When to act and how to sustain your turnaround
When Bill Henderson, postmaster general of US Postal Service (USPS), turned up at the Tour de France in July 1999, things could not have been better. After making loss upon loss, his organization had finally turned things around. USPS was in profit with a strategic five-year plan that was set to see it prosper for years to come. And just to make things even greater, the athlete USPS had sponsored (the guy who was told he would never compete again after being diagnosed with testicular cancer in 1996), had just won the world's most prestigious cycling competition.
What a difference three years can make.
On a downward trend
Since that summer's day, USPS has free-wheeled downhill in spectacular fashion. In the fiscal year ending September 2001, profit had turned to loss of around $1.6 billion (less than projected but hardly a success), Budgets were cut and capital spending halted. Then came the terrorist attacks of 11 September and the subsequent anthrax assaults on employees of USPS. This only served to make matters worse for the postal firm and so once again, it was back to the drawing board.
Failing to sustain change initiatives
And USPS is not alone in its failure to implement a successful change initiative. According to recent research by Change Management Online, UK businesses undertake at least three major change projects a year (at a cost of approximately 52 billion in management time alone) yet half of these programs fail to make any lasting impact whatsoever. Whilst USPS faced a bigger challenge than most by attempting to turn the whole organization around (the ultimate change initiative), the fact that it made such a strong start left executives wondering, when things went awry, where did it all go wrong?
Admittedly, transforming USPS into a profit-making outfit looked like something of an impossible task due to its unusual position. The USPS is a huge regulated monopoly and consequently has a number of legal obligations (e.g. new products and services cannot be introduced without lengthy discussions). In addition, competitors such as FedEx and UPS continue to offer more than just regular delivery and in doing so, justify the premium prices they charge.
But despite these potential obstacles, executives at USPS realized that without some fundamental changes, the company was sure to go under. Initially, back in 1992, postmaster general Martin Runyon had tried to cut costs through staffing cutbacks however this approach had failed. Consequently, in 1994 Runyon decided that the way to achieve success was by setting aggressive operational goals that would improve efficiency and service.
Improving service, improving profits
To this effect, USPS launched a website containing useful information such as ZIP codes and pricing lists, experimented with internet kiosks, created a system for issuing electronic postmarks and began to develop an overnight shipping program in order to speed up deliveries.
These initiatives paid off and between 1996 and 1999 the organization enjoyed a relatively stable period that also saw Bill Henderson take over from Runyon as postmaster general in 1998. Five-year plans were published and USPS moved towards its vision of becoming a "twenty-first century growth company".
Factors for failure
So what went wrong? In between 1998 and 2001, USPS plummeted from a net income of $550 million to losses of approximately $1.7 billion. Robert Reisner, former vice president of strategic planning for the company, identified a number of underlying problems that contributed to the failure of this promising turnaround:
* USPS's new approach was disorienting to many managers. Some senior executives believed the aggressive targets set by Runyon were impossible whilst others felt that the organization was not focussing enough on its core business;
* Despite the high morale that existed within USPS around 1999, senior management...
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