Interview with Igor Smelyansky, Ukrposhta CEO

Global economic situation

Something we’ve been talking to CEO’s about as a part of the survey is their confidence in the global economic situation over the next year, and what the future holds for their own businesses? Globally, most responded that they felt good about 2018, with 57 % expressing solid confidence in the improvement of global economic growth, but for some reason were less confident when it came to their own businesses ...only 42 % envisioned good improvement for their business in 2018.

I’d like to begin by asking how you see the global economic situation and how it will influence your business?

Globally, right now I think that there are too many unknowns: North Korea, the US and Russia, Ukraine and Russia, Syria, US steel tariffs, the US midterm elections coming in November. The populist political movements that are gaining strength everywhere, with countries focusing on securing their borders, their economies, how will Brexit turn out and some basic questions about the global economic picture. We take a cautiously optimistic approach to the impact all this will have, and I think globally we’ll see growth.

Our company perspective? We’re positioned to grow no matter what happens. Last year, for the first time in Ukrposhta`s history we saw 15 % growth in revenues. This year we project a similar rate of growth – we’ll double the volume of parcels we handle.

Right now, we have more projects than we have the capacity to handle from a managerial and financial standpoint. It`s fun to come to work at Ukrposhta now because the things we’re doing today show where we can be in five years. One example: I started working here 18 months ago. Right now we have 11.5 thousand branches but only 20% of them are computerized. Over the next six months we will have doubled the number of computerized offices, enough to cover every small town in Ukraine with a population greater than 2,000, with more yet to come.

Ukraine is made up of mid-size cities and small towns – around 26,000 of them. There’s been little to no modernization in these places. So when we bring basic services like catalogue shopping we see triple digit growth.

Remember, we have 11.5 thousand branches. When I started here as CEO, nationwide the Ukrainian banking system had 10.5 thousand branches. That number is down to 9 thousand today, and will soon be at 8 thousand. The more that number shrinks the more our branches will be called on to provide financial services. The result: A client-base of tens of millions that can receive financial and postal services at one location.

All of which opens the door to ecommerce in these villages. Today, the standard practice is that a full truck travels to the town, unloads the mail and leaves empty. But with ecommerce we can haul freight back from the villages. Fill up those trucks. Farmers sending fresh food to organic distributors or selling direct to customers in urban areas. We can also start putting our gas-trading license to use. The meter reader is sent out, but our delivery corps is already scheduled for deliveries in some remote location and could provide that service more economically.

Of course, all this needs time to berealized. It needs investment and infrastructure. But I have reason to be optimistic.

 

We’ve spoken about your cautious optimism regarding next year. How do you see the next three years?

Again, the current political race complicates the issue. Ukraine will be electing both a President and a Parliament next year, if everything stays on schedule. Yet, regardless how other events play out, we’re still facing a difficult period through the close of 2019.

 

Your comments about Ukrposhta’s financial services potential is interesting in that it reflects a common practice in the UK. The number of working branches in the banking market there is shrinking. In larger towns branches are closing, the thought being that people don’t want to visit a physical branch anymore, but it turns out that they do!

A small town or village can often afford only a single business – there’s the basic shared cost of the facility and the largest regular expenditure tied up in employees. Profit margins are decreasing and the populations of these towns are also decreasing; supporting three businesses just isn’t feasible. In that setting, one core business that incorporates a full range of services is a real possibility, whereas supporting several, separate, single-focus businesses is not.

A single provider that works as post office, bank, and a shop is economically feasible, and the alternative of separate enterprises isn’t.

 

Globally, the CEO’s in our survey identify the US and China as the top two environments for investment and trade. Is that your perspective, too?

Yes, China and some other Asian countries have a huge consumer base and a cheap, educated labour force. Yet, advances in automation hurt them somewhat because it devalues labour, so it will be a challenge for them to maintain their model. Particularly, considering that US and its ability in creating a service economy, one that trades in intellect. And, of course, there’s the EU: a large market with huge potential for Ukraine. Ukraine needs to stay well connected with the European Union, even if right now that has to happen on an individual business-to-business level.

 

Globalization is a reality from a certain perspective, but more and more we’re seeing its fault lines. With the fragmentation of the world we live in, what will be the effect on business?

In my view, only the US possesses a full production cycle in every technology; all other countries operate discrete sectors of it. Every country is different, but no one completely remakes their research models or their scientific priorities or their production capabilities in a single political cycle. These things take time. A country that tries to isolate, stepping back from global partnerships, might bring someone temporary political success, but there’s so much more to consider. For example: who are you going to sell your goods and services to?

 

We’ve talked about the difficulty of operating in an uncertain global economy, and the CEO’s we surveyed were asked about real threats to business.

This year, their responses shifted from longer term concerns like the global economic environment or exchange rates to far more short-term issues: cyber-attacks, terrorism, geopolitical crises and uncertainties. How does that square with your own views?

Absolutely. We, too, were targeted by a cyber-attack. It took a huge effort to overcome it and the threat is ongoing. You can never be 100 % secure and so this becomes an issue of how much you’re ready to invest in security. Right now, as we speak, our website is under attack.

