlessly between the digital and physical world. This shift must also account for the communication preferences of a population that includes both traditional and next generations. While the aging population may have a strong preference for physical mail, the younger generation is more amenable to digital communications, even for the most sensitive documents. Global players are at the forefront of offering the full spectrum of digital servicesdigital mail, customized e-commerce solutions for industries and advanced shipping solutions. German postal services company, Deutsche Post (DPWN), has launched its new digital mail product E-Postbrief which has crossed the one million users benchmark. The German postal player has also introduced the iPhone app POST MOBIL for mobile access for consumers and created a digital stamp handyporto to replace the traditional stamp. Regional diversifiers are creating digital offerings, too, but tend to have gaps in e-invoicing, shipping solutions, integrated online and mobile applications and document management. Service providers are at fast improving on their basic digital offerings to provide an integrated portfolio. Traditionalists are lagging behind in riding the digital and technology wave (Figure 8). Although postal operators that achieve high performance configure their value chains to add digital offerings, there is emerging evidence of a desire to bring together physical and digital offerings and create consistent messaging for consumers with integrated solutions. For instance, Swiss Post has created an interface known as the Virtual Post Office counter that gives information and online tools for all services provided by the company. Swiss Post has also created a mobile accessible website, where customers can log in via smartphones, iPhones and android-based phones. Despite these examples of effective digitalization, most postal operators seem to fall short of full blown digitalization, where a digital mail platform seamlessly replicates and integrates with an existing secure and legally binding physical mail network. Deutsche Posts E-postbrief provides the option of both digital and hybrid mail but legal security and legally binding status is pending. IncaMail, the digital mail service of Swiss Post enabling secure and verifiable sending of confidential or verified e-mails as approved by the Swiss Government, is the only digital equivalent of physical mail. However, it has yet to establish the same reach as can be achieved in the physical world.

13

Figure 8. Digital offerings from postal operators

Digital offerings for customers & consumers

Mail-related services
Digital mail Refers to the digital-to-digital format of mail delivery, a secure version of e-mail. It can be compliant with government regulations as an alternative for physical mail. Hybrid mail Refers to the physical-to-digital and digital-tophysical format of mail delivery, which allows varying mixes of physical and digital mail generation, conversion and distribution. Document management Scanning and archiving services for organizations to make the document management system transparent, more accessible and efficient providing single point access to multiple people/locations.

Parcels & Logistics

E-billing/ E-billing/EE-invoicing invoicing for for consumers customers Electronic invoicing is sending or making available an invoice and its subsequent processing and storage, wholly by electronic means. The e-invoicing process needs to employ fully structured data, which is capable of being automatically processed by senders, receivers and other involved parties. E-commerce E-commerce is the parcels opportunity. Providing end-toend solutions including reverse logistics and capabilities for international parcel supply chain is critical for E-commerce.

Multi-channel access for customers/consumers

Shipping solutions Online tools Full service from insurance, preparation of shipment, packaging to proof of delivery and specialized industry solutions are part of shipping solutions provided by posts. Tools for customers and consumers for shipping items like preparation of labels, making payments online, tracking deliveries, updating addresses, location nearest post office/ box/packstation which help instant exchange of information and customize as required. Mobile applications Tracking through sms or mobile optimized websites, option to change delivery time of shipments by customers/ consumers through mobile options. Web-based tracking Tracking tools to track delivery of post and shipments by customers and consumers and other parties in the supply chain.

Aside from transaction mail, postal operators can expand their portfolio of digital services to create additional sources of revenues and cost savings. Examples include: Closed user groups: leveraging the secure nature of their digital product and set up electronic document exchange with authenticated users at each end and an archive facility for users in medical, legal, financial and government sectors. Multi-channel marketing: integrating physical and digital direct marketing material and use this to build communities and market research groups. Applications for consumers: introducing spam-free mail boxes, secure vaults for important digital documents and services to digitize important documents, bill analysis services, preferential services, apps that sit on top of the digital mail platform. Expanded telecommunication services: providing multimedia content and offer mobile and other bundled channel services. Leveraging digital mail: utilizing digital mail to fulfill the Universal Service Obligation (USO). Present USO conditions encompass geographic scope, product range, access, delivery, pricing and service quality. Digital mail can be the answer to national postal operators need to control costs associated with the physical network and a USO redefinition will enable an equal and fair opportunity for incumbents and new entrants. 14

Digitalization success story: Singapore Post has digital offerings for business as well as retail customers and consumers. Business: includes ClickPost (the facility to send documents in electronic format with the printing, packaging and mailing is handled by Singapore Post; DMRocket (an integrated solution where a business clients entire direct mail requirements are fulfilled and ePost (a one-stop service that allow companies to print, process and send out large quantities of documents containing variable data such as bills and invoices or personalized survey questionnaires) and mailroom solutions. Retail customers and consumers: includes vPOST or Virtual Post (an online channel for bill presentment and payment services and a one-stop portal for online shopping and shipping services, as well as bill payment services); Shipping services (personalized addresses in the United States, Japan and Europe, giving them access to shop from overseas websites) and Shop@Post (online shopping catalogue with complimentary delivery services) and online tools such as postbox locator, postage calculator, postal code finder, track and trace for registered articles and logistics, expected delivery date calculator and online redelivery request.

