Strategies for high performance in economic uncertainty
The economic volatility, sparked off by the implosion of global credit markets, continues to batter businesses around the world. Yet as postal operators grapple with the current economic situation, many are recognizing that this particular downturn is different. INTRODUCTION
The economic volatility, sparked off by the implosion of global credit markets, continues to batter businesses around the world. Yet as postal operators grapple with the current economic situation, many are recognizing that this particular downturn is different. Indeed, today’s business context-characterized by failures in financial services markets, global decline in consumer confidence and, in many cases, reactionary cuts to marketing investments and customer contact- has hit the postal industry at the very core of its business. In this global context, the three major revenue sources for a post-remittance and business communications, movement of goods, and direct mail – are being severely tested.
In our research and work with clients around the world, Accenture has seen firsthand how many organizations struggle to find answers in difficult economic times. Across the spectrum of business performance, no organization, not even those in the ranks of high performers, is insulated from the effects of the current downturn. Accenture research is also revealing ways organizations can orient themselves in this confusing environment. We know, for example, that high performance is the result of sound choices-about where and when to compete, how to be productively distinctive and how to create employee mindsets that drive success.
In Accenture’s January 2009 Outlook magazine, we published an article, “Managing in extraordinary times – New choices for new challenges” (see http://www.accenture.com/outlook for the complete article). We believe that in the current environment, making the choices that will lead to high performance will require the simultaneous application of two broad approaches to business management: a more focused and disciplined use of the ordinary levers of managing during a downturn combined with a more urgent pursuit of a particular strategy based on an organization’s current strengths and weaknesses. The following opinions are taken from the article and presented with the intent of stimulating discussion, and perhaps challenging traditional thinking in the postal industry.
EXPLOIT THE ORDINARY
Every postal operator today is under intense scrutiny-from anxious stakeholders (government and private), debt holders, nervous boards, impatient regulators, and concerned customers and employees. In these circumstances, management must first demonstrate the ability to run day-to-day operations better than ever. For postal leaders to manage to maximum effect in a downturn, they must exploit the ordinary levers at hand. Three operational imperatives will be critical to manage throughout the crisis.
1. Rapid and sustained cost management
For most of the world’s posts, this will be the most important imperative-but it must be executed with a surgeon’s dexterity. Costs, assets and investment must be scrutinized rigorously along the entire value chain, from Research & Development through operations to customer service.
The key is to balance the speed of cost reduction and the delivery of cash to the bottom line with the retention of critical business capabilities and future sources of value. Indiscriminate cutting of costs or jettisoning of assets will leave posts unprepared to rebound during the upturn. So, too, will reactionary cuts to discretionary spending that affect long term strategic programs designed to deliver new capabilities, products and services.
2. Customer acquisition and retention
Postal organizations always want to keep good customers and sign up new ones. But this imperative takes on even greater meaning during a downturn. Consumers and business are nervous and many are tempted to stay on the sidelines until the economic outlook improves. These actions hit the post hard, because it is activity from these customers that drives the revenue engine of the post.
It has never been more important for the postal operator to be seen as the first choice for mail and parcel services. In the current environment, prudent, investments in marketing, sales and customer access are essential. The key is customer centricity, seeing through the eyes of your customers first. Postal operators should focus on sustaining their customer base; many will be able to take share from competitors in their home markets or introduce products and services to new geographies where monopoly is not a factor.
3. Operational excellence
This imperative takes on added importance for postal operators in the context of the fight to retain and add customers. When all aspects of an organization-mail operations, retail, customer service, marketing, innovation-combine to impact the quality and reliability of service, operational excellence depends on the development and management of an effective operating model supported by processes that ensure the delivery of the highest levels of customer experience. Postal organizations should re-evaluate their model to see how it can be improved to ensure operational excellence.
MANAGE THE EXTRAORDINARY
As postal leaders deal with day-to-day operational challenges, they are also obliged to move quickly to manage the extraordinary. In real time they must confront the challenges and threats unique to this crisis, and they must do so at a speed that may initially feel uncomfortable or even impossible to gain and sustain.
Based on an assessment of where the business stands today, management teams must choose from three core strategies, managed simultaneously alongside everyday operational goals and challenges.
The chosen strategy needs to be priority for management, but not so much so that it risks overwhelming the business. The strategy cannot be allowed to cause significant interruption in the current business, and it must not be allowed to demoralize employees or even top management. Employee morale is critical to coming through a crisis in a stronger position, and management confidence and decisiveness in the face of challenges bolsters employee confidence.
The management team of a post in survival mode should focus primarily on short-term actions to ensure that it continues to operate as a contributing entity until better times return. In cases where survival is at stake, rapid action to secure cash flow and minimize exposure to risk can make the difference. Avenues to pursue include:
Postal operators facing current or potential shortages in cash flow should make renegotiating debt obligations or commitments to government a priority. Divestiture of non-core assets is another way to raise cash. Although asset sales are not an appealing prospect in the current environment, the reality is that prices could go much lower.
