We take no tax dollars and we don’t want them. That pronouncement, delivered at the press conference in February announcing a planned cessation of Saturday mail delivery, sums up the business stance and the character of Postmaster General (PMG) Patrick R. Donahoe. He is a throwback, one of those up-from-his-bootstraps (as a postal clerk in Pittsburgh 37 years ago) chief executives whose no-nonsense approach is guided by the unforgiving truth of the red and black ink on a P&L. At the same time, he conveys a gentle demeanor that harkens back to a time in the nation’s capitol when policy was legislated through practical compromise more than personal vindictiveness. While postal unions call for his head for trying to remove a day from their workweek, Donahoe has only good things to say about the rank and file of which he once was a member. “Our people do a great job,” he says. “We are a people-centric business and we will continue to be.”
But Donahoe is hardly a pussycat when it comes to pushing a recalcitrant Congress to enact postal reform. When last winter’s lame-duck session ignored his SOS entreaties and failed to pass a bill, Donahoe took matters into his own hands and announced an end to Saturday delivery scheduled to take effect this month. But mailboxes remain stuffed on Saturdays. Reacting to the wails of both congressional and union leaders, the Postal Board of Governors caved and cancelled Donahoe’s initiative.
With profitable First-Class Mail plummeting to levels last seen when the national population hovered at 200 million, Donahoe is as unmovable about five-day delivery as he is insistent that Congress deep-six the United States Postal Service’s (USPS) annual $5 billion obligation to workers’ healthcare funds. At times Donahoe sounds like a corporate raider who has taken the reins of an insolvent corporation. “While a typical business has two months’ worth of operating costs [in reserve], we have less than four days’ cash on hand,” he said about cutting Saturday delivery. “We need to take aggressive steps to reduce costs.”
Meanwhile, the turmoil and uncertainty surrounding the USPS has big business mailers attentive, waiting for a shoe to fall. They tentatively prepare for rejiggered delivery schedules and worry about an “exigent” rate increase—one that would be activated above and beyond the scheduled increases already approved by the Postal Regulatory Commission (PRC).
Cognizant of Donahoe’s alertness to the concerns of his biggest customers—business mailers—Direct Marketing News approached the PMG to ask if he would field a few questions from our readers. He readily agreed, and the editors turned to social media to challenge readers, “What one question would you ask the Postmaster General?” We selected the following six, which were posed to Donahoe by Senior Writer Al Urbanski in a phone interview.
“How can you assure technology companies [that] are investing in the direct mail channel that the USPS will be able to meet their delivery and service requirements now, and into the future, amidst the political and financial headwinds facing the Postal Service?”
—Chris Nolan, CEO and Founder, KleerMail
Donahoe: Number one, those companies that are investing with us are seeing that we are meeting delivery requirements better than ever. We’re using technology. Using the Intelligent Mail Barcode has made a world of difference in predictability of delivery and in our ability to track mail through the system—and even more so from the customers’ perspective, in their ability to track mail through the system. This opens mail up even more to a multichannel approach.
I’ll give you an example: If you put an Intelligent Mail Barcode on a piece of mail—say a letter-size piece—we process that, we know what route it’s on. We’ll know within five minutes when that letter carrier will put that piece into the mailbox. To be able to time that with another form of advertising, another way to reach a customer, we think there’s a ton of value in that.
“[The] USPS has significantly reduced [its] workforce and has closed and consolidated facilities, while mailers have invested in presorting, drop shipping, enhanced barcodes, and alterations to mail pieces to improve productivity. Yet, approximately 80% of [the] USPS’s costs are labor related, the same as it was in the 1970s. Why haven’t the percentage of labor costs dropped with productivity improvements? Where did the productivity savings go that mailers have paid for?”
—Jerry Cerasale, SVP of government affairs, Direct Marketing Association
Donahoe: The best way to think about this is that we’re a people business. The fact that you have somebody going to people’s homes or businesses six days a week, across the country, ensures that this is a people-centric business. We have reduced the career (i.e., management- level) headcount over the past 13 years by 300,000 people. Nearly 200,000 of those came in the past five years. In the same period there’s been very little increase in non-career headcount. It’s been in the area of 38%, 39% reduction in people. But you have to keep in mind, this isn’t our goal. Our goal is to shrink the entire cost pie. The slice of the pie that’s going to be people-related is still going to be very large.
Even if we were able to eliminate the $5.7 billion prefunding requirement—and that counts as people cost in our cost structure—you’d still end up with 72 to 73% of costs being people related. So one of the proposals we’ve got going forward is to take $20 billion in costs out of the Postal Service by 2017. If we’re successful with that, we’ll still have 70% of our costs being people costs.
The bottom line is this: Rather than spending $73 billion in expenses, the goal is to spend $61 billion. So you reduce the size of the pie and you reduce the size of the cost, but you’re still going to have a large percentage of that cost related to people. If we hadn’t done what we did from a headcount perspective, we would be spending at least $20 billion more per year.
I think our people have been very productive. We’ve been very successful. If you compare us to FedEx or UPS, if that’s your main comparison to us, well, UPS is a great trucking company. They own all those trucks. FedEx is a great airline company, but airlines are expensive. They spend a lot of money for equipment leases and fuel and financing costs. We own a small vehicle fleet. That’s it. Our costs are people costs and it’ll continue into the future.
“What can our industry do to make a difference and represent that we are supporting the USPS and their efforts for the good of the entire system and industry?”
