October 2012

Leading Transformation in the Postal SectorThree Postal CEOs Speak Out About Driving Change

The Boston Consulting Group (BCG) is a global management consulting fi rm and the world’s leading advisor on business strategy. We partner with clients from the private, public, and not-for-profi t sectors in all regions to identify their highest-value opportunities, address their most critical challenges, and transform their enterprises. Our customized approach combines deep in sight into the dynamics of companies and markets with close collaboration at all levels of the client organization. This ensures that our clients achieve sustainable compet itive advantage, build more capable organizations, and secure lasting results. Founded in 1963, BCG is a private company with 77 offi ces in 42 countries. For more information, please visit bcg.com.

LEADING TRANSFORMATION IN THE POSTAL SECTOR

THREE POSTAL CEOS SPEAK OUT ABOUT DRIVING CHANGE

BAS VAN HEEL

BJORN MATRE

GRANT FREELAND

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CONTENTS

INTRODUCTIONFunding the JourneyWinning in the Medium TermBuilding the Right Team, Organization, and Culture

INTERVIEWSJürg Bucher, Former CEO, Swiss PostDag Mejdell, CEO, Norway PostMoya Greene, CEO, Royal Mail

FOR FURTHER READING

NOTE TO THE READER

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INTRODUCTION

I area of the global economy that needs an overhaul, it is the postal

sector. The historical relationship between GDP and postal revenue has been severed. Letter volume is in decline in most markets, and many postal organizations are not well set up to capture new potential sources of growth, such as e-commerce.

The sector needs a fundamental transforma-tion. All parts of the postal business need to be reimagined. But transformation will not be easy. The postal service is the largest employ-er in many nations. For government-owned and private-sector postal operators alike, there is intense political pressure to change as little as possible. It is hard to imagine a more volatile, high-stakes business environment in which to operate.

The success of postal transformations turns on the ability of leaders to set the agenda, tone, and pace of what will certainly be a massive undertaking. In that respect, postal leaders share many of the challenges that confront leaders in other sectors. In talking with the CEOs of postal operators and of oth-er companies, three core elements of transfor-mation have come to the fore:

Funding the Journey. • Even with ambitious goals and tight time frames, it takes a while to change a business model. The leaders we interviewed typically had to

achieve quick wins and build credibility in order to address near-term pressures or invest in longer-term ambitions—or both. Even leaders who were unencum-bered by an immediate crisis needed to find and expend the political capital necessary to make the changes that are essential to the long-term success of an organization.

Winning in the Medium Term. • Nearly all leaders fundamentally changed their business model in order to move their companies to a substantially better place. In most instances, these leaders set and achieved enormously ambitious goals in as little as one to three years.

Building the Right Team, Organization, •and Culture. To achieve a successful transformation, this linked set of topics has to be the center of gravity. A grand vision and agenda will fall flat if an organization’s people lack a shared mindset and commitment. It takes the right culture and talent to drive and sustain change.

In interviews with BCG, three postal leaders share fresh insights into their organizations’ successful transformations: Jürg Bucher, new-ly retired from Swiss Post; Dag Mejdell of Norway Post; and Moya Greene of the U.K.’s Royal Mail.

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The starting lines of the three executives were very different. Bucher had been running Swiss Post’s successful financial arm when he became chief executive; he faced only modest declines in mail volumes during his tenure. Mejdell joined Norway Post in 2006, following its most profitable year, but was quickly confronted by the global financial crisis and a rapid decline in mail volumes. And Greene, the former head of Canada Post, stepped into a money-losing organization that was in need of im-mediate triage. But their lessons should be broadly relevant to postal operators every-where.

Funding the Journey There are several key strategies that leaders should use to fund their transformation suc-cessfully. These include cutting costs in corpo-rate and indirect functions before hitting op-erations, addressing the basic issues, starting the transformation process as early as possi-ble, and tackling the hardest problems first.

Reduce costs, starting at the center. In a business that is continually shrinking, com-plexity and indirect costs must shrink at least as fast as revenues do. In order to build credibility with the frontlines, it is important to reduce costs in corporate and other indi-rect functions fi rst. That approach will give business leaders the credibility they need in order to begin taking out costs from overall operations. “We wanted to identify some improvements that would generate quick returns and would be viewed as aff ecting me more than the operational guys. There is o en a view that the plant or distribution center takes a bigger hit than the head offi ce,” said Dag Mejdell, CEO of Norway Post. And it is crucial that new growth areas, even if they are not yet profi table, should be protected if they are hitting their targets.

Fix the basics. During a transformation, postal operators need to hit their service levels, both for their universal-service obligations (USOs) and for new businesses. “You have to satisfy all the stakeholders with high-service quality and profi ts,” former Swiss Post chief Jürg Bucher told us. “Then you have more freedom and more fl exibility to act.”

