SingPost: Embracing change to deliver
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SingPost: Embracing change to deliver
Kai-Alexander Schlevogt
7 October 2011
Business Times
Its successful strategic leadership approach offers valuable lessons
in equipoised transformation for its global rivals
Imagine you are operating horse-drawn carriages at the beginning of the automobile
age. What would be your strategic response to the advent of a disruptive technology
that threatens you with extinction?
Once you have conducted this enlightening thought experiment, you are ready to
picture the tremendous challenges that Singapore Post (SingPost), the lion city's
public-listed public postal licensee, faces. Its successful strategic leadership approach
offers valuable lessons in what I call 'equipoised transformation' for its global
competitors and other organisations operating in highly volatile and complex
environments.
The cornerstone of SingPost's distinctive model is to leverage disruptive trends
through investments in strategically related growth businesses to create synergies with
its cash-generating core. Given the competitive postal landscape, it is necessary for
SingPost to build a matching 'transformational resource platform', either organically or
through acquisition.
Tectonic changes in postal landscape
SingPost, with its combined presence in traditional mail and the digital sphere, is
operating in what I call a 'saw wavescape'. Such an environment is characterised by
the succession of dramatic reversals, leading to a jagged development trajectory
whose shape is reminiscent of a blade with a toothed edge.
Various powerful megatrends, especially digitalisation and concomitant
disintermediation, demographic shifts, as well as environmental and regulatory
changes, are creating distinctive waves in the postal industry, which can easily turn
into tsunamis.
When you try to recall when you last sent a personal letter through what nowadays is
depreciatingly called 'snail mail', you quickly become aware of one profound new
development - e-substitution. This trend is accelerated by the distinctive tastes and
habits of the younger generation, which is used to communicate in real time.
Moreover, an increasing number of people are becoming worried about the
environmental impact of paper mail. The fragile financial mega-environment after the
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Schlevogt, Kai-Alexander. SingPost: Embracing change to deliver. Business Times. 7 October 2011.crisis in 2008 is making the saw wavescape more treacherous. As if all of this were
not enough, SingPost also faces increased competition after the company lost its
exclusive licence for basic mail services on March 31, 2007, which back then
accounted for almost 80 per cent of its revenues.
Despite the difficulty of the challenges, SingPost has coped with the double whammy
of disruptive technology and liberalisation remarkably well. Revenues grew at a
compound annual growth rate of 6.7 per cent from the financial year ending 2007 to
2011 - close to Singapore's GDP (gross domestic product) growth from 2006 to 2010
(7.1 per cent). Net profits grew at a slower rate of 3.6 per cent in the same accounting
period.
Through prudent management, the company maintained a solid financial position,
with free cash flow increasing by 3.5 per cent and the ratio of net debt to equity
decreasing from 133.4 per cent to 49.3 per cent. However, in the same time frame, the
net profit margin declined from 32.1 per cent to 28.5 per cent, while the return on
average invested capital fell from 28 per cent to 19.7 per cent.
In the future, revenue growth, achieved through both organic growth and acquisitions
financed by its cash reserves of $345.4 million at the end of Q1 FY11/12 (including
the $200 million Fixed Rate Notes raised in 2010), or by new borrowing, needs to be
translated into improved profitability. In view of the real growth options embedded in
its various new investments, stock analysts appear to be too conservative when they
stress SingPost's limited growth potential and downgrade forecasts in their Discounted
Cash Flow (DCF) models accordingly.
SingPost is also in an enviable position compared to its global competitors, which are
facing similar predicaments in their markets, with losses in mail volume exerting a
negative impact on the profitability of their high fixed cost businesses. With a profit
margin of 26.2 per cent in the first three months of 2011, SingPost outclassed
Deutsche Post DHL (4.9 per cent), PostNord (3.6 per cent) and the United States
Postal Service, or USPS (-13.6 per cent). So far, it has also been able to avoid
dramatic moves, such as USPS's decision to close or consolidate about 250 of its
roughly 500 mail processing facilities and cut 35,000 jobs.
SingPost's success hinges on equipoised transformation achieved through what I call
the 'SIT framework' - a powerful combination of strategic competence and discipline
(S), innovation excellence (I) and a transformational execution platform (T), which
are mutually reinforcing. Let me now decode strategic leadership at SingPost.
Strategic competence and discipline
When you navigate amid a storm, an accurate map and clear directions are vital.
SingPost has developed a strong competence in crafting strategy. First, it distinguishes
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Schlevogt, Kai-Alexander. SingPost: Embracing change to deliver. Business Times. 7 October 2011.itself by an acute awareness of megatrends and their impact on its industry. It
regularly benchmarks its performance against what internally are called 'postal peers'.
Based on a profound understanding of the evolving competitive landscape, with a
clear sense of the dangers and silver linings in micro-segments, it puts in place a smart
strategic game plan to achieve sustainable, high performance. SingPost stresses
strategic discipline, too. It reviews its strategic initiatives every quarter and has a
dedicated team to support strategy implementation.
In industries facing disruptive technologies, players often commit one of two mistakes.
Either, being blinded by ossified mental models, they ignore radical changes. Or, they
succumb to 'threat bias', overcommitting resources to new technologies at the expense
of the still valuable core business. Kodak invested heavily in digital photography
when the future of this technology was still unclear and lost market share in traditional
photography, which was an important source of cash, to Fuji.
