Winning Post

Friday, February 1, 2013 - 12:00

When Australia Post was facing its greatest challenge, it turned to a man who would deliver. Tom Skotnicki meets CEO Ahmed Fahour.

Australia Post has gone through a quiet revolution. While the focus has largely been on Ahmed Fahour, who took over as CEO three years ago, behind the scenes there has been a huge transformation in executive personnel and operating divisions as it responds to the challenge of the internet.

In appointing Fahour as CEO, the Australia Post board was well aware it would lead to a massive shake-up of the organisation. Fahour was chosen by then Australia Post chairman David Mortimer precisely for that reason according to an Australia Post insider.

Australia Post has always faced change, according to Fahour, who pointed out that mail had not stopped changing since the days of horse drawn coaches. It is worth noting that telephone services were part of the PMG (Postmaster General) until 1975 when Telecom was created.

Mail such as accounts, statements, reminders and other government and corporate documents have been the lifeblood of Australia Post for decades. But they have faced a sharp decline over the past five years with the increase in digital communications. Social letters (on non-transactional mail) has been in decline for many years and represents less than 10 per cent of volumes.

There was a time when Australia Post would have had an almost 100 per cent share of written communication; today with email it would be less than 1 per cent, Fahour said. "A lot of the street post boxes, the red boxes you see in the suburbs, are empty."

The mail business is about mail between government, business and consumers.

In the past, mail items increased roughly in line with growth in the economy. This is no longer the case, he said. "In 2002 the nexus between mail and GDP was nearly 100 per cent; mail volume grew with GDP," Fahour said. "That nexus was broken for the first time in 100 years with the internet."

Fahour said the launch of devices such as the iPhone in 2008 and iPad in 2010 was the start of another revolution. One in three Australian households now have a tablet computer. It is no surprise 2008 was the peak in mail volumes. The 20 per cent decline in mail since then is the reason Australia Post has gone from making a profit on mail in the mid-2000s to losing $148 million last year.

The star of last year's operations was the parcel operation, which was the major contributor to the $545 million made by parcels and retail. The explosion in internet commerce has seen a massive increase in demand for trucks and courier deliveries. It is little wonder Toll Holdings has indicated it will be increasing its focus on courier services. However, as Fahour said, there are already a large number of significant competitors, including UPS (merging with TNT), DHL, Fedex and a range of smaller operators.

Fahour has undoubtedly increased the focus on parcel delivery during his tenure and last year moved to buy 5o per cent of StarTrack Express (previously a joint venture with Qantas) not already owned by the organisation.

As a result and for the first time, the parcel business is generating more revenue than mail. However, the growth in parcel delivery and internet fulfilment was also anticipated by the previous CEO, Graeme John, who had developed key links with large shippers such as Amazon.

John - who was appointed to the position in the early 90s when the business was a basket case - transformed Australia Post into a model for efficiency renowned across the world. The great challenge in the early years was a poisonous industrial relations environment and a letter operation in desperate need of modernisation. It took him several years, but by the late 90s Australia Post was emerging as a highly successful enterprise.

It might be suggested John rested on his laurels, but he ran a tight operation that contributed large dividends to government coffers and made sure the organisation was responsive to the marketplace.

However, as John approached retirement three years ago, the business model he pursued reached a tipping point. "By the time we got to 2010 (when Fahour became CEO) there is no question Australia Post had transformed itself in the previous couple of decades under Graeme to be considered one of the world's leading letter post companies," Fahour said.

In 2010 as Fahour went around the world, other postal chiefs paid tribute to the modernisation of the Australia Post letter business. He said the other great legacy of John was the transformation of the retail post office operation over the previous 20 years into a modern retail chain.

However, he said the combination of global financial crisis, technology and a decision by many businesses to cut marketing and mail costs saw a rapid decline in revenue. "We found that while revenues were falling, costs were continuing to rise as a consequence of our service obligations."

As a result, in 2010 Australia Post announced a profit of only $100 million against about $400 million the previous year. Add to that the first major industrial strike for many years in late 2009 and the growth of Facebook and the rise of smartphones "and we found ourselves at an impasse".

The decision to appoint Fahour appears to have been part of the Australia Post board response to the looming crisis. After 16 years with the one CEO it was a decision to adopt a fresh leadership approach based on recruiting an outside corporate high- flyer with no transport or logistics background.

