Strategic Planning within the USPS

Strategic Planning within the USPS ASP Annual Conference Strategy is Global: Global Challenges, Global Solutions May 2015 Keith Ross Butler Strategic Initiatives Program Manager USPS Office of Strategic Planning

Introduction The United States Postal Service has a strong and seasoned strategic planning and execution process, which has a long history within the organization. This session will focus on the USPS strategic planning process, challenges facing the organization, and trends that highlight the future of the USPS. Participants will learn about the following: A. Key elements of USPS strategic planning B. Legislative mandates and long-term liabilities affecting the organization C. Portfolio management and strategic initiatives D. Emerging trends facing the USPS ASP Conference May, 2015 2

Key Elements of USPS Strategic Planning ASP Conference May, 2015 3

Mission & Vision Mission: The mission of the Postal Service is to provide a reliable, efficient, trusted and affordable universal delivery service* that connects people and helps businesses grow. Vision: The Postal Service is dedicated to improving its services, products and capabilities to adapt to the changing needs of customers in the digital age. *While not explicitly defined, the Universal Service Obligation (USO) is broadly outlined in statute to include: geographic scope, range of products, access to services and facilities, delivery frequency, affordable and uniform pricing, service quality, and mail security. ASP Conference May, 2015 4

Strategy Defined ASP Conference May, 2015 5

Strategic Choices Strategy is about making choices to best meet our customer s current and future needs Source: Playing to Win: How Strategy Really Works, A.G. Lafley & Roger Martin, HBR Press, 2013 ASP Conference May, 2015 6

Office of Strategic Planning Purpose: Operate a world-class enterprise strategy office that enables USPS leadership to achieve business outcomes. We accomplish this by providing key insights and analysis, coordinating the implementation of the highest priority strategic initiatives, and maintaining the confidence of key stakeholders in postal strategies. Organizational Structure Primary Functions and Services Chief Financial Officer Joe Corbett Office of Strategic Planning Emil Dzuray, Director Strategic Management Office J O Smith, Manager Strategic Business Planning Office Preston Finley, Manager 14 in-house staff members comprised of Strategic Project Managers, Strategic Planning Specialists and Strategic Program Managers Manage Enterprise Project Management Office which employs 60-100 contractors who support corporate Project Management Offices (PMOs) for strategic initiatives Strategic Insights & Analysis Executive strategy, planning & ideation workshops Executive Business Insights forums Insight & analysis whitepapers Corporate insights management system Strategic Portfolio Management Support initiative teams with: Planning and Chartering Roadmap Development and Program Planning Risk Assessment DRIVE Status Reporting Stakeholder Engagement Corporate Strategy & Performance Reporting Five Year Strategic Plan Annual Report to Congress Comprehensive Statement of Operations Annual Performance Plan

Focus Areas Strengthen our Business-to-Consumer Channel by keeping USPS costs low and Four service Key levels Strategies high for mail senders (2012-15) and promoting high quality experiences for receivers. Improve our Customer s Experience at all touch points in ways that matter most to customers both senders and receivers -- and in person and online. Compete for the Package Business by building a world class package platform that offers affordable, simple, fast, visible and secure package delivery services. Become a Leaner, Faster, and Smarter Organization by removing excess capacity, improving efficiencies, achieving 100% customer, product and employee visibility, building competitive workforce, and strengthen financial liquidity and risk management The four focus areas align all strategic initiatives with ƒcorporate and unit performance goals (NPA), as well as staff pay for performance goals (PES). ASP Conference May, 2015 8

Strategic Capabilities 4 Innovation Platforms Key to Future Success First Mile Physical Network Last Mile Boost the demand for mail and packages Expand and simplify induction points Integrate emerging digital, big data, and consumer trends to grow Leverage market-leading physical assets Incorporate evolving logistics solutions Develop a structure that fosters agility and innovation Expand delivery solutions Capitalize on the expansion of E-commerce and technology Optimize route flexibility and productivity Digital Leverage USPS s brand, trust, and reputation to drive profit Provide digitally-enabled security, authentication, tools, and insights to a broad range of customers Enterprise Cross-functional enablers that strengthen the Platforms People Technology Operations Marketing Finance Legal Communications Foundation Requirements for growth and innovation Brand World-Class Customer Experience Culture of Delivery World-Class Reliability and Visibility Security Simplicity ASP Conference May, 2015 9