The rise of service providers As the 2011 study shows, it is not only important to have a strategy but also crucial to have the right strategy to weather the impact of unexpected market turbulence. The service provider strategy has emerged as the strongest amongst strategic choices of postal organizations, by providing strong growth platforms with above industry average capital spread (Figure 9).
The service provider strategy has an advantage over regional diversifiers in that it provides higher growth due to its diversified product and services revenue streams and higher profitability by spreading the costs of a core physical network over other revenue streams. The regional diversifier strategy has been able to provide revenue growth but profitability has proven a chink in its armor. Expansion into new markets incurs additional costs that eat into the bottom line. Even in the relatively new growth area of parcels and logistics, service providers have the advantage, as they can leverage their existing physical network. The service provider strategy allows the existing brand strength and domestic presence to be leveraged to provide government services to citizens, thereby creating an additional revenue stream. Poste Italiane provides financial and insurance services and these sheltered its revenues against the global slowdown. These services competed with those of the financial service providers and delivered growth in a tough market. Poste Italiane leveraged its physical network of post offices alongside its digital platforms to create a robust financial services provider model. It improved the efficiency of its workforce by leveraging the existing sales force to sell higher margin products and services. Poste Italiane also uses its network of post offices to provide the interface between the citizen and government, with the postal player offering a wide range of services across many channels and, in some cases, taking on the responsibility of an outsource service provider. This form of social support witnessed significant growth in 2009, with an increased number of services provided to both central and local government. Singapore Post uses its tri-channel network of post offices, Self-service Automated Machines (SAM), and an Internet portal to provide postal, agency (including remittance) and financial services. It has continued to expand its suite of financial services and investment products. South Africa Post has only 61 percent contribution from it mail business (a decline from 66 percent during last year) while financial services contribute 26 percent and logistics 13 percent. Leveraging its extensive post office network of outlets, it is providing universal access to a range of financial services for all sectors of the market, particularly at the lower end. It has also expanded its logistics product range by forming alliances.

15

Figure 9. Market focus and positioning by strategic group

Global players

-2.53%

Regional diversifiers

-1.94%

Service providers

Traditionalists

-1.79%

Sample average

Service providers have the strongest revenue growth and are significantly 9.05% above average in capital spread. 1.98% Regional diversifiers have below average yet positive revenue growth but are lagging in capital spread. 5.23% Global players have the highest 6.50% capital spread but revenue growth has declined largely due to 0.36% significantly high exposure to the United States and Euro zone that were under the grip of the worst 1.46% financial crisis for many decades. 1.90% Overall service providers provide the strongest growth platform which is profitable, global players provide Revenue growth (average of 1, 3 and five-year growth rates) the most profitable platform while Capital spread (average of 1 and 3 year capital spread, defined as return regional diversifiers provide an on Invested Capital less Weighed Average Cost of Capital/ROIC-WACC) average growth platform.

Figure 10. Cost management levers for postal operators

Cost management across three levers Workforce

Downsizing workforce/ flexible workers Restructuring pension liabilities

Operations and supply chain/efficiency

Delivery days Operations restructuring Automated walk sorting Delivery network/route optimization Restructuring business/ departments Energy efficiency savings

Asset reorganization/ reengineering

Point of Sales revamp/ redesign/ownership structure (franchisee model) Product offerings

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Cost management Postal organizations that achieve high performance are cost conscious and see cost management as a continuous process in their challenge to remain sustainable and viable.
Outsourcing, perhaps one of the most recent trends in the postal world, can help postal organizations address the increasing focus on core operations, cost management issues and improve quality of services through standardized services and processes. As we see from Figure 10, postal operators have been focusing on three areas of cost management: employee cost, operational cost and supply chain-related cost reduction and asset reorganization/re-engineering. Realigning the workforce to reflect decreased demand and savings through route and business unit optimizations have been the most commonly employed methods. Indeed, our research shows that global players have focused on operations restructuring and downsizing their workforces. Regional diversifiers focused on route optimizations, energy efficiency savings and flexible workforce for cost cutting. Service providers focused on improving operational efficiencies by increasing throughput in their networks. Traditionalists have lagged behind in implementing cost saving measures. Cost management success story: The years 2008 and 2009 witnessed major initiatives for Poste Italianes restructuring, which aimed to increase synergies among group companies and gain industrial and commercial benefits in the form of efficiency improvements and cost savings. Organizational initiatives included creation of a business unit postal services function, aimed to take advantage of the close link between marketing and operating processes, to reduce time-to-market and increase the profitability of the products and services provided. In addition, reorganization of contact centers, collection and distribution logistics, sorting centers and delivery services contributed to improved cost containment.

