Post Office Ltd Annual Report 2014

Deconstructing the propaganda

Overview

Post Office Ltd (POL) published its annual report on 10th July 2014. The report exudes success and confidence in its future business strategy. But is it as rosy as it seems? This document highlights areas of concern not immediately visible within the content of the Annual Report.

Post Office Ltd is a bureaucratic nightmare. A self proclaimed commercial organisation overseen by Politicians and unsupervised by any independent body.

It is essential that such an independent body be set up as soon as possible, made up of critics and fans alike, empowered to access financial details at all levels, in order to ensure the survival of a necessary cornerstone of our community life.

Public Purpose

During the year under review, Post Office put together a Public Purpose statement. A well constructed, concise and plausible form of words that embodies the public opinion of the Post Office as a cornerstone of our local communities on the High Street.

In order to deliver this Public Purpose however, POL must also deliver on other underlying targets.

a) The Government Target

The biggest self imposed constraint on the Post Office network is the Government requirement for a USO, with a post office in easy reach of a significant percentage of the population. The Government is far too aware of the political damage that a closure program would bring – particularly in an election year – and they therefore remain committed to maintaining a network size of 11,500. The opening sentence of the Public Purpose Statement is ‘The Post Office is … a commercial business’. What commercial business in any part of the world continues to maintain the same size of network outlets in the face of falling revenues?

b) The Sustainable Network Target

A sustainable network is entirely dependent on the willingness of small businessmen and women to invest their capital, time and effort into running a post office. Over the last few years income from Post Office work has fallen while the effort involved in processing the remaining work has increased (i.e. mail segregation, dangerous goods etc.). The outlook is not good either. The POL Annual Report shows falling income in all sectors with a likelihood for that to continue. Clearly the incentive to operate a Post Office is falling rapidly as well and that brings into question the commercial acumen of those new subpostmasters or operators enticed to purchase a Post Office.

c) The Competitive Target

To have any chance of delivering new income streams or growth in existing ones, POL must provide quality products at competitive prices. Prices are determined for the most part by competition and profit margin. POL have intolerably high overheads and thus profit margins have been squeezed almost to their limit. With reference again to their Public Purpose statement, POL cannot identify themselves as a ‘commercial business’ as no commercial business would tolerate such a cost structure.

d) The Customer Target

The Public Purpose statement ends with ‘We will meet customer needs through our unrivalled local presence’.
What the customer needs and what POL want to supply the customer are at odds with each other. High pressure sales conversations are in place to promote POL products that clearly the customer does not need or they would have asked for them in the first place. The vast majority of Post Office customers are regular returning customers, many on a daily basis, most on a weekly basis at least. They know what they want. Upselling to these customers only serves to disillusion them with the service that POL provide them.

e) The Brand Target

The Post Office is probably the most trusted brand in the UK and one of the most identifiable with a clear and consistent image. Maintaining the brand and exploiting its commercial potential is pivotal to the future success of the company.

The quintessential Sub Post Office has always been linked to a retail offering whether it be greeting cards and stationery or a Village Shop. The brand however has been prevalent. Customers don’t go to the shop they go to the Post Office. Network Transformation changes this perception dramatically. Customers are now going to shops not Post Offices. Posting a letter is now part of the shopping experience not the other way around.

Most importantly though is that the brand is now a much smaller part of the local operator’s business and consumes less of his attention. There is insufficient financial incentive for him to promote the brand within his shop.

Without due care and attention the commercial prospects of the brand could be severely damaged.

Support

Post Office Limited enjoys the support of the Government, the Civil Service and The National Federation of Subpostmasters.

By promoting this support, POL management are empowered to deliver their strategy over time and with a seemingly never ending financial support package. Targets are set but appear variable as they are never met yet management bonuses are maintained.

There appears to be no external regulator capable of monitoring performance against targets. That can only lead to complacency at the least. The Board of Directors, BIS and MPs are totally reliant on Post Office Ltd providing them with truthful and honest answers.

The management team of POL are financially rewarded for the successes that they report so are clearly incentivised to deliver reports and commentary that support this.

This leads us to the very great concern of the support for Post Office Ltd shown by the National Federation of Subpostmasters (NFSP). A document leaked to the public shows that POL paid the NFSP £500k on condition that the NFSP supported POL’s proposed new version of Network Transformation. Most worryingly it is clear from the accounts of the NFSP that without this payment they would struggle to exist and that the salaries of the few employees in control of the organisation would be under threat. The support to POL tendered by the NFSP must be seriously questioned.

Criticism

POL management do not make any attempt to engage with critics of their strategy nor do they make any attempt to report on failures. POL present figures and statistics in a way that highlights success but which can easily be interpolated to show otherwise. POL persist in seeking to attain self set targets that are modified at a whim yet the figures that are available in the public domain show failure after failure to meet the original targets. A simple, yet serious, example of this is the original target figure of 6,000 converted offices by March 2015. It is perfectly clear from recent figures they have published that they are on course to deliver only 3,500 of this target. With over 9,000 subpostmasters, a figure of 3,500 shows a overwhelming rejection of the NT proposal on their part. (The majority of the 3,500 converts being standard ‘churn’ where a SPMR sells his business on, resigns or dies. It should also be noted that the NFSP purports to represent their members interests yet as we can see the majority are not enthused by NT)

Simple Economics

2 years ago, POL split from RMG. Key figures now appear on the annual accounts showing the importance of the current and future relationship between POL and RMG on the future financial viability of POL.

RMG is now a separate, privately owned company whose board must report directly to their shareholders and ensure that the management of the company strive to follow the most profitable path. That path may soon no longer include POL. A simple analysis of the amount RMG pay POL for delivery of Postal Services compared to the amount of pay for ALL products paid by POL to SPMRs reveals a major worry.

£448m paid to Subpostmasters in 2014 compared to £478m paid in 2013
£390m Received from RMG in 2014 compared to £409m paid in 2013

The gap is narrowing quickly. £58m compared to £69m one year ago. If NT delivers it’s supposed saving on SPMR costs, soon will come the time when it will be expedient for RMG to look at providing postage services directly through their own franchise operation. It should be noted that they already do this with the use of Franking Machines and other forms of PPI mail and have expressed an interest in removing bulk mailers from using the Post Office network through incentives.

With SPMRs then free to provide their own complimentary services such as Paypoint, there would be no financial incentive for the retention of Post Office Ltd by the Government.
There would be no need for a network subsidy and subpostmasters would earn at least the same for processing only mails. Their income would increase when other types of work was included. Of course RMG would be under no obligation to offer their products to only the present SPMR network so there is some risk for those who remain in the network.

Competence

Subpostmasters, the length and breadth of the country, question and challenge the competence of the POL organisation on a daily basis. There is a vast collection of breathtaking examples of absolute incompetence which are often repeated. The most worrying aspect of this is the failure of POL management to react when informed of these mistakes. This problem is clearly prevalent throughout the organisation. There is no external organisation that can challenge these internal failings.

Working with POL

The bureaucracy, the multiple levels of management, the multiple product centres, the increasingly complex nature of dealing with what should be simple products makes working for POL a nightmare. New operators will only come across this problem once they have invested a substantial amount of their own money in their new business. When they start to compare the time and effort required to sell products (including many operations that do not incur remuneration) they receive a shock. It is not surprising therefore that many new operators of the new models have already placed their businesses on the market.

Conclusion

It is time for POL to be monitored carefully and independently. They are currently on the road to oblivion and the future of the several billion pounds that subpostmasters have invested in the network is at risk.

Reproduced with permission: Originally posted on Post Office section of the Royal Mail Chat Forum