Another way to improve cash flow is by reducing costs. Greater efficiency in purchasing and debt collection can reduce costs. The costs associated with IT networks should be carefully scrutinized. Tools such a Lean Six Sigma can also be extremely effective.
In addition, where feasible, postal operators should re-examine their labor cost options to find an appropriate mix of career employees (full-time, shared services, telecommuters, part-time casual, etc.), contracted services (establishing operations using contracted resources), and partnerships (licensee, franchisee, etc.). One advantage of a period of economic volatility is that employees expect change, so posts should use this opportunity to push through improvements that might have met with strong resistance in better times.
Managers at posts that are in the fortunate position of having a strong balance sheet and healthy, if reduced, revenues should be looking at ways to use the downturn to strengthen their competitive position. Examples of repositioning strategies include:
Diversifying the Revenue Base
Accenture’s research into high performance in the postal, courier and express industry indicates that leaders are organizations that have embraced revenue diversification. Revenue diversification can be achieved by moving outside the home geography to introducing new products and specialised services. Postal leaders can assess their diversification strategy by asking themselves:
- Where is future growth coming from? What role will the post play in these markets?
- How should the company be organized-by product, geography, process, strategic partnership?
- What critical capabilities will be needed for success? Where do we have gaps, and what are our options for filling them?
- What products and services do we need to own? What products and services should we create through global partnerships?
Investing in innovation
Organizations that outperform their competition continue to invest in refreshing their products and services even during a downturn. It makes sense to invest now to understand how purchasing patterns are changing and what needs are emerging.
Moving early to anticipate and serve new needs can help to establish strong customer loyalty and a sound base for future growth. This is also the ideal time to streamline the innovation process, ensuring that it begins with gaining the highest quality customer insight, eliminating waste and increasing the focus on return on investment.
Upgrading human capital
Take up the opportunity to upgrade human capital and tailor it more closely to the needs of the business of tomorrow. Postal operators should map the required skills of the future against current skills in order to identify gaps, as well as overstaffed areas. Posts with the resources to invest in new skills and capabilities now will be better positioned for the upturn.
Despite extreme pressure to cut costs, postal operators should not abandon green goals. Those that remain focused on sustainability will become more efficient, reduce their exposure to volatile commodity prices, be prepared for stricter environmental regulation, enhance their reputation as good corporate citizens, and take the lead in the fast growing markets for green products and services.
Green supply chains, green information technology, innovative energy and resource efficiency concepts such as smart buildings, and new programs designed to measure suppliers on sustainability metrics are all examples of ways in which an emphasis on sustainability can help reposition postal organizations to achieve high performance.
The strongest organizations and management teams will use the downturn to grow. Some will build market share through mergers, acquisitions and international expansion. Other will focus on adding customers and strengthening their brands.
While a focus on mergers and acquisitions may seem counterintuitive during an economic crisis, it is actually even more important during tough times, when bargains suddenly become available. Mergers & Aquisitions present an opportunity for a post to add new and distinctive capabilities that capture more of the value chains in which they operate. Capabilities like creative services, customer segmentation and list creation, production of direct mail or accessing new logistics markets through acquisition of networks and assets in new geographies are all steps many posts should consider.
Looking outside is not the only way to grow during this period of uncertainty. Postal operators in a position of relative strength can win the intensifying battle to acquire and retain customers.
Given long-term trends of eroding loyalty and declining product advantage, an enhanced focus on customer centricity is necessary to maintain top line growth. To place the customer at the center of the business model, posts must do more than pursue traditional marketing and customer relationship management. They need to incorporate customers’ perspectives, values and action across their own businesses, in term of both strategy and operations.
New technologies, including customer analytics, and new processes that involve customers in the design of products tailored to their needs will be key. A critical look at brand strategy is also important in an environment where consumers’ real incomes are increasingly stretched by slower wage growth and higher prices.
Studies show the greatest changes in organizations’ relative position within their industries occur in times of economic turbulence, not calm. As a result, simply weathering the storm is not enough. Regardless of a post’s current position, management must take positive action-now.
As change accelerates in the business environment, a postal organization’s ability to make the right decisions quickly and to act on them with conviction must increase accordingly. Essential to this ability is a top management team that is tightly knit, highly communicative, and skilled at making rapid, collective commitments to action.
Challenging times provide one more opportunity for nimble postal organizations: finding their next generation of leaders. Economic volatility can serve as a crucible, a transformational experience that makes current and future leaders more able, confident, humble and self aware. By that logic, forward-thinking postal organizations should use this time to test their rising stars.
In the poem “If,” Rudyard Kipling famously wrote of the need to “keep your head when all about you are losing theirs.” In today’s business climate, postal organizations may do well to heed his words.