 

Technologies

How do you deal with that?

With effort, resource investment, and money. We’re working to construct sustainable services and this has become an issue of national security: is it secure for the national postal operator to store data in the cloud? Can we export that data? If the situation with Russia degrades, you won’t need tanks, just disable financial systems, stop paying pensions. It’s a more effective tool for influencing an election.

Consequently, we’re looking into different reserve schemes, yet, again, understanding that you can never be completely secure. If you’re able to establish iron-clad security it’s going to affect your staff efficiency as well as your customer satisfaction. We’re investing heavily in IT and in IT security. If there’s a cyber-attack on a power plant and the newspaper doesn’t come out, will a small town be able to withstand that? No newspaper? Almost certainly. But what about their pensions? So the security of the latter is the kind of thing we’re addressing.  

 

Isn`t this all about being able to adjust to shifting contingencies? It seems like the last attack here had that effect on a lot of people.

I come from a background in strategic consulting and I see less and less really long term strategizing being done. Planning for the next 25 years is nice but no one really knows what’s going to happen! Some trends are unavoidable: robotics, demographics – you just need to factor them into your considerations. With everything else, your business model just has to be adaptable.

 

Clearly, some aspects of your business lend themselves to the adoption of new technologies, robotics, etc.

With 73,000 workers, we’re the third largest employer in the country. With that kind of workforce in place, we’re not looking at drone deliveries anywhere in the near term.

 

Talent

What major technology changes have you seen so far? And what do you see coming down the road that will affect your business?

That varies from country to country. In the US, for example, there’s a concern that if you introduce Tesla self-driving vehicles, 10 million people – truck drivers and cab drivers – will find themselves immediately out of work. It’s just my opinion, but in Ukraine I think that would be less of a problem. Just like in the UK and the EU, we are facing serious demographic issues, so it becomes an issue of whether we have the necessary labour force: right now we’re struggling to fill positions.

 

Is it a lack of numbers or a shortage of relevant skills?

It’s a lack of numbers. With the EU borders opened now work-related emigration has increased and it’s difficult to compete with Europe on salaries and compensation. We’re raising salaries, however, but it will present a big challenge for us to sustain it.

Really, people don’t need to leave Ukraine; they can just work for a global company – a US or EU company – without leaving home. We know that if our home-grown salaries aren’t competitive, we won’t get qualified people.

 

So do you think the culture has changed since you arrived at your organization?

I’ve made changes to 95% of our top management. It helps. Now we’re working on structure and we’re faced with dismantling inefficient schemes. In one of the largest regions of the country I’ll be replacing a lot of branch employees. We saw 70 job applicants and only 2 could be hired. And my branch managers are pointing out how difficult it is to get people. No one wants to work for these wages. So we’re raising salaries with an eye on doubling, even tripling them. And we need to weed out the bad attitudes. For example, if an employee is rude to a customer, we will dock his salary by 20%.

I had a more radical outlook before taking this position than I have now. Now, I have a better understanding of why some things that need to happen are not happening - in the government, in state-run companies.

Ukrainian legislation is so complicated. Some laws written in 1963 and have never been updated. Were you aware that in Ukraine, with our legislation, it’s impossible to know exactly how much you’ll be paid at the end of the month? Whatever is written in your contract is not the amount you’ll receive once the accountants have calculated the formulas for days off, official holidays, business trips, sick days….

We employ two-thousand people in our payroll department alone. I personally spoke to the President about changing one small law. One law that would give businesses a breather and probably make a few million people available to our labour market and they could finally find work on something productive. And we would be able to hire as many branch operators as needed.

 

Last question. What has been your most memorable experience thus far as CEO?

I have one, many, every day. I suppose that’s a result of the mindset you take in pursuing your goals when you’re tasked with running a huge organization.

I have a lot to learn, like understanding the limits and benefits of my presence at the company because it’s a huge time commitment to always be there. But I need to be there to respond to their issues and it’s clear how much that means to them. I’m glad for their sake that in these first 18 months they’ve been able to see me as a live person. I travel to our branches all over the country and very often it’s clear that how many people there are working for Ukrposhta for 20 years but have never seen the CEO. It’s important – for them and for me – that I not be just another “elite”, living in a bubble.

Ukraine is probably the single country in which a private operator controls a super majority of the postal market share. Last year, Nova Poshta, our main competitor, delivered 140 million parcels. We processed 20 million. We don’t receive a single Hryvnia from the State budget, but, in fact, we subsidize the budget. Compare that to every other European postal service, supported under public service obligations to run and maintain post offices. And so I made the proposal to the government that Ukrposhta needs to start its own bank, a postal bank, to help us generate revenue. They refused. So we’re required to compete against our competitor without any government support. And, since it’s an election year they’d like it if we’d agree to keep all post offices open!

You might have a long career but everyday can be your last so try to do your best. Live every day like it may be your last. No matter how long this job lasts, it’s been a valuable experience – one that makes me thankful, every day. A series of steady, tiny victories, every day. One day at a time. That might be a tough mindset when you’re running a core national company like this one, one that requires a lot of long-term thinking and planning. Still, it’s so important to focus on something cool every day!

 

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