Start early and never stop. A postal transfor-mation is not a one-off project. The decline in traditional mail revenues is not showing signs of slowing. As Norway Post’s Mejdell put it: “We think that by 2020, [our mail] volume will be off by 50 percent from today, and that will require additional transformation. Every three to fi ve years, we will need to make big operational changes.”

Start the hard things fi rst. While no aspect of transformation is easy, some parts are harder than others and have long lead times—and those should be tackled fi rst. Labor reform, redefi ned service levels, pricing freedom, and other tough issues need to be targeted in the early stages of transformation. Although a series of quick early wins can build momen-tum, there are big drawbacks to leaving the most diffi cult transformation eff orts until later. The best approach is to sequence implementation so that the groundwork for the hard stuff can happen concurrently with the quick wins.

Winning in the Medium TermIt is possible to set and reach ambitious goals in only a few years, according to the postal leaders we interviewed. Such success can happen if leaders radically alter the business model and make sure it includes a target of building competitive advantage, managing the constraints set by stakeholders, and mak-ing mail profitable.

Develop a vision to build competitive advan-tage. Current USOs are unrealistic. Instead of gauging success based on these standards or maintaining current revenue or employment levels, postal operators must start to empha-size the building of new sustainable business-es in attractive market segments while promising more realistic levels of universal service. To do so, postal chiefs have to create and communicate a vision of the future for their organizations in those markets. “A vision is a dream with a deadline,” said Swiss Post’s Bucher.

Manage the constraints; don’t manage within the constraints. It’s no longer enough to lead the organization by working within the constraints set by the various stakeholders.

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Instead, postal CEOs must be the ones to manage the constraints. Moya Greene, head of the U.K.’s Royal Mail, realized that right away. “The company had not been successful for a very long time. It had been cash-nega-tive for four years in a row, and it could not be successful if we could not completely get out of the stranglehold regulatory approach that had been taken,” she said.

Progress, in this case, means managing stake-holders. Beyond communicating your strategy to them, you also have to get them to buy into your vision of something better through a process of stakeholder discovery, strategy, ne-gotiation, and marketing. All the discussions should be framed around market needs to persuade external stakeholders (such as legis-lators, regulators, unions, and shareholders) to focus on the delivery of services that the market wants.

Ensure that letters fund new growth, not the other way around. Finally, new-growth areas should not support legacy cost structures or compensate for losses in traditional mail businesses. Mail has to be profi table on its own. “If you do not have profi ts in the core business, you will not have enough money to invest in the new business,” said Bucher. This comes back to stakeholder management: if new business opportunities are pitched to stakeholders as a way to off set losses in the mail business, then the whole transformation will be at risk.

Leaders need to be careful to keep their at-tention focused equally on the traditional and the growth businesses, because, over time, the success of the enterprise depends on each. “It is very dangerous to focus only on the new businesses; it is also very danger-ous to focus only on the core business,” Buch-er said. “You have to maintain the core busi-ness and develop the new businesses. The big challenge is to do both.”

Building the Right Team, Organization, and CultureMembers of the organization need to stand behind the goals of the transformation for it to succeed and last. To make this happen, postal leaders must actively work to change

the existing culture, upgrade talent across lay-ers and functions, encourage attitudes that embrace the new, motivate the organization, and remember to be themselves.

Actively change the culture. Many postal operators need to demonstrate greater entrepreneurial initiative and risk taking as well as more agile decision making. Embed-ding a commercial mindset is not something that is going to happen overnight. It will require a mix of interventions, ranging from delayering and making the right hires to setting up new key performance indicators. “Employees at government-owned companies o en think that not making mistakes and making your budget are most important. But you do not win in the marketplace with that type of thinking,” said Norway Post’s Mejdell.

Upgrade talent in all layers—and all func-tions. A crucial step for most postal operators in accelerating change and enabling the organization to move into new areas will be to bring in new talent—and not just at senior levels. “We have some of the greatest people in the logistics business anywhere. But if you are going to capitalize on growth, and growth is going to occur in new areas, you have to im-port new skills to help you leverage what you have,” said Royal Mail’s Greene. The trick is to manage a blend of talented individuals from the old world and the new. Added Bucher: “One team will be saying that the other team does not understand our culture, and the other team will be saying that the fi rst team lives in the last century. It is not easy. You have to manage it.”

Bias the organization toward new opportuni-ties. Indeed, the organization of most posts still tilts toward the past rather than the future. Organizational structure, service models, and career paths all tend to have been built during an early era dominated by letter volume. It will be hard to break into new businesses with that orientation. Leaders need to reshape their organizations and people systems around new opportunities, even if it means the traditional business must take a slight hit in effi ciency.

