Unfortunately, within postal organisations, knowledge about customersis often dispersed among different departments, subsidiaries or businessunits in different databases and systems (that often aren't linked). Themodern postal professional needs to struggle through increasing heapsof internal and external data, information and knowledge to achieveresults. A useful tool in structuring this is the information matrix:

Figure 1. The information matrix.

The postal innovation strategies rely heavily on the existing postalprocesses and systems for R&D and Marketing. These are often notadequately adjusted and in effect the knowledge scope of innovationactivities is not fully exploited. In these challenging economic times,insight in cause and effect are more necessary than ever. Results ofpostal innovation are tougher to grasp than sales efforts, due to the timelag between idea and implementation and the simultaneous and diversecustomer contacts.

Knowledge Management (KM) can facilitate in bringing the innovationefforts and its results to the surface of the organisation. It is therefore ofthe greatest importance to bring KM onto the postal scene in order todeliver on innovation in terms of management of product development,communication- and marketing information processes. This allowsknowledge to be applied more effectively for a more efficient internalmarketing and R&D, well thought-out products and services and amore effective customer approach. We call this the Knowledge BasedInnovation approach. (Note: in our view, knowledge is the equation ofinformation, experience, skills and attitude within the organisation; thiswill be elaborated further on in the article)

In the end we can conclude that a mere focus on the traditional basicproduction factors does not deliver sustainable competitive advantagesin innovation. The differentiator lies in tapping into the productionfactor knowledge.

Winner takes all in Knowledge Battle for Postal Innovation Treat knowledge as a production factor and let your postal innovation strategy thrive

Arno Boersma (Msc) and Vikash Banwarie (Msc), Squarewise

Introduction

The postal services increasingly have to compete in the broader

communications domain with modern technology such as the Internet,mobile phones and the integration of communication channels. Theresult: mail volumes have declined year after year.

On the other hand the latest figures (European Commission, 2003)show that only three percent of the European letter market has beenliberalised. As Mr Claude Bourmaud, the former president of La Poste(France), stated:

"At the end of the decade the opening to competition of virtuallythe whole postal market appears to be inevitable". And when themarket opens, customers will expect a higher quality of service at alower price.

Traditional postal companies, with their often rigid structure ofemployment and relatively slow adaptation to market needs, will not beable to compete in this open market. Innovation and modernisation areessential and must lead to improvements in quality and efficiency. Toachieve this, the source of sustainable value creation must go beyond thetraditional production factors, land, labour and capital: knowledge is thenew additional production factor for the logistics industry. However, nopublication within the postal sector has yet addressed knowledge as aproduction factor. It is often not included as an explicit factor in thevarious benchmarks. Knowledge Management therefore needs to arriveon the postal scene; it is (much) more than the implementation ofCRM or lifestyle databases.

The knowledge-intensive world of a logistics services company

Let's first look at why the world of a logistics company has become soknowledge intensive. We all know that for the modern postalprofessionals the customer's voice is (or should be) leading in thesetimes of declining volumes and need for innovation. This makesmanaging knowledge about (b-t-c and b-t-b) customers especiallyimportant. But a number of developments have made this acomplicated affair:

• Increased customisation. Customers have become moredemanding and individualistic. They are therefore more difficultto target or assign to specific segments;

• Increased interactivity. Through new technologies such asInternet and mobile phones, the interactivity with customers hasincreased strongly;

• Increased connectivity. The number of channels and contactmoments and points with customers has greatly increased;

• Increased offer-transparency. Customers have large amounts ofinformation at their disposal to make their buying decision.

At the same time, these developments provide enormous opportunitiesfor an effective and efficient postal innovation strategy in terms ofproduct-marketing (e.g. new product development and channeldevelopment) and marketing-communication (e.g. type ofcommunication and timing).

viewpoint

Core: Postal Innovation Non-core

Internal For example: For example:Sources Profiling of professionals Administrative processes

Customer value chain analyses IT informationCustomer loyalty databases HR informationCustomer profiling Internal newslettersBrand identity booksProductportfolio

External For example: For example:Sources Marketing Research companies Macro economic indicators

Direct Marketing agencies World newsPublishers Sector studiesPrivacy policies

© Squarewise 2004. All rights reserved. No part of this article may be reproduced or published in any form without prior written consent of the authors.

Towards a Knowledge Based Innovation approach

It is about time that KM claims a more dominant role within postalcompanies as a driver for innovation. The growing importance ofinnovation is already having an impact on the organisation as a whole.The common inside-out perspective (doing more with what we have)will bring a significantly better price-quality ratio for customers. In thelong run, however, the price-quality ratio will not be the differentiator.Every logistics company is focusing on improving their price-qualityratio - from a competitive point of view you need to do this - but it ismerely a point of parity. Complementary to this perspective is theoutside-in perspective. Here innovation is based on the knowledge youhave of your customers and their needs, in other words customer basedinnovation. No rocket science so far. But when this innovation is alsorealised through the explicit and implicit knowledge which is capturedin core capabilities of your logistics company, the sustainablecompetitive advantage is there. Here we talk about knowledge basedinnovation.