Legislative Mandates & Long-Term Liabilities ASP Conference May, 2015 10

PAEA In 2003, the President s Commission on the Postal Service made several recommendations in their published report. In 2006, legislation was proposed within Congress which was later passed as the Postal Accountability and Enhancement Act (PAEA). This law separated USPS products into two categories: Market Dominant (ex: First Class Mail, Standard Mail, Periodicals) Market Competitive (ex: Priority Mail, Express Mail) The law also required the USPS to pre-fund retiree health benefits. This prefunding required the service to pay $75Billion from 2007 to 2017. The financial impacts of PAEA and the 2008 economic recession severely damaged the financial viability of the USPS and its business model. ASP Conference May, 2015 11

Long-Term Liabilities The USPS has made major strides to improve its finances. However, legislative and regulatory action is needed to address outstanding financial difficulties. $56.7B or roughly 80% of total liabilities ASP Conference May, 2015 12

Portfolio Management & Strategic Initiatives ASP Conference May, 2015 13

Portfolio Management DRIVE Portfolio Governance Structure SMO track/report portfolio status/issues/portfolio risks to ELT using standard tool/process Standard Processes ILs track/report program status/issues/initiative risks to SMO/ELT using standard tool/process Project Managers track/report task status/project risks using Detailed Project Management Plans ASP Conference May, 2015 14

Portfolio Reporting SMO produces 4 standardized reports: Report name Information reported Screenshot Portfolio Summary Dashboard Portfolio Performance Chart Initiative milestone variance Initiative impact variance Initiative risk status Initiative update status Portfolio KPI performance variance Financial and non-financial impacts Actuals v. plan-to-date and v. plan Initiative & Roadmap Performance Dashboards Initiative Roadmaps Key milestone variance KPI status and variance Risks status Key issue and corrective action status Status of interdependencies All milestones and KPIs status and target dates and performance Log of risks, issues, comments and corrective actions List of cross portfolio interdependencies ASP Conference May, 2015 15

The Financial Crisis As a result of growing challenges to its business model, the USPS faced four years of dramatic financial decline. Major Challenges to the USPS RHB prefunding mandate Steadily declining mail volume Economic recession Rising labor costs Large fixed cost base ($) Billions $76 USPS Financial Situation: FY2007- FY2011 $74 $72 $70 $68 2008 economic recession Without fundamental change, cumulative losses were projected to reach $238 billion by the end of FY2020.** So how did the USPS turn things around? $66 Revenue Controllable Cost* $64 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Fiscal Year End *Before RHB pre-funding and non-cash adjustments to workers compensation liabilities **As stated in the 2010 USPS Action Plan ASP Conference May, 2015 16

Emergency Initiatives USPS management realized that legislative reform would require time, and took decisive action to ensure the organization s solvency. Key Management Decisions Sought legislative & regulatory relief Restructured Headquarters Prioritized payments vs. capital spending Generated revenue from sales & Last Mile services Created strategic management framework ($) Billions USPS Financial Situation: FY2007- FY2011 $76 $74 $72 $70 $68 $66 Revenue Controllable Cost* $64 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Fiscal Year End *Before RHB pre-funding and non-cash adjustments to workers compensation liabilities ASP Conference May, 2015 17

Cost Reduction Initiatives To address shrinking volume, the USPS created efficiencies by rationalizing the network and improving the use of data to inform management decisions. Key Management Decisions Consolidated 143 Mail Processing Facilities Adjusted hours for 9,700+ Post Offices via POStPlan Renegotiated agreements with Unions & suppliers Introduced Intelligent Mail Barcode ($) Billions $76 $74 USPS Financial Situation: FY2012- Present FY2015 Q1 $72 $70 $68 $66 Revenue Controllable Cost* $64 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Fiscal Year End *Before RHB pre-funding and non-cash adjustments to workers compensation liabilities ASP Conference May, 2015 18

