What does the future hold for the Sapo?

The original article can be found here.

With many concerns about the future of the South African Post Office (Sapo), there are a few options available to rescue the company.

Behind the stamp

The Sapo has entered into business rescue proceedings in a move as sobering as the accounts that triggered it. Once the lifeline of communication across the Rainbow Nation, the venerable institution has seen its fortunes fade faster than an old stamp. Now, it embarks on a financial Hail Mary, intending to achieve a positive net financial and cash position—a tricky task, given its recent performance. Regrettably, to fully grasp the situation, we must dive into the details of the Sapo 2022 Report published March 2023:

1. With a rueful look back at the past year’s spending, the board of directors took a grim decision during the 2022 fiscal year. They approved the write-off of an eye-watering sum of R648.2 million, classified as fruitless and wasteful expenditure. This significant drain on resources spans from the 2015/16 fiscal year right through to the 2021/22 fiscal year, an accumulation that has been met with a sobering nod of acceptance, as recommended by its financial management committee.
2. When it comes to revenues, Sapo has fumbled the delivery. Its ambitious annual performance target of attaining 100% of the planned revenue foundered, achieving only 76%. This left a gaping variance of 24%, a shortfall of a cool R1.174 billion. This stuttering performance can be traced to the stubborn persistence of the Covid-19 pandemic, which, much like a bad cold, refused to let go. Add to this a creaky IT infrastructure, operational inefficiencies, and shuttered branches, and you have the recipe for a decidedly underwhelming fiscal performance.
3. On the expense side of the ledger, Sapo has delivered a more admirable performance. The postal entity managed to confine its expenses to 81% of the planned budget for the 2021/22FY, achieving a rare but welcome 19% variance. This is no small achievement for an entity that has been painted red in recent years.
4. Even as 61% of all expenses were swallowed up by staff costs and a combined 18% gobbled up by security and property expenses, Sapo seemed to be tightening its belt, if not yet fast enough to outrun its financial troubles.
5. When it comes to providing a fortress-like experience for its employees and customers, Sapo appears to have left the drawbridge down. Of the planned 1 680 installations of cash protection devices across Post Office branches and mail centres, a mere 256 were accomplished – quite the shortfall, with a variance of 1 424 installations. The finger of blame can be pointed squarely at the budgetary woes of the beleaguered institution. The service provider suspended the deployment of these much-needed devices due to payment challenges. A less than secure situation indeed for those expecting a safe environment to carry out their transactions.
6. The Post Office’s real estate has also felt the pinch of its financial straits. Property infrastructure optimisation, which had been earmarked to generate R265 million, managed a pitiful R43 million. Despite the admirable efforts of the Post Office to consolidate and close branches, thereby saving R42.7 million in rental expenses, it fell lamentably short by R222 million of its annual performance target. No revenue optimisation initiatives took flight, and the expected sale of properties never materialised.
7. Sapo’s customer service efforts could be likened to a letter lost in the post. With a commitment to resolve customer complaints recorded at the call centre within seven days. The Post Office managed to meet this target only 60% of the time, falling short by a disheartening 40%. Of 81 860 complaints recorded in the fiscal year 2021/22, just 49 515 were resolved within the stipulated time. The culprits in this caper? A tardy call centre management system, less-than-stellar delivery standards, and shuttered branches.
8. In the realm of customer satisfaction, the Post Office has truly hit rock bottom – a perplexing 0% against a goal of 75% customer satisfaction level. The annual survey to gauge customer satisfaction fell by the wayside due to resource constraints. While the customer satisfaction survey may not be a corporate key performance indicators (KPI) for the fiscal year 2023, it’s strongly suggested that a bi-annual review be conducted to track the progress of Sapo’s ambitious ‘Post Office of Tomorrow’ strategy. An endeavour not too dissimilar to attempting to send an email via a pigeon.
9. The regulated mail delivery standard – a measure of efficiency that the Post Office takes rather seriously – has had a bumpy ride. Against an ambitious target of 92%, the Post Office’s delivery standard stands at a pedestrian 68.36%, a lag of 23.64%. To its credit, the fiscal year 2021/22 did witness a modest improvement, a jump of 15.41% from the previous year’s unimpressive 52.95%. But the perennial challenges – a hangover of mail backlogs from the stringent lockdown, an unceremonious fleet withdrawal, shuttered branches, and a scarcity of trade tools— continue to rain on this postal parade.
10. On the digital front, the online branches of Sapo fell just shy of the system availability uptime target, clocking in at 97.61% against a desired 98%. This minuscule variance of 0.39% is attributed to a suite of technical gremlins that include data centre issues, spotty internet and VPN connectivity, and hardware failures. Despite these challenges, maintaining system availability above 97% is akin to delivering mail through a hailstorm – difficult, yet not impossible.
11. The plan to rollout International Postal System (IPS) equipment was met halfway, with a completion rate of 50% against a 100% target. The cause for this stunted progress is attributed to a familiar foe – lack of funding. Forced to innovate, the Post Office took a creative detour, repurposing printers from logistics and HR training (no need for these functions anyway) for the IPS project. Necessity is indeed the mother of reinvention.
12. The Post Office has taken a nosedive in terms of employee satisfaction, posting a dismal 41.57%, 1.4% lower than the previous year, against a target of 70%. With the majority of factors influencing this statistic deemed beyond the direct control of the Human Resources department, the shortfall highlights a grim workplace atmosphere. Fingers are crossed for the 2023 fiscal year, with the resolution of labour matters flagged as a critical focus to uplift morale and job satisfaction. (Maybe those 7 000 jobs that were terminated can act as motivation).
13. Unsurprisingly, productivity monitoring for the 2021/22 financial year was not accomplished. While productivity measures for mail centres and depots are being reviewed and set to be enhanced with a management suite, tangible results are yet to be realised. As it stands, delivery productivity crawls at 49% and processing productivity faring slightly better at 83%. Any interpretation of these figures must consider the interconnectedness with mail delivery standards. Interestingly, the organisation finds quantifying the productivity levels of its support units a significant challenge.
14. The goal of fully implementing business unit strategic initiatives was missed by 22%, with only 78% of the initiatives making headway. Of the 131 slated initiatives, 102 are at “varying stages” of execution. However, a lack of funding stymies progress for a considerable chunk of these initiatives, thwarting any headway and demonstrating the far-reaching effects of the Post Office’s weak financial standing.
15. Aiming to achieve an unqualified audit opinion for the 2021/22 financial year, the Post Office fell drastically short, ending up with a disclaimer of opinion instead. This result signifies a severe breakdown in the financial reporting process, leaving auditors unable to provide an opinion on the state of affairs. An internal audit has since begun to track the implementation of corrective measures to address this glaring deficiency.
16. In stark contrast to the preceding KPI, the Post Office performed exceptionally well in this regard, accomplishing the annual target of providing input for amendments to postal legislation. As part of its mandate to safeguard its interests and identify opportunities arising from changes in postal legislation, the Post Office submitted its formal feedback and proposals to the department of communications and digital technologies, meeting the annual target.