As the Postal Innovation Pyramid© below shows, the advantages forrealising a Knowledge Based Innovation approach are apparent andendless. They depend on the priorities within your organisation. Thedifferent levels of the Postal Innovation Pyramid© will take you fromthe known inside-out perspective to the new outside-in perspective withknowledge as the most important production factor.

Figure 2. The Postal Innovation Pyramid©

"

Level 1: Internal transparency; knowledge for internal strength.Optimising the internal organisation by making the explicit andimplicit knowledge about key professionals and vital customervalues transparent for internal purposes; e.g. the development andimprovement of customer helpdesk services and on-line peoplefinders.

Level 2: Optimising operations; knowledge for effectiveness.Increasing the effectiveness of the internal processes by reducinginformation overload; e.g. internal cross-selling initiatives that profitfrom the right information spread through the company and e-learning platforms that spread lessons learned.

Level 3: Upgrade of the image of logistics; knowledge for brandperception. The 'adding' of knowledge to products and servicesbuilds the brand and elevates brand perception; e.g. from a postalcompany to added-value communications company and partner inthe full media-mix of customers;

Level 4: Business Process Out-sourcing; knowledge as a product.Here knowledge of logistics is sold as a product or service. This canrealised by being able to more closely link your business to theclients' value chain: e.g. postal and logistics business process Out-sourcing shows high growth rates. The challenge lies in improvingyour own adaptability to successfully serve customers focusing ontheir core-business.

Optimizing operationsKnowledge for effectiveness

Business Process OutsourcingKnowledge as a product

Outside-in perspective

Upgrade of logistics imageKnowledge for brand perception

Market DevelopmentKnowledge as aproduction factor

Inside-outperspective

Internal transparencyKnowledge for internal strength

Case 1: E-learning at United States Postal Service(USPS)[Level 1 and Level 2 of the Postal Innovation Pyramid]

This case illustrates the two lower layers of the Postal InnovationPyramid, namely the internal transparency and Optimisingoperations focus.

Background:

The USPS delivers more than 200 billion pieces of mail eachyear (40 percent of the world's mail). The agency collects nearly$66 billion in revenue annually and is the 11th largest enterprisein the nation based on revenue. The USPS anchors a $900billion domestic mailing industry that employs roughly one in15 American workers. Alone, the USPS employs nearly 770,000career workers, making it the second largest civilian employer inthe nation. Across its 38,000 retail offices, the USPS serves morethan seven million customers each day.

Challenge:

The challenge now facing the USPS is to secure the agency'sfuture in a changing and competitive marketplace. As a publicsector entity, the USPS is faced with an even more difficult taskas it competes with private companies to maintain strong growthand offer market-leading products.

Approach:

Implement a comprehensive internal program to expand theUSPS' e-learning initiative across an entire work-force of morethan three-quarters of a million employees. USPS has put forth acomprehensive Transformation Plan designed to create a flexible,innovative and responsive postal service that evolves inpartnership with its customers. This Transformation Planoutlines the USPS' plans for internal transparency andoptimising operations in order to reduce costs, improveproductivity and maximise the efficiency of the postal operatingsystem. These goals are all tied to the USPS campaign tosignificantly enhance the training, learning and ongoingknowledge transfer programs offered to its more than 770,000employees - which can lead to the increased improvement of itscustomer and constituent service and, ultimately, guarantee thePostal Service's ability to operate successfully in today'schallenging market.

Results:

Within USPS more than 40 products were successfully evaluatedbased on their functionality, integration capabilities and features,return on investment and customer references. And USPS will beable to decrease its overall training and travel costs, centralise itsvarious and disparate training programs, streamline the use oftwo internal databases and lower the expenses associated withmanaging its legacy database systems - allowing the organisationto operate and compete more effectively in today's marketplace.

Level 5: Market Development; knowledge of logistics as aproduction factor. Introducing customer focused innovations bybetter understanding customers' wants and needs, and ultimatelyproviding personified proposition: e.g. the development andsupporting of digital transaction mail in the banking industry basedon logistics experience.

The benefit of applying the Postal Innovation Pyramid© is that the fullpotential of knowledge is tapped into in order to strengthen the corebusiness but also to enlarge the logistics portfolio into related added-value services.