When creating a new organizational and op-erating model, leaders need to carefully pick

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those initiatives that have the greatest poten-tial impact and chance of success. “If you have a vision and a strategy, you cannot do everything,” said Bucher. “The most impor-tant word is ‘no.’ It is easy to say, ‘Yes, do it,’ but when ideas do not have a link to the strategy, you have to say no.”

Make the organization work. A new organiza-tional structure, however, does not execute a strategy. The strategy needs to be broken down and translated into objectives, cascaded through the organization layer by layer, and followed up with an appropriate measure-ment and control process.

Still, the results will only follow if everyone is highly motivated. An organization’s managers and other employees are unlikely to be as ex-cited about the possibility of change as the CEO is. Therefore, top management teams must work overtime to identify what moti-vates which groups of employees under what circumstances.

Middle managers often have the best sense of how the frontline is faring, and they should be actively recruited into the trans-

formation. “You have to work through the line in order to implement a culture change. People relate best to their closest manager,” said Mejdell.

If layoffs and other difficult decisions need to be made, monitoring employee engagement becomes doubly important. Most employees can deal with bad news, such as layoffs, if they feel as if their leaders are acting fairly and out of business necessity—and if they are seen to be communicating honestly. “We wanted to try to calibrate the plan so that we were successful in taking cost out but were not so mindless on how hard this was on our people that they just dig in their heels and stop,” Greene said.

Be yourself. During a major transformation, leaders need to be both engaged and authen-tic. As Greene says, “If you are running out of cash, you had better be engaged.” Equally important, leaders need to be themselves. A leader’s tone and delivery have a big impact on how employees interpret and internalize events. “You have to be very reliable and authentic as CEO. You need to be yourself,” says Bucher.

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INTERVIEWS: JÜRG BUCHER

LINKING THE OLD AND THE NEW

JÜRG BUCHERFORMER CEO, SWISS POST

S P on the leading edge of postal organizations that are fi nding a

way in a world where bits and bytes are replacing letters and envelopes. The mail operator has been able to make up for declining mail volumes both by automating its traditional operations and by building new digital businesses.

Chief executive Jürg Bucher once ran Post-Finance, Swiss Post’s first and most success-ful diversification (dating to 1906), and he is careful not to forsake the old for the new. The traditional mail business of Swiss Post may need to be reimagined, but it is not going to disappear, and it remains profit-able. Without the steady flow of profits that plain old mail delivery provides, Swiss Post would be unable to fulfill its USOs and fi-nance its expansion into logistics, digital-document management, and other electron-ic services.

A common sales force and a common belief that customers need a range of services—not just digital offerings—link the traditional and new businesses. Bucher has been sure to com-municate to the people working in the tradi-tional business that what they do is vital to the overall success of the organization. Cer-tainly, if mail service levels start to slip, Buch-er is likely to hear from politicians—another reason to ensure that the mail gets delivered on time.

Bucher retired in September 2012. He recent-ly spoke with Bas van Heel, who heads BCG’s global postal practice.

What are the challenges in transforming Swiss Post, both now and over the next five to ten years?

The main issue is the changing needs of cus-tomers, especially in the communications market. We also have issues in the parcel sec-tor and payment services. In all these sectors, we have to adapt our strategy. The needs are different.

Born in SwitzerlandYear born: 1947

EducationLicentiate in econo-mics, University of Berne

Career Highlights2009–2012, chief executive, Swiss Post2003–2009, chief executive, PostFinance

Outside ActivitiesMember, InnoBE AG boardMember, Bern Arena Stadion AG board

JÜRG BUCHER

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In the letter market, we will have a decrease in volume. But that is only one problem. The main problem is: what is the position of the letter in the communications market? We know we need cost reductions and invest-ments in new technologies. In the parcel sec-tor, we have to find the position of the parcel in the value chain. Postal organizations will not only deliver parcels. Business and resi-dential customers will need different services. In the payment sector, there is a technological shift from making cash payments in the branches to e-banking and mobile banking.

When you have different and new customer needs, it is very important to guarantee high-quality service and to transform the organiza-tion. You have to find a balance. In the past, postal organizations have focused too much on cost reduction and investments in new technology and forgotten about service qual-ity and, therefore, the customer.

How important is a vision for a transfor-mation?

I think you need a common and simple vi-sion. It must not be too complicated. All members of the company have to understand it, not just the management.

“You want to have a core team that helps to establish a common strategy.”

Does the vision drive strategy, or is the vi-sion a packaging of what you are already doing?

A vision is a dream with a deadline.

How did you find or create the vision?

It is an issue for the top management and su-pervisory and management boards; they have to discuss this vision. You cannot create the vision from the bottom up. Afterward, you have to communicate this vision very simply, formulate a strategy, and follow through with operational planning.

How did you align your senior leadership team with your vision?

