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'You've Got Maelstrom'

When the recession hit and compounded challenges already unique to the U.S. Postal Service, CHRO Anthony Vegliante rose to the occasion by helping to lead an agency-wide transformation.

Monday, November 1, 2010
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How would you like to be the head of HR at an organization that has eliminated 80,000 jobs in the last two years (without laying anybody off), has rescheduled and reassigned another 100,000 employees who stayed on, expects to lose $7 billion this year and faces a steadily declining demand for its product?

And, oh yeah, has unionized employees and can't make major business changes without approval from Congress.

Welcome to the world of Anthony Vegliante, chief human resource officer and executive vice president of the United States Postal Service.

Because the postal service -- a quasi-governmental agency -- doesn't receive any taxpayer support, it has to be operated as a business. But it also must adhere to the myriad rules and regulations that apply to federal agencies, and does not have complete control over its infrastructure and expenses.

"We have all the challenges of the private sector, and all the constraints of the federal government," says Vegliante, who was recently named a Fellow of the National Academy of Human Resources.

Since the recession began, Vegliante and the postal service have had to contend with the kinds of extreme stressors -- the word "problems" seems too mild -- that might prompt even the most battle-scarred HR executive to run for cover.

The first is a business model in decline. Demand for the organization's service -- mail delivery -- has dropped precipitously during the recession. And while corporate America is expecting to rebound post-recession, it doesn't appear the postal service will be attending the party.

This has come as somewhat of a shock to postal officials. Although fewer people are sending first-class mail -- thanks to e-mail -- overall volume actually increased through the first half of the past decade. Standard, or advertising mail, more than made up the difference as the financial and housing boom inundated people's mailboxes with credit-card and loan offers.

But the financial and housing bubbles were also bubbles for the postal service, and once they popped, there was nothing to take their place.

The recession also clobbered first-class mail, as many people sought to save money by paying bills online and found other ways to communicate without sending letters. The recent explosion in social media hasn't done the postal service any favors, either. Overall mail volume has dropped more than 15 percent since the recession began, and is expected to drop a total of about 30 percent by 2020.

Added to this is a congressional mandate, passed in 2006, that the postal service begin pre-paying retiree-health expenses for its current employees, to the tune of about $5.5 billion a year for 10 years. While Congress was apparently hoping to keep the postal service's budget stable during a time of rising health costs, once the recession hit, the burden became overwhelming.

Even without figuring in the future retiree pre-payments, the postal service expects to lose about $1.5 billion this year. The pre-payments will push the red ink to about $7 billion.

To sum up: Too little work for too many people, and the need to increase productivity and cut costs in a business where about 80 percent of expenses go to salaries and benefits.

What's a CHRO to do?

Reaction Plan

Vegliante, a 34-year postal employee who has been in the top HR job since 2004, has helped oversee a multi-pronged response to the havoc created by the recession. That has included eliminating positions, moving a large part of the operation from three shifts a day to two, and making the HR function itself more efficient by automating all of its major personnel processes.

One of the most ambitious efforts has involved cutting the number of employees at the postal service from 663,000 to 585,000 (about 12 percent) between 2008 and 2010. The organization has been able to accomplish this without laying anyone off through both attrition and by offering $15,000 in early-retirement bonuses for full-time employees. But even the job cuts were not enough. Because the workload for the remaining employees was dropping so sharply, productivity fell.

"People were looking for work to do," Vegliante says.

This was particularly evident in the mail-sorting operation, where employees worked all hours of the day and night at about 350 large facilities throughout the country. Once the recession hit, there was no longer a need for three shifts. And so, the postal service eliminated the 8 a.m.-to-3 p.m. shift -- the least critical, because most of the mail to be processed arrives in the afternoon.

Prior to the recession, says Vegliante, "we're growing, we're getting more mail than we know what to do with, so we're working around the clock to process it. All of a sudden, the world changes and we've got to react to that."

