The postal dilemma: what we're up against

Folio: The Magazine for Magazine Management, August, 1989 by John Crutcher

The postal dilemma: What we're up against

To some observers, it must appear that New York Yankees owner George Steinbrenner is running the U.S. Postal Service. We have had five postmasters general in the past four years. The last three left within a year of taking office. In March, a new CEO took the reins at the Postal Service, after having built First Nationwide in California into the country's sixth-largest savings institution. Let's consider the situation that Anthony Frank faces now that he has left the banks of California for the banks of the Potomac.

Our new postmaster general shows more promise than any I've known in the six years I have been on the Postal Rate Commission (PRC). He is a serious person and has taken this most difficult and unrewarding job for a very serious reason. He promises, with the help of other successful business people such as H. Ross Perot, to improve the efficiency of the U.S. Postal Service significantly.

But boosting efficiency means improving service and reducing costs. And the prospects are bleak. The Postal Service is not only a monopoly in all its important markets, but it also a government bureaucracy. These two stark facts are like an enormous ball and chain around each of Postmaster General Frank's legs. Either one alone would make it difficult to become more efficient; together they make it almost impossible. The fault with the Postal Service is not with the caliber of its leadership; it is with the institutional setup.

The Postal Service lacks the profit motive that disciplines our commercial economy. Perhaps even more important is the lack of real accountability. There is no scrutiny by postal stockholders protecting their interests and no threat of a hostile takeover if management doesn't perform. The Board of Governors is intended only to review the most general policies of the service. The board has no staff and is not equipped to hold management accountable, nor does it have an incentive to do so.

Congress has been unwilling or incapable, or both, to find out what is really going on within the postal system, let alone to hold it accountable. Nor is the Postal Service accountable to the President, and that's the way every Administration, since reorganization in 1970, has wanted it. Finally, the Postal Service is not accountable to the PRC. The courts have made it abundantly clear that the commission's role in postal finances is extremely limited. The commission can only rule on Postal Service rate requests.

In this situation, with no profit motive or real accountability, the institution's incentive is only to be efficient enough that neither Congress nor the President takes the drastic step of putting the Postal Service back into the Government proper. Frank's attempts to improve efficiency cannot make much difference--unless, of course, he is willing to change the institutional setup.

Suppose, for example, that Postmaster General Frank wants to increase efficiency by improving service. He must first have a reliable measure of its quality. By now, he probably has had an earful of complaints from customers. How is he to know whether they are legitimate, or merely cranky outbursts unrelated to everyday circumstances?

He will, no doubt, turn to the Postal Service's nearly 20-year-old service measurement system. His new subordinates will shower him with glowing statistics demonstrating that his customers and the marketplace are wrong. But the postmaster general should know that the measurement system is unreliable.

It is easily manipulated. Those in postal management have reason to manipulate it, because it is used in performance evaluation. And in fact the Postal Service's inspection service has found it to be manipulated in several offices. Advance notice is given before data are collected--enough notice to move overripe mail out of the way. Since the system samples every Nth piece of mail, it is easy to take the 11th piece, rather tahn the 10th, when the latter is a piece that has been delayed.

Would Frank's old company, Ford Motor Co., be willing to rely on such a self-serving system? Not since the Japanese have come. Unfortunately, postal management does not have the equivalent of Japanese competition to spur it on.

Management's constant citing of the measurement system to prove that service is fine is just as misleading as its old practice of touting gross productivity growth was fine. Those figures, which simply calculated total pieces per person-year, failed to account for volume growth and fixed costs, worksharing by postal customers (such as presorting of bulk mail), and changes in the proportion of different mail shapes.

Postal management's reluctance to measure performance accurately is underastandable--what the public doesn't know about the postal system can't hurt postal managers. Today those managers feel the same way about service measurement as they did about productivity measurement. The institutional setup ordains it.

When the service measurement system was introduced in the 1960s, by the way, the Postal Service had about three-fourths of the total small-package business. Today, parcel post volume has dropped to less than 150 million pieces annually, while United Parcel Service (UPS) has captured over 90 percent of the market, handling some two billion small parcels a year.