Agenda
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Post Office Board Agenda (Strategy Day 2)
28 July 2021 Finsbury Dials, 20 Finsbury
Street, London EC2Y 9AQ
ee a ee
‘* Tim Parker (Chairman) ‘© Ken McCall (SID) © Martin Edwards (Network Strategy &
Secretary) Delivery Director) (Item 2.)
‘* Nick Read (CEO) © Carla Stent (NED) ‘© Tim Mcinnes (Strategy and * Dan Zinner (Group Chief Operating
Transformation Director) Officer) (Item 2.)
‘* Zarin Patel (NED) ‘* Alisdair Cameron (CFO) I * Owen Woodley (Group Chief © Chrysanthy Pispinis (Commercial
Commercial Officer) (Item 3.) Strategy & Planning Director) (item 3.)
‘* Tom Cooper (NED) ‘© Lisa Harrington (NED) I * Mark Siviter (Product Portfolio I ¢ —Zdravko Mladenov (Business
Director - Mails, PUDO, Retail & Transformation Director) (Item 4.)
Government Services) (Item 3.)
Saf Ismail (NED) Elliot Jacobs (NED)
Ben Tidswell (NED)
POL Board Strategy Day 2 - 28 July 2021-28/0
1. I Welcome and Conflicts of Interest Noting Chairman 08: :00 hrs
2. I Session 2 - Network: Approaches to making the I Discussion Martin Edwards / I 09:00 - 10:30 hrs
network more sustainable, and post offices Dan Zinner
more sought after
Break 10:30 - 10:45 hrs
3. I Session 3 - Commercial: Strategic options to Discussion Owen Woodley / I 10:45 - 12:15 hrs
expand in mails, and wider commercial growth Chrysanthy
opportunities Pispinis / Mark
Siviter
Lunch 12:15 — 13:15 hrs
4. I Session 4 - Technology: Enabling business Discussion Zdravko 13:15 — 14:45 hrs
transformation with new technology (e.g. SPM, Mladenov
Branch Hub and Data)
Break 14:45 — 15:00 hrs
5. I Strategy Away Day Wrap Up Session Discussion Nick Read/Tim — I 15:00~ 15:30 hrs
McInnes
6. I Any Other Business Noting Chairman 15:30 - 15:45 hrs
STRICTLY CONFIDENTIAL
Tab 2.1 Network St
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POST OFFICE LIMITED BOARD REPORT
2 of 153
ae Addressing the network Meeting th
Title: sustainability challenge date: 28" July 2021
. I Martin Edwards, Network . Dan Zinner, Group Chief
Author: Strategy & Delivery Director Sponsor: Operating Officer
Input sought:
At the awayday we will be discussing our franchise economics from a postmaster perspective
and reviewing the levers to improve profitability, thereby strengthening network stability.
Questions addressed in this report:
1.
What are the key challenges to postmaster profitability and network sustainability?
2. What levers do we have to address these challenges? What is included in our draft 3YP?
3. What is our proposed roadmap for remuneration reform, including our MDA2 response?
The Report
1. What are the key challenges to postmaster profitability and network sustainability?
1.
Repeated consultations show that remuneration and profitability is postmasters’ top
concern, with just 14% believing they get paid appropriately for the services they provide.
Since 2014/15 remuneration has fallen c.10% in nominal terms while postmasters’
running costs have continued to increase, most notably through a 24% cumulative
increase in the National Minimum Wage.
This squeeze in profitability has exposed the weaknesses of the franchise models designed
under Network Transformation. Successful retail franchises tend to fall into one of two
distinct models:
i. simple category propositions like Paypoint or a Costa terminal which drive profitable
footfall for the host retailer with minimal staffing; or
ii. full franchises proposition like a Snappy Snaps or Mails Boxes Etc, which in return for
significant upfront investment enable the franchisee to build a business that is
profitable and saleable on a standalone basis.
As the background analysis in the Reading Room shows, most of our branches sit
uncomfortably between these two models. Our complexity and workload drive the need
for dedicated staffing (even in Locals), but in most locations we lack the profitability to be
viable without a symbiotic relationship with host retail.
Our modelling suggests around half of the network is now on the borderline of profitability,
either because they are small branches with limited retail or because they are busier
branches where our margins do not cover the high opportunity cost of their retail space.
These pres: are set to increase over the coming years, with
inflation (js«««I CAGR for staff costs) continuing to outstrip the
baseline remuneration in our 3YP.
th in retail cost
CAGR growth in
1 in 3 independent postmasters say they expect to leave the network in the next 5 years
and there is growing unease from our strategic partners, as highlighted by the recent 31
CJ Lang closures. Of greater concern, we are struggling to attract new postmasters to the
network in sufficient numbers, with just 1 in 5 Locals replaced within 18 months of closure.
1
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2. What levers do we have to address these challenges? What is in our 3YP?
7. Addressing these challenges will require concerted action across multiple fronts over the
next five years. Specifically, we have identified five key levers to deliver a sustainable
improvement to postmaster profitability, summarised in the table below alongside an
outline of what is included in our draft 3YP.
Lever
1. Reducing postmaster staff costs through process
improvements and automation of mails & banking (the
two most labour-intensive areas which we estimate I}
could save up to £50m pa through full adoption across I}
our 4k largest branches). Enabled by the three I}
programmes being taken forward by BTU - SPM,
Branch Hub 2.0 and new data capabilities.
2. Introducing simpler propositions which work as a
genuine retail category with minimal staffing
demands. The imminent launch of our ‘Drop & Collect’ I!
pilots is the first step, offering PUDO and bill payments I}
on a small footprint device that operates alongside the I!
retail till. Full roll-out from late 2021 enabled by SPM. I}
We will continue to refine and improve the proposition, Ii
leveraging the expansion of PUDO and any move into I}
online mails (as set out in the Mails Strategy paper).
IRRELEVANT I
3. Exiting branches which do not have the
conditions for long-term viability - around 38% of
our network is hosted in branches where either the
retail side is poor and/or the post office side is sub-
scale - predominantly legacy branches & smaller Ii
Mains. We can either wait for these branches to churn I;
(a gradual process at ~4% pa) or we could accelerate I}
the process through compensated exits, subject to the
necessary funding.
4. Increasing remuneration section 3 of this paper I!
outlines our proposed roadmap for remuneration
reform, including our short-term response to the
MDA2 consultation.
5. Increasing top line growth for postmasters - I See separate papers on mails
mails & banking remain our primary growth engines. I strategy & other growth
The Mails Strategy paper sets out the options for I opportunities.
strengthening our position in the value chain as the
market moves online, with wider growth opportunities
covered in the separate paper. We will continue to
strengthen the role of Area Managers in supporting
postmasters to grow both their retail and PO business.
8. Slide 3 in the Reading Room deck maps these levers against different branch segments.
Slide 4 provides further detail of our emerging plans for automation, together with a
segmented view of the potential postmaster cost savings. We will continue to refine these
plans through structured engagement with postmasters and strategic partners, using our
new formalised postmaster engagement forums.
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3. What is our roadmap for remuneration & contract reform?
9. The 3YP includes an allocation for
This would result in total remuneration : IRRELEVANT ver the period, broadly
in line with forecast growth in retail staff costs. r words, we would be mitigating a
worsening of postmaster profitability over the period, but not fundamentally improving
network stability. This underlines the importance of the other levers outlined above.
Nonetheless, we do believe growing postmasters’ share is an essential part of our plan,
not least to rebuild trust.
10. The options for allocating this increase and reforming remuneration structures can be
framed in three phases, explained in more detail in the sections that follow:
i. Our short-term response to the MDA2 consultation, which we have committed to
confirm by September ahead of implementation in April 2022.
ii. Other medium-term increases to remuneration which could be pursued over the
next 12 months without the need for wholesale reform.
iii. Major restructuring of our remuneration and contractual framework, which as
explained below we believe is a longer-term endeavour.
i, Responding to the MDA2 consultation
* __ IRRELEVAN
“IRRELEVANT
Based on trading data
12. To inform the implementation of this change we ran a major consultation exercise between
mid-April to early June, engaging with over 8,000 postmasters. The key findings are
summarised in slide 21_of the Readina.Room.deck. While .many..nostmasters.welcomed_,
the fact that. the! IRRELEVANT.
IRRELEVANT
13. Our response to the consultation is due in September and will be viewed as a critical test
of whether we are genuinely committed to re-building the relationship with postmasters.
Balancing our affordability constraints (particularly in advance of the SR outcome) with
the need to rebuild trust and confidence with postmasters, our recommendation is that
we make three changes in our final proposa
I We are exploring whether
the Special Delivery increases can be restricted to items below 1kg, given rates for
heavier parcels are increasing in any case. This would!
but is dependent on Horizon changes. The impact of these increases across
branches is shown in slide 6 of the Reading Room deck.
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ii. Providing an additional year of transitional protection until March 2023 to ensure no
branches are worse off. they would have been under the old MDA1 rates, at a
one-off cost of around! IRRELEVANT I
iii. Investing over the next 12 months to provide additional sales training
support and other interventions for up to 500 branches to enable them to make the
most of the new opportunities under MDA2.
ii. Medium-term increases to remuneration to be considered over the next 12 months
14. Beyond mails we believe a further package of remuneration increases will be required over
the next 6-12 months to underpin network stability, with three lead candidates:
i. Increasing the rates for banking deposits, responding to the consistent postmaster
feedback about the mismatch between effort, risk and reward;
ii. Further increases for mails remuneration, which could be linked to the proposals
outlined in the Mails Strategy paper or further changes to the RMG portfolio; or
iii. targeted fixed pay top-ups for branches in challenging locations (both dense urban
and rural).
15. These options will be developed in more detail over the coming months, consulting with
postmasters using the new formalised engagement structures. We would propose re-
visiting these options with the Board once our wider funding position is clear and as part
of next year’s budgeting process.
iii, Longer-term reform of remuneration and contracts
16. Longer term we believe there is a case for restructuring remuneration and contracts,
replacing the rigid Mains/Lacals.cateqorisation with.a.more. flexible franchise.offer.. Product,
rates could either be!_ IRRELEVANT }
or we could int
postmasters wit!
Wi
IRRELEVANT
IRRELEVANT I For Strategic Partners and entrepreneurial
ul ‘0 better support growth and mutual value exchange.