Implementation of a knowledge based innovation approach

Besides labour, machines and capital, knowledge has become thedifferentiating factor in the knowledge based economy. For most services firms, managing it well is the key to survival and growth.As postal firms move more from pure logistics firms to logistic servicesfirms, this factor becomes increasingly important. It is at the basis of theknowledge based innovation approach

In order to effectively implement a knowledge based innovationapproach and follow the way up the Postal Innovation Pyramid©, wewill use the formula for knowledge as created by professor Weggeman ofthe Technische Universiteit Eindhoven in The Netherlands. He statesthat knowledge is the equation of information multiplied by theexperience, skills and attitude of the knowledge worker.

KNOWLEDGE = (INFORMATION) •

(EXPERIENCE + SKILLS + ATTITUDE)

Hereby the more explicit, codified knowledge is captured in the 'I' andthe more tacit knowledge is placed within the 'ESA'.

I = information about vital customer values, needs and wants as abasis innovation;E = the capacity of the modern postal professional to experience thecustomer situation, looking through his/her eyes in order to make itrelevant;S = the skills of being sensitive to customers and acting on itthrough new, better or different services and the logic of theseservices;A = attitude to surprise the customer with more than he/she expectsand to create an intrinsic understanding for the products andservices.

A very simple but powerful formula that helps organisations pinpointthe key element for improvement, but also emphasises that knowledge isalways a combination of the hard and soft factors.

Implementation in 3 Steps

The implementation of a Knowledge Based Innovation approach leadsto growth of the postal company as it climbs up the steps of thepyramid. However for each level of the Postal Innovation Pyramid©this requires accurate and structured activities that can be carried out inthree steps:

Step 1: Transparency of knowledge for sustainable innovation

- Analysis of the current postal innovation strategy: This creates insight into the strategic innovation and relatedstrategic marketing, sales, communications activities and the keyperformance indicators to be used such as customer satisfactionand loyalty, market penetration, and profitability of the productsand services.

- Formulating the postal innovation ambitions: This aims to create a joint focus concerning the ambitions formarket and customer approach, relationship management,product development and innovation. An element could be thecustomer intimacy and bonding strategy based on market andcustomer needs.

- Analysis of the process and systems: The postal innovation processes are analysed to identify thecrucial knowledge sharing elements per step. This includesgaining insight into the main knowledge carriers concerningproducts, services, markets and customer knowledge and the

Case 2: Knowledge of Logistics by TNT Group (TPG)[Level 3 and Level 4 of the Postal Innovation Pyramid]

This case illustrates the three upper layers of the PostalInnovation Pyramid, namely the upgrading of the image,business process Out-sourcing and market development. .

Background:

The TNT Post Group (TPG) was formed in 1998 by theformer Royal Dutch Post and TNT which was acquired in1996. TPG is active in mail delivery, express and logistics and isthe largest employer in the Netherlands with 65 thousandemployees (worldwide 148 thousand employees). It's CEO,Peter Bakker (40) is the youngest CEO of a listed Dutchcompany, one of the first of a new generation of Dutchmanagers. Knowledge was power, now knowledge sharing ispower, has been his motto.

Examples of Knowledge Based Innovation:

1. Upgrade of image: The partnership between TPGand the World Food Programme of the United Nations.

Just after he was named CEO, Bakker was touched by an articleon world hunger. As this is essentially a logistic issue, hedecided that TPG would help the third world not by givingmoney, but by providing their knowledge on logistics. He metwith Kofi Annan and decided to partner with the World FoodProgramme. In his words: "The best logistics company in theworld helps solve the largest logistic problem in the world."TPG Post made their core knowledge transparent and re-usablefor the logistics infrastructure of the WFP. A marketing andcommunications machine made sure that all stakeholdersinvolved were informed and enthused. Considering the fact thatthis was largely the former Dutch Post, the improvement incorporate image and internal pride within the organisation,largely increased worldwide Employees can apply for projects tohelp the third world.

2. BPO: TPG as special advisor for the health caresector in The Netherlands

For a period of 2 months TPG advises and supports the healthcare sector in the Netherlands. From a knowledge managementperspective this will be realised in two areas. First TPG willmatch their knowledge of logistics with the logistics issues inthe health care sector. The end in mind is a concrete advice onan optimal logistics infrastructure in the complex supply chainin the health care sector. Secondly TPG, as an ex-governmentinstitute, will support the health care sector in the transition toprivatising the sector. Knowledge transfer of TPG regarding acustomer focused approach (outside-in) of hospitals andinsurance related companies are already in place.