SingPost so far has managed to avoid both pitfalls, striking a balance between
realising the clear and present danger while maintaining calm amid the storm.
Pursuing the vision of becoming a diversified regional company, it is successfully
defending its cash-generating core while developing new growth vehicles in adjacent
industries across the region. The components of its strategy are mutually reinforcing
and scalable. While SingPost invests in talent, IT and other necessary resources to
continue to grow organically, the preferred growth acceleration vehicle remains
acquisitions.
One strategic priority is to defend profitable positions in its core business, among
other things, by focusing on profitable products and services (such as hybrid mail,
parcel and courier services, and vPOST) and increasing productivity. At the same time,
SingPost attempts to tap new sources of growth through related diversification (such
as into financial services) with a special focus on digital services, experimentation
with new growth vehicles (such as e-commerce) and international expansion focusing
on Asia.
Leveraging the outsourcing trend in data and document processing, it has invested in
the data printing business in the region, for example, acquiring DataPost and
increasing its stakes in Efficient E-Solutions. Its 20 per cent stake in Shenzhen 4PX
Express and investment in Clout Shoppe signal its strong interest in e-fulfilment and
e-commerce.
Innovation excellence
Innovation at SingPost can be conceptualised as a holistic process. Its aim is not just
to develop and launch new products and services, but also to conceive of new business
models and other novel approaches.
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Schlevogt, Kai-Alexander. SingPost: Embracing change to deliver. Business Times. 7 October 2011.Lateral thinking is an important feature of SingPost's innovation process. For example,
its leaders saw the potential to leverage its strong brand and distribution network to
offer financial services. Out-of-the (post) box experiments include housing a trendy
restaurant in the Killiney Road post office and accommodating retail outlets in the
Tanglin post office.
SingPost also excels at using seemingly pernicious trends, such as digitalisation and
disintermediation, to its advantage. It will launch a digital mailbox service for
consumers, making it easy for them to access their mail, such as bank statements and
business correspondence, from their computer or mobile device. This digital mailbox
will include online bill presentment and payment, as well as other value-added
services. On Clout Shoppe, the new luxury lifestyle e-commerce portal, consumers
can purchase branded products that had previously been unavailable in Singapore, and
benefit from virtual private sales.
Transformational execution platform
SingPost has put in place a powerful execution platform with valuable resources that
supports its pursuit of strategic priorities and enables it to achieve innovation
breakthroughs. To start with, it possesses a strong bench of leaders, which is
continuously enhanced by outside change agents with different professional
backgrounds and diverse perspectives, including foreigners. Importantly, SingPost not
only engages in a war for talent, but strives to get the best out of ordinary employees,
for example, by choosing a 'Postman of the Year' and offering other similar awards.
SingPost also benefits from strong organisational agility. At the beginning of 2011, it
restructured its organisation into two main business units and adopted an innovative
'dual-CEO structure', to achieve the twin objective of core business defence and
growth. One unit was focusing on mail and the corporate business, while the other
managed a plethora of international growth businesses, ranging from logistics to retail
and financial services. The latter was headed by a foreign leader, Wolfgang Baier, a
former Asia-based McKinsey & Co partner from Austria.
In another reorganisation move announced this week, he was appointed as group chief
executive officer and board director - a decision taken to support SingPost's ambition
to expand growth frontiers in the region.
SingPost's execution platform also combines other powerful tangible and intangible
assets, including an ample pool of cash, strong distribution network, valuable brand
and privileged relations in Singapore and abroad. Last but not least, SingPost has
demonstrated its ability to learn, such as when it acknowledged problems created by
an ill-fated publicity campaign, in the course of which a specially commissioned
masked man defaced its postboxes with graffiti.
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Schlevogt, Kai-Alexander. SingPost: Embracing change to deliver. Business Times. 7 October 2011.Asian roots of equipoised transformation
SingPost's legacy assets so far have proven to be a springboard for future growth
rather than an obstacle. Global competitors can learn valuable lessons from its Asian-
style, delicate balancing act. It is reminiscent of China's value-creating transformation
strategy (crossing the river by feeling for the stones) rather than Russia's destructive
shock therapy.
SingPost's abilities will be tested over the coming years, in the course of which it will
have to accelerate its transformation to cope with the ever-changing saw wave
environment and global competition. Well-targeted organic and inorganic investments
will be required to achieve this feat.
The key to SingPost's future success will be its ability to discern which aspects of its
business need to remain unchanged coupled with the continued willingness to
experiment with novelty and ability to learn and readjust based on performance
feedback from a great variety of internal and external stakeholders.
The writer serves as full professor at the Graduate School of Management (GSOM), St
Petersburg State University (Russia), where he holds an Endowed Chair in Strategic
Leadership. He also is the director of the IBM-GSOM SPbU Growth Market
Leadership Programme. His latest book, 'Brave New Saw Wave World' (ISBN: 978-
81-317-5403-0), is available at Amazon.
Full reference
Schlevogt, Kai-Alexander. SingPost: Embracing change to deliver. Business Times.
Editorial & Opinion. Friday, 7 October 2011. Page 27.
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Schlevogt, Kai-Alexander. SingPost: Embracing change to deliver. Business Times. 7 October 2011.You can also read