You need to discuss the vision with them. It is a process. It is not the vision of the CEO. It is the vision of the management board and the supervisory board. You need discus-sions. It is hard work. You will not be able to do it in one day. It took us a year to clarify our vision.

During this hard work, did you lose any of your senior people?

Not because of the strategy discussions. In a changing world, you have to be careful to have enough stability in the team. That does not mean you have the same team for five years. But you must be very care-ful about replacing people. You want to have a core team that helps to establish a common strategy and to execute this strategy.

What is the role of the CEO in a transfor-mation? When do you need to decide to engage, and when do you decide to keep your distance?

Creating the vision is a very important role for the CEO with the management and supervisory boards. The CEO must have a clear view of the future. He has to communi-cate this vision with the management, with the people in the company. He also has to make sure that the vision is formulated into a concrete strategy and that there is not a gap between the vision and the strategy.

When do you decide to intervene?

It depends on the business and the people. Some businesses may be working very well and following the vision and strategy. Others may not understand the vision and formulate a new strategy every three months. Then you have to have more influence.

If you have a vision and a strategy, you can-not do everything. The most important word is no. It is easy to say, “Yes, do it.” That is easy. When ideas do not have a link to the strategy, you have to say no.

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How do you decide when to focus on growth versus the traditional business, on the new versus the old?

It is very dangerous to focus only on the new businesses; it is also very dangerous to focus only on the core business. You have to main-tain the core business and develop the new businesses. The big challenge is to do both.

We built a new organization at the manage-ment-board level, Swiss Post Solutions, to fo-cus on new products. We have also built up a new e-post product house responsible for new business. But the same sales force sells both traditional products and new e-products and e-solutions to customers. So we link the new businesses to the core business through the sales force.

How do you manage to keep your core business sufficiently profitable so that it can fund growth?

Our letter business is very profitable. We need to maintain this profitability through cost reductions, technology, and sometimes price increases.

You are in a better position than some of your peers that are struggling. Hypotheti-cally, if something happens in the next year or two in your traditional business, will you need to make radical change? How would you then address that balance?

It is very important to act early and to invest in new technologies. We made big invest-ments in the parcel, letter, and payments sec-tors at the end of the 1990s. In the last 10 to 12 years, these investments have paid off. You cannot change the company in a few years. You need a long time. Some postal organiza-tions did not invest early enough.

How do you manage your stakeholders—regulators, owners, the general public, etc.—who may not see the need to make early investments?

It is very simple. If the service quality is high enough and the customers are satisfied, few people will oppose the changes. If the compa-ny is profitable, then it is also easier to make

the investments. That is the problem in the U.S. today. They are not profitable and did not make investments early enough. You have to satisfy all the stakeholders with high ser-vice quality and profits. Then you have more freedom and more flexibility to act.

“We link the new businesses to the core business through the sales force.”

What about the labor perspective, which in other countries is an issue?

It is important to motivate your people and to tell them how they can benefit from changes. Sometimes the opportunities will be outside the organization. That means you have to fol-low social policies and act early enough to give people enough time to adapt. If you act too quickly and tell people they have to leave the company next week, then you will be con-fronted with very bad news. But if you tell them you may need to reduce the size of the workforce over the next two years and help them find a new job, and support them with money and other possibilities, they will un-derstand. It is not good news. But they under-stand because they have enough time. They can adapt.

How do you keep people motivated if they are working in the old, traditional busi-nesses, and their colleagues are working in one of the new businesses?

Most of our people are working in the core business. That is one point. Senior managers also have to focus on both businesses and communicate to people that both the core and new businesses are important. We re-cently invested 10 million Swiss francs on im-proving the core business. It tells people that top management believes in the core busi-ness.

If you do not have profits in the core busi-ness, you will not have enough money to in-vest in the new business. It is very simple. They depend on each other. You have to give

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very clear signs that the core business is very important for the company.

How do you define the culture you want to have? How do you change the culture?

Culture change is a long process. I think that the main challenge is to change to a more customer-focused culture in postal organiza-tions. Sometimes at postal organizations, in-ternal processes are more important than customer needs. We started this process in the 1990s. We have increasingly focused on this service orientation in the last two to three years. And it is not yet finished.

New people can help to change a culture. But you cannot change the whole staff. It is not possible. But you can do it in the following way. You can mix old people who are familiar with the company with new people. You can form mixed teams. You can also give new im-pulses to the older ones.

No team should have only new people. That is absolutely dangerous. You will have a fight. One team will be saying that the other team does not understand our culture, and the oth-er team will be saying that the first team lives in the last century. You have to bring together the new people and old people. It is not easy. You have to manage it.

Is there any advice you would like to give to other leaders of other postal organiza-tions?

You have to create confidence internally and externally by providing high-quality services. That’s the one point. The second point is you have to motivate the people for the challenges by telling them there is not only a risk but also a big opportunity. And the third point is you have to be very reli-able and authentic as CEO. You need to be yourself.

