EPMReview.com - The United States Postal Service (USPS)

Summary

The US Postal Service has over 700,000 employees and delivers 212 billion pieces of mail annually to over 144 million destinations. Surprisingly, the strategic performance of such a huge organization is managed through a corporate Balanced Scorecard with only five goals and 10 measures.

The USPS Strategic Planning team believes that the sheer size of the organization required the articulation of the fewest possible objectives, so that things are kept simple. While this was a great challenge, the USPS had been able to succeed with the help of a balanced performance management framework which drives the strategies of financial stability, customer focus, operational efficiency, and human capital. This way, the USPS is able to deliver on its mission of ‘providing timely, reliable universal delivery of services.’

The balanced framework has its origins in the USPS’ use of the Malcolm Baldrige criteria, which led to the development of a process called ‘Customer-Perfect’ to align the voice of the employee with voices of the customer and business.

In 2001, the US President’s Management Agenda introduced a strategy for improving Federal government and focuses on five areas where most progress and improvements can be made: strategic management of human capital, competitive sourcing, improved financial performance, expanded electronic government, and budget and performance integration. This Agenda greatly added to the organization’s challenges. In response, the USPS has devolved its balanced performance management framework all the way down to supervisory levels. Using a number of channels, the USPS has successfully communicated strategic goals all the way down to the frontline. Further, the USPS has also managed to align compensation with performance in its framework of performance management. Factors that have been critical for USPS’ success include support from senior management and an ability to stay focused on balancing all the performance objectives.

The United States Postal Service (USPS) is not a large organization – it’s colossal! Its more than 700,000 employees deliver 212 billion pieces of mail to over 144 million destinations that are mainly in the USA, but also include Puerto Rico, Guam, the American Virgin Islands and American Samoa.

Comprising six operating divisions - the largest being the $36 billion in revenues ‘correspondence & transactions’ and the smallest the $1.8 billion ‘international mail’ – USPS has annual operating revenues of nearly $70 billion.

Yet the strategic performance of this behemoth is steered through a corporate Balanced Scorecard of just five goals and 10 measures, together supporting a mission of ‘providing timely, reliable universal delivery of services.’

As examples of how measures support goals, the goal of ‘generate revenue’ is supported by the metric ‘total revenue’, the ‘improve service’ goal by the metric ‘per cent mail delivered to standard’, ‘manage costs’ by ‘total factor productivity’, ‘performance-driven culture’ by ‘employee attitudes survey’ and ‘structural modifications’ by ‘increase flexibility’.

As shown in Figure 1, goals and metrics support core strategies of USPS: financial stability, customer focus, operational efficiency, human capital and President’s management agenda (see below). Figure 2 shows what is essentially USPS’s Strategy Map, showing the cause and relationships between the strategic dimensions.

USPS’s simplicity of strategic focus provides a powerful message for those organizations that believe that they require a large number of strategic objectives and metrics on their scorecard. Indeed, Kent Smith, USPS’s Manager, Strategic Planning says that the sheer size of the organization required the articulation of just a few objectives. “Simplicity has been vital as we have had to communicate performance to a large number of employees and millions of customers. This requires limiting the number of top-level goals and metrics, which also provided clarity and focus.”

And as for success of its ‘simple’ approach, USPS attained a 95 percent on-time performance score for overnight delivery of First-Class Mail for the second quarter of fiscal year 2006. The assessment, measured independently by IBM Consulting Services, also cites 89 percent on-time for two-day delivery and 86 percent on-time for three-day delivery – which is carried by air – from January 1 through March 31, 2006.

Although certainly balanced, USPS’s version of the scorecard digresses somewhat from the conventional Kaplan/Norton design. “We were already on the balanced route at the time the Kaplan/Norton scorecard arrived,” explains Smith. “We had made a conscious decision to apply a balanced framework and what we put in place is similar to a conventional Balanced Scorecard.”

However he explains that they decided not to apply the Kaplan/Norton model because what they had was working well and USPS had invested a lot into the process. “However, we have been following the evolution of the Kaplan/Norton model, especially for the public sector, and have made some adjustments as a result.”

USPS was on the Balanced Scorecard trail largely because it had been assessing its performance against the Malcolm Baldrige criteria since the late 1980s. The Malcolm Baldrige framework assesses performance against a range of criteria such as leadership, customer and market focus and business results.

Aligned Voices

Based on the Baldrige criteria, in the early 1990s USPS developed a process called ‘customer-perfect’, which aligned the voice of the employee with the voice of the customer and the voice of the business. As well as improvement against tracked metrics, this balanced process had had wider organizational benefits. “There was a time when there were people in the organization that believed we could only do one important thing at a time,” recalls Smith. “We could provide a good service or we could manage costs, for example. We then learnt that we could do both, but we also had to enhance a performance-based culture in order to make it a success. Realizing that we had to do all those things at once was the real thrust of working with a balanced approach.”