In 2008-09, the last full year in which John was in charge, there were 10 other members of the executive committee. Most have since left Australia Post and none is among the five executive general managers that now report directly to Fahour. Less than two years after Fahour took over only Jim Marshall, a logistics stalwart, remained in his position as head of the postal and express services.

A former colleague of Fahour from his time with National Australia Bank (who preferred not to be named) said it was no real surprise. He said when Fahour was appointed to run the Australian operation of the bank it was with the expectation he would make rapid changes.

He described Fahour as being a brilliant banker who was very "hands- on". He quickly changed the focus of NAB's local operations. He is also highly cerebral, a quick thinker, extremely numerate with a tremendous analytic capacity.

"If he has a weakness, it is perhaps that he finds debate quite difficult." He tends to be not very tolerant of dissenting views and places great trust in his own views and instincts, the former NAB executive said.

Fahour was a strong contender to replace John Stewart as CEO of NAB in 2009, but apparently the board thought he was a change-agent who might prove too entrepreneurial for the company as it sought to consolidate in the wake of its reconstruction.

"But make no mistake - Fahour was the principal architect of many of the key changes at NAB," the executive said. He was largely responsible for the improvement in branding, increased customer focus and most importantly the integration of the MLC business.

"He is an impressive executive with huge capacity and an innate charm that makes him an extremely effective networker and a capacity to define and follow through on a vision." In the almost five years Fahour was at NAB, he recruited a young, highly talented team, several of whom followed him to Australia Post.

One of those is Ewan Stafford who joined Australia Post in 2010 and is now chief operating officer. Steve Ousley is only one of two Post executives among Fahour's key team and is in charge of the physical network across letters and parcels division. Richard Umbers runs the parcels operation and joined after a career in supermarkets, most recently as head of customer engagement for Woolworths. Head of the retail division is Christine Corbett, who was a senior Queensland Australia Post retail executive before Fahour promoted her to head one of the four key divisions in his makeover of the company. Chris Blake, who heads up corporate affairs, is another former NAB executive who was also a former PricewaterhouseCoopers partner.

"Where do you want to put your flag? On traditional mail ... that is going to continue to decline?" Fahour asked rhetorically. He said while the digital changes were the source of its greatest problems they also opened up new opportunities. As a response, Australia Post has developed a range of digital products such as the digital post box to grab back some of the lost market share.

Meanwhile, the parcel business spurred by e-commerce continues to boom, he said. From the acquisition of StarTrack and for the first time in 203 years, the parcel business is larger than the mail business.

Within two months of Fahour becoming chief executive in 2010, Australia Post launched its new strategy, Future Ready, based around a conviction digital commerce and communication will only increase and the role and importance of traditional letters will continue to dwindle. Australia Post intends to become an enabler for the digital economy, which it believes involves an excellent physical and digital distribution system, a world-class parcels operation and building on the iconic Post brand by offering trusted services across various channels (including retailing) to consumers.

Australia Post is now preparing to invest $2 billion in the business as part of its plan to fully leverage off the growth in e-commerce and future-proof its business.

Fahour said $1.2 billion was to be spent in the parcels area and several hundred million in retail stores including the new 24- hour parcel pick-up. The $2 billion includes the cost of the buy- out of StarTrack.

Fahour also has ambitious plans for the digital post box service launched late last year. Digital mailbox will be limited to trusted communications, whereas 98 per cent of email is spam and full of viruses, Fahour said. The users will have to approve access to the mailbox. Most of the top 10 users of transactional mail, including ANZ, NAB and Telstra, have agreed - if customers request it - to deliver to the digital post box, he said. It is an exciting and ambitious plan that is intended to create a new tier of email by providing, through Australia Post, a far more secure message service than that available through conventional email.

Other initiatives include 24-hour post offices, new business centres and round the clock automated parcel pick- up services that are being developed throughout Australia. Several leading service providers have already agreed to use the service, which will have automated payment facilities through various providers, including credit card companies and internet payment services such as PayPal. To some extent it is to separate important mail, such as accounts and payments, from the spam and incidental mail that has become a flood for most email users.

Three years into his term and Fahour undoubtedly has runs on the board, but I am sure the Government would be more pleased if he was able to replicate the more than half a billion dollars profit Australia Post generated just five years ago.