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INTERVIEWS: DAG MEJDELL

CHANGING THE CONVERSATION

DAG MEJDELLCEO, NORWAY POST

W D M Norway Post as chief executive in 2006, the need for

transformation was less apparent than today. Buoyed by strong growth in its logistics business, the organization posted record profi ts the prior year and its second-highest profi ts in 2006, despite a drop in the volume of fi rst-class mail.

In order to increase efficiency and profits fur-ther, Mejdell created the Spinnaker program, named for the large billowy sails that propel boats downwind. But by 2008, Norway Post was facing stiff headwinds. Notably, the glob-al financial crisis had helped accelerate the decline in the amount of addressed mail.

One of Mejdell’s first challenges was to build the case for change among employees who did not necessarily see the erosion in busi-ness. The organization was siloed, and long-time employees had grown accustomed to the parade of similar initiatives that preceded Mejdell’s arrival. As part of the transforma-tion, Norway Post eliminated segments of its divisional structure that kept employees from seeing a fuller view of the business, and Me-jdell encouraged greater risk taking.

To build credibility among the rank and file, Mejdell made sure that headcount at head-quarters would be trimmed along with field staff. He also emphasized the need for a safe, open, and healthy workplace, demonstrating

that the transformation was about more than just money.

Today, Norway Post is on a much more even keel even though the winds of change are whipping harder than before. Mejdell recent-

Born in NorwayYear born: 1957

Education1980, MBA, Norwegian School of Economics and Business Admini-stration

Career Highlights2006–present, president and chief executive, Norway Post 2000–2005, president and chief executive, Dyno Nobel ASA 1997–2000, president and chief executive, Dyno ASA 1981-1997, fi nance director and other posi-tions, Dyno ASA

Outside ActivitiesChairman, International Post CorporationVice chairman, Evry ASA Vice chairman, SAS AB

DAG MEJDELL

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ly spoke with Bas van Heel, who heads The Boston Consulting Group’s global postal practice.

What were the challenges you encoun-tered in transforming Norway Post?

I joined Norway Post in 2006. At that time, people still talked about growth in certain ar-eas, such as direct mail. The business was sta-ble, and the name of the game was entering in new markets and taking advantage of com-petition.

The financial crisis and the speed of conver-sion to digital communication changed the conversation. We started to realize the chang-es were going to be very dramatic. We had been talking about digitalization for more than a decade, but then it actually started to happen.

It was a challenge to convince the managers that we need to change. A lot of money was invested in services that did not have a re-turn. There were no good processes to ensure that we received a return on investments in the mail segment. It was very much a ques-tion of changing that attitude and asking our-selves what do we need to do in order to cope with a much steeper decline. At that time, we talked about a 3 or 4 percent decline a year, and now we are talking about more like 6 or 7 percent.

When I arrived, we had divisions that did sorting, sales, and that ran the post offices. Nobody really saw the complete picture. When I went into the field to meet the letter carriers, or salespeople, or the post office people, they talked as if they worked in differ-ent companies. As part of our Spinnaker transformation program, we eventually merged the divisional structure, and that has helped drive change.

What were your first steps in the transfor-mation?

First, we needed to get all stakeholders to agree on the challenge. It helped immensely to establish a baseline about what would happen if we watched the world go by and did nothing.

In our case, as with most cases, there are lots of doubts about profit-improvement pro-grams. Is this real or just playing around with the numbers? We wanted to identify some improvements that would generate quick re-turns and would be viewed as affecting me more than the operational guys. There is of-ten a view that the plant or distribution cen-ter takes a bigger hit than the head office.

We reduced our staff and support headcount by nearly 30 percent, which meant that 350 people left. That helped to show improve-ment and clearly affected this office. We had to vacate one floor in headquarters. It had a large symbolic effect.

“We had been talking about digitalization for a decade. Then it started to happen.”

How important is a vision, and how did you create a vision?

A vision gives people direction, but I did not fundamentally change Norway Post’s vision. I sharpened it. It was more important to change the overall targets—we are more fo-cused on growth in the logistics area—and corporate values.

We want to be an attractive and healthy workplace. In a labor-intensive business, that is very important. You do not succeed if you only focus on profits. You also have to focus on quality, customers, and employees.

We also want people to have courage. Em-ployees at government-owned companies of-ten think that not making mistakes and mak-ing your budget are most important. But you do not win in the marketplace with that type of thinking. We need to have the courage to make mistakes. You get more creativity and change if you allow your employees to work that way.

Openness is also important. This was a very closed organization in a sense that every-body was focused on his or her operational

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unit or area of responsibility. In order to co-operate with one another and think about the best of the corporation, you need to share information.

