USPS OIG Audit Report on “Postal Service’s Innovation Process for Competitive and Market-Dominant Products”
To overcome its current financial challenges, the Postal Service must recognize innovation not as the byproduct of an effort to improve operational efficiency only, but as a distinct strategic goal and activity. It must embrace a culture of innovation that begins with the most senior levels of management, understand the process that turns ideas into innovation, and commit to an organizational structure that allows innovation teams to work free from the constraints of day-to-day operations
The Postal Service faces regulatory and market constraints to innovation that private companies do not. For example, it must prove to the Postal Regulatory Commission (PRC) that new products and services will not violate statutory restrictions, will cover their attributable costs,3 and will not create an unfair competitive advantage.4 The Postal Service may not offer loss leaders, defined as goods or services advertised and sold at or below cost,whereas private sector businesses are free to use this business strategy. Despite these external barriers, the Postal Service has introduced some innovations including Priority Mail® Flat Rate Boxes, Intelligent Mail barcode (IMb), Critical Mail, Simplified Addressing, and the Flats Sequencing System (FSS).
While foreign posts have turned to alternate businesses–including banking, investment, and insurance–to address their economic challenges, the Postal Act prohibits the Postal Service from offering non-postal products and services, except for a limited number that were offered before January 1, 2006. In addition, the Postal Service faces challenges to innovation that private sector businesses are not subject to. For example, the Postal Service must prove to the PRC that new products and services will not violate statutory restrictions and will not create an unfair competitive advantage. The Postal Service may not offer loss leaders, whereas private sector businesses are free to use this business strategy. The Postal Service is also required to attribute costs in such a way that new products bear the full cost of research and development, advertising and promotion, and implementation.7
In the private sector, many of these costs are considered overhead. Further, each product the Postal Service offers must bear transaction costs as an individual unit, even though items sold at retail facilities are often add-ons to other transactions with lower incremental costs.
Under legislation proposed in September 2010,the prohibition against offering non-postal products and services would be revised, allowing non-postal offerings that are in the public interest and making use of the existing postal network, thereby giving the Postal Service additional flexibility. The Postal Service would also be permitted to offer services to state and local governments. For example, post offices might provide voter registration and driver’s license renewal.
Need to Effectively Manage Ideas from External Stakeholders
The Postal Service has a system to track ideas for improvements that are generated by Postal Service employees. The eIDEAS program is a web-based application that allows Postal Service employees to submit ideas online or at kiosks located in processing plants. The Postal Service encourages employees to contribute constructive ideas to improve customer satisfaction, generate revenue, increase productivity, and improve competitiveness.13 However, management of that system has been troubled. A U.S. Postal Service Office of Inspector General (OIG) report published in August 2010
Some entrepreneurs seeking to partner with the Postal Service by introducing innovative products or services offered their views regarding obstacles they encountered. During interviews with the OIG, they described a Postal Service culture resistant to change and unresponsive to customers’ needs. We interviewed individuals who attempted to introduce or develop innovations at the Postal Service to obtain feedback regarding their experiences. One individual developing innovative software for the Postal Service noted that management delayed the project so much that it eventually failed. However, several years later, the Postal Service implemented a similar application. Another individual experienced significant delays in obtaining approval for a mailing product that met his customers’ needs and satisfied Postal Service regulations. These entrepreneurs cited further obstacles to innovation, including:
* Guidelines regarding whom to approach with new ideas or improvements to existing products and services are not transparent and easily identifiable.
* The Postal Service dictates conditions to customers rather than listening to customers’ suggestions.
* The Postal Service discourages innovation by requiring innovators to present ideas without providing assurance that either the idea will be safeguarded or the innovator compensated.
The Postal Service resists adopting innovations suggested by customers if those innovations do not fit seamlessly into current operations. Instead, it requires customers to modify their innovations to meet all current standards.
* A process has not been established for approving new products and services or improvements to existing ones.
* Feedback regarding approval of products and services is not presented timely.
* Innovators within the Postal Service tend to get pushed out.
* There is an “us versus them” attitude.
* The Postal Service does not reward risk takers.
* The Postal Service, in certain situations, prohibits vendors from meeting with engineers to determine why products fail tests.
While the Postal Service is making an effort to engage a culture of innovation, the lack of a comprehensive innovation strategy including systemic tracking and management of innovative ideas has the effect of both limiting strategic vision and creating an organization that responds slowly to a rapidly changing business and technological environment. To overcome the challenges it faces, the Postal Service must reach beyond its current vision and embrace a culture of innovation that begins with the most senior levels of management, understand the process that turns ideas into innovation, and commit to an organizational structure that allows innovation teams to work free from the constraints of day-to-day operations. Without such a comprehensive innovation strategy, the Postal Service jeopardizes its long-term viability through loss of business to electronic diversion and industry competitors. See Appendix B for our detailed analysis of this topic.
We recommend the vice president, Government Relations and Public Policy:
1. Continue to work toward legislative changes that will allow the Postal Service more flexibility to introduce new products and services.
We recommend the president and chief marketing/sales officer and the chief financial officer and executive vice president:
2. Consider a comprehensive innovation strategy, based on the best practices of companies considered leaders in the field that includes innovation teams that are both independent of operations and actively collaborate with outside organizations, or other generally accepted forms of innovation teams. The strategy should also contain a system to support tracking and management of innovative ideas that are generated.