Innovation Platforms While the USPS cut costs, management also focused on growing the package business and engaging customers in innovative ways. Key Management Decisions Enhanced product visibility and scanning Improved customer interactions outside retail locations (e.g., online/mobile) Enhanced Every Door Direct Mail (EDDM) product Piloted innovative products & services ($) Billions $76 $74 USPS Financial Situation: FY2012- Present FY2015 Q1 $72 $70 $68 $66 Revenue Controllable Cost* $64 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Fiscal Year End *Before RHB pre-funding and non-cash adjustments to workers compensation liabilities ASP Conference May, 2015 19

Impact of Decisions Key management decisions have stabilized the USPS and created confidence in the organization s future. Key Accomplishments Returned to a controllable income profit Regained revenue growth in FY2013 Grew package market share Reduced network and labor costs Expanded innovative products and partnerships ($) Billions $76 $74 USPS Financial Situation: FY2007- Present FY2015 Q1 $72 $70 $68 $66 Revenue Controllable Cost* $64 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Fiscal Year End *Before RHB pre-funding and non-cash adjustments to workers compensation liabilities ASP Conference May, 2015 20

Sustainable Future Building on these achievements, the USPS is committed to remaining the world s premier mail and package delivery business. USPS Future Priorities Invest in the future Engage and empower employees Support product growth through network efficiencies Speed the pace of innovation ($) Billions $76 $74 $72 $70 $68 USPS Financial Situation & 5 Year Outlook FY2015 Q1 How do we achieve financial stability? $66 **Projected Revenue Controllable Cost* financials $64 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Fiscal Year End *Before RHB pre-funding and non-cash adjustments to workers compensation liabilities **Projections based on 2013 USPS Five Year Plan ASP Conference May, 2015 21

Emerging Trends Facing the USPS WE ASSESSED 23 EMERGING TRENDS IN THREE MAJOR CATEGORIES LET S EXPLORE THEM ASP Conference May, 2015 22

A good hockey player plays where the puck is. A great hockey player plays where the puck is going to be. - Wayne Gretzky OSP endeavors to figure out where the Postal Service s puck will be in the future ASP Conference May, 2015 23

Social Trends Social trends capture the patterns of human interaction, movement, and preference Technology Trends Technology trends include the application of scientific knowledge and engineering in the digital age Industry Trends Industry trends are new developments shaping how businesses are organized and how transactions take place ASP Conference May, 2015 24

8 Social Trends ASP Conference May, 2015 25

8 Technology Trends ASP Conference May, 2015 26

7 Industry Trends ASP Conference May, 2015 27

Scenario Planning What strategies will position the USPS to thrive in any Future Scenario? Build out capabilities that exist in all scenarios, identify triggers for outlying scenarios, and be nimble! Capability 1 Capability 2 Capability n Capability 1 Capability 2 Capability n Capability 1 Capability 2 Capability n Capability 1 Capability 2 Capability n Capability 1 Capability 2 Capability n Capability 1 Capability 2 Capability n

Conclusion The United States Postal Service has created momentum for future success, despite its financial challenges. The Postal Service is recovering from a crisis caused by the economic recession of 2008 and the prefunding requirements in the Postal Accountability and Enhancement Act (PAEA) of 2006. USPS management improved the Postal Service s finances by cutting costs and pursuing a growth strategy for the future. The Postal Service reported revenue growth of $800M and $1.1B controllable income in the first quarter of FY2015. Legislative and regulatory action is essential for the USPS to become financially sustainable and cover its $46B in unfunded liabilities. The United States Postal Service needs legislative and regulatory relief to achieve long-term sustainability. ASP Conference May, 2015 29

Q&A ASP Conference May, 2015 30