You are not going to embed these values in everyone’s daily work overnight. You cannot just tell people that, starting on January 1, you are open. You have to build and repeat.

You have replaced several people on your management team with executives from outside. You also have a reputation for em-powering your people. How do you think about management and your management style?

I did not come in and say everything is bad so I will change the entire management team. But some people did not believe in transfor-mation, and other people had a mindset that they only cared about their own area of re-sponsibility. In order to get this program run-ning, I had to make some changes with peo-ple. I also had to be very consistent in what I said and in defining actions and activities that I would not compromise on.

When do you decide to engage, and when do you let your executives do their own thing?

You have to work through the line in order to implement a culture change. People relate best to their closest manager. But the top ex-ecutive also has to lead by example and send-ing signals. You have to demonstrate 100 per-cent consistency between what you do as the top guy and what the lowest line manager does in his daily work.

Is the culture you have now the one you will need in five years?

We focused on transformation originally in the mail sector. That part of the organization is different from what it was six years ago. It is much more open and transparent. Peo-ple in the mail sector now understand that mail volumes will drop, but they are also encouraged by the challenge of managing that decline: make money, deliver quality to your customers, and handle your employees fairly.

Now we are looking at the logistics sector. In 2007 and 2008, logistics was viewed as the fu-ture of the company and more profitable than mail. Now that has changed. The logis-tics guys are now looking to the mail business and wondering what they can learn. So we have now introduced the Spinnaker program into the logistics sector.

Strong business performance will likely help improve the spirits of managers and executives, but what about your opera-tions people? They may be less concerned about the bottom line and more con-cerned about their jobs.

Of course they are concerned about their jobs. But the day when the last letter is sent is a long time away. It is not something you care about every day. I think our emphasis on con-tinuous improvement—doing something bet-ter everyday—has also helped.

In Norway and the other Scandinavian coun-tries, we have a long tradition of working closely with employees. You can view it as a burden or as an alliance to achieve results. We have employee representatives who are realistic. They accept the future because we can show them the facts. We can always de-bate whether the decline will be 5, 6, or 7 per-cent a year but not the overall direction. There is trust on both sides.

“You are not going to embed these values in everyone’s daily work overnight.”

How do you keep everyone motivated?

I do not believe motivation is a problem. They have been through restructurings not only for the last ten years but basically their entire work careers. People think that this is just the way it is. I met one guy who had been made redundant five times and always found a new job within Norway Post. So I think peo-ple have the attitude that it will probably work out this time as well. About one-third of people leave with a package, one-third find

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new positions, and about one-third retire, so there is a large internal employment market.

We do annual employee-satisfaction surveys. Last year, we had a satisfaction rate of 77 per-cent. I think that goes back to the balanced scorecard. We do not just care about profits and cost reductions. We care about our em-ployees. We work very diligently on safety measures, quality, CO2 emissions, and the in-tegration of nonethnic Norwegians into the postal service.

What are your challenges over the next few years?

We think that by 2020 volume will be off by 50 percent from today, and that will require additional transformation. Every three to five years, we will need to make big operational changes.

We also need government support to ease the service-level requirements, and not just a lit-tle bit. It has to be pretty radical and funda-mental. It has been very hard to convince pol-iticians that we have to make big changes.

Up until now, we have basically been able to do everything without needing to seek the government’s approval. And that made it much easier. But as we reach new lows in vol-ume, we will need government approvals. It is not only about six- or five-day delivery but

also radically changing the product offering in ways that will challenge both the govern-ment here but also EU regulation.

When do you organize and restructure for new growth areas, such as logistics?

It is always a challenge to downsize and grow at the same time. Those activities are by na-ture quite different. Our strategic plan ac-knowledges that mail volumes will gradually become smaller, that the logistics operation is growing, and that we will funnel some free cash flow into growing the logistics segment. It also helps telling the mail employees that there are opportunities in the growth areas. We are trying to implement a balanced mar-ket-based downsizing of the mail segment that is supporting the logistics area.

What would your advice be to a new post-al CEO?

Paint a realistic picture of the future, which is decline. If you plan for something else, I think you are fooling yourself, and you will create larger problems. We are on a long-term trans-formation.

I would also think about growth opportuni-ties in parcels, logistics, and secure e-mail. There are pockets of growth, but they are not substantial within traditional communi-cations.

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INTERVIEWS: MOYA GREENE

DELIVERING CHANGEMOYA GREENE

CEO, ROYAL MAIL

E , Moya Greene was the public servant responsible for the

deregulation or privatization of a large swath of Canada’s transportation sector. She also turned around and modernized Canada Post. But those experiences did not fully prepare her to lead the transformation of Royal Mail, the U.K. postal agency that delivers 60 million letters and parcels daily.