17. Such a restructuring of remuneration and contracts could have multiple benefits:
. Fairness - branches with similar workloads would be paid the same, addressing
the growing discontent from many Locals postmasters about the fact that they are
paid 30% less (around 1 in 4 Locals have a similar workload to Mains);
. Greater profitability for Locals, increasing network stability particularly for
medium sized Locals;
. Greater flexibility for existing Mains branches, removing the disincentive for
retailers to move to a more efficient and integrated branch format; and
. Accelerating the delivery of our blueprint by making it easier for us to find
viable replacements for Hard to Place and other legacy branches.
18. While there would be clear network stability benefits for these changes, changing contracts
on this scale would be a major undertaking requiring very careful engagement with
postmasters and the strengthening of capabilities in Post Office to handle such change.
Our provisional view is that we should not embark on change of this scale until SPM roll-
out has been largely completed, but we should discuss this question at the awayday.
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Appendix 1: points & questions raised in the pre-Board
meetings with NEDs
Points / questions raised
Response / where is this point covered?
We need to focus on underlying issues around
cost to serve and to accelerate automation,
rather than just looking at remuneration. (EJ, TC,
ZP)
Reflected in this paper and i balance of our
3YP investments, includin ito support roll-
out of mails & banking auto! To be
discussed further at the awayday.
We need to build a business which people want
to invest in with long-term growth potential &
relevant products. (SI, CS, EJ)
The Commercial session at the awayday will
cover both the strategic options within mails and
wider growth opportunities for the business and
postmasters.
Keen to understand more about profitability per
branch and churn rates. In NT we did not think
enough about the branches that will struggle on
variable remuneration and that will continue to
need fixed pay support. Is the way we classify
branches to determine rem rates correct? (TP)
Our first cut of analysis on this is provided in the
Reading Room deck (see pages 10-16), and this
will continue to be refined over the coming
months.
What more can we do to help retailers - e.g.
providing access to cost effective financing so
they can invest in branches and acquire more
locations (taking over from underperforming
postmasters) or more structured retail support?
(EJ)
Further work on financing options and master
franchise agreements to be undertaken following
the awayday.
Role of Area Managers in providing retail support
will be discussed as part of postmaster
engagement session, and the growth
opportunities paper includes a review of retail
buying groups.
We need a branch-by-branch audit of the
network to understand which branches are
underperforming, which ones have the conditions
to be developed into strong retailers and which
ones have little prospect of improvement and
need to be exited. (TP)
The analysis in the Reading Room deck (see
pages 10-16) provides an initial segmented view
of branch profitability and the key levers to
address each segment. We are exploring how we
can refine this analysis over the coming months
through a combination of additional desk-based
data sources and Area Manager insights to build
a more granular branch-by-branch view.
We need an updated assessment of the cost of
meeting the Government’s network obligations,
including how this evolves over 3YP period. (TC,
CS)
Covered in the Strategic Plan paper in the section
on ‘The cost of BEIS’s policy obligations’. Cost of
social network estimated at in 21/22, not
including DMBs.
We should separate out the mails vs banking
requirements of the network so we have clear
visibility of the numbers / types of branches and
costs associated with each. (TC)
We can share a view of how client requirements,
customer demand and postmaster profitability
for mails vs banking flow through into network
requirements during August.
Keen to see comparison of Post Office to other
franchise commercial models. (TP)
Case studies of other franchise commercial
models provided in the final section of the
Reading Room deck (pages 26-38).
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Tab 3.1 Comm h Opportunities
POST OFFICE LIMITED
BOARD REPORT
peramnemee ss ws vs = a
Title: Commercial Opportunities Meeting Date: I 28" July 2021
Chrysanthy Pispinis, .
Author: I Commercial Strategy and Sponsor: Gwen Woodley. Group Chief
Planning Director
Input Sought:
The Board is asked to:
e Note the position around the Big Bets and new commercial opportunities;
« Provide its challenges, steers and further considerations on the ‘ecosystems’ concept;
« Support the proposed next steps.
Questions addressed
e How could we grow Post Office income, for the benefit of the business and Postmasters?
e How do we improve Postmaster profitability?
How could we grow Post Office income?
1. The Post Office growing its top line and developing new commercial opportunities is key
to its long-term commercial sustainability and customer relevance.
2. In early 2020, McKinsey and the business developed a series of ‘Big Bets’ to help drive
Post Office growth:
a. The Big Bets were initiatives that require significant resources and investment and
will materially impact the PO strategy and/or operating model;
b. Many of these Big Bets have been taken forward, and are included in our 21/22
and/or 3Y plans, including Banking Framework 3 and PUDO;
c. McKinsey also concluded that significant new growth opportunities were limited, and
Post Office, in the medium term, should focus its limited resources on its Core
business activities and on driving cost efficiencies.
3. The global pandemic and clarity on our 2025 strategic intent were two key drivers to
revisit the Big Bets and explore whether any opportunities discarded at the time are worth
pursuing now, in addition to identifying new opportunities to improve returns for Post
Office and Postmasters
a. Revisiting the Big Bets has reconfirmed and solidified McKinsey’s recommendations
from 2020, but with a couple of builds which are outlined in the presentation.
4. Our paper sets out our criteria for triaging opportunities to ensure we stay aligned to our
Purpose and core competencies, and provides examples of opportunities we will consider
further (e.g. stationery, printing services) and opportunities we have dismissed (e.g.
travel prepaid debit card/ transactional banking).
Strictly Confidential
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How do we improve Postmaster profitability?
5.
10.
With Post Office’s purpose centred around Postmasters, commercial opportunities are not
just about growing Post Office’s income. We should also consider commercial sustainability
through the lens of improving Postmaster profitability. Post Office can support this in two
ways:
a. Helping Postmasters run their businesses - whether Post Office or retail - with
products and services they need, from insurance to utilities. We’re envisioning an
ecosystem for Postmasters that helps to bring our purpose to life.
b. Helping Postmasters grow their business within the local community, such as support
with local prospecting, going beyond the support Area Managers offer today - this
topic is covered as part of the broader Postmaster engagement work, and as such
we are not covering it in our paper, but wanted to acknowledge the interlinkage
between the two.
Postmaster profitability is at the core of network sustainability, as laid out in the
‘Addressing the network sustainability challenge’ paper; we recognise that growing the
top line and improving Postmaster profitability are two sides of the same coin.
Postmasters could benefit from access to products and services that have been procured
and negotiated using Post Office’s buying power, thus reducing Postmaster costs whilst
offering a uniform experience across the network.
This suite of products and services could sit on a platform or ‘ecosystem’ that allows
Postmasters to pick and choose depending on their business model; there are many such
‘puying groups’ in operation in the market, which gives us options in terms of routes to
market; ultimately, they could help cement Postmasters’ role at the heart of communities.
The ‘ecosystem’ could be structured in a way that creates income for Post Office, is a ‘free’
value-added service to Postmasters, or a combination of both.
Whichever way we chose to proceed, we will test the appetite of such an ecosystem with
Postmasters, and with regards to the evolving relationship with the NFSP.
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Commercial Opportunities
Board Strategy Day
28" July 2021
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Executive Summary
Context
= Growing the top line and developing new opportunities to improve the profitability of Post Office franchises is critical to long term commercial
sustainability and customer relevance
* In early 2020, McKinsey and the business developed a series of ‘Big Bets’ to help drive Post Office growth...
= The Big Bets were initiatives that require significant resources and investment and will materially impact the PO strategy and/or operating
model
= Options were prioritised on: affordability, timing, risk profile, interdependencies, PO capacity and capability for change
= Many of these Big Bets have been taken forward, and are included in our 21/22 and/or 3Y plans
= McKinsey also concluded that significant top line growth opportunities were limited, and that Post Office, in the medium term, should focus its
limited resources and management focus on its Core business activities and on driving cost efficiencies
* A global pandemic, but also clarity on our 2025 strategic intent and purpose, were two key drivers to revisit the Big Bets and explore whether any
opportunities discarded at the time are worth pursuing now, in addition to identifying new opportunities to improve returns for Post Office and
Postmasters
The questions we are seeking to answer:
I. How could we grow Post Office income, for the benefit of the business and Postmasters?
(a) Revisiting the McKinsey Big Bets.
(b) Capturing new opportunities and our assessment criteria
(c) Exploring whether there is a near term opportunity in Stationery
2. How do we improve Postmaster profitability?
(a) A Post Office procurement ecosystem - with Postmasters, for Postmasters
The ask:
«The Board is asked to provide its steers, challenges and further considerations on the opportunities outlined and proposed
next steps in advance of formal engagement with the market
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How do we grow Post Office income for the
benefit of the business and Postmasters?
Revisiting the McKinsey Big Bets
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A Reminder of the McKinsey Purpose Strategy Growth (‘PSG’) conclusions
The PSG concluded that we should avoid commercial distractions and focus our limited resources on the Big Bets’ )
Big Bets Comments/programme 3
(1 )Rignt-sizo the central functions * In train through Organisational Effectiveness
{C1 )Redorine the network based on customer needs In train through Network Strategy (covered on this Board agenda)
‘Simplify to ARE
increase agility (5 )improve supply chain efficiency
and to deliver to
SC investing in optimisation initiatives
= SPM (covered on this Board agenda)
8 Reimagine Postmaster experience and support In train through PSIP and other programmes
©) Enable management information across POL In train under BTU
(1) Digitise the parcel journey In train through Mails Strategy (covered on this Board agenda)
5 cs) In-branch mails automation* = In train through Network Strategy
©) Mails strategy
& Invest in growing Banking Framework Business
In train (covered on this Board agenda)
* Banking Framework 3
* In train
©) Replace BO! ATMs with POL ATMs
Use platform plays ©) Develop an SME proposition in FS or more broadly q = Not started - in the opportunity hopper
as a means to
fund our core and
to deliver purpose Develop a FX transactional proposition
Considered and rejected — there is no appetite from potential
providers in the current interest rate environment effect
Source: 20200207 Portfolio Big Bets
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McKinsey also posed other ideas: some have been taken forward, others are not material I Key: .
