Creating Value by Incorporating Customer-Centric, Sustainability-Driven Innovation into Postal Products

By

Michael R. Barr, Jesus M. Garza and Duy L. Nguyen

Creating Value, Sustainability-Driven InnovationAgenda

Πάντα ῥεῖ καὶ οὐδὲν μένει “Everything flows, nothing stands still”-- Heraclitus of Ephesus, Greek Philosopher 2

Project Idea

Background

Hypothesis & Objective

Methodology

Research Results

Benefits of Sustainability-

Driven InnovationConclusion

What’s Next?

Project Idea

“My interest would be with a policy or practice relating to Sustainability. In particular, my interest lies with how to move an organization beyond an inward focus to reduce its own environmental impact, to one in which creates products and services to help its customers achieve Sustainability objectives. ”

-- Thomas G. Day, Chief Sustainability Officer, United States Postal Service

“The Postal Service is focused on creating greater value for both the senders and receivers of mail…It begins by leveraging data and technology to create compelling tools that make the experience of mail more interesting and valuable. Senders want to realize a high return on their mailing investment. Receivers want useful, relevant and compelling information. Innovations that achieve these goals for senders and receivers will ensure that mail remains a powerful communications and marketing channel.”

United States Postal Service, Progress and Performance, Annual Report to Congress 2012

Driving Innovation, Innovation in Delivery, p. 9

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Background

Current Business Status• Economy

• Deteriorating financial situation• First-Class and Standard Mail rapid volume decline due to Electronic Diversion.• Unfunded pension and retiree health benefits• USPS Five-Year Business Plan, 2012-2017

• Equity (Social)• Universal Service Obligation (USO)• Corporate Social Responsibility (CSR)

• Environment• Practice Environmental Sustainability• Voluntarily alignment of Stewardship practices to Federal Executive Orders,

because they make business sense and are the right thing to do.

“The Postal Service is an organization like no other. We’re in every community in every state, and we deliver mail to every address. This gives us a special responsibility to be good neighbors.”-- Patrick R. Donahoe, Postmaster General and CEO

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Hypothesis

• Hypothesis (H): Developing sustainability policy that incorporates sustainability-driven innovation into business strategies will enable the creation of postal products and services that benefit and provide economic, social, and environmental value to the Postal Service and its customers.

“One finds the truth by making a hypothesis and comparing observations with the hypothesis.”-- David Douglass, American Physicist

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Objective• Propose policy and guidance strategy

Move beyond environmental sustainability

Address 3 E’s through the Sustainability-Driven Innovation of customer products.

• First-Class Mail (Market Dominant) vs. Digital Mail (Strategic Initiative Portfolio)

• View Sustainability-Driven Innovation through 3-Stage Framework

“A sustainable business is resource efficient, respects the environment and is a good neighbour.” -- Phil Harding, Head/Sustainable Business Team, Government Office for the South West, UK (2000) 6

Methodology• Use of the Natural Step’s ABCD Planning

Method

• Based on techniques from business strategy, time-series and life cycle analysis

• Assess Product Current Status vs. Future Status through the 3-Stage Innovation Framework

• Value Proposition

• Operating Model

• Establish Cause-Effect Relationships for Sustainability-Driven Innovation relating to First-Class and Digital Mail.

“Research is to see what everybody else has seen, and to think what nobody else has thought.”-- Albert Szent-Györgyi, Hungarian Physiologist

Perform SWOT Analysis on

current USPS Policy

Perform SWOT Analysis on

current USPS Policy

Determine USPS status

using 3 Stage Framework for

Innovation

Does USPS meet requirements

for Stage 1

Use ABCD Planning

method to determine

Stage 1 requirements

Start

No

Will implementation of changes meet

Stage 1 Req’s

Implement changes

Perform Experiment

Yes

Perform SWOT of Stage 1

Yes

Does USPS meet requirements

for Stage 2No

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Vision

To be the first Postal Service that, by its deeds, becomes a holistic, sustainable business By 2033, our customers will benefit from economic, social, and environmental value provided by a safe, trusted, reliable, convenient, affordable and sustainable communication channel in the delivery of mail to all the communities, businesses and households served.

Innovation

Framework

Stage

Sustainability

Vision

Innovation

Approach

Innovation

Objective

Innovation

Outcome

Innovation –

Organization

Relationship

1

Eliminate Waste

Operational

Optimization

Compliance,

efficiencyReduces harm

Incremental

improvements

to business-as-

usual

Benign Emissions

Efficient

Transportation

Renewable

Energy

2 Closing the LoopOrganizational

Transformation

Novel products,

services or

business models

Creates shared

value

Organization

purpose

fundamental

shift

-- Ray Anderson, Former Chairman and Founder, Interface, Inc. 8

Business Strategy

• Business Model Innovation (BMI)

• BMI applied across First-Class Mail and Digital Mail value chain models– First-Class Mail’s cost mostly in delivery function

– Digital Mail demonstrates majority of process efficiencies through elimination of processing, transportation and delivery functions

– 72% Value Added

Value Proposition

Question

Target Segments

Which customers do we choose to serve?

