The Business of Government Hour

 

About the show

The Business of Government Hour features a conversation about management with a government executive who is changing the way government does business. The executives discuss their careers and the management challenges facing their organizations. Past government executives include Administrators, Chief Financial Officers, Chief Information Officers, Chief Operating Officers, Commissioners, Controllers, Directors, and Undersecretaries.

The interviews

Join the IBM Center for a weekly conversation about management with a government executive who is changing the way government does business.

Dick Strasser interview

Friday, May 24th, 2002 - 20:00
Phrase: 
Dick Strasser
Radio show date: 
Sat, 05/25/2002
Guest: 
Intro text: 
Financial Management...

Financial Management

Complete transcript: 

Arlington, Virginia

Tuesday, February 19, 2002

MR. LAWRENCE: Welcome to The Business of Government Hour.I'm Paul Lawrence, a

partner at PricewaterhouseCoopers and the co-chair of The Endowment for The Business of Government.We created The Endowment in 1998 to encourage discussion and research into new ways to improve government effectiveness.Find out more about The Endowment by visiting us on the web at endowment.pwcglobal.com.

The Business of Government Hour features a conversation about management with a

government executive who is changing the way government does business.Our

conversation this morning is with Dick Strasser, chief financial officer and executive vice president of the United States Postal Service.

Good morning, Dick.

MR. STRASSER: Good morning, Paul.How are you?

MR. LAWRENCE: Good, thanks.

And joining us in our conversation is Bill Takis, another PwC partner.

Good morning, Bill.

MR. TAKIS: Good morning, Paul.

MR. LAWRENCE: Well, Dick, I'm sure many people are familiar with the United States Postal Service, and it has received a lot of media attention of late.But perhaps you could describe its missions and its activities for us.

MR. STRASSER: Sure, Paul.Actually, up until 1972, the Post Office Department was actually an agency that had a cabinet level secretary as the Postmaster General, and was treated just as any cabinet level agency was treated.It had appropriations and collected its revenues and put them in the general tax funds of the United States.In 1972 was the advent and implementation of postal reorganization, which was probably a very significant move toward corporatization of the Postal Service.In fact, it was one of the first moves in the world towards that more commercial-based model.

What essentially the reorganization act did was that it provided a set Board of Governors, sort of a board of directors, that are nine Presidentially appointed governors confirmed by the Senate. And they are charged with running the organization as a board would.They hire the Postmaster General and the Deputy Postmaster General, who then become members of the board.And the organization is an independent establishment of the Executive Branch.It's not cabinet level any longer.But it's sort of independent in the sense that we are authorized to collect our own revenues and make our own expenditures, develop our own annual plans, as well as our capital plans.We have authority to borrow and to go into debt.

We also are charged with providing services that fulfill the nation's need for mail service.That includes, of course, universal service, and there are an additional 1.6 to 1.7 million addresses that are added to our network every year just by the means of being created as an address.There is no fee for this network.It's now up to about 138 million addresses.The financial charge that the service has is to break even.

Essentially, as an analyst once told me -- so let me understand this, you're essentially to provide a government service at cost?And I said yes, our revenues are supposed to cover our expenditures.And for the 30-some-odd years that we have been in existence, there have been great strides made in the service levels, the quality of service levels, the efficiency of the organization.And it has provided a pretty much self-financed operation for those 30 years.

MR. LAWRENCE: Well, give us a sense of the size of the Postal Service.How many employees work for the Postal Service and what types of skills are there?I think we all have a picture in our minds of our carrier, but I know a lot more is done.

MR. STRASSER: Well, we have two categories of carriers: city letter carriers and our rural carriers.And they constitute probably somewhere on the order of 280,000 of our people.We have about 300,000 in what we call the clerk craft, which are the clerks who support and offer sales at our retail windows, our post office windows.There are also the clerks who sort the mail, sort the packages, get them ready for the carriers for delivery.We have mail handlers in the processing centers, and they are the material-handling folks who handle all of the containers and the large methods of transporting the mail within our units.We have the vehicle drivers.We have a large fleet of trucks.We also purchase over $5 billion in transportation.So it's large in that sense.

We have a great force of what we call maintenance, but who are also our electronic technicians, to maintain our vast array of automated equipment, which I'd be happy to talk about today.We're very pleased with the progress that we have made in letter mail automation.And of course then, we have our supervisors, our first line supervisors, some 70,000 of those folks, and added to that, the managers, the station managers, the postmasters we have throughout the nation, and those of us who are in management in the administrative functions that create the hierarchy.

MR. TAKIS: Dick, that's quite a scope of operation to the Postal Service.I would like to change the topic a little bit and talk about your background and how you got to this position within the Postal Service.And I'd like to kind of start with a discussion a little bit about your role and responsibility as CFO of the Postal Service.

MR. STRASSER: Certainly, Bill.My area currently encompasses the finance function, as is traditionally known -- the treasurer's function, the comptroller's function.But in addition to that, purchasing and material management is within our purview at headquarters as well as information technology.We have the information platform operation as well as our IT function, all within the umbrella, the broad umbrella I might say, of finance at headquarters.So it's a fairly large chunk of the enabling functions that support the operations and the delivery of the mail.

MR. TAKIS: And it's very similar to what a private sector CFO would see?

MR. STRASSER: We do have a very similar financial pattern.The board has its own external auditors which is a topic of interest in this day and age.We have received --

MR. TAKIS: We ask the questions.

MR. STRASSER: We have received unqualified opinions from our external auditors for several years now.They are supplemented by the internal auditors which is the Office of Inspector General.And so we do issue our financial statements, manage our debt, manage substantial cash flows.We take in in excess of $100 million in receipts for mail services and money orders every day.And we manage those cash flows.And of course, the Treasury Department is our official lending agency.And we work with them on a daily basis to manage that cash flow and manage that debt.�������������

MR. LAWRENCE: Well, Dick, you've talked a little bit about your role as CFO, but how did you begin with the Postal Service and how did you get to the position of CFO?

MR. STRASSER: Well, actually, it goes back 33 years ago.Under the Post Office Department, there was something called the President's Management Intern Program, and I, as a political science major out of undergraduate school, decided that I would like to see what was available to me under that program, passed the necessary interviews and tests, and was interviewed by a number of agencies.

I was interested in social service agencies.And I was seriously interested in doing something, but the social service agencies had their pick of those who had Master's and I was only walking into the program with a Bachelor's.So not that Postal was a second choice, but I had a vast array of other agencies offering me interviews.When I went to the Postal interview, interestingly enough, once the two individuals who were interviewing me decided that they wanted to make me an offer, they asked me what my interest was.If I was interested in employee relations, we had 600,000 employees.If I was interested in transportation, we spend $300 million a year in air, rail, sea, mule to the bottom of the Grand Canyon transportation.If I was interested in facilities, we had this vast array of post offices across the nation.Interested in finance?Back then, we had a revenue stream of $9 billion a year.So it sounded very intriguing because they had a program that was 4-1/2 years in length with rotating work assignments through all these functions.So you could truly become a generalist.

So I signed up, not really expecting to make it a full career.But I fell into some pleasant assignments early on and it clicked.

MR. TAKIS:During your time in the Postal Service, you spent time in different assignments?

MR. STRASSER: Yes, I had the opportunity to work in finance initially.And then I had an opportunity to be Acting Postmaster in Walnut Creek, California way back in '72; worked in our Western Region back in that period of time in the delivery area -- actually worked for Tom Donohue, who was with the Postal Service and who is now President of the U.S. Chamber of Commerce, back then.

My most renowned assignment is that I ended up working in the new marketing area.And I was the product manager for our Express Mail Service when we introduced it in 1970.And I worked on that for a year and a half with some of the very, very great people, looking back.A guy by the name of Buford Knowles (?), who really drove it through our organization as an acceptance, and we were setting the prices and had our own little test bed in order to make it work.And it turned out that it was a new class of mail; the first new class of mail since 1913.

So it was a great opportunity early on to rotate through the different assignments and gain knowledge about the organization very, very early in my career.

MR. LAWRENCE: Of all the assignments you have held, what do you think best prepared you for your present job?

MR. STRASSER: I guess I'd have to say that it was back in 1980.I had been in customer service in marketing, and then a career Postmaster General, Bill Bolger, created the strategic planning area.And Bill Cummings, who was the Assistant Postmaster General, called on me to join him in creation of that.And we developed a strategic planning process for the Postal Service in the early '80s.And there was a lot of strategic thought going on and there were a lot of excellent ideas.For example, letter mail automation was on the early drawing boards.And it was just a matter of congealing that into a strategic plan for the organization.And in order to do that, you really had to have, or tried to have gained a strategic knowledge.So I became a real student of the organization's finances, its background in debt management, and what kinds of things we might need to finance automation, and things of that nature.And I think that helped an awful lot towards preparing me for my present role.

MR. LAWRENCE: That's a good stopping point.It's time for a break.

Stick with us as we continue our conversation with Dick Strasser of the Postal Service.In our next segment, we'll ask him how the events of 9/11 have affected the Service.

This is The Business of Government Hour. (Intermission)

MR. LAWRENCE: Welcome back to The Business of Government Hour.I'm Paul Lawrence, a partner at PricewaterhouseCoopers. And today's conversation is with Dick Strasser, chief financial officer and executive vice-president of the United States Postal Service.

Joining us in our conversation is another PwC partner, Bill Takis.

MR. TAKIS: Now, Dick, besides the FAA, the Postal Service has probably been the agency

that has been most affected by the effects of 9/11 and Anthrax.Can you tell us a little bit about how the agency has responded to both of those impacts on the country?

MR. STRASSER: Yes, Bill.Actually, you're right, it was a real jolt.9/11 was a large enough challenge in the sense that the nation's air transportation system, upon which we depend for a lot of the transport of our mail, was affected.But the Anthrax was even more so when we lost two of our employees.And it was a very unfortunate situation.

What's occurred since then is that we've been very, very focused -- focused primarily on the safety and security of the mail: safety of our employees Number One and then the security of the mail, and reinstilling the confidence in the mail system on the part of the public.I think the biggest challenge -- and I think it's been to some degree overcome by the confluence of education and communication -- has been the unknown:the Anthrax being so unknown, being invisible initially, and striking so hard before we ever had the opportunity to begin to understand it.We are well on our way to development of plans.As you know, at this point we are irradiating government mail; the ZIP Codes that are encompassed by the first three digits 202 to 205.We are not irradiating other mail at this point in time.

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We are developing a plan that will first of all detect biochemical agents in the mailstream and will enable us to short circuit what happened with the Anthrax that was mailed in Trenton; which was that it flowed downstream to otherfacilities and then got to other people's offices.So we are putting together a plan for the initial expenditure of $500 million, which Congress has appropriated for the security of the mail and the safety of the mailstream.And we hope to have that filed with the Congressional committees in the coming couple ofweeks so that we can proceed forward with that initial introduction of detectionand methods of containing any future currents with regard to bio-chemicals in the mailstream or bio-hazards in the mailstream.

I think we've recovered from that.I think we've generally provided -- for example, our Inspection Service has provided, security assistance to major mailing industry partners so that they can also have the benefit of the expertise that we have, as it relates to mail safety and security.But it definitely was a situation -- it's one of those disconnects that was always said to be coming at us in the 21st Century.Who said life happens while you're making plans, you know,good plans for other things?And it was quite an experience, which I think we've come around in and gotten on top of at this point.

MR. LAWRENCE: How have the events of 9/11 and Anthrax affected the financial situation of the Postal Service?

MR. STRASSER: It threw a crossbody block on us, as well as others in the industry, in the mailing industry.The initial collective pause of virtually everyone in the nation after 9/11 caused volumes to tumble for the first four weeks in the order of about 8 percent, which is very, very significant.Since then, it's been difficult to differentiate the terrorist acts from the recession in terms of mail volume.All that I can tell you is that at this point, for the first five months of this fiscal year, we're looking at a 5 percent reduction in mail volume compared to the same period last year, which is virtually unprecedented, certainly in the 30 years of the Postal Service.

MR. LAWRENCE: What strategies are being employed to cover costs and then meet the revenue shortfall?

MR. STRASSER: We've actually employed significant strategies even before the shortfall in

volume occurred.Last year, and for two years we've been employing a breakthrough productivity model which is based on best practices and spreading best practices across our operations, both in the processing centers and in delivery units.In addition to that, we have a tremendous piece of equipment we call an Automated Flatsorter 100 which we're deploying throughout the nation.And its throughputs and capacities have exceeded our expectations and we've been able to reduce the number of work hours taken to sort flats.

The overall combination of these things has enabled us to reduce our career employment by 21,000 individuals in the last 18 months. And we do that through attrition which we think is the better side of things.So often in the private sector when they do shed people, they have to book the cost of that restructuring and it's substantial cost.So far, we've been able to essentially restructure to the tune of 21,000 career employees, looking forprobably another 10,000 the remainder of this fiscal year, without incurring arestructuring cost in that respect.

MR. LAWRENCE: Is managing through attrition the most effective way to reduce staff?

MR. STRASSER: We think it makes sense in terms of the people impact definitely.And as long as we are able to sustain it, it seems to be the most reasonable approach to it.If we end up in situations where -- for example, we've got some administrative situations in reducing our areas by 20 percent and cutting 800 positions out of headquarters.Unfortunately, in those cases, there may be some very small reductions in force that will have to be employed.

MR. TAKIS: How is the balance done between meeting service levels and reducing staff? It sounds, like in the example of the Flatsorter, technology enables that to take place.Is

Is that true elsewhere as well?

MR. STRASSER: We're pleased to say that with the exception of transportation-related setbacks we had in service, we've been able to sustain the very high levels of service we have attained in the last five or six years which had been prior to that unprecedented.That is not a balance that we -- we talk about doing both, essentially.We want to retain the high levels of service for< all of the services we offer and at the same time, as you say, substitute capital for labor costs and become more efficient at the same time.

MR. TAKIS: We've talked about using technology to improve effectiveness and efficiency and recently your duties were expanded to includethe oversight of the Postal Service's Information Technology Group.Could you tell us why this change was made?

MR. STRASSER: Well, actually, it seemed to be a pretty good fit in the sense that with limited resources, you know, we need to invest in the IT function.And of course, the IT function with the way it changes and accelerates in terms of technology year after year, it can get to be a substantial investment for an organization of our size.We have, of course, a revenue stream of $65 billion and we have numerous locations.We have, for example, an associate office infrastructure that spreads to 8,000 of our facilities and then we use a VSAT capability for another 7,000 of our facilities.So we have 15,000 of our facilities that are tied on our network -- to a central network. And updating that network as well as integrating it across functions with the shared data concepts and the shared applications is a very important concept.��

And I guess what we've done here is that we have established portfolio managers in the IT

function so that they can assist in the integration of these types of future applications that we find will enhance our effectiveness through the entire process.We've got huge efforts in supply chain management.We've got efforts in human capital enterprise we're about to begin, which would be the concept of hire to retire and the entire flow of data, and information, and payroll, and things of that nature. So they are very large enterprise-wide systems that we're attempting to first design through an architecture, and then implement in the coming years, that will gain tremendous efficiencies.

We have, for example, on an E-travel basis, we have a paper list voucher system that makes automatic payments of the Visa card, the GSA Visa card, as well as automatic payments to an individual's bank account for the residual that is due to the individual.And we have 30,000 employees on that system right now.So we're taking paper out of our processes continuously.

MR. LAWRENCE: The E-travel one sounds very interesting.I'm just curious.At the time that people introduced the business case for that, was it easy to see the benefits?Because I have often wondered how it really worked.A spend is introduced by promising benefits in the future and spending money now.And I've wondered how that was really assessed and the decision made.

MR. STRASSER: Well, it was interesting.I came back into headquarters from my previous position as district manager in Northern Virginia while the pilot was just about to be launched.

And I found it interesting.The program managers decided to do it with the officers of the organization first.And that was a risky proposition.But what ended up happening is that they ended up showing that even officers can do it, and it set the tone, I think, because we saw the benefits of the reduction of paper. And the Visa, for example, all your Visa bills are imported into the system automatically.And it's just a tremendous leap forward with what was essentially not a uniquely developed software package; it was a software package off the shelf that was modified just a little bit.

MR. LAWRENCE: Well, that's a good stopping point.

Rejoin us in a few minutes as we continue our discussion with Dick Strasser of the Postal

Service.

Did you ever wonder why stamp prices go up?We'll ask Dick to explain the rate-setting process when The Business of Government Hour continues. (Intermission)

MR. LAWRENCE: Welcome back to The Business of Government Hour.I'm Paul Lawrence, a partner at PricewaterhouseCoopers. Today's conversation is with Dick Strasser, chief financial officer and executive vice-president of the U.S. Postal Service.

Joining us in our conversation is another PwC partner, Bill Takis.

MR. TAKIS: Well, Dick, we've heard that back in September of last year, the Postal

Service filed for a rate increase to raise the stamp price up to 37 cents.Can you tell us a little bit of background on:a) how the decision was made to ask for that rate increase; and b) how that's panning out right now?

MR. STRASSER: Actually, the rate-setting process is unique. Along with postal reorganization came the decision, as part of the legislative process, to set up the Postal Rate Commission, which is an independent commission that regulates only the Postal Service.It doesn't regulate a market or a technology; it regulates just the United States Postal Service.Our competitors participate in the regulation process of us but we don't participate in theirs.But any rate, it is set up such that it takes 10 months to litigate a rate case.And in order to have that amount of time, some future test year has to be set up.

So when we were preparing this rate case, what essentially occurs is the Governors agree with management that perhaps in this case for fiscal year 2003, we would need new rates to break even.So we were dealing with financial forecasts and economic forecasts that didn't have the "R" word in them, nor did it have the terrorist activities of September built in.So we forecasted a test year break even in 2003 fiscal year which incorporated a 37-cent First Class stamp, and on average about an 8 percent rate increase.The Governors approved the filing of that rate case and it was put into the process.

We anticipated, again, the earliest we could have implemented rates under the normal process would be October of 2003.Well, with the advent of the terrorist attacks and with the recession, the downturn in the economy, I thought it was very sharp of the chairman of the Rate Commission to recognize that these were unusual circumstances.And he suggested that maybe the parties, the intervenors who participated in this process, under the leadership of the Postal Service, might be able to come to some settlement agreement rather than go through the entire 10-month litigation, so that it would encompass a lot of the things that had occurred after the filing, after the preparation of the case.In consideration, it might even include an earlier implementation of rates because the shortfall in volume was causing financial pressure on the Postal Service.And that exactly was the case.

And we're pleased that we have an unprecedented settlement agreement that has been filed with the Rate Commission.There are over 50 intervenors who signed on to it, including our competitors.There are five intervenors who didn't, but who are not opposed to it.There is one party that is intervening, and the Rate Commission will give them their hearing.But when all is said and done, it will enable us to have access to the rates we think in the mid-summer, probably, depending on our board's action, somewhere around June 30th, which will infuse about $1 billion into the system.

This will be a very welcomed infusion considering our target is break even.And given this recession and the shortfall in volume, we could have a revenue shortfall this year of somewhere between $2 billion and $4 billion.

So we have an unprecedented situation that is now � the settlement has been filed with the Rate Commission and the Governors have asked the Rate Commission if it would be possible to have a recommended decision by March 25th in order to give them time to consider the Commission's recommended decision and announce an implementation sometime this summer for the rates.

MR. LAWRENCE: I'm curious.You said that normally the rate-setting process took 9 to

10 months, and I'm wondering why that is and if now that it could go faster, if people think it might in the future.

MR. STRASSER: That is certainly a possibility in the future. It definitely needs to be accelerated.In fact, our board had written a letter indicating to the Hill that they thought some flexibility in rate process and rates needed to be built in to provide a continuing process for the future in terms of managing this large organization.For example, in 2000, when gasoline prices spiked, there was really not an easy avenue to put on a surcharge the way we saw other companies in the industry add surcharges for the high fuel costs.So it is possible in the future to not go through the normal litigation.But the litigation of a 10-month period is pretty much what is warranted for due process, given the current construct of the legislation as it relates to rates.

MR. LAWRENCE: The Postal Service was one of the first federal agencies to implement a pay-for-performance program.Can you tell us about what results you have seen so far?

MR. STRASSER: Yes, Paul. I think there is some truth to the adage that sometimes you don't want to be first in line.And the reason I say that is, I think we had an outstanding pay-for-performance process based on economic value added.Unfortunately, it was very complex and it fell to the one line that talked about bonuses, because it was paid after performance was proven to have been achieved.

But we set specific targets, team targets, based on what we call our three areas:customer service; the voice of the employee; and our efficiency, and financial targets.Based on those targets, if the organization generated economic value added under the Stern-Stewart (?) model, that would generate a pool of funds that were enabled to be paid as lump sum pay for performance.The interesting thing about it over the five years is that's the time period when we raised, for example, overnight First Class mail service from 90 percent to 94 percent for the nation.And we have some clusters in the nation achieving 96 percent overnight on time.

We've spread it then to our services, Priority Mail and two- and three-day First Class mail.That was in the service area.In the employee area, we applied it to safety and reducing lost workday injuries.And there is tangible evidence of downward trends in both of those areas over the five years.And in the efficiency areas, we applied it to productivity, and there is tangible evidence of increased productivity there.So the ability to use this as a tool to focus the organization on specific targets as a team and see tangible evidence was well-proven.

The biggest problem was that there was a misunderstanding.When we don't set our own rates, when our target is break even, people don't understandpay-for-performance.They align it to a private sector model that says, well if you didn't make profits, you shouldn't pay bonuses.Well, that was not the case. So what happened in this was our non-bargaining employees, our supervisors and managers, gave up time and half overtime pay, gave up cost of living allowance increases, gave up step increases, in order to participate in this program.So it was truly pay-at-risk based on performance.

And we're moving on.We're in the process of consultation with our supervisors' and Postmasters' associations to design a new step. And we're going to move on to the model that's more individually accountable and things.But we think that for that period of time, the organization as well as provided our customers efficiency and outstanding service for that period of time.

MR. TAKIS: You mentioned just a moment ago the impact of this program on your supervisors and various different employees within the Postal Service. How are they faring with the results of the financial downturn in the economy and the financial situations facing the Postal Service right now?

MR. STRASSER: I think all of our employees have been outstanding in their whole approach right from the terrorist attack on September 11th, when, in fact, our Church Street Station across the street was impacted by -- across the street from the World Trade Center --right through the Anthrax scare.Our employees have just stuck by.And you know, the commercial that we did, I don't know whether you have seen it, was just right on target in terms of their commitment to the mission of the organization.

And it's one of the things that has kept me in this organization is that we're more than a company, more than a for-profit organization.We're an institution with a mission, and the employees have just done an outstanding job.They also recognize that we're in competition; that there are electronic alternatives.And I think there is a genuine concern that we become more efficient.We do have to take more costs out of our system.We do have to work more closely with our unions and our management associations to take out the costs that are now there for grievances and arbitrations and things.We've got to figure out new models to continue to reduce our costs so that we're not passing those on in the form ofincreased rates which could make us non-competitive in the future.

MR. LAWRENCE: The Postal Service has experienced significant management challenges.

That's clear from your descriptions in your answers to the last couple of questions.What lessons have you learned that you could pass on to other leaders facing not exactly the same, but somewhat similar challenges?

MR. STRASSER: Two of the greatest lessons we learned were bring the entire team in, be all-encompassing.We brought our union leadership, our management associations all in on the Anthrax crisis right from the beginning.And then also tap into the best expertise you can find the CDC people, the scientists.We tapped into everybody who could provide us any kind of information, expertise that would do that.The second thing is communicate. And that was a huge challenge.Communicate.And no amount of communications is sufficient.But as long as your employees feel that the communication lines are open, that they have access to information and feedback, you can at least mitigate, to some extent, the crisis mode and you won't have chaos ensue.

MR. LAWRENCE: That's a good stopping point because it's time for a break. Stick with us as we continue our conversation with Dick Strasser of the Postal Service. What new technology might be on the horizon?We'll ask him when The Business of Government Hour continues. (Intermission)

MR. LAWRENCE: Welcome back to The Business of Government Hour.I'm Paul Lawrence, a partner of PricewaterhouseCoopers.This morning's conversation is with Dick Strasser, chief financial officer and executive vice president of the United States Postal Service.

Joining us in our conversation is another PwC partner, Bill Takis.

MR. TAKIS: Now, Dick, the GAO has recently challenged the Postal Service to develop a transformation plan for itself.How do you see that working its way out and how do you see the Postal Service transforming itself into the 21st Century?

MR. STRASSER: Yes, Bill.Actually, it's been a year ago now. GAO put us on their High Risk List.And they were quick to point out that they were putting the Postal Service on the High Risk List not because of the way it was financially or operationally managed currently.What they were saying was that there needed to be structural change to the Postal Service by way of legislation.And they saw that there were so many stakeholders with so many disparate viewpoints that the process for transformation needed to be defined and needed to be rigorously followed so that before a crisis would occur, that in fact the Postal Service was transformed or was reinvigorated, if you will, for another three decades.

What's happened in recent years with growing competition in the package services, as well as electronic alternatives, we've seen at least a slowing of the growth of First Class mail.And this year, ofcourse, we've seen a decline. And so the model that says you can sustain the network and the growth of the network with growing volume is called into question.If you go back to the beginning of the United States Postal Service, we had about 89 billion pieces of mail.We now handle 209 billion pieces of mail. We had 63 million deliveries.We now have 138 million deliveries.Back then, we had 760,000 career employees.We now have about 750,000 career employees.So we've become more efficient in volume per person.

But the fact of the matter is that in the '90s we were not beneficiaries of the growth in the economy the way the dot com growth and other technology growth generated increases in the economy. We were not beneficiaries of that in terms of additional mail volume.In fact, we've seen single piece First Class mail volume, and that's the 34-cent stamp, decline for the last three or four years because of alternatives.

So GAO put us on their High Risk List, and said the Postal Service should provide a transformation plan.And that's what we're in the course of pursuing right now, to be filed at the end of next month, end of March.

MR. LAWRENCE: How long would the transformation take place over?

MR. STRASSER: The way we're approaching it, Paul, is in three stages.The first stage is to outline so that there is no misunderstanding, everything that we as postal management and the Board of Governors have directed us to do within the current legislative mandates that we have.The second phase is, well, what would we recommend we be given in terms of additional latitude,whether that be pricing flexibility, rates flexibility, and other things.And of course, then the third thing is the fundamental question, the public policy question, what are the alternatives? And of course they range from, on one extreme, perhaps, going back to being just a government agency that is subsidized to provide universal mail service, to perhaps on the other extreme of the spectrum full privatization of what we now know as the resources and the operations of the Postal Service.

And so what we're categorizing is our suggestions in those three categories so that Congress will have the opportunity to review this.And how long will it take? Well, we certainly believe that we ought to address these things rapidly. Over the 30-year period, the experiment has worked.We have essentially broken even.We have collected revenues of $1 trillion, 42 billion, and we have expended expenses to run the system of $1 trillion,47 billion.So we've missed break even by $5 billion, which is a lot of money, but it's a half of 1 percent.

We don't know going forward that that will be the situation.And the problem is, prior to reorganization, the Post Office Department was subsidized up to 25 percent of its operating expenses.If we ever got to that position, for example, given our financials in this day and age, we'd be talking about $15 to $20 billion additional federal subsidy to the service.And I don't know that that's really something public policymakers would want to have happen, especially now that our government surplus has diminished.

MR. TAKIS: You talked a little bit about the various stakeholders within the Postal Service and certainly they are very interested, I'm sure, in the transformation of the Postal Service.How have you solicited their feedback; from employees, customers, competitors maybe even?��������

MR. STRASSER: We have extensively solicited feedback on our website.We put out a discussion outline a number of months ago.We've invited comments both in terms of written forums and also at different forums that we've had, at our National Postal Forum -- as you know, we hold those twice a year -- all the way to the point where our board actually has participated in discussion sessions with panels of our larger customers as well as panels of our union representatives and management association representatives.