Completeaau
1 “Go big or go home” in
Pending
ri t : a) Telco~ retain and invest in Fibre or sell - SSS 6
Building an optimal portfolio b) Identity ~ exit, price up and wait vs invest ~ iISUREESEI Dismissed/w/a
c) Insurance — exit, organic growth, inorganic growth, systems investment ~ Sifategytelbelrevisited in121/22)
3 4 :
af ;
54 I
6} :
Growing new prof 7 ft i
revenue streams a i
9 I I
10. } i
nt :
12. I
13.1 7
Defending existing revenue 14} I RRE L EVAN T i
streams 15. I i
16. Undertake review of Ts&Cs challenges such as MTFS
Achieving cost savings 17. _ Review footprint of overhead functions and relocate to reduce costs
18. Transform central functions through automation and digitisation (cash forecasting, back office, etc.); potentially creating ServCo
19. Replace Horizon, shift to fully cloud based service model and exit Fujitsu contract - ii
Transforming technology 20. Improve IT system resilience, flexibility and cost effectivity (IT strategy etc.) - i
21. Build a data collection strategy and leverage its potential value
22. Accelerate the development of and roll-out of automation (e.g. SSKs) to increase branches customer service - iim
23. Develop two-way cash solutions in existing branches - (iil
24. Apply true franchise model (as in telco) to more product families; bring additional products in-house and take control of customer journeys / data
Improving Agent experience 25. Keep reducing DMB branches as per agreed plan -
& economics 26. Reduce number of branches to the minimum needed to meet government requirements - (EIEN EME eMMene ery
27. Redefine minimum product offering that each type of branch needs to moot -SiiiiicaGihisiiariastaiaay
28. _ Revisit outreach model (e.g. ringfence)
29. Improve agent journeys (e.g., onboarding) and agent management tools (e.g., complete development of Branch Hub) - [iI ESI isi aon 5
king to stabilise network reach and formats
Source: 20200207 Portfolio Big Bets
Ve
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How do we grow Post Office income for the
benefit of the business and Postmasters?
Capturing new opportunities and our
assessment criteria
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Opportunity Assessment
oddo Yymolg JeIJeUWOD LE GEL
We are developing a sharper new product development process to ensure that we do not allow some of the past product
distractions to re-emerge...
2
g
a Once an opportunity has been identified, we will Product Design Principles must be considered as part I Based on the Strategic Considerations and Product
Hi assess across the following strategic considerations: of all new opportunities proposed. This will ensure I Design Principles, we will establish the level of effort
& consistency across the organisation and help prioritise required and then place the opportunity in one of the
& opportunities appropriately following 3 categories: I
PURSUE
Purpose/Right to Play & Risk CORE
IN HOLD
DO NOT PROGRESS
Capability/Feasibility
Commercial Viability/Scale Market
Share Potential
‘Core’ Products: Mass market products sold face to face by Postmasters - primarily built around Mails, Cash and Banking Services, Bill Payments and Travel
‘Range’ Products: Additional products and propositions to improve the attractiveness of the PO franchise to existing and prospective
Postmastersifranchisees - these drive Postmaster economics either directly (via commission) or indirectly through footfall. Includes Lottery, Retail, Gift Cards,
MoneyGram, In-branch ID, Postal Orders
‘Platform’ Products: Primarily an online product portfolio to drive contribution - includes Insurance, Retail Banking, Digital ID. Flexibility within portfolio to
build, maintain or sell assets depending on requirements. Supplier contracts structured to limit required management bandwidth, investment and risks
G4 JO
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Some of the ideas we are pursuing (and some of the ones we have dismissed)
seqtunyoddg yymosg jeIseUNWOD 1° GEL
Growth Product
. cnt Purpose/ Commercial Risk Postmaster Feasibility
No. Opportunity Description ee Status Right to play Viability Effort/reward Prncite
i Donot i
I jee x x x x Range Difficult
I
2) me ll nange nee
Do not I a
6 BOR x x x x I Range Difficult
(4) ‘On hold v x v x Platform fasy
e Onhold v TBC v v Range Standard
IRRELEVANT) IRRELEVANT :
abet v I Core Difficult
ee x x x
& On hold v v x x Platform Standard
6 I On hold v TBC v v Platform Standard
(9) barn v v v v Range Easy
® HB onnotd v v v v Platform Standard
* Consideration to NFSP, see slide 12
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How do we grow Post Office income for the
benefit of the business and Postmasters?
Exploring whether there is a near-term
opportunity in Stationery
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Despite the pandemic, the stationery market has grown faster than forecast, and in 2020 was worth
£3.5bn
UK consumption expenditure on stationery and drawing materials
5.000
4505
4387 4378
4.000
3.650
3512 3521
3375 318
2.990 3038
3.000
2.000
Expenditure in million Brtsh pounds
1000
2005 2005 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Stationery: “writing and other office materials” including but not limited to; pens, paper, notepads, and envelopes. It can also include greeting cards, office supplies
and packaging such as bubble wrap or Sellotape.
Growth has surpassed expectations and already in 2020, the stationery market was worth £3.5bn in the UK
= Australian retailer Smiggle has had rapid success since joining the UK market in 2014, and now has around 140 stores across the UK
= This has eroded market leader WHSmith’s market share significantly; in 2010/21, Smiggle’s online sales grew 1834% vs WHSmith which grew 68%
Sources: https://salience.co.uk/insight/reports/stationery-and-office-supplies-industry-analysis! ; Statistica, UK Expenditure on stationery, April 12 2021; https://www.businesswire.com/news/home/20161017006204/en/UK-
Stationery-Market-Growth-2.4-CAGR-202 1
10
seqtunyoddg yymosg jeIseUNWOD 1° GEL
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Given the market size and brand fit, there is an identifiable opportunity for Post Office to offer a
product that is adjacent to its Core offering, and that customers and Postmasters want
Our current stationery proposition is inconsistent and overpriced where present, and otherwise absent across 90% of the network. Post Office DMBs
(cl 14 branches) sell PostPak and PostBox branded packaging (supplied by WHSmith) and stationery (supplied by VOW Retail). The PostPak products make
up c83% of DMB stationery/packaging sales per week.
fe)
5
Outside of DMBs, Postmasters have three options to sell stationery products in their branches:
* through VOW Retail
* through an NFSP relationship
* through their own independent sourcing (including from a local cash and carry)
J As a business, we do not have the data on how many branches sell stationery through the NFSP relationship or their own independent sourcing; through
VOW Retail, there are 1553 active Postmasters (i.e. having placed an order within the past three months) as of June 2021. As these are not Post Office
managed processes, there is no Postmaster remuneration linked to stationery
S The UK Stationery market is worth over £3.5bn, yet there is no clear “market leader”; this presents an obvious opportunity for Post Office for three key
reasons:
* Reach — with cl 1,500 branches across the country, Post Office has the most accessible network in the UK for customers
* Brand fit — Stationery and packaging are required to send letters and parcels, so it makes sense that they would be available in post offices
* Margins — Stationery is a relatively inexpensive product set with scope for significant mark-up and therefore lucrative margins, which can often
be as high as 30-40%" (Retail)
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If Post Office were to offer white-labelled stationery as a customer proposition, there are two
operational routes to be considered which impact the sourcing, fulfilment and delivery of the products
+ Post Office has an obvious right to play in this market and could potentially do so anywhere on the spectrum, from a light touch model to seeking to
become the number one stationery provider in the UK
semiunyoddo yymoig jeIaUIWOD Ie qeL.
* This is not a newly recognised opportunity for Post Office, and Postmasters are starting to become vocal about it too, especially because many of them
have their own independent arrangements, which are often sub-optimal
* Developing a stationery proposition could be really rewarding for Postmasters. It would allow Post Office to use its buying power to obtain products for
Postmasters in a commercially viable way, with the added benefit of Post Office branded products that make for a more consistent offering for our
customers
Wholesaler route
Post Office utilises its
buying power to offer Order fulfilled by Post Office stock services
Postmaster orders stock
PO-branded stationery fron Post Office portal and delivered through existing logistics model
products (including Rie
Packaging and integration with Branch
Order fulfilled by supplier and delivered
through new logistics model
potentially greeting Hub feasible)
cards) for Postmasters
at a low cost
Supplier-managed route
* Operating the fulfilment and logistics through existing channels i.e. stock services could be easier as the processes are already established, but equally
could put a strain on existing resources and delivery routes
+ Using a supplier to manage the process could relieve pressure on our existing systems and supply chain, but could come with unpalatable costs
+ We will engage with the market to model both options to assess the attractiveness and commercial viability of each
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How do we grow Post Office income for the
benefit of the business and Postmasters?
Example of an opportunity that we have
dismissed
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Last year, we explored developing a transactional FX proposition. This option would require a banking
licence or partnership with a current account provider. During market engagement, no parties were 5
interested and so our focus for now remains on our pre-paid travel card
Background: Post Office presently does not have a debit FX product and competing in this price competitive segment will need a commercially viable
partnership with a current account provider. In July 2020 GE, we took away an action to survey existing providers to test partner appetite. A survey of our
Banking partners indicated no appetite for a white-labelled secondary current account. Our market engagement with Mastercard suggested that Prepaid
cards are expected to continue as a more commercially sustainable FX card proposition
it Banking Partners Survey on white-labelled Debit Card Product:
* We engaged with our current banking partners to understand the feasibility of a white-labelled agency model for a debit/current account FX card. Banks
engaged were Barclays, HSBC, Lloyds, Nationwide, Natwest, Santander, TSB, Virgin Money, Starling Bank & Cashplus
* Our survey indicated a lack of appetite to invest into a white-labelled current account proposition. Reasons cited include:
* Conflict of interest vs their own propositions
* Lack of management bandwidth or commercial appetite at the current stage
x ES MasterCard Engagement and Card Roadmap:
* Customer research suggests full current account/debit card features are not required to compete in the travel card market
* Our engagement with Mastercard further validated that while the Neobanks & some traditional banks have invested into FX current accounts to enable
cross-sell of other banking products, none of these FX propositions are commercially viable on a standalone basis (which is the case with Prepaid)
* In Summary, given banking market responses and the low FX margins in the secondary current account, the Group Executive supported our
recommendation to de-prioritise the current account proposition, and focus on aligning our portfolio to our Purpose
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How do we improve Postmaster profitability?
