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Couriers of change: what did Ukrposhta team do over two years of reform?

Two years ago, Igor Smelyanskyi received a carte blanche from the government to reform one of the largest and most conservative state-owned companies, Ukrposhta. Recently, the credibility extended to him for another three years. Will that day come when Ukrposhta will be able to compete with ambitious private companies?

ACCESS POINT

There is the first repair in many years in the main post office in the center of the capital, known to all Kyivans and visitors. The creator of Rozetka, Vladyslav Chechetkin, posted page a photograph of a room with peeling walls on his Facebook and added a post: “There will be a garden city… A new Rozetka store on Maidan.” Ironically, at the dawn of the ’90s, there was a “Place of collective access to the Internet” of Ukrposhta located in the same room. History has made a spin and brought the country’s largest online store here, which has become an analog of Amazon for many Ukrainian shoppers. And thus, it marked the reverse transition online in offline or, instead, the dissolution of these business models in each other.

However, what does Rozetka do on the territory of Ukrposhta? Recently, Chechetkin’s company agreed with the post office to lease a part of its main premises of 1,500 square meters. The conditions are mutually beneficial: the fee indexed every year (only 70 million UAH over five years, that is, the average cost per square meter is $28 per month at the current rate, which corresponds to the market rates), and the tenant makes repairs at his own expense. However, the main thing is that the management of the company was able to attract the store to the pool of its customers, and now millions of Rozetka clients have received the option of delivering goods through Ukrposhta.

“Perhaps, for the first time in the company’s history, it is managed by a team, for which efficiency is not just a slogan, but a real task in the daily agenda.”

For the latter, it is essential not only to make money but also to get rid of high square meters in maintenance. The company has 1.3 million square meters of liquid real estate, of which the fifth part not used. Last year, taxes on maintenance of premises amounted to approximately 400 million UAH. In the future, Ukrposhta wants to sell or lease part of its real estate fund, and to direct money to the development of modern infrastructure. Perhaps, for the first time in the company’s history, it is managed by a team, for which efficiency is not just a slogan, but a real task in the daily agenda.

“Igor is not afraid to take responsibility. It is atypical and especially important for a state-owned company,” first deputy director of Ukrposhta,” Oleksandr Pertsovskyi.

They have already tried to reform Ukrposhta, however, neither the political nor personal will of the leaders was enough for the positive outcome. Experienced say that one of the predecessors of Ihor Smelyanskyi, the current CEO of the company, managed not to sign a single document to avoid any situations for almost a year in the position. Smelyanskyi processed all the documents that put on his desk by the next morning. “Igor is not afraid to take responsibility. It is atypical and especially important for the state-owned company,” says Oleksandr Pertsovskyi, first deputy director of Ukrposhta,  about the boss. Smelyanskyi calls himself an anti-crisis manager. “I was invited as a person who can achieve results in difficult short-term conditions,” that’s the way he sees his mission.

MISSION POSSIBLE

The front works for the “postal” Dante are rather big. Ukrposhta is the second largest company in the country after Ukrzaliznytsia (it employs 76,000 people). The scale of its activities is larger than that of the entire banking system of Ukraine, which is 11,500 branches of the post office versus 10,000 at banks, with the number of the latter reduced. At the same time, the company’s position in the critical market of shipments within the country hopelessly fell behind the private competitors. For example, in 2016, it sent 18 million parcels, while the leading competitor, Nova Poshta, shipped 120 million packages. So far, the gap is slowing down: this year Nova Poshta plans to serve 170 million items, and Ukrposhta, which crossed the 20-million-mark last year, expects to deliver 50 million parcels.

“If Ukrposhta were a benchmark for us, we would go bankrupt in a month.” Сo-founder of Nova Poshta, Vyacheslav Klimov

Vyacheslav Klimov, a co-founder of Nova Poshta, said more than once that he did not even consider the state operator as a competitor. “If Ukrposhta were a benchmark for us, we would go bankrupt in a month,” he said in a recent interview. “Our NPS (Net Promoter Score is the consumer loyalty) is growing; queues are shrinking with increasing of delivery volumes, we receive 99% of calls to the contact center from the first call and respond to 95% of customer complaints in social networks within the first hour we receive them. The number of branches is growing: only in August 50 units were opened, now there are more than 2,440 of them. This year, we launched the Kyiv Innovation Terminal for quick sorting of packages, received a loan from the European Bank for Reconstruction and Development, and started building a second one in Khmelnytskyi. When Ukrposhta shows a similar result, we can talk about competition,” Klimov explained to AIN.UA.

