Wednesday, December 7, 2011

Where *are* they going??

In the article “GE: Goes with what it knows..” I was struck by how succinctly the author summed up the “Where were we, where are we going, and how do we get there” frame work of strategy. At GE, after relying too heavily on GE Capital and feeling, fairly strongly, the effects of the financial crisis in 2008, they reworked their strategy component of “where we are going” to now reflect their new increased focus on manufacturing and leading exports. Lohr even exemplified how they will get there by highlighting their increased funding for R&D as well as promoting ‘ecomagination.’

Where am I going with this? In this week’s current events the Postal Service, facing mountains of debt and possible bankruptcy, has taken the bold move to eliminate the guarantee of next day service. The Postal Service has been in serious trouble for some time and this last minute tactic may prove to be more of a band aid than a solution to avoid shutdown. Interestingly – ending next day delivery wasn’t the explicit strategy as much it was a consequence of another strategy. The post office is seeking to close upwards of nearly 500 post offices and eliminate 28k jobs, all of which would result in increased distances between distribution points ultimately increasing time for mail to get from point A to point b. I decided to do a little further research and determine whether the Post Office, while not officially releasing a document outlining specifically stated strategy, has indeed already identified their strategy construction. Using the principles of “Where were they?” “Where are the going” and “How will they get there,” I was able to suss out quite a bit about the Postal Service’s reaction to their financial troubles and how they plan to fix it.

Where are they now?
The Postal Service lost $5.1 billion last year. The postal service is uniquely not funded by any tax payer money and relies solely on the cost of postage to support them financially. This begs the question why they weren’t charging what it actually cost to send packages, newspapers, and letters – but I think that accounting question is for another class.

Where are they [the postal service] going?
The agency is looking to find $20 billion in annual savings by 2015, about $3 billion of which could come from various plans to shrink the network.

How do they plan to get there?
The agency hopes to cut $20 billion from the agency’s annual costs, now about $75 billion. They plan to accomplish this by closing up to 3,700 of the nation’s 32,000 post offices, reducing deliveries and cutting their work force of 653,000 employees by more than 100,000.

Patrick Donahoe, the postmaster general, urged Congress to approve five-day-a-week delivery and to remove the post office’s obligation to set aside about $5.5 billion a year for 10 years to prefund retiree health care, a burden that has accounted for a large share of the agency’s financial losses in recent years.


Sidebar: this is a particularly interesting development for those fellow classmates analyzing Netflix’s strategy: http://bits.blogs.nytimes.com/2011/12/06/postal-services-woes-add-new-twist-to-netflix-saga/

Sources:
http://www.nytimes.com/2011/12/06/business/cuts-by-postal-service-will-slow-first-class-mail.html
http://www.reuters.com/article/2011/12/05/us-usa-postal-overnight-idUSTRE7B41X220111205

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