A Post Office ecosystem - with
Postmasters, for Postmasters
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With Post Office’s purpose
centred around Postmasters,
commercial opportunities
are not just about growing
Post Office income
Commercial opportunities are very much about
improving Postmaster profitability. Post Office
can support that in two main ways:
* Helping Postmasters run their businesses —
whether Post Office or retail — with products
and services they need, from insurance to
utilities. We're envisioning an ecosystem for
Postmasters that brings our purpose to life
* Helping Postmasters grow their business within
the local community, such as support with local
prospecting, going beyond the support Area
Managers offer today — this topic is covered as
Distinned Posteaters«
Digtintion ct hey Government services ©
ae ontne banking ardering ©
wee hgh street oot =
Treeatto bend reieeance«
Inereming parcel volumes and returns ©
Increaticg rence on services by SMES ©
11400 sate hcatins. Amazon canny aren»
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‘place atthe hear he comnoiy +
+ Time poor
+ Workieg cover to eee
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* rcreasein pce! volimes and return
+ Accelerated algtion af new wrvces
+ More side rusties
= The pe econoany /se emptnert
+ Concer for dial trad
part of the broader Postmaster engagement Morterctenretal pp tac onde nbenteetes rons Gorter tease
here, but wanted to acknowledge the rd party erty Grands rethinking the purpove Stores going dar and turing ‘Handling high etre
interlinkage between the two
On the following slides, we will set out what our
ecosystem vision could look like, and the different
ways in which we could bring it to life
Such an ecosystem can solidify Post Office's place on
the high street and keep Postmasters at the heart of
communities
‘Authenticate tor payment of physica stoces
16
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Post Office has an opportunity to support Postmasters in establishing their businesses as the
cornerstones of the community, by leveraging its vast buying power and delivering an ‘ecosystem’
proposition
* Postmasters could benefit from access to
support functions and central services that
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8
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S
is
have been procured and negotiated using
Post Office’s buying power, thus reducing
Postmaster costs whilst offering a uniform
experience across the network
* Services could include:
Utilities: branches need energy, water,
broadband
Branch fit-out: access to uniform, brand-
compliant products i.e. shelving, signage,
notice board with the local town crest,
furniture — we do this today, but it could
be improved
Insurance: premises, director's, etc.
* Products could include:
€G1 JO SZ
Nationally available = products —_ for
customers such as stationery,
confectionery, printing
Locally available products / products that
are tailored to the local market
a
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G4 JO 92
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There are three routes to market, all of which are scalable and could be tested through an initial pilot,
e.g.a small selective set of products or services rather than a full ecosystem. Post Office setting up the
portal in-house would represent the biggest sunk cost
Description Pros
Post Office sets up the Post Office could maintain control of full end-
‘portal’ using in-house to-end process and experience
3 capability, and manages
2 the procurement of
g vendors and suppliers to
a plug into the ecosystem
a
3
5
g
is] A third party sets up the v Post Office could maintain control of
S ‘portal’ and Post Office procurement of products and services
GS manages the procurement v 7 .
8 of vendors and suppliers to Would relieve pressure on internal teams to
E plug into the ecosystem design and deliver technical portal
N
8
8
pS}
8
Ss
g
8 A third party sets up the VY Post Office would not require (much) internal
‘portal’ and manages the resource to manage the ecosystem
procurement of vendors Vv
and suppliers to plug into Post Office could continue to curate products
the ecosystem, under and services and share these requirements
: rd
Post Office's guidance with 3°° party
¥ Could be a white labelled “off the shelf”
solution
Cons Cost Ease Speed
High resource requirements
3" party setting-up and managing technical
portal is likely to be expensive
Sourcing of portal is likely to be subject to
public procurement
Post Office will not own the relationship
directly with the vendors, and may therefore
not directly control the negotiating levers
Sourcing of buying group unlikely to be
subject to public procurement rules, but
could be subject to Concessions regulation
depending on the degree of operational risk
being transferred to PO
H L L
H M M
L H H
18
NB: Joint Venture between PO and Postmasters not likely to work due to vast number of Postmasters, and does not serve any benefit, so we have discounted this model at this stage
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There are many instances of Option #3 in the market: we could procure ‘off the shelf’ capability which
we could tailor by curating the products and services, and asking the buying group to procure them for
us. Over time, we could deliver the proposition to Postmasters via Branch Hub
+ Savewell is a not for profit organisation owned by its Members; by joining, members become part of a community of independent retailers who buy together and share
seniunyoddg uyymolp JeIIEUNUOD 16 GEL
the savings.Any profits are shared amongst its members by way of an annual reward
+ Savewell partners with over 1000 Suppliers to bring great savings
+ Savewell pays supplier invoices
+ Members are charged £30 per annum
HOW IT WORKS
+ When members buy, they get a discount made up of “off invoice” and “settlement” discount, that savewell negotiates on behalf of the retailer. Off Invoice is an immediate exclusive
member discount taken directly off the invoice at source. The huge savings vary between supplier and product (Warburtons 22% discount vs. Jacksons stationery 40%). The settlement
discounts are retained before savewell pays the supplier on the retailer's behalf.
S avewe Ul “This very special service to retailers has over the
years saved us thousands of £’s”
Savewell Member*
The national buying group for independent retailers
2 TYPES OF MEMBERSHIP
ASSOCIATE MEMBER
As an Associated Member you can join at
no additional cost other than the credit
check and enjoy the discounts at a slightly
reduced rate to that of a full member with no
share of the annual reward.
FULL MEMBERSHIP
With Full Membership there is an additional
‘Share Purchase’ of £50.00 for a single
share, which gives you the full discounts
available, voting rights plus a share of the 19
annual reward °
Source: *https://savewell.co.uk/why-join/
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1OWILOD,
Other considerations we will need to work through...
* Careful consideration to how such a buying system would work alongside the NFSP, recognising Postmasters appear to see limited value in the
Federation offering a proposition of this kind. Whilst legally there do not appear to be any restrictions to PO offering such an ecosystem, it will need to
be considered carefully alongside the evolving relationship with the NFSP
* Given the multitude of buying groups already in the market, Option #3 (or a version of) would probably be the most sensible way forward
+ Will this be a chargeable service to Postmasters (e.g. via a membership fee), or a value-add PO service?
* To what extent do we see this as a cost of doing business, and how much of it are we prepared to fund?
* Do we want vendors to pay a joining fee if we procure and run the ecosystem ourselves?
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* We do not currently have the capability to build a proposition like this in-house so our assumption is that any development would be through
partnership and outsourced expertise
* Some of these propositions, such as stationery and printing services, could be either a Post Office proposition, or part of a Postmaster ecosystem
» Post Office proposition: Stationery as a Post Office product, sourced from a wholesaler and managed by Post Office, or
sourced and managed by a third party supplier
Ecosystem: Stationery as one aspect of a wider ‘ecosystem’ in which Postmasters have access to a variety of products and
services, either procured and managed by Post Office, or a buying group
We will lay out the commercials and considerations for each model, and establish the pros and cons for each. We might find
that one model benefits Postmasters more, and another benefits Post Office more
>» We welcome the Board’s initial views on which should take priority
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Next steps
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We propose the following next steps, subject to the Board’s agreement, and will revert in the autumn
v Market engagement on stationery and printing services to support the creation of high level
assessments of commercial viability (as Post Office proposition or Ecosystem offering)
Y Continue to assess new opportunities against the criteria set out and bring forward business cases as
appropriate
v Engage with Postmaster representatives to flesh out the ecosystem and prioritise services within it
v Reach out to buying groups to understand what a set-up would look like, including commercials
¥ Work with procurement to understand the simplest route to market
v¥ Work with Network to ensure progress is aligned with NFSP engagement
Y Outline a pilot proposal, incl. setting out roll-out thresholds before we proceed (e.g. minimum % of
Postmaster take-up, £max cost to PO, etc.)
22
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Appendices
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Potential customer proposition for document printing (See Opportunity 9 on slide 9)
Products 6 Services My Post Office Help 6 Support Quick Tasks
Home, }Print 2 Me> Information
Print & Send a document from just 30p per prin
Have it sent to you or collect postage free from you Post Office
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Example buying group
ion of Independent Retail
re no costs to access several bu
ig groups
Federation of Independent Retailers = Join today from just £5.95 per week plus VAT.
Being part of the membership gives you access to a range of benefits, resources and support that can deliver an annual saving of [SE 20 Ai
2
Q * Federation of Independent Retailers exists to help independent retailers compete more effectively in today’s ever tougher market.
@
8 + Federation of Independent Retailers practical help, commercial support and exclusive deals are designed to make a measurable difference to a business. Businesses are also
8 Pe Pl P PP ig
a complemented by Federation of Independent Retailers training, expertise and support services
Fi
5 + Circa 15,000 independent stores across the UK and Ireland have already joined up ~ making Federation of Independent Retailers one of Europe's largest retail trading associations.
& Pe P P
s A powerful voice for good
iS
ie + Federation of Independent Retailers don’t just offer great deals. They also represent retailers interests at governmental and parliamentary level. They are the official government
© referral body for the sector and a powerful voice for the independent retailer.
x Our members are spread across a range of different sectors.
8 They include:
& : .
Chris - Castlebay Post Office
+ Newsagents
* Convenience stores Chris. ‘Thank you very much for such a professional package. It would have taken us
Confectioners * ages to produce something which looks as good as this. We were anxious that
+ Florists Castlebay Post anything we did on our own would probably not have the content the Post Office
+ Petrol forecourts
are looking for, and we know now that we were right to contact you for help.
News deliverers Office
Off-licences “We have just had our interview and at the end the man from the PO said
Post Offices congratulations you are appointed. So, thanks very much from the both of us for
Vape shops your presentation
Coffee shops
Card and stationery shops
Source: *https://thefedonline.com/
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Strategy
@
POST OFFICE LIMITED
BOARD REPORT
Title: Mails Strategy Meeting Date: I 28" July 2021
Chrysanthy Pispinis,
Author: Commercial Strategy and Sponsor:
Planning Director
Owen Woodley, Group Chief
Commercial Officer
Input Sought
The Board is asked to review the pre-read materials and:
e Note the evolving market and competitive dynamics in the Mails market (Section II)
« Note the position around the Mails automation and process improvements for customers
and Postmasters (Section IV)
e Discuss and provide its steers and challenges on the options laid out in Section III
« Support the proposed next steps (Section V)
Questions addressed in this report:
* What is the context for our review?
« How do we face into online migration and multi-channel mails?
* How are we enhancing our proposition for customers and Postmasters?
