Adapt or perish: Australia Post must embrace digital disruption

Most industries are vulnerable to digital disruption of established business models, including public sector services. The question is whether such industries use the opportunity to reposition in their markets by disrupting themselves. Or whether they wait to be disrupted by external forces, with the prospect of a one-way ticket to oblivion.

This was the message from Minister for Communications Malcolm Turnbull when he launched the new Digital Transformation Office (DTO) at UTS recently. For Turnbull, the role of the DTO is to ensure that to the greatest extent possible government services are delivered digitally. He wants interactions with government to be “as easy as internet banking or ordering a taxi through an app”.

Australians are getting used to, and indeed expect, more of their transactions with government and business to be through online platforms. But a new report by UTS Business School for the McKell Institute shows that the pace of digital transformation is now disrupting one of the government’s largest and most iconic business enterprises – Australia Post.

The report Digital Post: Business Transformation and the Future Sustainability of Australia Post highlights the critical and disruptive impact of the internet, online commerce, big data and increased computer power on the organisation. And it proposes a strategy for Australia Post to succeed in the digital age.

Australia Post is a huge and complex operation. It has assets totalling A$4.6 billion, revenues of A$6.4 billion and 32,500 employees. There is a retail network of 4,417 outlets, of which 2,560 are in rural or remote areas. Almost two thirds of these outlets are privately owned and operate as licensed post offices. There are also 762 community postal agencies.

Traditionally, mail volumes have grown in alignment with GDP growth. But between 2008-09 and 2013-14, mail volume declined by 25% to 4.5 billion items. This, in turn, has contributed to a major deterioration in financial performance. In the first half of 2014-15, the loss in the mail business was A$151 million and it is expected to be over $300 million for the full year.

The consequence of digital disruption to the long established mail businessis that, without significant business realignment, total Australia Post losses could reach $6.6 billion over the next 10 years, with losses in the mail business reaching $12.1 billion. The government’s equity in Australia Post, currently $1.7 billion, would quickly be destroyed.

Remedies such as price increases and discounted slower delivery can only offer a short-term solution. Abandoning the letters business on the premise that “the letter is dead” runs counter to community service obligations in rural and remote communities, as well as obligations to employees.

To address the challenge imposed by digital transformation, Australia Post must itself become a “digital enterprise”, where the adoption, application and use of digital technologies is at the forefront of strategy. It must move from a focus on evolution and improvement to one of innovation, co-creation and disruption.

This means going well beyond elaborate websites and mobile apps. Going digital means pursuing initiatives that will truly transform the customer experience and build digital capability through support for and investment in new business opportunities. Australia Post currently has a tangible platform and opportunity to do this through its retail network.

Up to now, Australia Post has actively pursued new opportunities in the mail business such as MyPost, but these initiatives do not yet reflect the sort of innovations in customer service seen in banks and other technology-intensive retail businesses.

Australia Post retail outlets could be transformed to operate as digital communication hubs, specialising in the marketing and sale of digitally enabled products and services. For example, these hubs could provide digital services and access to people who for various reasons cannot access digital communication devices and services.

Retail post offices can provide important intermediary, advisory and value added services for micro businesses and small NGOs in the growing e-commerce market, nationally and internationally. Australia Post should leverage its trusted reputation to assist these entities with the development of online capability.

Through SecurePay, it already assists entrepreneurs setting up an online business. Further development would see selected postal outlets working as innovation hubs that provide a nucleus for the formation, development and experimentation with new ideas in digital communication. These ideas could be piloted for adoption and application in local areas. Australia Post can bring value to technology start-ups by providing access to its digital communication and distribution platforms – essential for prototype development and bringing products to market.

Innovation hubs would have both an internal and external focus, engaging with research organisations and the broader innovation ecosystem. They would also provide a focus for networking, innovation workshops and events relating to innovation, particularly in regional and rural areas. They would promote an interest in innovation to the growing start-up community, possibly even partnering with start-ups in new opportunities.

Moving in this direction will require not only a substantial investment in new technologies and skills but also a change in mindset. It must be part of a broader strategy of bringing digital transformation to the centre of public sector management capability and practice. Only by doing so can the future of Australia Post be secured as a digital age business.

UTS Business School received funding from the McKell Institute to undertake this project