And all of this is designed to garner as much input in terms of laying out the prospects and the alternatives in the short term, and then, of course, the ultimate model in the longer term, or the choices of models.And then it will really be up to other processes to determine what's the consensus public policy for what the future authorization of the United States Postal Service should be.If it's government-owned, continues to be government-owned, what kind of latitudes do you give it to manage itself in this day and age, as opposed to the day and age when it was established in 1970?

MR. LAWRENCE: Is the conversation even about what measures of success will be, or is that well-understood?

MR. STRASSER: I think that's a good question, Paul.I think measures of success are different things to different stakeholders.And so what needs to occur is there needs to be some kind of confluence or alignment of those indicators.I think there's no doubt that an efficient national mail system generally is something that is ascribed to.

The interesting aspect of it, and you see this going on in the European Post too, is whether you can sustain a system on either a flatline volume, or worse yet, ultimately a volume that is diverted by electronics.How do you do that and maintain financial self-sufficiency?So it really comes down to, as you say, what is that the organization would provide as its mandate; how frequently would it provide it, for example, and things of that nature, and then, of course, at what cost?And are you still going to hold it as needing to be self-sufficient as a public policy?

MR. TAKIS: You mentioned earlier about other foreign postal administrations who are looking at the same types of challenges that you have. Have you looked to them about the way that they have gone about reforming their postal administrations over the last few years?

MR. STRASSER: We have.Although it's really a challenge because their circumstances are significantly different.In Europe, for example, state-owned enterprises are more commonplace.

In the United States, you don't see very many government agencies buying up publicly held companies.You also have the dynamics of the European Union, where some countries are trying to insure that their posts have a competitive edge in terms of being the post for the EU, as opposed to only their country. So there are some parallels.There is some learning there.But there are also some different circumstances, I think.

MR. LAWRENCE: Well, Dick, I want to shift gears here because we're almost out of time, but you've spent your whole career working for the Postal Service.And I'm curious what advice would you give to a young person, perhaps interested in a career at the Postal Service now?

MR. STRASSER: Actually, I think probably now is the best time.Everyone has heard about the Baby Boomers are reaching retirement age, and it's true with our agency.We've actually got a very aggressive development program for our associate supervisors becoming supervisors, first-line supervisors.We've got an advance leadership program that takes individuals out for four weeks of school, classroom training and opportunity to develop.We're about to begin another management intern program that's targeted to bringing outside talent into the organization for specific positions that we foresee; line management positions.So we are gearing up, even more so than we have in recent years, in terms of people development.

And we know we have very talented people within our organization who will step up also.Fortunately, we've got a base, a very large base, of over 700,000 career employees.But for anyone interested, I'd encourage them to go on our website, usps.com., and look at the opportunities, keep an eye open.Here at headquarters, there are opportunities for summer internships of that nature.

And as you can tell, I think, from my whole tone, I wouldn't have traded my 33 years for any kind of other experience.I just have had just a tremendous opportunity for personal development.But I also think I have contributed and been able to contribute in arenas that, you know, would have been very, very difficult to achieve in the private sector, only because I didn't come strictly -- I developed my business background at the Postal Service's sponsorship later in my career.

MR. LAWRENCE: Well, Dick, now we are out of time.Bill and I want to thank you very much for being with us.

MR. STRASSER: Thank you, Paul.

MR. LAWRENCE: And once again, that website?

MR. STRASSER: It's usps.com.

MR. LAWRENCE: Great.

This has been The Business of Government Hour, featuring a conversation with Dick

Strasser, chief financial officer and executive vice president of the United States Postal

Service.

Be sure and visit us on the web at endowment.pwcglobal.com.There, you can learn more about our programs and you can get a transcript of today's interesting conversation. Again, that's endowment.pwcglobal.com. This is Paul Lawrence.See you next week.

Dick Strasser interview
05/25/2002
Dick Strasser

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