The Appendix sets out the questions raised by NEDs as part of our pre-engagement sessions.
What is the context for our review?
1. In the April 2020 Board meeting, an evaluation of Post Office’s proposed new deal with
Royal Mail (‘MDA2”) and a broader strategic assessment from McKinsey were presented.
Strictly Confidential
34 of 153
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3. The PUDO scope to date has focused on opportunities at the final stages of E-Commerce
customer journeys: Click & Collect, Undeliverables and Returns
4. Our strategic choices are within the context we have just laid out, i.e. PO will continue to
sell RMG products in line with MDA2, and PO will continue to develop PUDO aligned to the
scope above
How do we face into online migration and multi-channel mails?
5. We could choose to develop PUDO even further; this is what we have termed ‘Full PUDO’,
i.e. including the acceptance of parcels where postage has been bought online
6. This is inextricably linked with a broader, existential question: Should PO offer to sell mails
online, and if yes, how and when? PO has 3 options to sell postage online:
a. Sell RMG products online
b. Sell online for selected carriers, as an online aggregator
c. Launch PO as a white-labelled Mails carrier (offering postage sales in branch and
online)
We have dismissed selling RMG products online as it is value-destructive; the second and third
options, Online aggregator and White label mails, have implications for Post Office income,
profitability, and Postmaster remuneration, and they are interlinked with Full PUDO.
7. The pre-read materials set out the strategic options for Post Office to embrace multi-
channel mails and key considerations, including directional financial implications,
operational considerations and likely RMG reactions
How are we enhancing our proposition for customers and Postmasters?
8. We are digitising and automating our mails journeys to improve our customer and
Postmaster proposition, and to support Postmaster profitability. This latter point links to
the network sustainability challenge, also being covered at the Strategy Board away day.
9. We are enhancing the journeys using known Postmaster pain points to inform our
prioritisation and recognising different Postmaster needs. Key areas of investment focus
include:
a. Improvements to our Drop & Go proposition, with a comprehensive change roadmap
b. SPM implementation: we are using the opportunities offered by SPM to re-imagine the
mails journeys and reduce transaction times, thus also supporting Postmaster
profitability
c. In-branch Automation: working with Network strategy, we are considering a
segmented view of our network to enhance the mails proposition in the higher volume
mails branches
Strictly Confidential
Day 2 - 28 July 2021-28/07/2
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Appendix: Specific questions raised by NEDs
On Mails:
1.
Explain each of the options in more detail, what the operational implications are, and the
extent to which the options are mutually exclusive - we have considered this throughout
the pre-read material and will expand in the session
Explain how we will price our different strategic options to carriers - more work will be
required in this space, depending on the strategic direction we choose and ongoing carrier
conversations: we will include full detail/rationale in any subsequent business case
requests
Explain whether VAT receipts are included in the Drop & Go improvements roadmap - this
has been identified on the Drop & Go backlog list alongside many other improvements:
we are now undertaking research with marketplace sellers to establish how many are VAT
registered and therefore to determine the prioritisation required for a fix via Fujitsu and
RMG
On broader PO commercials and sustainability
1.
We need to frame all our strategic options in the context and constraints we are operating
within, i.e. limited cash to invest, maintaining 11,500 branches and the associated costs
etc - this is being considered as part of our funding submission.
Strictly Confidential
POL Board Strateg
y 2 - 28 July 2021-28)
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Mails Strategy
Board Strategy Day
28" July 2021
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Preface: the mails value chain
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The stark context of our
strategic review
IRRELEVANT }
IRRELEVANT
+ Historically, the Post Office retail network has operated
as a sales and acceptance network - exclusively for Royal
Mail Group (‘RMG’) up until MDA2 - with knowledge of
RMG products being a key differentiator
+ Whilst social mails continue to decline in volume and i i
value, the parcels market continues to grow in volume, ‘ i
fuelled by marketplace sellers and e-commerce d i
q i
* Online customer migration in mails is attacking the core
of our differentiator: with marketplace sellers buying
E
Note: Commission per unit based on 2021/22 Wk1-8 data and product mix
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eg
A reminder of our dual mails strategy: Maintain our market-leading positions in Social and Marketplace
segments, and grow in attractive E-commerce services (PUDO)
pores Frasae
Market POLShare POL Share of Market Market
: , Volume, ma res ORM Market, Volume, mn Growth
Our dual mails strategy is to: os Rit Shares fone I ie CAGR,%
1, Maintain market-leading positions in Social and
Marketplace segments. Achieved by:
a) Embedding the MDA2 contract
b) Ongoing improvements to our customer and Postmaster
journeys
c) Improving Marketplace drop-off acceptance services (via
Pick Up Drop Off programme)
2. Grow in attractive e-commerce services where Post
Office is under-represented, leveraging post MDA2 contractual
freedoms. This requires:
a) Maintaining our existing PUDO business, incl. RMG,Asos
b) Expanding client base beyond RMG e.g.Amazon, Hermes.
c) Extending product range to include ‘undeliverables’
d) Increasing reach through more outlets
e) Ongoing improvements to our customer and Postmaster
1 Average Unit Retail (AUR) is the average £ amount spent for a particular type of item, calculated by dividing the total sales in és by the number of items sold
2. Large Letters and parcels, excluding letters. Inflation modelled in AUR on CPI for accept and / CPI for Sales
3 International parcels not included as a growth strategy, but additional opportunities for future consideration
4 Model aligned to FY19-20 actual volumes and MDA AURs post deal implementation in FY21-22
Strictly Confidential source: Team analysis based on OFCOM, RM FY results, IMRG and POL Flightpath
IRRELEVANT
»
iy
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PO has the right to play in three segments of the Mails market: Social, Marketplace and E-commerce. To
date, PO has focused on the journey stages that utilise the physical reach of Postmasters
Mails items are transported from physical locations ‘A’ to ‘B’ (and sometimes returned back to ‘A’). Value is added at multiple stages
Mails carriers e.g. Royal Mail, Hermes, Amazon have ultimate ownership of E2E logistics, product, pricing and customer data
¥ u ¥ ¥ ¥
Pick up
Purchase Drop of Male es * Click and Collect Drop off returns
postag ° 8 + Undeliverables
;
Physical location ‘A’ Physical location ‘B’
t t
Network Providers e.g. Post Office, Collect +, Asda, Coop provide carriers with physical stores, lockers, pick up and drop off points (and, in the case of Post Office, sales support)
PO activities are focused on letters, large letters and parcels, utilising the physical reach of Postmasters, for the following key
segments:
* Social - postage purchased and drop off on items sent by consumers to friends, family or businesses
* Marketplace - items sent by an SME or individual which include postage as part of the purchase, where the sender lacks sufficient scale to hold direct
contracts with carriers and has therefore either purchased the postage online or in a physical location and has to drop the item off
* E-commerce - items sent by businesses which include postage as part of the purchase, where the sender operates at sufficient scale to operate a
contract directly with a carrier including the delivery logistics, therefore with PUDO potential
Other segments exist where Post Office has limited or no ‘right to play’ e.g. the bulk Mails market, heavy parcels
Strictly Confidential
»
iy
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=
°
Our decisions last year focused on E-Commerce opportunities in the latter stages of the customer
journey and our PUDO programme is delivering an expanded range of services through new carriers
Pick up
Purchase Drop off Mails Logistics (Cie and Collect Drop off % of current
postage ‘acceptance + Undeliverables returns PO Mails
income I
Social
oa 29%
eg birthday cards
as
wa 53%
> > i
Marketplace
eg ey sales
E-commerce
18g, ASOS returns
I We are underrepresented in E-commerce but have a right to play and we are seeking to deliver growth through our PUDO programme. The
following three activities are currently in scope for PUDO - a Full PUDO proposition would also include Online Acceptance for Marketplace
sellers which we are considering as part of our strategic options...
Click & Collect ! Returns 3
Undeliverables 2
PO current market share 10% = Over 55% of market is currently non-RM
Operationally similar to accepting Click &
Operationally simple and consistent with
existing offer
Minimal impact on agent and improves
agent proposition
Economically and environmentally attractive
to consumers, carriers and retailers
Collect
Large market in which PO currently does
not operate
Carriers can consolidate and avoid costly
redeliveries
= Simple scan-in acceptance interaction
= Increases convenience and maintains
relevance to younger demographic
Strictly Confidential
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Maintaining our share in Marketplace is an ambitious target, and our biggest challenge: customer needs
are evolving, and our competitors have different business models, presenting opportunities and threats
Pick uy
Purchase Drop off Malls Logistics CE ang Collece Drop off % of current
postage acceptance + Undeliverables returns PO Mails
income I
Social Undelivered i”
fg birthday cards only "
Marketplace Undelivered
eg eBay sales only a
E-commerce
6g, ASOS returns
Marketplace customers are increasingly:
* researching pricing online
* establishing online accounts to purchase postage
* integrating customer delivery data with upstream platforms e.g. eBay, Amazon
* using online portals to manage parcel delivery tracking
082-12:
z
J
PO's Drop & Go service reduces customer effort as weighing, sizing up and printing of labels is processed by branch staff and
Postmasters. This service requires significant manual effort and falls short of competitor processes and pricing
This paper considers options to sell postage online and/or expand our PUDO plans to add new drop off acceptance
carriers, as well as improving our processes for customers and Postmasters
Source: PO/ McKinsey analysis 2020; Commercial Strategy and Planning team ~ value chain analysis 2021
Note:! Excludes Fixed Fee (discontinued post MDA2) and International outbound (hard to access and increasingly online) 7
Strictly Confidential
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While still the market leader by revenue, RMG has lost share in the parcels segment of the Mails market
in recent years, primarily to Amazon Logistics, Hermes and DPD
UK parcels market comparative share of revenue by carrier CAGR
Total market value 2013 Total market value 2019 2013-2019
£7.64bn £11.09bn [Royal Mail Group (inc. sales through PO) 2.9%
461% [Amazon Logistics 79.1%
2 5%, @ ours 5.9%
g [_ DHLGroup 79%
$ DPD Group 12.9%
« m Fedex/TNT 0.1%
o
Ff fH Hermes 15.4%
3
& [Yodel 13%
; []_ Others 12.0%
s Total 64%
* As market leader, Royal Mail’s growth has lagged the overall parcels market. Growth has been constrained since 2013 by Amazon's decision to insource a significant
proportion of its own volumes.