With an irony thicker than the queues outside its outlets, the South African Post Office finds itself needing a special delivery of its own. A despatch of fiscal and operational resuscitation, if you will. Its recent performance is hardly the stuff of philatelist dreams.

Only two out of its 16 KPIs were met, a mere smattering of success at 12.5%. The remaining 14 KPIs, a hefty 87.5%, languish in the realm of the unfulfilled.

One can’t help but think that something has gone quite awry within the postal heart of the nation.

What are the challenges?

As Sapo sails into the uncharted waters of business rescue proceedings, its voyage marks a decisive chapter in the company’s long history. The primary port of call? A restructuring of the company’s affairs with the intention of ensuring the SOE stays afloat on solvent seas. Such an overhaul may necessitate a full-scale review and repair of Sapo’s operations, financial structures, and strategic direction.

With the judicial green light for business rescue proceedings, the baton now passes to the designated business rescue practitioners (little is known of the two nominees). Their task is akin to drafting a survival manual for an entity lost in the fiscal wilderness. It necessitates a deep dive into the company’s financial undercurrents, unearthing the submerged leviathans causing its distress. Their challenge extends beyond merely identifying these proverbial icebergs. It is about devising innovative and effective strategies to navigate them.

Tasked with complex challenges, the practitioners might have to bid farewell to their usual routines, as the core of their mission now would involve:

1. Conjuring revenue-generation strategies: Crafting comprehensive plans to achieve revenue targets, involving clever market segmentation, diversifying product offerings, and implementing competitive pricing strategies.
2. Investing in technological modernisation: Identifying and investing in cost-effective, scalable technology solutions. This may involve a facelift for the existing IT infrastructure, adopting nimble cloud-based solutions, and leveraging data analytics.
3. Boosting customer service standards: Aiming to upgrade customer service levels, focusing on resolving complaints within a brisk seven-day window. Implementing a robust CRM system, training personnel in customer service best practices, and setting clear protocols for complaint resolution could be part of the strategy.
4. Fine-tuning resource allocation: Optimising the use of resources to enhance customer satisfaction. Auditing current resources, pinpointing areas of wastage, and reallocating resources to areas that directly influence customer satisfaction will be crucial.
5. Amplifying mail delivery performance: Aiming to rev up the gears of mail delivery performance. This might involve a review and optimisation of mail processing systems, implementing strategies to clear backlogs, and investing in logistics and delivery infrastructure.
6. Guaranteeing system availability and uptime: Investing in reliable and robust IT infrastructure, implementing regular system maintenance schedules, and establishing a dedicated IT support team will be paramount.
7. Enhancing employee satisfaction: Aiming to brighten the spirits of employees. This might involve transparent communication channels, providing regular training and development opportunities, and acknowledging and rewarding employee performance.
8. Boosting productivity levels: Setting sights on improving productivity. This might involve implementing a robust productivity monitoring system, setting clear and achievable productivity targets, and incentivising employees to meet these targets.
9. Fortifying financial management practices: Aiming for an unqualified audit opinion. Implementing robust financial management and reporting systems, conducting regular internal audits, and promptly addressing any audit findings will be part of the process.
10. Ensuring open stakeholder communication: Regular updates on the progress of the business rescue process, promptly addressing stakeholder concerns, and involving stakeholders in decision-making will be part of this.
11. Managing supplier and creditor relations: Renegotiating contracts, managing payment schedules, and ensuring that the company’s obligations are met will be essential.
12. Performing risk management: Identifying and managing risks is a key part of the business rescue process. Conducting a thorough risk assessment, implementing risk mitigation strategies, and establishing a risk management framework will be the order of the day.
13. Navigating change management: Navigating the choppy waters of change management. The practitioners will need to manage this process carefully, ensuring that employees understand and are on board with the changes.
14. Conducting strategic planning: Crafting a strategic plan for the company’s future. This should consider the company’s strengths and weaknesses, market opportunities and threats, and the competitive landscape.
15. Monitoring and evaluating: Keeping a close eye on the implementation of the business rescue plan and assessing its effectiveness. This will involve setting KPIs, tracking progress against these KPIs, and making course corrections as necessary.

The journey ahead is formidable, filled with challenges and demanding an unwavering focus. But the potential rewards – resurrecting a struggling entity, reviving its core services, and restoring stakeholder faith – are undeniably compelling. It will indeed require a formidable devotion of time and effort. But if the South African Post Office can emerge from this process revitalised and resilient, it could serve as a beacon for other entities navigating the stormy seas of business rescue. The next chapters of this saga will undoubtedly be closely watched by all.

Additional snags

Political interference often casts a long shadow, and Sapo’s plight is no exception. Political agendas, often at odds with the pragmatic needs of business sustainability, can disrupt the cadence of decision-making and strategic implementation. This intrusion risks skewing priorities, leading to a misalignment between corporate objectives and political imperatives. Furthermore, it might foster an environment of uncertainty and volatility, impeding the ability to attract and retain key talent, secure investment, or engender public trust. Navigating this web of political involvement will be a significant challenge that the business rescue practitioners must tactfully address.

Further, stakeholder negotiations present another significant hurdle. The proceedings are likely to involve a host of different stakeholders, including employees, creditors, and shareholders, each with their own interests at heart. Reaching a consensus on the business rescue plan amidst these conflicting interests can be a tricky diplomatic feat.

Legal complications can add to the intricacy of the rescue process. Challenges could be raised regarding the ratification of the business rescue practitioners, or objections may be lodged against the rescue plan itself. Such issues can slow down the proceedings, adding more stumbling blocks on the road to achieving a successful turnaround.

Despite these potential hurdles, the business rescue practitioners are duty-bound to navigate this tricky terrain, armed with their professional expertise and strategic acumen, to resuscitate the Post Office and restore it to a path of sustainability and growth.

The race against time

In the aftermath of the court’s judgement, the starting gun for business rescue proceedings was fired with immediate effect. This call to action, as urgent as a priority airmail, underscores the critical nature of Sapo’s plight and the necessity for swift manoeuvres to stem the tide of its fiscal decay.

The commencement of the business rescue process represents not just an intervention, but a challenge to reinvent Sapo. When Mark Barnes took over the helm of Sapo as CEO in 2015, he faced the formidable challenge of steering this Titanic. With the company deep in a financial quagmire after years of losses, Barnes’ assignment was to transform and rejuvenate the struggling entity.

Barnes initiated several strategic changes designed to revitalise Sapo, such as streamlining operations to reduce costs, enhancing operational efficiencies, and introducing new business ventures.

Several elements played into Barnes’ inability to turn around Sapo’s fortunes. One that stood out was Barnes’ leadership style, perceived as autocratic, drawing criticism. There were also concerns about decision-making not aligning with the best interests of the company. Some critics further suggest that political interference exacerbated Sapo’s problems during Barnes’ leadership. They contend that the government’s lack of support for Barnes’ transformative initiatives impeded the necessary changes from being implemented effectively.

So, it is a race against time to restructure and restore financial health, and the clock, as ever, ticks relentlessly. Awaiting the Post Office now is an arduous journey, but one that holds a potential renaissance.

Disclaimer: This article is an extract from a more extensive article that can be found on Moneyweb by following the link at the beginning of the article.

Christiaan Herbst is a Management Consultant at SAAC and is the COO of the TMA-SA.