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Achieving high performance

Postal organizations that achieve high performance are those that have been able to face challenges and eliminate or reduce capability gaps.
A number of factors distinguish the high performer from the rest: Leadership: The ability to challenge regulatory bodies and entrenched cultures to transform and shape the mandate and future of the company to adapt to trends. Mindset: The acknowledgement that even under the umbrella of a monopoly and restricted areas, almost all postal products and services have substitutions or market alternatives, thus making all areas competitive. In addition, it is important that there is a mindset that accepts that structural changes are required for survival in a changed environment. Innovation: The freedom to experiment and examine new operating models to drive new revenue, to explore ideas fully and execute them well before making a go/no-go decision, and the acceptance of failure as an option. Customer focus: The willingness to shift from an operations-dominant to a more marketing and customerfocused orientation. Efficiency: The ability to focus on improving overall efficiency to drive down costs and remain competitive. Workforce: Employing the right skills (customer service, team work, IT skills, etc.) at a cost effective level.

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Follow the sun

The dawn of the digital age is not only an opportunity for postal operators to chart a new course for their businesses but also a chance to follow the sun to more profitable times. As the digitalization of retail is changing how, when and where we shop, consumer demand is putting pressure on suppliers of goods and services to seamlessly transition from digital to analog shopping, and back again.

We have seen how the banking industry has transformed from a bricks and mortar business to a multi-channel accessible network providing seamless services at consumers convenience. Here, digitalization has been embraced to transform the business and create profitable opportunities in a manner that was simply not viable in traditional banking. Although market trends will continue to influence postal operators, there is truth to be found in the maxim success breeds success; as Accentures extensive research has shown, postal operators that achieve high performance can retain their rankings in good times as well as bad. Going forward, Accenture believes postal operators need to employ diversification, particularly digital diversification, and cost restructuring to survive and thrive in future markets. Indeed, as our 2011 research shows, postal organizations who want to enjoy the exceptional sunrise that results in a spectacular day need to first embrace the dawn of the digital age.

Research methodology
This report consists of analysis based on publicly available information, content published by the postal organizations and Accenture industry knowledge and experience. For a full overview of the methodology, please visit www.accenture.com/ postal. 19

Next-generation post checklist

Executives in the postal industry who hope to mirror the high performers must consider the following questions and realistically assess their answers:
Are you pursuing a diversification strategy to build a product and services portfolio? Are you diversifying in the growth sectors such as e-commerce, or offering an expanded set of financial services and retail services? Are you introducing new products and services to meet customer needs and extending the product portfolio? Are you diversifying to capitalize on the existing postal network? Are you embracing digitalization as a core for future operations? Are you looking beyond the scope of the traditional technological substitutes to mail and considering the full opportunity digital can bring to the future of your business? Have you considered an integrated multi-channel access solution with bi-directional communication capability? Are you pursuing a strategy that exploits the opportunity of an integrated physical and digital world? Are you looking at cost management as a core capability? Are you actively managing the cost structure or restructuring to align the business model with the new reality? Have you established a culture and operating model to sustain high performance? Do you have a mindset to pursue every opportunity for growth and redefine the business?

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Contacts

To discover more about how postal organizations can achieve high performance, please contact the authors:
Brian J. Moran Brian Moran is the managing director of Accenture's postal industry group. He leads a team of more than 1,200 postal consultants working at more than 15 major postal clients around the globe, helping them to achieve high performance. Moran has worked with leading postal organizations on a variety of projects including strategy, operations, back office solutions and large-scale program management. Moran has worked for Accenture for 20 years across a variety of roles and industries with a specialty in supply chain management. brian.j.moran@accenture.com vineet.narang@accenture.com Warren Tomlin Warren Tomlin is the Accenture global partner for digital post. Focusing on growth and innovation, Tomlin consults regularly with Accentures global clients on corporate, channel and product strategy and how to leverage digital as a positive enabler for growth. Prior to joining Accenture, Tomlin led e-business and online at Canada Post and most recently was named one of Marketing Magazines 100 Thought Leaders. Tomlin is based in Canada and holds an MBA from Queens University at Kingston. warren.tomlin@accenture.com Susan Barton Sue Barton is the Accenture Postal Industry lead for Europe, Africa and Latin America. She has worked with many leading international postal organizations providing support and advice across a broad spectrum of areas including strategy development; improving quality of service; conducting operational reviews; developing new organizational models; providing independent reviews of strategic business plans; and structuring commercial arrangements and renegotiations. susan.barton@accenture.com Vineet Narang Vineet Narang is the postal industry program manager within Accenture responsible for growing business, developing and maintaining offerings, driving various strategic initiatives and producing industry-specific points of view, and research papers. He has more than 10 years experience in business strategy, research analytics and project management and has worked with various government and public service organizations. Narang is based in New Delhi and has an MBA (finance and strategy) and a degree in computer engineering from leading Indian universities.

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About Accenture
Accenture is a global management consulting, technology services and outsourcing company, with approximately 211,000 people serving clients in more than 120 countries. Combining unparalleled experience, comprehensive capabilities across all industries and business functions, and extensive research on the worlds most successful companies, Accenture collaborates with clients to help them become high-performance businesses and governments. The company generated net revenues of US$21.6 billion for the fiscal year ended Aug. 31, 2010. Its home page is www.accenture.com.

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