» PO represented overall RMG parcels volume in 2020, but a lower percentage in terms of value
+ Amazon Logistics has emerged as a leading carrier, with its gains initially balancing RMG losses. Since 2015, Amazon has opened its logistics network to Marketplace sellers,
offering them next day delivery for a competitive price of c.£2.50 / parcel. Amazon has recently taken further steps towards being a full-service carrier, launching Shipping with
Amazon to medium-sized shippers such as eBay sellers sending more than 20 parcels a day. Although Amazon does not state its ambition with its logistics service, it may become fully
vertically integrated, managing all its own deliveries via its flexible network of third-party couriers, using external customers to maintain high utilisation
» Hermes’ long-term success has been based on its low-cost delivery model, which has positioned it as a leading carrier at the economy end of the e-commerce delivery
segment. It has grown its share with marketplace sellers through its ParcelShop network and has won business from large online retailers primarily at the expense of Yodel. It is
increasingly providing premium features such as tracking, label printing and re-direction services as part of its economy service offering
+ DPD Group has positioned itself as the leader at the premium end of the e-commerce parcel segment, having pioneered the introduction of technology to enhance its service
levels. These innovations and enhancements have enabled it to create a virtuous circle gaining market share, while its price premium has supported further investment enabling growth
Note: Apex Insights definition of the Parcels market data includes all domestic and Strictly Confidential
international parcels, but excludes Large Letters and downstream access volumes
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I. Executive Summary
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€S1 JO Op
Executive summary
Recap of our Mails ambition and strategy:
= Our ambition for mails is to remain the #1 destination for mails & parcels for consumers and small businesses, and being the mails retailer of choice for Postmasters
and Strategic Partners
= Our dual mails strategy is to maintain our market-leading positions in Social and Marketplace segments, and grow in attractive E-commerce services (PUDO)
= McKinsey was engaged in 2020 for a strategic review of Mails; the Board supported the trajectory we are on:
* the recommendation of ‘winning in PUDO’, which is now in implementation
= the signing of MDA2,a 10-year distribution agreement with RMG
What has changed in the last year
= Externally, trends have accelerated: RMG, and as a result PO, are losing share amidst intensifying competition; the parcels market continues to grow in volume, but the winners are the
players who can drive the best operational efficiencies
= Internally, MDA2 is now a reality, and we are implementing PUDO. Our purpose and reorientation towards Postmaster, and our 2025 strategic intent, all mean that what we have in plan
is not enough to deliver our ambition
= We now need to focus further on improving the mails experience for customers and Postmasters, and growing profitability for Postmasters
The two truths we need to address:
I. Our Marketplace share is under threat
2. We need to face into online migration for the long-term sustainability of our business
The questions we need to answer:
1. How do we embrace multi-channel Mails?
= Not embracing online is not a viable option for the long-term sustainability of the Post Office; but the transition will be difficult, with consequences for Post Office and Postmasters.
The question for Post Office is when and how we do so
2. How can we enhance our proposition for customers and Postmasters?
= Digitising and automating to improve our customer and Postmaster proposition, and improve Postmaster profitability
3. What are our choices and recommendations?
8
z
Whatever direction we take, it will be absolutely critical to ensure that we help Postmasters understand the wider market movements, the reasons for our strategic
responses, and our plans to mitigate the impacts on our Network along the way.
The ask:
* The Board is asked to note the content and provide its steers and challenges; specifically, noting our proposed plans to digitise Mails journeys in Section IV, and providing its steers and
challenges on the options laid out in Section Ill
= The Board is asked to endorse our recommended next steps
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Although conceptually our options are not mutually exclusive, they are operationally and
contractually inter-linked to the extent that Post Office will need to make choices
Please note: This decision tree denotes complexities of different directions of travel for Post Office's mails business, to highlight the decisions to be made, and the
consequences of each outcome. This is demonstrated at a high-level; there are different flavours and nuances within each of the three outcomes. This does not show
outcomes that are part of the 3YP such as Drop & Go enhancements, or ‘no regrets’ activities that improve Postmaster profitability
MDA2: Constant over next 10 years (volume will partly depend on actions Post Office takes) >
6 Full PUDO (incl. online acceptance)
‘* Current PUDO scope, plus accepting
parcels where postage has been bought
online
Post Office’s current PUDO trajectory > Click & Collect, Undeliverables & Returns * New carriers offset drop in Postmaster
> remuneration driven by an increasingly
' acceptance-only model
Now@. — @ ee eS
NG \
: \ Offer an online mails aggregator
8 . Options A and B are \ * Online purchase of postage enables PO to
ka \ Potentially compete more effectively for Marketplace
g Option C could establish \ complementary oo sellers, but reduces PO income and Postmaster
S significant practical and \ remuneration
o commercial barriers to : + Adds a layer of complexity and requires multiple
delivering Options A or B \ carrier relationships
6 Become a white-labelled mails ‘carrier’
+ PO sets the product and price, and gets closer to customer
‘ownership’ - giving PO a different position in the value chain
+ White-label partnership with a new carrier
@ = decision point Strictly Confidential
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Online aggregator (Option B) is dependent on Full PUDO (Option A); in practice, white-labelled
carrier (Option C) is unlikely to be optimal alongside Options A & B, although it will depend on the
carrier
Option B (Online aggregator) is commercially dependent on Option A (Full PUDO)
* Option B would cannibalise existing PO in-branch business, earning PO a commission for selling online. If this cannibalised business does not
subsequently result in significant drop-off acceptance volumes for Postmasters (via Option A — Full PUDO), the aggregator business model is
highly unlikely to be commercially viable. In other words, PO would require a market-beating premium for selling online, to offset the opportunity
cost of cannibalising PO branch volumes
Option C (white-labelled carrier) could be progressed in parallel to Full PUDO and Online aggregator, but the constraints Post Office is
operating within mean that we are minded to recommend the business makes a choice for optimal return
Option C requires a significant up-front investment, to establish a book of valuable Marketplace customer relationships
* If PO launches a white-label mails proposition, essentially ‘owning’ product and pricing, then it would not want to also offer full PUDO or become
an online mails aggregator, because the latter two would directly compete with the Post Office ‘white label’ mails products. This would dilute the
return on our significant investment (and/or our partner's investment)
Option C also requires a partner with sufficient capabilities, willing to share more value than existing MDA2 product economics whilst ceding control
of customer data to PO. Assuming such a carrier exists, PO could offer in return:
8
* Access to existing in-branch parcels volumes, currently provided by RM
+ PO brand equity
z
* Access to 11,500 branches
If Full PUDO (Option A) was also available (rather than offering branch access), the potential partner would have a choice. Under Option A the partner
could extend its existing distribution model, share less value with PO, reduce required investment and keep ownership of customer relationships. Whilst in
theory a partner may still decide to choose Option C in this scenario for access to higher volume and brand, it would not need to do so for physical access.
This will of course depend on the partner, so we will explore the likelihood of these options operating in parallel in our carrier discussions
Strictly Confidential
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Il. Market context and our competitive positioning
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Covid has accelerated the market trends seen previously, but has not altered the direction of travel:
competition continues to intensify, and parcels volumes are growing
PO progress on strategic implementation:
yv MDA2 has now been signed and in implementation from March 2021
¥ PUDO is also in delivery with the Amazon pilot live since March 2021 and a second carrier, DPD, expected to go live by September 2021
External changes impacting our markets
* Covid has driven volume growth but also intensified competition - key dimensions are i) process and ii) price
The post-Covid opportunity increased, with competitors accelerating the rollout of capability to match customer demand. In 2020, e-
commerce grew 46% vs 2019, the largest annual increase since 2008.We are now seeing this growth taper (see following slide)
Launched in October 2020, RMG’s Parcel Collect service run rate is 5m items for 2021. RMG aims to grow the service to 50m items p.a.
Additional cost (on top of postage) is 72p per parcel for a maximum of 5 parcels, dropping to 60p for pre-paid returns. The total addressable
° market for doorstep pick-ups is currently estimated by the company to be 61m items p.a.
Royal Mail: a new dynamic in a non-exclusive world
* RMG responses post-MDA2 agreement are now ‘real’ rather than theoretical. Applying MDA2, on a like-for-like volume basis, PO has earned
* Inan effort to reduce its costs, RMG has stepped up it: f
only paying PO for in-branch acceptance, rather than sales and acceptance.
MG is migrating high-volume customers online, thus
Source: Mails Product team; ONS ~ Dec 2020 4
Strictly Confidential
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Marketplace & Social market segment growth has lagged the wider E-commerce delivery market, despite
the growth of online shopping returns. Following a significant uplift during Covid, the market outlook
remains uncertain due to volatility in online demand
CAGR
14-19 19-24
UK Parcels Market estimated volume forecast (m)
5,379 Total 10.3% 10.4%
4,939 5,146
4571 4,738 FFE Marketplace, social &
615 ibe e-commerce returns 3.1% 9.0%
578 535
3056 3:28!
