Monday, September 1, 2008

Royal Mail: Is There a Future?

The more that I read about Royal Mail, the more I wonder whether it is following the fate of the Penn Central Railroad. For those readers outside of the United States or too young to remember, the Penn Central Railroad was the railroad formed by the merger of the Pennsylvania and New York Central Railroads in 1968. Only two years after the merger was approved by the Federal regulator, the Penn Central went bankrupt in the largest corporate bankruptcy ever recorded.

As railroad customers, including freight, commuter rail, and intercity passenger customers, could not afford the liquidation of the railroad, the Penn Central along with other failing northeast bankrupt railroads were taken over by the U.S. government to form Conrail. The essential commuter passenger service was stripped from the railroad and transferred to state transit authorities that run them to this day. The intercity passenger service became the core of Amtrak's northeast corridor.

I bring up the Penn Central, not to talk about ancient history but to focus on how bad management, government policy, and overbearing and misguided industry regulation can cause a business to fail and fail rather quickly. Furthermore, the possibility of the break-up of Royal mail between the letter mail and parcel businesses seems to follow the break-up of the Penn Central between a for profit, freight railroad, Conrail, and a subsidized universal service provider of passenger commuter and inter-city passenger service (Amtrak, New Jersey Transit, and SEPTA commuter rail among others).

Given Royal Mail's current financial problems, and the difficulty that management, regulators, and government policy makers have in making changes quickly, maybe a break-up as part of a privatization effort is inevitable. The question is: is it advisable or can other actions provide a more secure future for universal service and the future of Royal Mail employees? For those concerned about the future of Royal Mail, or for the matter any other troubled posts, I would recommend two books on the Penn Central that may provide a lesson for those trying to find a way out of (or maybe a way not to get into) trouble. They are: "The Wreck of the Penn Central," by Joseph R. Daughen and Peter Binzen and "The Fallen Colossus: The Great Crash of the Penn Central," by Robert Sobel. The first is written by two journalists who covered the story of the Penn Central Bankruptcy. The second is written by one of America's greatest business historians.

What is clear from looking at the global postal industry, that not all posts have followed the same path as Royal Mail. Different management, regulatory, and government policy models exist in other countries that first transition their public postal operators to corporatization and in some cases privatization prior to introducing increased competition. Furthermore, in most of these countries the level of regulation is less intensive and government policy appears to have a lower priority on introducing competition and a higher priority on giving the Post the opportunity and freedom to develop a plan for competition that can succeed. It should be noted that the United States reflects a completely different model from what has been follwed in the rest of the world in that corporatization was only gingerly introduced in stages along with tight price regulation, and upstream competition was introduced from the dawn of automation which allowed the mailing industry to grow without the U.S. Postal Service having to make the capital or human investments necessary to accommodate the mail growth that the lower costs of automation allowed. Now the question in the United States is how does the U.S. Postal Service and the industry adapt to severe over capacity (especially if you combine the capacity of the private sector and the Postal Service), a new lighter regular regime and another small step toward corporatization.

Given the challenges that face the industry, regardless of the change model chosen, there are like to be just as many paths to failure as paths to success. But how can failure be avoided? The answer may be to observe what works and what does not in the industry and in the general business community. Just as the greatest generals study military history to avoid the mistakes of previous generations, so should today's postal executives and policy makers study business history to do the same. To start, I would would begin with some magnificient failures as described in"When Giants Stumble: Classic Business Blunders and How to Avoid Them" by Robert Sobel. Readers of this blog are invited to recommend in thier comments other books and articles that could help the postal industry choose a successful path.

No comments: