Buried in the news reports of the past two weeks, with hardly any fanfare or attention, was a report by the U.S. Postal Service (USPS) that it lost $3.8 billion in fiscal year 2009. This was despite reducing expenses by $6 billion, eliminating 40,000 jobs, and reducing payments for retiree health benefits by $4 billion.
Executives from any other corporation with this kind of staggering loss would be tarred and feathered, or at least publicly flogged (as many were in the past year). But unfortunately, the public and the media is so used to poor fiscal performance by the USPS that it no longer merits much of a headline. After all, our country's "Post Office" lost $2.8 billion in 2008 and $5 billion in 2007. So what's new?
But perhaps we all should pay more attention, especially when the government is on the verge of starting up another large new business -- a public health insurance company. If you were an investor (and anyone who pays U.S. taxes falls into that category) wouldn't you want to look at the track record of the management team asking for money? In that regard, the performance of the USPS raises some disquieting questions. For example, it is meant to be a self-supporting agency, which is also what the public health insurance business might be. Yet the USPS, which competes with private mail distribution services such as Federal Express, has trouble making ends meet because its mandate requires it to serve all areas of the country, even rural hard-to-reach locales. Similarly, the government health insurance business will compete with private companies, but be required to cover anyone who needs it. Is it really possible to run a company with a public service mandate -- in competition with private market companies -- and still break even?
Another question is whether a government-run agency can be sufficiently nimble and flexible to thrive in the current business environment. The USPS, despite all the job cuts and cost-reductions, still employs over 700,000 people. As the world has moved towards e-mail, overnight delivery, instant messaging, texting, Twittering, and other alternative means of information-transmission, its core business has come under siege. Yet the Postal Service has been notoriously slow in developing alternative business models, has allowed competitors to capture lucrative parts of its market, and has generally relied on pricing increases and service cuts (included a proposal to eliminate Saturday delivery) to survive. Would a large, government run health insurance company do any better as business conditions change, technology advances, and new competitors come into the market?
Large, complex organizations with millions of customers, in rapidly changing environments, are difficult to run in any case. When you add a government mandate that limits flexibility and strategic choices, the challenge is compounded. At least that's the lesson that we learn from the experience of the USPS. As we continue to debate the different options for health care reform, it might make sense to keep the Postal Service in mind.
Cross-posted from Harvard Business Online
Ron Ashkenas is a managing partner of Robert H. Schaffer & Associates (Schaffer), a Stamford, Connecticut consulting firm and the author of Simply Effective: How to Cut Through Complexity in Your Organization and Get Things Done .