3. Market Development: TPG transfers logisticsknowledge to explore the Chinese market

TPG Group has decided to invest 200 million euro p.a. in thedevelopment of the logistics market in China. In developing thepostal market, 150 senior managers will be sent to China todevelop the logistics infrastructure in cooperation with localpartners. But also other industries benefit from the knowledgeof TPG. Mid 2003 TPG has signed the largest automotiveinbound logistics contract awarded in China to date withShanghai Volkswagen (SVW). The scope of the contract coversall local inbound logistics activities to support SVW productionin three separate assembly plants and two engine plants inAnting near Shanghai. The partnership will face the ground-breaking task of totally re-engineering the current SVWinbound supply chain, whilst at the same time supporting arapid growth in production volumes and maintaining servicequality

quality of the existing knowledge.- Creating knowledge awareness:

In this step the organisation looks into the elements of theK=I•ESA formula that most need improvement. Also, KM as adriver for innovation is introduced to the postal organisation.And in addition, the value of customer knowledge and the needfor the right experience, skills and attitude.

Step 2: Re-usability of knowledge for sustainable innovation

- Definition of the Process and System: In this step the bottle-necks for efficient knowledge transfer areidentified. Also future knowledge needs based on the changingcustomer demands are taken into account. This should lead to aninternal customer knowledge base, a structured market researchapproach.

- Organisational realisation and development of the postal professional: This step creates an action plan for creating the skill -set of themodern postal professional. This increases their commitment andunderstanding to the KM approach and thereby increasing theirmarketing savvy towards internal marketing processes, customersfocus, brand experience and drive for innovation.

Step 3: Marketing & communication of knowledge based innovation

- Implementation of the approach: In this step it all comes together. The internal customerknowledge base is linked to the ESA of the modern postalprofessional who in turn effectively communicates the relevanceand logic behind the products and services towards the market.

- Product innovation and development: Based on the internal knowledge, products are further improved

and new products are created. In the ideal situation brands can becreated that consist solely of knowledge.

The Knowledge Based Innovation Scan for Postal Innovation: Key questions and final key fact.

It's clear that the postal market faces many challenges, from the foreseenliberalisation of the postal market in Europe, more focus on coreactivities resulting in costs reduction, speed and flexibility, the strongneed for (cross border) innovation in new products and services (e.g.direct mail and transactional mail as part of the media-mix, theopportunities via the internet), to cross selling between the differentbusiness units of postal companies, or in a broader perspectiveinternational logistics operators. Knowledge is becoming more and morea product and key production factor in delivering on the abovementioned challenges. The key questions are :

How does your postal organisation stand in the field of KnowledgeManagement and Knowledge Based Innovation?

Is the full potential of knowledge as a production factor realised?

Where is your organisation up the Postal Innovation Pyramid©?

Some (international) logistics competitors already have entered the newera of Knowledge Based Innovation, and now you understand why theymake this shift. It's time to move, because the winner takes all.

Squarewise, based in Amsterdam, Brussels and Vienna, is thefirst European company specialised in market-driven knowledgemanagement. Through a result-driven approach Squarewise helpsyou maximise the return on your knowledge. This is done byapplying (new) technologies and (new) business channels; basedon an innovative framework for knowledge management with aneye for the human factor. The result: more efficiency within yourorganisation and more value for your customers.

Our expertise

Effectively applying market-driven knowledge managementdemands know-how. And that is exactly our expertise. Thebackground of Squarewise professionals is a unique combinationof knowledge management, ICT and marketing, providesoverview and insight. And this includes extensive experience inthe postal sector.

The distinguishing features that set Squarewise apart are:• A pragmatic framework that makes any KM initiative

structured and manageable; • A market-driven approach that focuses on concrete and

tangible results; • A keen eye for the 'human factor' in KM; • A deep knowledge of ICT without a stake in any specific tool

or package; • A team that has worked in the business of its clients.

The authors

Arno Boersma has a MSc in Business Administration and heldseveral senior marketing positions at fast moving consumer goodscompanies, amongst which L'Oréal, before co-foundingSquarewise.

Vikash Banwarie has a MSc in Business Administration. Beforejoining Squarewise, he held several senior marketing &communications positions in the industry and ex-government,amongst which Unilever and TPG.

The authors have developed a Knowledge Management scan inco-operation with Professor Weggeman that corresponds to theissues raised in the article. It will give you a first insight into theanswers to these questions and - more importantly - theopportunities that Knowledge Based Innovation provides yourcompany. For more information:

please send an email to: banwarie@squarewise.com or contact him at +31(0)620602340.

This article was prepared in collaboration with Postal Solutions. Postal Solutions is focused on helping the National PostalServices to find ways to build mail volumes and profitability.The team has experience working in Northern & Southern Europe, Africa, Asia and the Americas.Contact details: bryan@postal-solutions.com or 19A Beekstraat, Zwevegem 8550, Belgium (T) 32-485-027-535

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