USPS finds six ways to cut costs, not services

Nothing is more challenging for Robert Otto, the U.S. Postal Service’s chief technology officer, than finding new ways to avoid unnecessary spending. Otto has no expectations of getting a larger information technology budget every year, and he accepts the challenge of making do with flat or lower budgets. “I’ve got to prove I can do more with less,” Otto said.

Under Postmaster General John Potter, USPS has rewarded managers for saving money. “My management pays me really well to manage this organization, find efficiencies, find ways to reduce costs, implement automation, cut work hours and streamline processes,” Otto said.

USPS’ headquarters IT organization has achieved most of the big-dollar IT savings that server consolidation and standardization make possible, Otto said. Now he faces a different kind of challenge. He directs his managers to trim costs in many small ways that, when added up, produce big savings.

“We’ve done a grand job of trimming costs,” said Richard Strasser, USPS’ executive vice president and chief financial officer, who spoke at a recent press briefing on the agency’s financial challenges.

Otto created a list of some of the additional steps his IT organization will take this year to avoid unnecessary spending. “You could take this list and apply it to any federal agency,” he said.

Otto doesn’t speak the party line about contracting out to save money. His goal this year is to reduce spending on time-and-materials contracts by 20 percent. “I’m one of the few IT organizations doing this,” he said.

Otto’s strategy is to have USPS employees work alongside specialized contractors so they develop their own expertise. After employees learn the new skills, such as how to run a data warehouse or manage an IT portfolio, USPS no longer needs contractors to do that work. “We can phase them out,” he said.

He will renegotiate contracts to get longer-term agreements and more favorable prices. If a company such as IBM or Hewlett-Packard is willing to give a 25 percent price break for signing a two-year deal, he said, it should be willing to offer a 35 percent discount for a three- or four-year deal. But Otto doesn’t stop there. He offers a five- or six-year contract if he can get a 40 percent discount. “I’ve achieved those savings,” and the companies are happy, he added. “It’s a locked-in revenue stream. That’s really what they want. They don’t want to have to go out and rebid contracts every two years.”

Otto will reduce travel expenses by using Web conferencing to hold virtual meetings instead of sending IT managers to places such as Las Vegas. “I cut our travel budget in half this year, and I plan to cut it in 2007 by another 25 percent,” Otto said.

He wants to replace printers, scanners, copiers and fax machines with multipurpose equipment. He will ask managers in 38,000 post offices to replace broken printers or copiers with multifunctional machines that print, scan, copy and fax. Owning fewer machines means buying fewer toner cartridges, which account for 95 percent of the cost of owning the machines, Otto said. By purchasing multipurpose equipment, he added, “you can take out 50 percent to 60 percent of the life cycle cost.”

Otto wants to increase the ratio of computers to printers. At USPS, that ratio is now is about 2-to-1. But Otto plans to change that. For example, in an office of 30 employees with cubicles, USPS typically has 15 printers. “Tomorrow, we’ll have four printers strategically located,” he said. “Rather than walk 10 feet, people might have to walk 20 feet. It will help their health.”

Otto will challenge managers to explore all means of cutting costs. “If you’re running my e-mail service and you were doing it for $100, I want you to find a way to make it be as efficient or more efficient and save me 2 percent to 5 percent every year,” Otto said. “As a good manager, you should do that.”

Otto said cost-cutting, like process improvement, never ends.