Product Offering

What are we offering customers to satisfy their needs?

Revenue Model

How are we compensated for our offering?

Operating Model

Question

Value Chain How are we configured to deliver on customerdemand?What do we do in-house?What do we outsource?

Cost Model How do we configure our assets to deliver on our value proposition profitably?

Organizational Change

How do we deploy and develop our people to sustain and enhance our competitive advantage?

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Business Strategy

• SWOT Analysis/TOWS Matrix– Situational Analysis is systematic collection and evaluation of past and

present economical, political, social, and technological data

– Develop strategies, tactics, and actions for the effective and efficient attainment of its organizational objectives and its mission.

– Applied across First-Class Mail and Digital Mail models

• Threats from private digital mail providers.

• Businesses & consumers looking to reduce mailing costs and carbon footprint.

• Legal documents still required physical signature.

• Privacy and security concerns with digital communication.

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Time Series Analysis

Research was concentrated to segments in energy, climate, waste, facilities, and transportation.

Transportation is what connects the senders to receivers within the value chain.• Reducing building occupancy, lowering its energy consumption, reducing fuel and water

consumption, USPS is revamping its carbon footprint thereby helping with climate change and reducing GHG emissions. These incremental changes to business as usual is placing USPS at the forefront of sustainable innovation by maintaining operational optimization

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Time Series Analysis

• Removal of Seasonalities & Irregularities smooths plot line and confirms downward trend.

• Total First-Class Mail is predicted to decline to $5,235,763 in Q4 of 2017• Single-Piece Letters & Cards has highest correlation to Total Revenue

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Life Cycle Cost Analysis

• Objective: – LCCA enables economic comparison of First-Class Mail and Digital Mail.

• Assumptions:– Starting capital of $1 billion

– Discount rate of 5%

– Life cycle of 10 years

– Costs category increases by 5% each year

– Digital mail will reduce mail processing facilities from 461 to 27 (6 Data Centers and 21 Network Distribution Centers)

– Delivery infrastructure is removed with digital mail

– No acquisition costs for IT equipment for digital mail.

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Life Cycle Cost Analysis

First-Class Mail Digital Mail

Costs: • Energy = $242,920,050• O&M = $42,377,494,375• Water = $36,102,224• Fleet Vehicles Fuel & Maintenance =

$5,823,193,998

Costs: • Energy = $15,423,495• O&M = $2,481,979,060• Water = $2,062,721

Savings: Savings:• Fleet Vehicles Fuel & Maintenance =

$442,600,000• Mail Processing Plants Reduction =

$3,040,000,000

NPV = - $33,267,292,809 NPV = $787,912,641

Sustainability Details:• CO2 Emissions = 538,810 MT• Energy Consumption = 923,173,913 kWh• Water Consumption = 686,000,000

gallon

Sustainability Details:• CO2 Emissions = 34,510 MT• Energy Consumption = 58,614,217 kWh• Water Consumption = 38,700,000 gallon

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Benefits of Sustainability-Driven Innovation

Economy• Yields top-line and bottom-line returns• Creates Competitive Advantage• Reduced life cycle costs• Less business risk

Equity (Social)• Transition from CSR to CSV model

• Reconceiving products and markets• Redefining productivity in the value chain• Enabling local cluster development

• Increased social benefits (health, well-being)

Environment• Contribution to conservation efforts (Energy, Fuel, Water)• Increased use of sustainable energy sources• Reduces emissions and waste (GHGs, paper waste)• Lower environmental risk

Operational Optimization Organizational Transformation

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Conclusion

Research supports Hypothesis (H): Developing sustainability policy that incorporates sustainability-driven innovation into business strategies will enable the creation of postal products that benefit and provide economic, social and environmental value to the Postal Service and its customers.

Innovation

Framework

Definition Compliance with regulationsOptimized performance through

increased efficiency

Process StageViewing compliance as an

opportunityMaking value chains sustainable

Designing Sustainable Products

and ServicesDeveloping new business models

Innovation

FocusPeople

Organizational

ViewSystemic

Innovation

ExtensionIntegrated

Innovation

Outcome

Organizational

Intent

Stand-alone

Company-centric, incremental fixes focusing on new technologies as

ways to reduce impacts while maintaining business as usual (i.e. reduce

harm).

Disruptive new products that change consumption habits or that benefit

people; replacing products with services or replacing physical products

with electronic services; services with social benefits (i.e. create shared

value).

Reduce costs or maximize profits Benefit financially from sustainable products or value-created services.

Insular

Operational Optimization Organizational Transformation

Creation of disruptive new products and services by viewing

sustainability as a market opportunity

Technology

“There's two possible outcomes: if the result confirms the hypothesis, then you've made a discovery. If the result is contrary to the hypothesis, then you've made a discovery.”-- Enrico Fermi, Italian Physicist

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What’s Next?“To be the first Postal Service that, by its deeds, becomes a holistic, sustainable business.”