Through the 1990s USPS’s evolved its usage of balanced objectives to become by 2001 today’s balanced performance framework. Although the service, revenue, culture and cost components of the framework are common across organizations, specific to the US Federal government is the structural modifications dimension, which focuses on the US President’s Management Agenda (PMA).

The PMA was announced in the summer of 2001 as an aggressive strategy for improving the management of Federal government. It focuses on the five government areas of management weakness where the most progress and improvements can be made: strategic management of human capital, competitive sourcing, improved financial performance, expanded electronic government, and budget and performance integration. PMA has massive implications for public services such as USPS, so it is a performance perspective that has to be considered at the highest level within the organization.

To measure performance within the balanced performance management framework, there are three categories for goal attainment which have point allocations. Points are awarded for meeting goals and also for extending past them. The third category, for which no points are awarded, is called the non-contributor category. When an operating unit falls into the third category, corrective action will be taken.

All measures on the framework are weighted to a total of 100 points at the national level, and again at the operation and individual levels.

This, says Smith, is useful because in such a large organization people are always proposing new measures. “To keep the scorecard simple and balanced, the general rule is that if something is added then something must be taken away,” he says. “This helps people focus on the real value of the measure compared to metrics we already have. This we find to be a much more useful discipline than just adding new measures on an ongoing basis as such complexity would lessen the effectiveness of the framework.”

In saying that, Smith adds that the weighting discipline does cause some problems. “We have learnt that in the weighting, if a goal or metric falls below five per cent then people stop paying attention to it. So it’s a challenge to balance the metrics to a level that represents their contribution and ensures that they are seen as important.”

Scorecard Devolution

Considering the sheer size of the organization, it is quite an achievement that USPS has devolved its balanced performance management framework all the way down to supervisory levels. Key to this has been tailoring the framework so that its weightings are configured to local needs. For example, a corporate level goal of ‘improve service’ which is measured by ‘per cent of mail delivered to standard (or on time)’ is equally applied for overnight, two-day and three-day deliveries. At the functional, departmental and operating unit level where they are responsible for managing the logistics of the network, they’d have more weight on the three-day target. At the Post Office level, the weight would be on overnight first-class mail. “The scorecard is narrowly defined for a supervisor, and more expansive as it is applied up the organization through postmaster, district level manager, area manager or vice-president level,” says Smith.

Aligning Compensation with Performance

The weighting configuration is important for the compensation link. Aligning compensation to scorecard performance has been a key success factor for deployment. The compensation link expends as far down as supervisory level. “Essentially we’ve abolished the old civil service approach where employees receive time-served rises irrespective of performance,” Smith explains. “What we do is put that money into a pool and through the National Performance Assessment Programme – which converts goals and targets into individual goals and targets – we get bonuses on how well we achieve certain goals. We have the corporate goals that account for a certain per cent, unit goals account for a certain per cent and there are individual goals.”

The percentage weighting changes as it goes down the organization and becomes more specific to units and individuals, but all goals roll back up to the corporate goals. “Being public sector, the bonuses aren’t big by private sector standards, but are still enough to motivate people, stresses Smith.”

The Importance of Communications

Smith adds that deploying strategic goals all the way down to the frontline has required a concerted communications effort – and maintaining the ‘keep it simple’ approach. He says that all communication channels are used – intranet (USPS has the biggest intranet in the world) presentations, newsletters, etc, but that one particularly useful mechanism has been the Postmaster General’s Star. For this, each of the five points of the star represents one of the five strategic goals. The star, Smith comments, is proving useful simply as a communication tool. ”It is also encouraging staff at all levels to how they can personally impact one or more of these goals at the local level,” he says.

In the years since launching its balanced approach, Smith believes that communication is something that USPS has done particularly well. “We’ve done a good job of communicating the importance of performance and balance. A stereotypical government agency tends to focus on activities and processes, but we are really performance-oriented. There has to be a balance in performance: you can’t drive performance by ruthlessly beating up on your employees, for example, and we’ve done reasonably well at getting that message across.”

Rolling out a balanced framework has presented challenges, particularly in measure selection. “We had an organization that had hundreds of measures we believed were important and their level of importance differed according to functional perspectives. So driving this down to the vital few (and we only have ten at the corporate level, six of which support the ‘timely, reliable service goal’) was problematic.”

This required a clear senior management focus on what measures would be truly customer and market focused from an external point of view and not from an internal perspective.

In retrospect, Smith says it would probably have been better if they’d acquired the trade unions’ involvement earlier. One area of concern to them was the ‘voice of the customer’ survey, as they, as employee representatives, saw the voice of the employee as being their role.
This required HR leaders to work closely with union leaders to demonstrate that the survey would fair and balanced and that it would be administered in such a way as there could be no retribution to employees.

Critical Success Factors

Smith says that USPS has been able to succeed with a balanced framework over an extended period of time because it has benefited from the constant support of senior management as a group, even though individual senior managers have changed.

As for other critical success factors, Smith stresses the importance of continually inculcating the message that performance counts and that performance should be balanced. “We have also learnt that cross-functional integration and alignment is critical and that it is also important to manage what you measure and to reward performance,” he adds.