Royal Mail was mired in losses and unman-ageable regulation when Greene arrived two years ago. She quickly recognized the need both to gain regulatory freedom and to trans-form the organization that, in her words, “taught the whole world how to do this busi-ness.” Today, Royal Mail is a leaner and more commercial organization. The customer is also now “part of every conversation” within Royal Mail, Greene says.

If transformations are long journeys, espe-cially at government-owned companies with their expansive histories of inertia and com-placency, Royal Mail has started in the right direction and at the right pace. Bjorn Matre, BCG’s regional chair of Europe, Middle East, and Africa, recently spoke with Greene about Royal Mail’s transformation. Excerpts follow.

You were appointed the CEO of Royal Mail in May 2010, only two years ago. It was clearly an organization that needed fun-

damental change. What were your initial priorities?

First, I had to figure out how to put some fi-nancial stability underneath the company

Born in St. John’s, Newfoundland and Labrador, Canada Year born: 1954

Education1978, bachelor of law, Osgoode Hall Law School1974, bachelor’s degree, Memorial University

Career Highlights2010–present, chief executive, Royal Mail 2005–2010, chief executive, Canada Post 2003–2004, senior vice president, Bombardier 2000–2003, senior vice president, Canadian Imperial Bank of Commerce 1996–2000, managing director, TD Securities1979-1996, positions at Public Service of Canada, Department of Labour, and Privy Council, rising to assistant deputy minister for Transport Canada

Outside ActivitiesMember, board of directors, Tim Hortons

MOYA GREENE

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quickly. That very immediately brought me face to face with the need for wholesale regu-latory reform, because the company had not been successful for a very long time. It had been cash-negative for four years in a row, and it could not be successful if we could not completely get out of the stranglehold regula-tory approach that had been taken.

“You have to import new skills to leverage what you have.”

Did you want to establish an overall vision early on in the process or later on?

In the Royal Mail, within six months, we knew that we had to do three things. We had to review all of our products and services and all of our operations in order to be brilliant at the basics. The second thing we needed was a really strong commercial DNA. If you have been government-owned for many years, and if every aspect of your business has been regulated so it has kind of been run by remote control, importing a commercial DNA into the company is not something that is going to happen overnight. Finally, we needed to start growing the business—to look at where we have competitive advantage. What is it about this operation, this brand, and the trust that people have in this compa-ny that makes us the best? In which areas can that be said to be true?

We are going to really benefit from our 35 percent share of the parcel and packet busi-ness. E-retailing is exploding in the U.K.

To what extent do you need to bring in people from the outside?

We have some of the greatest people in the logistics business anywhere. But if you are go-ing to capitalize on growth, and growth is go-ing to occur in new areas, you have to import new skills to help you leverage what you have. Direct marketing is a perfectly good ex-ample. We have been terrific at delivering di-rect-marketing materials, but now we want to

add value. We want to capitalize on the data that we have so that returns on marketing spending can continue to go up and up. So now we need to import an advertising men-tality into our direct-marketing offer.

In a significant transformation, how important is it to change the organiza-tional structure and parts of the leader-ship team?

If you have the right people, you can over-come organizational problems. But if you do not have the right people, an organization that is brilliant is not going to get you there. With that said, organizations need to be at least sufficiently tidy where people can un-derstand how they report up in a large orga-nization, and senior people can understand what they are responsible for.

The organization has to signal what you think is important for the next three or four years. We had to put the customer in a position in the Royal Mail so that it became a part of ev-ery conversation that we had at the manage-ment table and throughout the whole organi-zation.

As CEO, when do you engage and when do you hold back in a transformation?

If you are running out of cash, you had better be engaged. You had better figure out very quickly what you have to do with the supply base, with every expenditure, with pricing, with shareholders, and with customers. What do I have to do to make sure that I do not hit a wall?

In strategy, the CEO has more freedom to set a broad course and empower the organiza-tion. You cannot speak for all 160,000 people in the company.

You have a very particular challenge in that you have to take costs down in one or two businesses because volumes are coming down, but you also have some high-growth businesses. How, as a CEO and as an organi-zation, are you managing to do both?

Taking cost out of the traditional business is really about automating and modernizing it.

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What did I have to do? I had to be out in the field and take the temperature of our people and understand how much change they could cope with. We wanted to try to calibrate the plan so that we were successful in taking cost out but were not so mindless on how hard this was on our people that they just dig in their heels and stop.

In most transformations, you go through waves. There will be ups and downs. How do you ensure that the motivation and confidence of your employees stay high throughout this journey?

It is really two things. The first is massive in-ternal communications at all levels. That was not really part of the personality of the Royal Mail. For a communications company, the in-ternal communications of the Royal Mail was a little bit surprising to me. There wasn’t very much of it.