Innovation

Framework

Stage

Sustainability

Vision

Innovation

Approach

Innovation

Objective

Innovation

Outcome

Innovation -

Organization

Relationship

2 Closing the LoopOrganizational

Transformation

Novel products,

services or

business models

Creates

shared value

Fundamental

shift in

organization

purpose

3

Sensitizing

Stakeholders

Systems Building

Novel products,

services or

business models;

impossible to

achieve alone

Creates net

positive

impact

Extends beyond

the organization

to drive

institutional

change

Redesign

Commerce

WE ARE SUCCESSFUL BECAUSE WE DRIVE POSITIVE INSTITUTIONAL CHANGE FOR SOCIETY(CREATING NET POSITIVE IMPACT)

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Acknowledgements

We would like to thank our project sponsor…

Mr. Thomas G. Day, Chief Sustainability Officer, United States Postal Service

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Time Series Analysis

• Plot at Left, downward trend can be attributed to the restructuring of USPS infrastructure.

• Plot at Right, downward trend indicates that USPS is making progress in reducing greenhouse gases

Time Series Analysis

Research was concentrated to segments in energy, climate, waste, facilities, and transportation.

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MULTIPLE REGRESSION SUMMARY OUTPUT

Regression Statistics

Multiple R 0.99297673

R Square 0.98600278

Adjusted R Square 0.98200357

Standard Error 95190.8491

Observations 19

ANOVA

df SS MS F Significance F

Regression 4 8.93624E+12 2.23E+12 246.5496 8.31823E-13

Residual 14 1.26858E+11 9.06E+09

Total 18 9.0631E+12

Coefficients Standard Error t Stat P-value Lower 95% Upper 95% Lower 95.0% Upper 95.0%

Intercept -721339.68 797231.1534 -0.90481 0.380875 -2431230.444 988551.0863 -2431230.444 988551.0863

Total Single-Piece Letters and Cards 1.16896833 0.1219019 9.589418 1.57E-07 0.907514753 1.430421898 0.907514753 1.430421898

Total Presort Letters and Cards 1.2324398 0.267994662 4.598748 0.000413 0.657648421 1.807231189 0.657648421 1.807231189

Flats 0.46339045 0.695228326 0.66653 0.515907 -1.02772601 1.954506907 -1.02772601 1.954506907

Parcels 0.81206109 0.401323393 2.023458 0.06255 -0.048691982 1.672814162 -0.048691982 1.672814162

Multiple Regression: Y = a + b1X1 + b2X2 + B3X3 + ... + BtXt + u• A null hypothesis where the coefficient of an independent variable is

non-zero, and this null hypothesis is accepted, then that particular independent variable would have a definite effect on the dependent variable

Email vs. Digital Mail

Email Digital Mail

Account can be created by user with no relation to a verifiable identity.

Account is based on physical mailing address.

Email is an open platform. Digital Mail is a closed system.

Consumer has to remember logins and passwords for many websites.

Digital Mail consolidate all communications from companies and organizations in one place.

Control is in the hand of the sender. Control is in the hand of the receiver.

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Email vs. Digital MailEmail Digital Mail

Modification of message content: email contents can be modified during transport or storage.

Message content is between sender and receiver and cannot be modified once sent.

Masquerade: send a message in the name of another person or organization

Senders and receivers are registered and accountable for contents.

Replay of previous messages: Previous messages resent to other recipients.

Message content is between sender and receiver, and cannot be sent to other recipients.

Denial of service: carried out thru Trojan horses/viruses within email contents.

Digital Mail platform routinely monitors for Trojan horse/virus activity within contents.

Spoofing: false messages inserted into mail system of another user

Authenticated from sender to receiver.

Disclosure of information: Most emails are non-encrypted and can be read by non-recipients

Digital Mail follows a similar First-Class Mail model

Traffic analysis: monitoring email messages as part of surveillance.

Limited traffic surveillance per Government jurisdiction.

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Current Digital Mail Providers

Name of Provider Types of services provided

Zumbox Connects large transactional, financial, and government mailers to consumer households.

Volly Direct connections between institutions and customers, plus bill pay and transactional functionality.

Doxo Focuses primarily on bill payment capabilities.

Manilla Manage and organize bills and accounts in one place.

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Digital Mail - Limitations

Limitation Digital Mail

Culture: Some people want to correspond with physical mailpieces (i.e. bills, bill payment, and correspondence).

Over time, trend is moving towards secure digital forms of correspondence.

Government: Current statutes and laws are not flexible enough to allow USPS to operate autonomously.

Congress must pass legislation that enables e-commerce role through Digital Mail platform.

Universal Service Obligation (USO): Applies to Postal Service, telecommunications, and broadband communications.

USO will need to be redefined to protect ‘Market Dominant’ products, maintain uniform pricing, and foster cooperation and competition among industries.

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