Pushing the Envelope (Italy Post Office)
A few years ago, the Italian post office was so inefficient that few Italians were surprised when kidnappers sent a letter threatening to cut off their hostage's ear and did so when the ransom was not paid. The letter, after all, had arrived well after the criminals' deadline. These days, Poste Italiane is no longer a national embarrassment. Corrado Passera, its chief executive, last month addressed the World Economic Forum in asymposium entitled "Racing Against Time". The subject was not ransom deadlines but corporate turnrounds.
In the span of four years, the 47-year-old Wharton MBA and former consultant has begun to make Italians forget just how bad the country's postal system used to be. Where once the domestic letter took an average of five days to be delivered, it now usually takes between one and four days, about the same as in France or Germany. Visits to the post office, which once demanded the patience of Job, have become relatively painless, thanks partly to Poste Italiane's introduction three years ago of the single waiting line, a simple concept many Italian banks have yet to discover.
The turnround is also visible on the bottom line. While Poste Italiane had a net loss of E1.4bn in 1997, last year it lost no more than E100m (£61m) and it expects to break into profit in the first half of this year. A stock market listing in 2003 is a possibility and could value the enterprise at E8bn-E9bn.
Mr Passera has managed to push through this newly commercial approach while retaining the support of union leaders, even though he has brought personnel costs down, from 91 per cent of revenues in 1998 to 69 per cent last year.
"You start to sense that postal workers have regained a certain amount of pride," says Ciro Amicone, secretary-general of the postal division of the UIL union. "A few years ago they were considered to be do-nothings and there wasn't much to defend them against that charge."
A number of factors has helped the turnround. To begin with, Poste Italiane's annual flood of red ink during the 1990s embarrassed Italian governments that were having to raise taxes in order for Italy to qualify for Europe's monetary union. Public uproar over cronyism, best expressed by widespread support for the judiciary's "Clean Hands" sweep against corrupt politicians and business people, led to the transformation of Poste Italiane from a ministry into a simple state entity. That switch, in 1994, stopped much of the cronyism that had afflicted the post office – the handing out of tens of thousands of jobs, most of them pointless, in exchange for votes. Unions themselves, which had abetted the cronyism, also realised that profits were more likely to guarantee jobs than discredited political parties.
"There had not been much hiring during the early 1990s but we still had a medieval, inflexible labour system," says Pietro Leonisio, secretary-general of the postal workers' arm of the SLC-CGIL, another big industrial union. "We understood that we couldn't keep a postal system that was so far outside European norms."
Enter Mr Passera. At the start of 1998, he was brought in to untangle Italy's ugliest bureaucratic mess by Romano Prodi, the prime minister of the day, and Carlo Azeglio Ciampi, the treasury minister. "I had just set up an internet bank and could have made a fortune. But then I received a conference call from Ciampi and Prodi offering me this job," he recalls, sitting in his sprawling Milan office. "I couldn't say no. Sometimes one has to make idealistic choices. I only asked for enough time to ask my wife, who was in the mountains."
Mr Passera's arrival was not without irony. He had been managing director between 1992 and 1996 of Olivetti, the struggling office equipment-maker that had benefited from a near-monopoly contract with Poste Italiane and had supplied the often unreliable equipment that made a visit to the post office even more Kafka-esque. It did not help that few postal workers were trained to use the equipment. The situation he inherited called for more than idealism. "When I got there we had two months' worth of cash for salaries, negative net equity and no technology. No one believed in the future. I had to make sure the government was behind us and start investing in people," says Mr Passera. His task was made easier when the government agreed to three annual capital increases of E500m, allowing the post office to reduce its debt and computerise its 14,000 branches. Drawing on his MBA and a five-year stint as a consultant at McKinsey, Mr Passera developed a five-year business plan that has proved to be remarkably accurate. He hired tough outside managers and began investing heavily in information technology and modern sorting equipment – none of it from Olivetti. He also invested in training employees to use the computers and moved more of them to the service windows.
To make believers out of disillusioned customers, notably businesses that were increasingly using private mail carriers, Mr Passera made a bold marketing decision. In 1999, Poste Italiane slashed the cost of sending a priority letter from E2.07 to 62 cents and promised overnight delivery on 80 per cent of priority letters. It also simplified tariffs for all other services. The move paid off. Businesses quickly began to use the service, willing to pay a 50 per cent premium on regular service in exchange for a greater certainty that letters would arrive within two days. (An informal test by the FT, however, was disappointing: of 10 letters sent by priority mail from Milan to Rome, six arrived the next day, three within two days and one within four. Of 20 letters sent within Milan, only 13 arrived overnight, six took three days and one took a week. The regular service for 10 letters within Milan was just as good. Regular service to Rome was in fact better.)
Poste Italiane has also begun to establish itself as a serious competitor to Italy's commercial banks, whose high commissions and poor service are alienating customers. According to a recent survey, 12 per cent of Italians want to switch banks within six months and 42 per cent of respondents would consider Poste Italiane.
Mr Passera is positioning Poste Italiane as Italy's anti-bank: late in 1999, it began to sell life assurance products just as demand boomed. In 2000, after seeing off lobbying efforts by the commercial banks, the post office expanded its banking services beyond the traditional savings account. Less than two years later, more than 2m Italians have a BancoPosta debit or credit card and Poste Italiane has become Italy's third biggest seller of life assurance products. Again, the formula was to keep the offerings simple and clear, another lesson many Italian commercial banks have failed to learn.
"Our commissions are the same for everyone. They are very low and they are not hidden," says Massimo Arrighetti, a former McKinsey consultant whom Mr Passera hired to develop the financial services. "That is not always the case with commercial banks." Now established lenders are fighting back, although it is as much a compliment as a threat that Confindustria, the Italian employers' federation, is complaining about the state's willingness to allow Poste Italiane to compete head on. A few years ago, Italian businesses spoke of the need for a better postal service to compete in Europe.
Such success makes Mr Passera an oft-mentioned candidate to run other large companies, private or public. "I want to stay here and see my plan completed," he says. In 1998, that called for a profit of E110m this year. Four years later, Mr Passera appears to have delivered it on schedule.