Perhaps, the main argument from all of the above is the level of service: for a service company, losing this parameter is almost equivalent to a complete defeat. Prerequisites for the backwardness of Ukrposhta have been accumulating over the years – worn out fixed assets, irrelevant technical equipment. And most importantly, most employees seem to be stuck in the era of the USSR with its rude and unobtrusive service and the absence of any incentives for development.

“And only in 2015, we seriously believed that the mail is over, that it should operate for another six months, and they must be closed,” Infrastructure Minister Volodymyr Omelyan.

Nevertheless, after the arrival of a new management team to Ukrposhta, changes in the company became noticeable not only because of the activity in the media and social networks (which is criticized because of its excess). Chatbot and mobile application, integration via API and monitoring of NPS, bonuses, and KPI – all this sounded almost like the colonization of Mars about the state-owned company until recently. Ukrposhta is changing quite noticeably, even if it is far from the main competitors. “There are changes. And they are possible even in “hopeless” state-owned companies. And only in 2015, we seriously believed that this mailing service is dead, that it should operate for another six months, and then it must be closed,” Infrastructure Minister Volodymyr Omelyan commented on the company’s success.

What is the secret of Smelyanskyi and how did he manage to do what the others have not mastered?

LOW START

On the first working day of the new head of Ukrposhta, correspondents, television cameras and a black Lexus were waiting for him at the main entrance – such is the custom. However, the manager slipped unnoticed by everyone from the back door, wearing inconspicuous jeans and a backpack on his shoulder. His work started 15 days earlier and “not according to the instructions,” meaning not in the office, but on the “last mile,” in one of the sorting offices to get a better understanding of how everything works and where the problems are. “In Ukraine, you can win when you shake the system unexpectedly,” explains a top manager. It is difficult to “shake the system” on your own, so Smelyanskyi raised as a professional in the Western corporate world, brought a team along with him.

“In the first days of work, the variety struck. Colleagues joined the management team of Ukrposhta from various industries, starting from banks and telecom to logistics and metallurgy,” says Pertsovskyi. For example, Lilia Bushing, Deputy Director General for Personnel, previously worked at Tetra Pak Ukraine and “Metinvest”, Deputy Procurement Director, Oleksandr Nachod, used to work at “Prozzoro” and the agricultural holding “Mriya”; Deputy Business Development Manager, Maxym Rabinovich, came from Nova Poshta (prior to this he worked in Kyivenergo and DTEK). Pertsovskyi himself came to Kyiv straight from Singapore, where he was engaged in the development of the consulting area of ​​DHL.

“In Ukraine, you can win when you shake the system unexpectedly.” General Director of Ukrposhta, Igor Smelyanskyi

Before the change of team, communication within the company was abysmal, says Smelyanskyi. “There were 127 HR systems, that is, to find out how much we spend on staff, which is 75% of expenses, it took us two weeks. There were 124 payment systems, 22,000 computers, and 1,000 servers. The staff did not talk to each other, but in case of nuclear war, they very well prepared, the enemy would not pass,” the CEO jokes. Of course, all this turned out to be fiction: the average age of the “iron” is 14 years, while only 18% of the departments computerized. The fifth part of employees was in the “red zone,” that is, those who couldn’t be retrained and forced to smile. “Enemy” leaked at the first opportunity, the attack of the Petya virus in 2017 brought mail a 100 million UAH loss.

To restore order, it was necessary to centralize the management using the back office and logistics. It was essential to strengthened sales and service functions in the field. “Today, we hold open competitions for the position of regional leaders, who were previously akin to noble estates,” says Pertsovskyi. Sometimes dismissing those who do not correspond to the new image of the company takes as long as six months.

“Igor’s basic merit is that he created the conditions under which independent teams appeared for various Ukrposhta businesses not only at the level of their deputies but also in the regions. Moreover, these teams have common values ​​and a clear vision of where to run, which has digitized into specific indicators regarding quantity and quality,” says Yulia Pavlenko, director of international operations at Ukrposhta.

Igor Smelyanskyi, General Director of PJSC Ukrposhta

How rough is Smelyanskyi as a manager? He believes that he’s quite tough. “The last decision is always with me. Democracy is good, but reform requires one person who makes decisions. Then you can achieve faster results. Remember Lee Kuan Yew, whom everyone admires, but he is not a Democrat at all,” he says. Employees do not fully agree. “I don’t notice any authoritarianism behind him. Unless, when discussions are held up or in a team with extreme opinions, he decides his own hands, without trying to hide behind the majority opinion simply,” says Pertsovskyi.

