New Zealand Post’s CFO tips on surviving disruption

Profile picture for user Ton Dobbe By Ton Dobbe December 11, 2016
David Walsh, CFO at New Zealand Post, tells Unit4's Ton Dobbe about its remarkable transformation story and how a 180-year-old business survives disruption.

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New Zealand Post is a ‘state-owned’ organization with over 8,000 employees and an annual revenue of nearly NZ$ 1.65 billion ($1.18bn). Founded in 1840, it has a long, 175+ year history, during which the company has been through a lot of change. However, the last couple of years it has truly been fighting disruption, primarily because its core postal service market has quite literally dried up.

Its CFO David Walsh cites three key areas where the business is fighting disruption:

  1. The most obvious being the postal market. The market for ‘sending letters’ is declining at a rate of more than 10% per year. Five years ago it was a market of over a billion deliveries, now it’s just 650 million. This puts tremendous pressure on the company’s topline and consequently an even larger gap on its bottom-line.
  2. Secondly the postal business model is shifting 180 degrees both in terms of its focus - from letter to parcel - and its operations — from off-line to online. As such New Zealand Post has to fight a new breed of (international and domestic) competitors and has to claim its position by winning business through strong partnerships and excellent customer service.
  3. Last but not least, something completely different is happening. New Zealand Post, contrary to its name, is not only a postal service. It also operates the largest wholly owned New Zealand bank, Kiwi Bank. Here the business faces another range of challenges — the expectation for aggressive growth in a sector that’s undergoing massive digital disruption and challenges.

Surviving disruption

So the heat is on — and you can imagine that for a legacy business of 180 years old, changing people’s mindset is a big challenge. Walsh and the team at New Zealand Post have put in place a number of initiatives to survive disruption. He says:

On the postal side the action has primarily been around getting leaner to rationalize on cost, while on the other hand we’ve made serious investments to ensure customer experience doesn’t get negatively impacted. Customer experience is today’s only lever to ensure we can claim a leading position in the parcel market. It’s not only about faster or more, it’s about better as in ‘more personalized’.

The product is important, the experience even more so — getting a parcel delivered when and where the customer wants it, even if they change their mind at the last minute. As such, heavy investments have gone into restructuring our organization, our distribution center infrastructure across the country for the postal/parcel business, our product/services portfolio, our delivery schemas and our online infrastructure.

In addition, the organization has put a lot of energy into strengthening the core by divesting parts that were non-core. This has provided:

  • a strong balance sheet and ability to guarantee dividend growth to the Crown.
  • funds to innovate and transform from a traditional organization to one that is 100% customer-centric and digital.

New Zealand Post has also announced a partial sell-off of 47% of KiwiBank. The new investors will provide potential capital for growth and a new perspective at a governance level.

Finally, the organization is making a serious investment in IT and creating a truly digital infrastructure. Walsh says the objective is twofold:

To make substantial savings of NZ$10 million ($7.2m) per year, and to provide us with an agile platform that scales and evolves with us at the pace we determine. Our investment in Unit4’s Business World ERP Platform is one aspect of it — it provides us a) with a platform that’s extremely cost-effective to run, literally millions cheaper than its predecessor, and b) a platform that allows the business to be in charge — enabling each unit to change as fast and radically as they need to without losing control or being dependent on scarce and expensive IT resources.

Set ambitious goals

Walsh advises organizations going through transformation to be ambitious from the start. To set challenging goals and then execute them:

For us it meant from the beginning we wanted to lead the spaces we’re operating in. That is the parcel and the banking business. When the goal is there you can start to see the hurdles on your way, and then it’s a matter of taking them out, one by one.

It was about getting our cost base leaner to make the millions of savings to secure we deliver black figures, to transform our delivery infrastructure in the postal/parcel business to deliver upon the ambition of a delivery service that meets customer preference, and to transform our banking business in order to accelerate growth and manage the increasingly digital customer relationship. We’re well under way.

It’s a multi-year venture and every step on the roadmap is a critical one. Start with building the right infrastructure and footprint — with that in place as a foundation you can scale and grow. Some steps will not be glamourous — but are necessary to keep the end goal in sight.

The world of today is one where change is the only constant. Our investment in our IT infrastructure had to reflect that at every level. This has proven we can execute on our transformation plan even with disruption, without delays, and without extreme cost. For example, we have reduced the cost of the finance team by 42% and deliver more output.

The right enterprise technology can provide an enabler for transformation, making an organization nimble and supporting culture changes across departments. Walsh says:

It’s a mind-shift change where with our previous system we always had to apply a ’stay out / hands-off’ approach. The business benefits from change straight away – because they trust the system. It’s noticeable that the business is trying to do a lot more, and people are freed to focus on results and customers. And we’re running at a third of the cost of our previous ERP system.

Three key learnings

Walsh admits the team has learned a lot through this period of change. He provides three key learnings for organizations going through similar transformations.

  1. Make sure the focus is ’customer first’. In a market that’s being disrupted like the ones we are in, it’s too easy to obtain an internally focused mind-set which will just blindfold you and as such get you even further away from where you need to be. The market is disrupted for a reason — and the customer is the one that benefits. New norms are introduced and if you want to be playing that market, you have to listen, understand what’s going on and what they expect to make their life easier. Then you need to be responsive and deliver on that expectation — and transform your organization to make it sustainable.
  2. Stick to your core. You can only become a leader if you are the best in what you do. That means you have to focus, and if that means divesting parts of your business to sharpen the focus and to have the ability to invest (enough) do what’s required to outperform, you have to make that bet.
  3. Look outside your industry. Innovation doesn’t come from developing things from scratch, but from blending things that work to create totally new experiences. To get the inspirations we spend quite a bit of time looking outside our industry — to telco’s, to media companies, to other service organizations.