2,706
2,008 ©2183 433 ony 434 :
Fey) E-commerce
= 393 33 3,531 fi 3,662, 3.0169 35992 deliveries 145% 126%
We 1.763, 2-056 0 2,32
1,179 1373 158! :
455 430 459 550 593 526 462 482 509 515 518 Other 3.0% 0.3%
2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024
+ During the pandemic, significant e-commerce parcels and returns growth has been driven by government lockdown measures. Volatility has meant that in-year and longer-term forecasting is extremely
difficult. On the one hand, significant spending could revert to a reopened high street, but on the other, the high street may never recover from 2020 closures, with online growth
being more rapid than predicted
+ Year-on-year growth comparisons from industry bodies such as IMRG and BRC indicate a slowing of online sales growth from May 2021 onwards. This is partly due to lapping
exceptionally high online growth in the first lockdown of 2020 when all but essential physical stores were shut and stay-at-home measures were first implemented
+ Apex Insight’s parcels model assumes that parcels volume growth will moderate from the second half of 2021 onwards as lockdown eases. However, due to the ongoing market dynamics, all data should
be used indicatively
+ Parcel volumes, rather than price increases, are expected to be the main driver of growth for all segments — historically there has been little like-for-like price movement and changes in
mix leading to an overall reduction in average revenue per parcel
+ Apex Insight forecasts growth in the Marketplace & social segment based on a larger volume of e-commerce returns, Note that e-commerce returns exclude items that are returned directly to the
retailer in-store. Other categories of the Marketplace & social segment are likely to either remain at similar levels (Marketplace sales) or decline (social parcels) 15
Strictly Confidential
Source: Apex Insight UK Parcels Market, 2020
wo
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g x
Heavy sellers represent an increasing share of overall Marketplace volumes, while light sellers make up ©
more of PO volumes compared to last year - there is a shift towards newer, younger sellers with higher
delivery expectations, as they are more reliant on Marketplace selling as their primary income source
Marketplace Parcels / Large Letter share by seller profile Importance of delivery provider features
Q4 20/21 (vs Q4 19/20)
10% Cost
2
e (10% PY Reliability
a (12% PY) ax 60 Convenience - home
g (39% PY) Tracking
Fs 58% Mean
8 (50% Py) REN Speed
is] Value
Size / weight
17% ‘en Opening hours
(19% PY) Convenience - work
85%
= 80% Easy to use website
fy [81% PY,
8 (ery) RI rican I KP case of postage cal
re (17% PY) 78
& Meets Marketplace spec
S 44% Mear Collection
; (42% PY) 2 Insurance
(33% PY) Guaranteed delivery day
Recipient choice
Compensation
Seller profile Parcels / LL Seller profile Parcels / LL Bulk discount
All Marketplace Sellers Post Office customers 0% 10% 20% 30% 40% 50% 60%
HB Heavy sellers (+11 items / month) Newer MPS (<tyr) wTotel MPS
derate sellers (6-10 items / month) Note the mean number of parcels / LL sent is with the 16
Hlers (1-5. items / month) individual provider Source: Royal Mail MPS Q4, May 2021
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Our flagship proposition for Marketplace sellers, Drop & Go, is not competitive on process or price: it
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offers less digital functionality, with higher entry price points and less incentivisation to grow volumes
Purchase
Postage
Drop off
process
Delivery
services
Drop § Go
Create account in-branch or online
Upload CSV to manifest
Auto account top-up if enabled
More complex in-store process
Dedicated fast-track counter
No parcel collection
Label creation in branch only
No self-serve option
PO opening hours
Entry price/parcel £3.20
Untracked, signed-for and Special
Delivery, International
Royal Mail labels
Tracking number shared on account if
selected
Signature / POD
No bulk discount
11,000
Click & Drop’
Create account online/app
Payment via PayPal / CC or OBA
account
Upload CSV to manifest
API with several marketplace platforms
Less complex drop-off process
Drop off at parcel post-box, RM CSP or
Post Office or RM collection
Label creation online/print at home
Labels to go QR code /print in branch
Postboxes 24/7, CSP & PO opening
hours
Entry price/parcel £3.00 (online)
Untracked, signed-for, Special Delivery,
Tracked 24/48, International
Manage product catalogue online
Live chat / helpdesk
Orders with tracking numbers visible in
Order page with link to Track & Trace
OBA bulk discounts on multiple orders
manifested at once
000,
Strictly Confidential
“emyHermes
Create account online/app
Payment via CC or Hermes
credit account
Bulk upload CSV
API with several marketplace
platforms
Simple in-store process
Drop off at parcel shop or InPost
Locker
Label creation online/print at
home or in-branch
Entry price/parcel £2.66
(postable, no signature)
Postable, Economy, Next Day,
International
Divert parcel in-flight
Helpdesk with local call-back
Free parcel tracking on all service
Business account discount >150
parcels/week
5,000
collect#
Send service either via Parcel2Go
or Delivered by Yodel
Delivered by Yodel only - create
account online, upload CSV to
manifest, integration with eBay &
‘Amazon platforms
Simple in-store process
Drop off at Collect+ store
serviced by selected carrier
Label creation online/print at home
or in-branch
Open 7 days/week
Entry price/parcel £2.79 (Yodel)
Next day or 2-3 day
24hr customer service
Free parcel tracking on all services
Up to 10% discount Yodel volume
rewards
10,500
17
See Appendix for a more detailed analysis of Drop & Go against RMG's Click & Drop
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Operational efficiency and network economies are the key drivers of success in the UK Mails market;
given legacy costs, incumbents have a major handicap vs. low cost attackers
* The UK Mails market is characterised by tight profit margins and limited
EBIT margins — overall UK sector weighted average
product differentiation. In this context, growth in profitability is primarily
driven by:
10% 4, 5.5%
I. Growth in overall market segment volumes e.g. Marketplace and e- 5% 23% 12%2:8% 4.1% 4.8% 4.1% 3.8% 3.9%
0.8% 2:3 % : =
commerce Wawa A we ROW
2. Technology-driven operational efficiencies combined with network
scale, where costs are particularly concentrated in delivering the “5% “12%
first/final mile! 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
International comparison of labour cost between incumbent and attacker,
* Royal Mail and Post Office hold an inherent advantage of brand recognition EBB CESS pen ISH anced Soe mae SUN
and network economies. However, neither organisation meets the highly 16
automated, lean benchmark set by competitors (e.g. Amazon). In this 14
context, both organisations have lost market share
12
* As part of a broader value chain, Post Office constitutes an 0
operational cost to RMG. Unsurprisingly, RMG is looking to
reduce this cost
* For PO to compete effectively, we need to deliver highly-efficient,
automated first/final mile solutions. Alternatively, options may exist to move
into the broader Mails value chain
0
Country 1 Country 2 Country 3 Country 4
BD ©
Source: Company accounts (data not available for all carriers); Apex Insight 2020 incumbent mLow cost attacker
Note: I Final mile delivery costs comprise estimated 53% of total shipping costs. Business Insider 2021
hetps:/ww.businessinsider.comvlast-mile-delivery-shipping-explained?r=US&IR=T
Strictly Confidential
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Competitors with asset-light business models have grown market share, based on high
automation/low-cost bases, while RMG is investing to reduce costs and grow in higher value
E-commerce segments
Market disruptors such as Amazon Logistics and brokers
such as Parcel2Go have been quicker to capitalise on
technology-led market opportunities than more
constrained incumbents
* Amazon Logistics now handles 15% of the UK parcel
market volumes and is focusing on mid-sized eBay sellers
sending more than 20 parcels a day. The vast majority of its
parcels are delivered by third party contractors, helping to
keep final mile delivery costs low
* DPD sees continued strong growth on the back of is Predict
timed-delivery service and systems enhancements. Its focus
on premium market segments and self-employed courier
network have resulted in margins that are far higher than any
other UK carrier
° Hermes is utilising new Private Equity investment to rapidly
expand its capacity and introduce new technology-enabled
processes, driving double-digit revenue and profit growth.
With volume growth of 66% in 2020, Hermes has grown its
market share by more than any other UK carrier in the past
year. See the following slide for a spotlight on Hermes
Source: Ofcom research November 2020 Annual Monitoring Update, (using WIK Consult GmbH)
Strictly Confidential “°"**
See Appendix for further detail
As the USO provider, RMG’s product mix has been disproportionately
exposed to the low-value, declining social market, whilst having a delivery
density advantage in light-weight parcels and a VAT advantage on tax-exempt
USO products
* Royal Mail is actively pivoting towards higher value e-commerce segments with
parcels now making up 59% of revenue vs 48% in 2019/20
* Accepting more parcels from large retail customers into its network later in the day
and delivering parcels on Sunday
* Reducing cost to sell by automating sales online / via app and paying PO ‘acceptance
only’ commission — targeting 10m app downloads, up from 4.5m currently
* Increasing parcels sorting automation from 33% - significantly below industry
benchmarks - to 90% by the end of 2023/24
Parcel sorting automation — international operator
comparison
I Deutsche I LaPoste I PostNL I PostNord I PostNord I Royal
Post DK se mail”
“Rutomatedsortingof I @ I @ I @ I @ I @ I €
parcels (all sizes)
[Automated sortingof I @ I oo I @ I @ I @ ci
small parcels I
Sortingofparceisto I © I © I @® I @© I @
the drivers’ round I
not applied, © - partly applied, @ - largely applied (>90% of parcels). 19
‘n/a: information not available.
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= Hermes
Aim: Become the carrier of choice for every end consumer
Revenue YE Feb 2!
£860
+15%Y
Volume FY 2020
630m
+66% YOY
Operating Margin
5.5%
+50bps YOY
Network
>5,000
ParcelShops
Ownership (Aug ‘20)
Advent 75%
Otto Group 25%
See Appendix for further carrier profiles
Strategy
Increase scale, invest in new delivery capacity, support the business
processes necessary to maintain controlled growth and an industry-
leading courier doorstep experience
Positioning
“Send cheaper and easier with Hermes — download our app”
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I Market Share Latest estimate
I Overall UK parcels market revenue I c.10%
I share
}
I Share of Social & Marketplace 8%
I segment
I Proportion of company sales from c.15%
I
I Social, Marketplace & E-commerce
Strengths
Weaknesses
High percentage of variable costs
High degree of parcels automation
Winning price-sensitive marketplace sellers
Integration with major marketplaces
Primarily urban & suburban locations; long opening hours
Label printing in-store
Relatively low operating margin despite high % variable costs
Weak on trust & reassurance
Poor coverage in rural areas
Issues
Actions
Ongoing gig-economy status enquiry — heightened public focus
during pandemic
Increasing final mile delivery costs as volumes surge
Pressure from large customers for better customer experience
within existing price points
Rising labour costs
Converting 20k (c.70%) of couriers to new self-employed+
status with new benefits this year
Creating additional 10K roles to cope with increase in demand
Adding further automated processing capacity
Developing app and in-flight preferences, e.g. ParcelShop/locker
Partnering with InPost lockers for send/return and pick-up
Strictly Confidential
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RMG is repositioning its product set as it pivots to the fastest growing, higher value segments. Having
lagged the market, it is repositioning itself as the most innovative and greenest carrier...
Existing product set in Post Office Implementation of new product set
The regulatory review of postal services is underway and
concludes in Spring 2022, but even if Ofcom instigates
the inclusion of tracked parcels in the USO, it is unlikely
Royal Mail will launch any new products prior to April
2023.
Royal Mail will roll out its Parcel Collect service
(currently in pilot) to marketplace sellers and launch a
new portal for returns.