The issue of procurement had to resolve in a quite authoritarian way. In the first two months, Smelyanskyi and the team not only stopped some suspicious transactions but also achieved a revision of prices under current contracts. Initially, it expected that on an annualized basis the savings in procurement would be at least 50 million UAH, however, by the end of 2017, the company reported savings in work with suppliers of 370 million UAH. “The main condition for the effective procurement of state-owned companies is the ability to carry them out without external intervention, and here is the great merit of Smelyanskyi,” said Oleksandr Nakhod, who spoke about the first reforms.

ABLE TO SURPRISE

In addition to building a capable team, among his main achievements as CEO of Ukrposhta, Igor Smelyanskyi notes improving the image of the state-owned company and laying the foundation for a radical restructuring of the infrastructure. In the first case, we are talking about the rebranding, which the company conducted last spring. They changed the logo, slogan, and overall design. Inside the company, the change of image is considered a significant achievement of the marketing and customer support team. “Started with the legacy of belligerent, I would say, customer perception and negative NPS. However, they began to aim immediately at large-scale results to jump over their heads. We were able to interest top partnership agencies that helped pro-bono with the large-scale rebranding,” summarizes Pertsovskyi. As Smelyanskyi assures, in two years NPS jumped from -5 to +20. Also, some digital services (even the chatbot) launched earlier than those of competitors.

The new image and the slogan “Able to Surprise” is matching the same tasks of the program of opening branches of a new format, the automated and comfortable for the client ones. Have the latest efforts been appreciated? “Perhaps, rebranding is an example of the coolest thing they have done. At first, I thought the way many other people did: what is it done for? It seems like throwing money away. However, later, when I got into the new department myself, I understood that the image means a lot. There is a feeling of something more modern and progressive,” says Dmytro Pokotilo, owner of the F.UA store. “My wife received SMS-notification from Ukrposhta about the parcel that has arrived. The word “surprise” hardly explains her emotions,” a Facebook comment similar to many others two years ago. Today many people get used to the fact that the mail is still surprising them.

Computerization can be an example of infrastructure improvements (8,300 computers purchased in 2 years) and switching to mobile offices in villages, for which the post office purchased over 500 vehicles.

The international delivery team has achieved a lot. A lot of new services launched for exporters and those who buy goods in foreign stores. For example, the exporter’s personal account and online customs invoice processing, an automated cumulative discount system, tracking international parcels outside Ukraine, online reclamations and payment of compensation to a bank card, free advice from a customs broker, and others.

“Making the operation through the website/API has reduced the customer service time from 8.5 to 3.5 minutes. And after the integration of the online payment function, this time will be reduced,” says Yulia Pavlenko, who also deals with the E-export school initiative. The school was created to train exporters, mainly SMEs of the craft theme for them to open new markets for themselves and trade more effectively abroad.

“It was scary to start working with Ukrposhta, but it really became much easier to register and track the package with your account, now you don’t have to wait in all these huge queues,” says Oleg Kovalik, the owner of the “Sribnyk” trademark, who was inspired by Ukrposhta module to start trading also on eBay and Amazon, besides Etsy. “We started from a position where imports dominated. But the international team was very inspired to “leveling the skew,” Pertsovskyi notes. According to Pavlenko, exports grew by 37% in 2017.

FIGHT FOR E-COMMERCE

Of course, not everything is as smooth and rosy as it may seem. Behind the showcase of big ambitions and small but beautiful victories, there are many problems, enormous work and a series of defeats. For example, the start of active employment with e-commerce can be listed as one of the dynamic teamwork achievements. Dozens of market leaders and small online stores began to offer delivery Ukrposhta.  Among them are Rozetka, Prom, Lamoda, f.ua, boutique, Parfums.ua, Yakaboo, Makeup, and others. “Previously, the delivery of Ukrposhta was akin to a lottery; it was a sort of surprise whether you would or will not receive your parcel. E-commerce leaders were not ready to play such a Russian roulette and losing customers,” says Pertsovskyi. Now the company has introduced guaranteed express delivery the next day, and it is doing its best to meet deadlines. Also, with the help of IT integration tools, there is a goal to make the exchange of information about orders and the generation of labels as simple as possible through the API of Ukrposhta. However, the path to this update was a long one and, and it seems that it is far from over.

“Previously, the delivery of Ukrposhta was akin to a lottery; it was a sort of surprise whether you would or will not receive your parcel. E-commerce leaders were not ready to play such a Russian roulette and losing customers.” First deputy director of Ukrposhta, Oleksandr Pertsovskyi.

“We tried to start working with them since 2014, however, there were only conversations going on. Back then, they lacked software automation. A year ago, only the new team found out what we needed; they said that everything would be ready by the new year and we will be able to connect. Contrary, everything was just terrible and very raw, the number of mistakes was wild — consignment bills done in a crooked way. They fixed errors only by August. Now it has been doing well for a month already; there are no complaints. However, it’s too early to talk about the results now,” says Dmytro Pokotilo.