About 100,000 employees were affected -- not only the mail processors, but other types of postal workers downstream, such as truck drivers. Many of those employees were reassigned to other facilities, sometimes nearby, but sometimes hundreds of miles away. While full-time employees remained full time, the part-time employees saw their hours cut by about 20 percent.

Reconfiguring staffing and scheduling on such a mammoth scale -- and in accordance with union work rules -- was a daunting challenge. HR responded by ramping up its use of workforce-management analytics. (Vegliante, who has a background in that area, helped develop the postal service's work-hour management strategy in 2000.)

"We have systems in place that the entire organization uses to plan and project the workload, and the resources needed to do the workload," he says. With the loss of mail volume and the scheduling changes, "we started getting a lot more calls for help."

The workforce-management IT system collects not only employee data, but information on various aspects of operations, such as mail delivery and retail facilities. The data is updated every 24 hours.

"It's a comprehensive system, and everybody has the ability to narrow in on specific pieces of data," says Vegliante.

HR can be confident of the integrity of the data -- a bugaboo at many organizations -- because there is regular dialogue with the managers in the field who are using the information in their workforce planning every day.

"If the data doesn't reflect reality, we'll know it," says Vegliante.

At the mail-sorting facilities, HR and the local leadership put together teams to plan the shift changes and map out timetables for union notifications and other required actions.

Another major task for HR was to help employees deal with the upheaval of changing shifts and moving to other facilities.

Vegliante says that, because the postal workers had experienced the drop in mail firsthand, they knew some kind of change was coming. "They say, 'I get it, I feel it, I see it, I touch it,' " says Vegliante. "The workforce ... understood; they knew."

Still, the rescheduling and reassignments were difficult for many employees, and HR at the local level often stepped in "to help people work through their situations, such as with child care," he says. For example, managers would delay putting through reassignments until workers could arrange for care.

"At the end of the day, they're still our employees. Wherever they are, I want them productive; I want them focused on the customer."

HR also offered training and other resources to supervisors who provided details of the changes to employees during "stand-up talks" on the workroom floors. "We made a number of our people available, and provided supervisors with a guide of what to say," says Vegliante.

Communication with employees was key throughout the process, he says. Among the lessons learned:

* Communicate early and often. "You've got to take the time to answer questions," says Vegliante. And it's important to create a two-way conversation with workers, both face-to-face and through other methods, such as a website where employees can ask questions and get prompt responses.

* For rescheduling and reassigning, give people as much notice as possible. "If you can give them five to six months, not five to six minutes, it will avoid a lot of problems," such as employees who can't make it into work because they can't find babysitters.

* Present the overall plan to employees as a whole, rather than in bits and pieces. "When you get the information out in a piecemeal way, it's disruptive and looks like you're not being forthright," says Vegliante.

In organizations where employees are unionized, as they are at the postal service, it is also important to provide details of the changes to the unions, he says. "You want them to be part of the communications process, so that everybody's on board, everybody's got the story, and we all know what to do."

Although schedule changes do not have to be approved by the unions, management must follow the contracts dictating how those changes are made, such as the amount of notice given and where information is posted.

According to William Burrus, president of the American Postal Workers Union, the postal service did not consult the union in advance about the change from three shifts to two, and the union opposed the move. An arbitrator subsequently ruled in favor of the postal service. (Because mail is considered an essential national service, postal workers cannot strike, and disputes that reach an impasse are settled by arbitration.)

The union, which represents 211,000 mail sorters and other employees, is the largest of the four postal-employee bargaining units. Burrus says he has dealt with Vegliante -- the former vice president of labor relations at the postal service -- for 20 years, and though they are considered adversaries, "we have found common ground on a number of issues. We have found a way, through Tony's professionalism, to make it work."

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Vegliante acknowledges that the unions weren't happy, but he adds, "We followed the contract, and we tried to communicate with them as much as we could. They may not agree with everything we do, but there's always a dialogue, and always an understanding."