Second, the rewards system has to be aligned for the goals that you are trying to achieve. My scorecard should be the same as the scorecard of the person who is out delivering the mail so that we are all on the same page, and we are all watching the same things.

Reward systems that are aligned to score-cards—especially scorecards that go top to bot-tom—help to change the conversation in the organization. This company had a pretty bad legacy of industrial relations. If you are going to change that, you need to change the conver-sation, and the conversation needs to be more aligned with what it takes to be successful, to what the competition is doing, and to what the customer wants the Royal Mail to do.

If you were to compare what you and your team are currently doing at the Royal Mail with the process you went through at Can-ada Post, what are the key differences?

Canada Post is a very big company in Cana-da. It is probably the sixth largest company in Canada. But the Royal Mail is on a much big-ger scale. Historically, this has been a trea-sured institution in Great Britain. This is the

company that taught the whole world how to do this business. It has been in financial diffi-culty for a very long time. But even with that, it has managed to retain the love of the Brit-ish people.

“This is the company that taught the whole world how to do this business.”

As you look into the twenty-first century and the new challenges business will be facing, how will they impact CEOs and how they need to do their jobs?

In all my years in investment banking, I never heard anybody say, about anything we were doing at the time—this is 1995—“But is that the right thing to do?”

Increasingly, CEOs and management teams are going to be asking ourselves, “But is it the right thing? Are we doing right by our cus-tomers and our suppliers? Are we a good partner? Have we been fair?”

If you could give one piece of advice to a new CEO leading a significant transforma-tion, what would it be?

Make sure you are up for it. This is not a 50-hour-a-week job. Try to get your arms around the full parameters of what you have to deal with as quickly as possible. Talk to lots of people. Go up. Go down. Go out. Go see as many of your own people. Go talk to them in small groups, in big groups.

You really have to understand that social me-dia have changed everything about what our people think, every minute of the day, about their company. They are either going to be great ambassadors for your company or they are going to be detractors, and their criticisms are not just going to be water-cooler conver-sations. They are going be conversations that go across the globe in a nanosecond.

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The Boston Consulting Group publish-es other reports and articles that may be of interest to executives in the post-al sector. Recent examples are listed here.

Retail 2020: Competing in a Changing IndustryA report by The Boston Consulting Group, August 2012

Focus on the Future: Building a New Compelling Position for Posts A report by International Post Corporation and The Boston Consulting Group, June 2012

The Internet Economy in the G-20: The $4.2 Trillion Growth OpportunityA report by The Boston Consulting Group, March 2012

Demystifying Organization Design in the Public SectorAn article by The Boston Consulting Group, November 2011

Multichannel 3.0: The Mobile RevolutionAn article by The Boston Consulting Group, November 2011

Leading Transformation: Conversations with Leaders on Driving ChangeA report by The Boston Consulting Group, October 2011

Creating People Advantage 2011: Time to ActA report by The Boston Consulting Group, September 2011

The Postman Always Brings Twice: Receiver-Driven Transformation of the Mail Business ModelA report by The Boston Consulting Group, March 2011

Adaptive LeadershipA Perspective by The Boston Consulting Group, January 2011

FOR FURTHER READING

T B C G |

About the AuthorsBas van Heel is an associate director in the Amsterdam offi ce of The Boston Consulting Group and the leader of BCG’s postal sector practice. Bjorn Matre is a senior partner in the fi rm’s London offi ce and chairman of Europe, the Middle East, and Africa. Grant Freeland is a senior partner and man-aging director in BCG’s Boston offi ce.

AcknowledgmentsFirst and foremost, we want to extend our sincere appreciation to the three postal chief executives—Jürg Bucher, formerly of Swiss Post; Dag Mejdell of Norway Post; and Moya Greene of the U.K.’s Royal Mail—for their time and their insights. This report would not have been possible without their will-ingness to share their experiences in driving fundamental change within their organizations.

The authors would also like to thank Rob Wolleswinkel, Craig Baker, and other BCG colleagues for their contri-butions. They would like to acknowl-edge John Kerr and Mark Voorhees for their writing assistance as well as Katherine Andrews, Gary Callahan, Sarah Davis, Angela Di Battista, and Sara Strassenreiter for their contribu-tions to its editing, design, and pro-duction.

For Further ContactIf you would like to discuss this report, please contact one of the authors.

Bas van HeelAssociate Director and Postal Sector LeaderBCG Amsterdam+31 20 548 5855vanheel.bas@bcg.com

Bjorn MatreSenior Partner and Managing DirectorChairman of Europe, Middle East, and AfricaBCG London+44 207 753 5642matre.bjorn@bcg.com

Grant FreelandSenior Partner and Managing DirectorBCG Boston+1 617 973 1200freeland.grant@bcg.com

NOTE TO THE READER

T B C G | C

© The Boston Consulting Group, Inc. 2012. All rights reserved.

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