—Mark Rheaume, postal affairs manager, AccuZIP
Donahoe: The key thing is to talk about the mail. You can’t ignore it. You can’t treat it like it’s got some disease. [Laughs.] People are enamored by digital, but when it comes to ROI, the mail is the best way to advertise to and reach customers…. It’s the best way to get in front of a customer’s eyes, period. When you’re in a digital space, you’re hoping somebody sees [your message]. When you put something in the mail, you know somebody sees it. That’s the way we need to be thinking about this. Mail is also a complement to other forms of communication—whether it’s digital, broadcast, television, or some of the other ways people get in front of their customers. But the best way to get in front of a customer is the mail.
It’d be good to get other people’s voices besides mine saying this. In public groups I’ll often ask people how many come home from work every day, grab the mail from the mailbox, and throw it in the trash can without looking at it? Everybody laughs. Then I say, “How many of you come home and turn on your computer and go into your spam filter to read everything that’s been deposited there?” And they laugh at that. Think about what that says about the mail. You never throw it away without looking at it. But you’re afraid to look at spam because you’re afraid it’s going to infect your computer. So think about that when you’re making advertising decisions.
“Why not review the digital applications available to streamline the digital transition? There are viable products and services available to make this transition effective, and they are economically sound. This could create a new job category within USPS for professionals to manage the [digital] transition and educate employees.”
—George Velasquez, COO, Strictly-Marketing USA
Donahoe: The Postal Service was in the digital space in the late 1990s and we were strongly encouraged by a number of people to get out of that space, and we did. But we’re back into it now, and the reason…is that we think there’s a place for us in the digital space.
In the past year or so, we asked The Boston Consulting Group to go out and survey people in the business marketplace to see if there’s a need for the Postal Service to be in the digital space. What pain points can we resolve? The reason we did that is that there are a number of other posts and other companies that have gotten into this world of digital replication of hard copy mail. Truthfully, I think it’s waste of time and money. Nobody’s spending any money on it because it makes no sense. If somebody wants to look at a bank statement online, they go to the bank’s website and look at it.
Two things came back from business. One was that there’s definitely a need for a disinterested, secure third party that can act as an intermediary in the world of secure digital messaging, and we’re working on that right now. We’re going to get into this space. We think there are definite opportunities. And the other is authentication. How can people prove who they are in the digital space? There are ways of doing it with a driver’s license or credit card, but [businesses] are still not sure those are the right people representing themselves. With our retail network, and some of our other technologies, we think we can advance that.
On the consumer side, we’re working through a way to manage mail and packages. With the technology that’s available…we can actually present mail and packages to a person in digital format as they come through the system. So we’re working on that.
“You’ve spent your whole career at the USPS. For the most part, PMGs have been appointed from within. When you decide to retire from the USPS, what’re your thoughts about where the next PMG comes from? Inside the USPS or someone from private industry? And why?”
—Patrick Henderson, director of government affairs, Quad/Graphics Inc.
Donahoe: Well, the history is interesting. The last three, including me, have come from the inside. Before that there were a number of people from the outside. Right now, it’s important that we have a person ready from the inside. It’s important just because there are a lot of things that go on in this organization that are quite—I don’t like to use the word unique—but they are—unique as to how we do business. With the pace of change, one big fear about somebody coming from the outside is that it takes a year or so for a new person to understand what’s going on. The way the business changes and the way requirements change, that person could quickly put the organization behind the eight ball in that first year of catching up.
I think you’re seeing that in the private sector now. Over the past 10 years the rate of success of externally hired CEOs is half that of internally hired CEOs. We’ve been very active in the organization to try to seek talent and experience where we have gaps. I’ll give you a couple of examples. Our Deputy Postmaster General Ron Stroman— his major focus is in the legislative areas, and he spent the better part of 30 years in the federal government in Congress and in other agencies. So he understands how all that world works, and that’s valuable for us as we’re trying to get some legislative change here. Nagisa Manabe, our chief marketing and sales officer, spent 20 years in CPG organizations and had positions at the VP level and has brought a very good marketing view to us from people in that world. Our CFO has come up from the private sector, as well.
We do a good job moving mail from point A to point B. From a logistics standpoint, we have great people, but we also realize that we have to have people from other disciplines that we don’t know that well—marketing, government relations, finance—and we’re not shy at all going out and getting them. The key attribute for my successor will be a person who’s able to continue the changes and react to change in this marketplace. That’ll make for a successful Postal Service.
Do you have a succession plan in place?
—Direct Marketing News
Donahoe: We’re fanatics on succession planning. That’s my most important job, to make sure that we have the right people available for the right jobs in this organization. We have to have people ready to step into leadership roles at our district and area levels across the country. We spend a lot of time cross-training people in special management programs. Even the way we hire people for entry-level jobs, we’ve changed the way we do that so we bring people in who are much more focused on serving customers and working on teams.
“You have enough sales reps to chase middle- and high-volume mail users only. Why don’t you give a price break to small-volume ad mail users—7,000 to 28,000 pieces quarterly—to encourage entrepreneurs to be your salespeople to small business?”
—William Langhorne, owner, South Coast Marketplace Newsletter, Norfolk County, Ontario
Donahoe: Here’s the way we look at that. We’re kind of the hub of the mailing industry. We think that that whole segment is pretty well served by the mailing houses. There are a lot of regional printing shops out there that make their living working with us. They work hard to bring small businesses into the mail. It’s our job to support them, whether it’s offerings like Intelligent Mail and the right discount structure or working with them at the Postal Customer Council. We think that the price structures are there in place that’s enabling the people who are running these private companies to be successful and do a good job for smaller customers.