Changing HR

At the same time Vegliante was helping to make the postal service more productive, he was making major changes in his own department. By automating all major personnel processes through a single IT infrastructure, HR greatly reduced paperwork and enabled employees to access information directly, rather than through HR workers.

As a result, Vegliante has been able to cut the number of employees in the human resource function from 1,585 to 350 through attrition and early-retirement deals, contributing to a $130-million-a-year savings. As with the postal service as a whole, no one in HR was laid off.

This direct access to information has created a self-service environment that has benefitted not only workers -- who no longer have to stand in line at HR's door to change their retirement benefits or file complaints over pay -- but managers as well, says Vegliante.

For example, one of the processes automated was "bidding," through which unionized employees request to be given open positions that offer better hours or days off. (Jobs are awarded based on seniority.) Employees can now put their bids in online, rather than manually, and the entire process is also more efficient for managers.

By automating and consolidating bidding and other personnel processes, HR has enabled supervisors to instantly access, from the workroom floor, a wide range of information needed to plan operations -- such as job vacancies and employee-leave schedules.

"Before, managers got this information late, or not at all," says Vegliante. "Now, they get real-time information."

And it was the scope and financial backing of the effort that made full automation possible. Because the postal service was able to save the $130 million, it was able to make the large investment in the technology -- and get a suitable return on investment.

Interestingly, the unionized workers adapted to the automation more readily than the managers. While the workers were already familiar with self-service and the Internet, "the management side was used to having someone else do the work for them," says Vegliante. "They had to learn that the automation was to their advantage, [not an attempt] to offload the work on them."

Vegliante is proud of the role he and his department have played in helping the postal service address its current crisis. Overall productivity at the organization is up 12 percent from a year ago, and is more than 3 percent higher than before the recession began. Vegliante gives much of the credit to the postal employees themselves, who he says have steadfastly remained dedicated to serving the public.

But the challenges continue. Mail volume -- and the size of the postal-service workforce -- are both expected to shrink in the coming years. The organization, trying to stem its losses, is asking Congress for permission to eliminate Saturday delivery and to widening customer access by placing retail outlets in supermarkets and other locations -- measures that would require additional reassigning and rescheduling.

The postal service is also hoping to cut labor costs and gain scheduling flexibility by increasing the proportion of part-time and temporary workers -- a move that will likely face union opposition. Burrus is now negotiating for a new contract and says the U.S.P.S. will "have to convince me there's a need and, so far, I haven't seen a need."

Vegliante believes strong leadership will also be essential to take the agency through its continuing changes, and he is now focused on improving his leadership-development program. He has sought out guidance on best practices from top HR leaders such as Randy MacDonald of IBM and Bill Conaty, formerly of GE.

"I'm doing succession planning for 750 executives and 45 top officers," he says. Leadership-development programs are available for 60,000 managers throughout the organization.

Patrick Wright of Cornell University says the postal service's experience has profound implications for HR leaders in the business community. "This is the story of how you manage in a declining industry -- and, sooner or later, every industry and every company is going to go through that decline," says Wright, the William J. Conaty GE Professor of Strategic Human Resources at Cornell's School of Industrial and Labor Relations.

Wright notes that the postal service is heavily burdened by fixed retirement benefits -- particularly the prepayments for future retirees -- and says this should be a lesson to other organizations, which may find themselves facing the same fate.

"What is happening at the postal service shows the importance of staying away from fixed retirement benefits and other costs associated with a legacy workforce," he says. "When you have fewer employees supporting more and more retirees, in a declining industry, that's the kiss of death. Tony Vegliante is making the best of a horrible situation -- he's controlling the costs that he can, but it doesn't solve the problem of these other huge, uncontrollable costs."

Says Vegliante, "The challenges were significant and unexpected, but we learned a lot of important lessons. Moving forward, we're going to capitalize on what we've learned. You have an immediate crisis, but it's going to be around for awhile, and so you have to have both short- and long-term strategies. You have to have a blend."

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