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Posta falls victim to technology

FINANCIAL STANDARD
By | January 17th 2012

By Jevans Nyabiage

When in December, the lacklustre Postal Corporation of Kenya (PCK) employees went on strike demanding a 30 per cent pay rise, it was evident that the organisation was facing a tough future.

The parastatal, with an estimated 4,000 workers, is weighed down by millions of shillings in debt to pensioners and other creditors and has found it difficult to finance the layoff of some employees inherited from the defunct Kenya Posts and Telecommunications.

Postal business around the world has changed due to new technology and increasing competition. Yet these same challenges present opportunities in the form of diversification of the business into new offerings such as financial services.

Posta is facing stiff competition from the Internet with statistics by Communication Commission of Kenya (CCK) indicating that the delivery of letters has been on a downward trend with 20.5 million letters sent in the quarter to September compared with 31.6 million in a similar period last year. This point to the deterioration of the corporation’s business that is compounded by the influx of private courier firms.

Mr Peter Wanyonyi, an ICT analyst, says it is difficult to be optimistic about the PCK. Its main revenue streams have generally been mail — stamp sales, box rentals, telegrams — and cash transfer and postal orders.

The problem is that almost no one writes personal letters anymore: virtually everyone in Kenya who has access to a post office box also has access to a mobile phone. Stamps as a revenue source are therefore moot.

In the same way, mobile money transfers mean that almost no one needs to use money orders anymore.

"The corporation is therefore left with little more than box rentals to make money from — and even these are under threat from both local and international courier services," he says.

Instant messaging, PDFs and e-mails as well as growth in Internet usage has reduced the need for letter writing, denting PCK revenues.

For instance, during the period under review, use of short message service (SMS) increased significantly, an indication that it may have consumed some of the traffic on local letters sent, added CCK. Mobile telephone subscribers sent 1.5 billion text messages in the quarter from last year’s 740 million.

Dr XN Iraki, a lecturer at the University of Nairobi says Posta is the best victim of Joseph Schumpeter’s creative destruction.

"Email came to destroy snail mail but Posta did nothing. At one time, they tried to start cyber cafes, which was a very good strategic move. Their computers are still in some post offices idle," Iraki says.

"Posta should become innovative. For example, why not bring letters to our homes or offices, the same way we receive emails? Why not take advantage of festive seasons like Christmas to send parcels?"

REDUCED REVENUES

Some argue that Posta should be privatised to compete with courier firms more effectively.

"With those revenue streams declining, I think the PCK needs to radically reform itself. First, it needs to shrink its workforce so that it can live on its own, albeit reducing revenues," Wanyonyi says.

However, he says this is impossible to do as a State Corporation, so he would think that privatisation of the company is inevitable if it is to sustain itself. A privatised PCK can then make some of the corporate decisions that it would never countenance as a parastatal – such as reducing its workforce, closing non-profitable post offices.

He says if it is privatised, it would be easier for the PCK to not only take on the private competitors it faces (its countrywide network means it would operate very well as a partner of the big international courier companies, perhaps even all over East Africa), but also to venture into new services— as a conduit for direct advertising via post boxes, as an agent office for mobile money transfers.

"One of the greatest opportunities for Posta lies in e-commerce. As we start buying more online, we need someone to deliver the goods to our homes. If Posta can ride on this shift it could prolong its life," Iraki adds.

Posta is a victim of technology like horse carriages, pagers and other obsolete technology. Its best option is to ride on new technology and accept that letter writing no matter how sentimental is a fading art.

The dwindling revenues have seen PCK turn to cost cutting drives, including layoffs, to remain afloat.

Recently, the firm was rocked in a court battle with its workers’ union after it fired 550 striking staff. The employees were demanding a 30 per cent pay rise but the firm offered a five per cent rise.

In 2009, the corporation recorded a 6.4 per cent drop in revenues to Sh3 billion from Sh3.2 billion even as it increased its investments from Sh26 million to Sh120 million.

The firm’s money transfer service, Postapay, seen as its next revenue stream is threatened by rival services from mobile phone operators.

IBM Corporate Service Corps, in a survey last year said Posta faces several challenges in advancing their agenda: older perception in the marketplace, IT limitations and organisational structure.

"Only one clear message arises: PCK has been slow to react to the global market changes and competition. In order to keep the business viable and promote growth, change must be implemented within the organisation immediately," the IBM report says.

To reverse its dwindling revenue, the report recommends that Posta aligns its structure to new business priorities team focused on new offerings, and implementing stricter accountability.

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