“Of course, there are still a lot of questions, and it feels that the company is still far from being in the best shape. But we get tremendous help from people at Ukrposhta, and there is hope that they will get out of the Soviet Union standard way of thinking,” says Vladyslav Chechetkin, who tells us about the impressions of working with the company.

“They are trying hard to improve quality and delivery. Plus, they react to constructive feedback about their work,” adds Oksana Zvigun, CEO of Lamoda.ua, confirming that the company sees Ukrposhta as a long-term partner.

RUNNING WITH OBSTACLES

There have not yet been a quantum leap in the development of Ukrposhta, and it could not have happened in such a short time. But what could prevent it from happening in the future?

The excess of regulators and the inflexibility of the state structure do not give an opportunity to reform it as promptly as a private one. “When you are the head of a state company, you have many “friends.” NABU, SBU, Statefinaudit, and others. There are things that we cannot do as a state-owned company,” says Smelyanskyi. For example, Ukrposhta cannot give customers special discounts, by law, this will be considered a corruption component. A separate nightmare of any salesperson is a cumbersome, incomprehensible and inefficient tariff system. “We had 35 stamp tariffs. I said: let’s make five stamps, and we will not have to deal with garbage,” the head of Ukrposhta tells the story from the first year of work. The tariffs have to be agreed upon by the trade union association, the AMCU, the Ministry of Justice, the Ministry of Infrastructure and the Ministry of Economy. “They are all philatelists of the country. Everyone has their own opinion of what the stamps should be like,” Smelyanskyi jokes.

“We had 35 stamp tariffs. I said: let’s make 5, and we will not have to deal with garbage” Igor Smelyanskyi, General Director of PJSC ” Ukrposhta”

The company stumbles on such things at every turn. For a long time, it was up to the GFS to decide whether Ukrposhta would be able to lower the price of shipping from China. Because of the ban to work with private postal operators, it was necessary to bring parcels from China through the Baltic countries or Belarus. Because of this, delivery times stretched to 20-30 days. The company sought to lift the absurd ban for two years, and it finally happened only in May.

Now it is possible to build direct delivery channels for up to 14 days. However, in combination with an inflexible tariff policy, this niche could have been lost altogether. “Our competitors actively contacted Ukrposhta partners, offering a waste tariff. Traditionally, the inflexible state-owned company would lose customers. However, my partners and I proposed new solutions, for example, combining the advantages of monitored delivery with the availability of an unregistered delivery (an example of such a product is AliExpress Saver),” says Pertsovskyi. As a result, the position in the niche maintained.

Inflexibility illustrates the problem of offices. Ukrposhta likes to boast that it is the largest service company in the country because of the number of branches. Not all of them are repayable and convenient to the customer. “Analyzing our presence in specific cities, we noted many “white spots” (for example, in actively developing suburbs of Kyiv and on the left bank of the capital). In these locations we open new offices,” confirms Pertsovskyi. However, sometimes even the optimization of offices with the transfer of personnel from partial to full rates is accompanied by battles. It is happening in the same way now, for example, in the villages of the Chernihiv region, where an experiment is conducted with “mobile branches” on wheels.

Vyacheslav Klimov says that Nova Poshta gives 5-6 months to each opened department. If during this time it does not pay back, then it is closed or transferred to another place. Ukrposhta can only dream of such a speed of response to the market situation. More precisely, it can’t, because there always will remain a social function behind it.

EXCHANGE OF COURTESY

Despite attempts to impress the opposite, competitors noticed the transformation of Ukrposhta. Nova Poshta uses the weak points of the company, for example, dependence on regulators. It complained about company in the AMCU, suspecting of abuse of state aid. Later, through the National Bank, it it challenged a competitor obtaining a license to transfer money in national currency. Why do they do it, if a private company does not even see a competitor in the state post?

“All our appeals are aimed at creating equal conditions for Ukrainian business. We are in favor of equal opportunities for everyone so that not only the state operator could receive licenses for financial services so that all market players could rent state property on the same conditions,” explains Vyacheslav Klimov. There is a downside in being a state company, and it has not escaped opponents.

“The presence of a state player in the market with special working conditions from the state is noticeable, but this is not about fair competition. Many market players ship parcels, but we play on chess fields of different sizes,” Klimov concludes. The words about the benefits of Smelyanskyi, who has not been able to achieve a revision of the ruinously low tariffs for the delivery of pensions for two years, can only make one smile.

