Monday, November 30, 2009

Challenges Facing All Potential Business Models

Potential business models all have to deal with eight challenges. They are:
  1. Maintaining Mail’s Importance to the Economy – The mail industry is responsible for over eight million jobs and $800 billion in economic activity.The business model can accelerate or retard economic growth depending on how well it serves customers that need mail delivery.
  2. Minimizing Financial Risks to the Federal Treasury – At the end of the third quarter of 2009, the Postal Service’s obligation to the Treasury for debt, retiree health benefits and workers compensation payments is $ 72.7 billion.
  3. Ensuring Financial Self Sufficiency – Since the passage of the Postal Reorganization Act, financial self sufficiency has been an objective of postal policy but was never defined much beyond the concept of accounting break even.While the Postal Accountability and Enhancement Act (PAEA) has as its objective that revenue and retained earnings of the Postal Service should be sufficient to endure financial stability, the current operating losses and limited cash reserves suggest that the Postal Service faces a significant challenge of being truly self sufficient.
  4. Adjusting to New Market Realities Serving Wholesale Customers – With the decline of the Postal Service’s business handling transactions and correspondence, both the Postal Service’s ability to provide universal service and its financial viability will depend upon meeting the service needs of its wholesale customers that send 500 or mail pieces at a time and will in the future generate more than 70% of revenue and 80% of the volume that the Postal Service handles.
  5. Adjusting to New Market Realities Serving Retail Customers – Over the next decade the Postal Service will see demand from retail customers declining below the 30% of revenue it is today.Adjusting the retail interface and operating network serving these customers creates significant financial, operating and political challenges.
  6. Adjusting Operating Costs to New Competitive Realities – The market realities of serving postal customers requires a leaner processing and transportation network and a modernized retail network.
  7. Funding Transition and Modernization Costs Rationalizing - Postal Service operations to reflect new market realities in wholesale and retail markets will require substantial cash outlays to cover the costs of right-sizing the network and workforce, modernizing the retail network and optimizing the processing network. The business model must find ways to raise this cash when operating losses, retiree health care payment schedules, and debt to cover prior-year losses provide few options
  8. Creating a Workforce for the Long Term – The new market realities and the operating and retail networks that serve them can provide good jobs for postal employees.However, the existing civil service based employment law framework, labor agreements and consultative requirements with management associations all reflect significantly different market and operating realities and the labor-management environment that existed four decades ago. These challenges are not unique to the Postal Service.
Similar challenges existed for nearly every foreign postal administration that has gone through a transformation of their business model. In addition, the Federal Government has had experience in dealing with the bankruptcy of Conrail and other railroads in northeast.

Executive Summary Part 1: Choosing a Mail Industry Policy
Executive Summary Part 2: Challenges facing all Business Models (this post)
Executive Summary Part 3: Potential Business Models

Full Paper: Examination of Potential Business Models

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