“The service “Express delivery” in cities with a population over one million and delivery from online stores is a field with lush grass, where only Nova Poshta was a leader until now.”

Has Ukrposhta crossed the road to a competitor? At least, it’s trying to do so. The service “Express delivery” in cities with population over one million and delivery from online stores is a field with lush grass, where only Nova Poshta was a leader until now (the closest competitors, for example, “Mist-Express”, could not compete with it neither in coverage nor in consumer trust rate.) According to Ukrposhta, today 90% of the shipments in Kyiv are delivered on the same day, that is, as part of the Express tariff (unlike the cheaper Standard, where the time frames are wider). Stores are also quite satisfied that an alternative appeared in the delivery. “This is an added convenience for customers,” Vladyslav Chechetkin explains the decision to attract the state post. However, according to him, the new operator has attracted to the same new stream of customers. “We see that most customers who order from us through Ukrposhta have never bought from us before,” he notes.

“There is no high-quality and cheap delivery, as well as semi-fresh sturgeon.” Сo-founder of Nova Poshta, Vyacheslav Klimov.

According to Dmytro Pokotylo, the delivery rates for two envelopes are almost the same. It is only tiny packages (up to 500 grams) that are much more advantageous to send by Ukrposhta. “At NP, they are costly,” notes Pokotylo. “We never compete with price. Becoming a discounter for which price is key in the business model is not included in our plans. There is no high-quality and cheap delivery, as well as semi-fresh sturgeon,” they say in Nova Posta, asserting that the difference in delivery is only 8-11 UAH with much higher reliability indicators.

 DREAMS ABOUT THE BANK

The only thing that Smelyanskyi has not been able to accomplish yet is to make the company profitable. More precisely, on the contrary, Ukrposhta began to show losses with him, even though it had previously worked with a small profit or to zero. At the end of 2017, the loss amounted to 206 million UAH, for six months of 2018 it exceeded half a billion. There are many reasons to that: same non-flexible tariffs, a large load on the payroll fund, the need for significant investments in infrastructure. However, the goal of making a profit regarding technical backwardness should not be a priority, according to CEO. “What is important for a country: to show a profit or develop infrastructure?” he asks.

However, Smelyanskyi knows how to increase revenue. Financial services bring up to 40% of income in, which means they need to become a bank, as decided in Ukrposhta. For the third year, the company has been engaged in hot debates with the National Bank and parliamentarians, arguing that nothing is threatening to the banking system. There are a lot of arguments against it, both regulators and banks object to it. The law draft, which will allow the company to achieve the desired goal, has been in parliament for a long time and has been recommended only for the first reading so far.

Igor Smelyanskyi, General Director of PJSC Ukrposhta

How will the company benefit from a banking license? It is not going to issue loans, take deposits and conduct other activities of a full-fledged bank. We are talking only about creating an insured bank, whose clients can open current postal accounts and pay for postal and other services with non-cash. Mainly it is necessary to reduce the transaction and processing costs of Ukrposhta: the lion’s share of payments now made in cash. 17 million people today live in the villages that do not have bank branches, as calculated in the state operator. 6.5 million of those people do not have access to bank transfer, and the potential market demand is there. “Only for the use of agricultural land, we transport UAH 2.5 billion in cash annually,” the CEO states. The total turnover of paper money in the Ukrposhta is 100 billion UAH per year, says ICU analyst Mykhaylo Demkiv. This is not only pensions and payment for periodicals, but also the turnover of goods from the sale of household goods.

“There are concerns that the law will enable the company to perform part of its banking functions without a license and its attendant obligations. An exception for one market participant may distort competition,” Demkiv explains the bankers’ arguments.

“Historically, I do not perceive the word “no,” therefore, despite all the odds, we will go towards the goal.” Igor Smelyanskyi, General Director of PJSC Ukrposhta

The bank is one of the unfinished undertakings to which the Smelyanskyi team plans to devote further reforms — one of the areas in which there is no complete satisfaction with its results, the head of Ukrposhta calls personnel policy. “I think many decisions could be much tougher,” he says. Also, among the immediate plans for the future, there is the restructuring of the network of logistics centers, which, in the opinion of the top manager, is a subject to ruthless reduction and restructuring: 5-6 centers should remain among the current 36 ones. Here, the EIB analysts, who have developed a logistics strategy for Ukrposhta are in solidarity with him.

“Have we stopped? Of course not. Historically, I do not perceive the word “no,” therefore, despite all the odds, we will go towards the goal,” says Smelyanskyi. And if force majeure will not stop us on our way, Ukrposhta may well become a successful case study about what a state company can achieve if it plays according to fair business rules.

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