USO products, constituting a large proportion of PO
sales, have seen little innovation in a decade and do not
meet the hygiene factors required to compete (e.g.
tracking)
Strictly Confidential
At this point, Royal Mail aims to implement products
aligned to a ‘good’, ‘better’, ‘best’ approach:
* Good - include some tracking, but no signature
(currently Tracked 48)
* Better - tracking and signature (currently Tracked
24)
* Best - tracking, signature, specified timing and in-
flight delivery options i.e. reschedule or redirect
(currently Special Delivery by 9am or I pm)
In 2023, Royal Mail’s automated parcel hubs will be
delivered allowing it to offer its new e-commerce
services to smaller customers.
a
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iil. Embracing multi-channel mails
A. Full PUDO incl. online acceptance
PUDO: we have an ambitious and directional roadmap which we continue to validate but which is all
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driving towards PO being the primary PUDO network for carriers in the UK
Products
Customer Experience
S Postmaster Experience
Network
Client Management
Key:
)
)
)
~~)
2021
included in PUDO business case
and 3YP) 2022-24 2024+
Increase market penetration New products and services Diversification
IRRELEVANT
"Strictly Confidential
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Option A:We could expand the drop-off proposition in PUDO to include online acceptance from other
Investment Opportunity ; Execution /
required e size PO Capabiticy Commercial Risk
Description ;
Customer :
proposition «I
Operational :
Functionality
=] IRRELEVANT
Postmaster
considerations & i
benefits :
Execution
capabilities and
risk
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There are operational and commercial risks of the expansion of PUDO which PO would need to find
ways to mitigate
* If Post Office delivers full PUDO and has multiple carri
s onboarded, the following challenges will arise:
~ TRRELEVANT
Strictly Confidential
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High level financial modelling of the option to expand PUDO to include online acceptance presents
Post Office with a choice around improving gross income and Postmaster remuneration, or
improving Trading Profit
Assumptions ' i
+ Launch date for PUDO online acceptance in FY22 1 i
+ Overlay on existing cumulative 3YR plan volumes and revenue i
- IRRELEVANT :
ee IRRELEVANT
‘Additional on-site ‘Segregation of new carrier partners Would increase I H
complexity and alternative logistics capability would be required in order i
to compete
Acceleration towards Acceptance-only model will impact Postmaster I
remuneration — though as with the other options outlined in the Hl
paper, there is a natural trigger for a review of Postmaster I
remuneration
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Ill. Embracing multi-channel mails
B. Online aggregator and e-commerce integration
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Given both its legacy and its future as a mails business, Post Office needs to answer an existential
question: Should PO offer to sell mails online, and if yes, how and when? It is highly nuanced, and will
come with challenging trade-offs that intersect business sustainability and Postmasters
The direction of travel is clear: marketplace sellers are buying postage online. If Post Office sells mails online, it will cannibalise its income and
Postmaster remuneration. Should we cannibalise ourselves to maintain market share in the long-term, and if so, how and when?
The trade-off decisions will partly depend on how we choose to balance the following criteria: long-term commercial sustainability vs.a shorter-term
view; and the role of our network and Postmasters (sales vs acceptance).
Example of a trade-off between process and Postmaster remuneration:
* Our marketplace Drop & Go proposition is labour intensive for Postmasters but provides remuneration for both sales and acceptance in branch
* Our competitors, such as Hermes, are offering an increasingly attractive proposition for Marketplace customers with online-purchase and self-service
PY nen nenennennenennnnennnnnnnenninennnnnennnenennininnnnnininnnninenninnnninininennenininnnninneninninnnininnenionninninnnnnninennneny
IRRELEVANT
Example of a trade-off between RMG chasing high volume PO customers and PO losing income
* Over recent years, RMG has won high volume/value customers to its online platform, and thereby reducing its costs by pushing PO into acceptance- only
Strictly Confidential
a
Selling mails online can take different forms, all allowing us to meet the needs of Marketplace sellers
Sell RMG
products online
Accelerates the migration of RMG products to online sales, with no significant additional PO ownership or control of value
chain
+ Custorié?s WOuld StI HESA tS WE RMG parEal TOF Gilling wracking te” POGUCE Page BAM pricing Wianaged by RMG.
+ Given these constraints, PO online functionality would provide a poor substitute vs existing RMG online functionality. Migrated
in-branch sales to PO online could, in turn, migrate to RMG online sales
+ Value destructive model as it accelerates existing in-branch sales commission decline. Therefore this option has not been
quantified further
Sell online for
selected carriers,
as an aggregator
(Option B)
Helps PO maintain market share by providing a range of non-RMG alternatives. Meets Marketplace customer needs,
giving choice and migrating to ‘online sales & acceptance’ model
IRRELEVANT
Launch PO asa
white-labelled
Mails carrier
(Option C)
Allows us to take ownership of end-to-end customer journey as a white-labelled carrier providing online sales, acceptance,
tracking and delivery
+ PO determines the product and price,
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Option B: Selling online for selected carriers as a Mails aggregator would potentially, but not necessarily, <
drive additional footfall to PO branches and accelerate the migration to Acceptance only
Description
Customer
proposition
Operational
Functionality
Key levers and
value
Postmaster
considerations &
benefits
Execution
capabilities and
risk
Investment Opportunity Execution /
[ required ©) size PO Capability Commercial Risk
Use fully outsourced software solution provider capabilities (e.g. Parcel2Go) to sell Mails from additional carriers already using the PO PUDO
network
Functionality could include price comparison, marketplace and eBay integrations and management information (Ml) for Postmasters
Provides a complementary strategy to maximise PUDO acceptance by driving volume to branch, with PO acting as a carrier agent
Helps social customers and marketplace sellers purchase online postage from the top UK carriers through a simple-to-use PO branded website
Online solution for PO customers who are too small to have a direct contract with carriers and benefit from better pricing
Simple integration with online marketplaces with batch processing tools
Parcels can be dropped off at nearest PO branch
Simple scan-in acceptance interaction, with potential to replicate drop-off process already used for home shopping returns
Potentially multiple collections by multiple carriers and additional segregation cost and complexity.
This could be mitigated by off-site segregation by a single logistics partner and out-of-branch carrier collection
Relatively low cost customer acquisition channel
Potential drop from ‘in-branch sales & acceptance’ rates currently applied to Drop & Go to’‘online sales & acceptance only’ rates from new carriers
Potential to capture incremental business volumes and increased market share. Opportunity to build customer relationships and data insights,
facilitating targeted retention measures
Customer data enables better CRM and network efficiency; to date, PO has not established CRM as a core competency
Reduces in-branch processing requirements compared to ‘in-branch sales & acceptance’, particularly important for Strategic Partners with tight
resource capacity utilisation
Accelerates migration of PO customers online, potentially with a negative impact on Postmaster remuneration
New carriers may push for alternative, non-Postmaster acceptance points, reducing PO branch traffic
Closes functionality gaps vs competitors. Potentially partnering and competing with the same white-label partner. Product ownership, tracking and
customer relationship could still be owned, or taken, by new carriers
Potential to cause customer confusion and additional operational complexity. Alignment required with PUDO regarding carriers already onboarded
Medium term commercial viability uncertain. For example, Parcels2Go mainly drive profits from selling top-up insurance rather than postage. Barriers
to entry are relatively low for new Mails aggregators
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High level financial modelling of the option to become an Mails aggregator presents Post Office with
a choice around sharing additional contribution with Postmasters
Assumptions
__IRRELEVANT _
Overlay on existing cumulative 3YP volumes and income
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As the market digitises further, and E-commerce integration becomes standard, Post Office may be left
behind due to its risk appetite, with commercial implications
* Marketplace sellers use e-commerce platforms such as eBay, Amazon, Etsy and Shopify as a virtual shop for their customers
* Managing multiple online ‘shops’ creates logistical complexity for marketplace sellers and therefore the market is moving towards e-commerce
integration. This supports marketplace sellers with operational activities such as billing and payments, fulfilment, distribution, and postage and
shipping.
* Royal Mail’s ‘Click & Drop’ proposition unites multiple individual sales channels on a single platform, providing marketplace sellers with shipping
and tracking reports and giving their customers a choice of delivery options.
* Post Office’s ambition is to deliver a similar service as part of the Drop & Go roadmap
* An industry-standard contractual feature required to connect with platform APIs is agreement to unlimited liabilities. This is not within Post
Office’s risk appetite, therefore has not been implemented to date
‘ Unless it is reconsidered, Post Office’s risk appetite regarding unlimited liabilities may also prevent us from launching an online aggregator
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Ill. Embracing multi-channel mails
C. A different position in the value chain
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r
WZ GEL
eI
Option C: Launching PO as a white-labelled mails carrier for labelled parcels would give PO greater g
control over the customer proposition, but comes with high execution risk
+ New white-labelled PO product range _.i targeting
Marketplace sellers. New carrier agreem IRRELEVANT }
Description
* Greater PO customer ownership through outsourced CRM capal marketplace integration, mails delivery logistics and tracking
* Option to brand as Post Office or separate sub-brand, with ramifications on opportunity size and risk exposure
Customer * Customers can select from a range of new PO parcels products, available both in-branch and on PO's website
reater visibility of parcels in the network and a more compre!
_IRRELEVANT
proposition
: Platform development: construction of a postage selling element of PO website & CRM capabilities
Operational Required capabilities include: Customer interface for customers to view, track and manage all their parcels; Data integration with partnership operator;
Functionality branding to launch and advertise the new products
Potential to simplify processing of parcels in-branch
feq ABaleng pieog 10d
Key levers and i
value + Increased customer retention if customers buy into new PO proposition as a carrier
Postmaster + Improved control over marketplace proposition and defence against current migration to RMG online
PEER eer * Additional operational complexity: requires parallel management of new PO products alongside RM products
+ Enables PO to provide Postmasters with richer data and more timely insights about their customers
z
benefits
IRRELEVANT
Execution .
capabilities and Full PO proposition ownership required (e.g setting price points and customer support wrap) which is not core PO competency. Additional competencies,
risk from digital product design to multiple-carrier commercial management, would be required
Horizon/SPM dependency if products sold in-branch
Carrier ownership of customer increasingly af, if \ COAMSERRSSE build stronger up-stream capabilities e.g. Amazon, eBay
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High level financial modelling of the option to become a white-labelled carrier is highly dependent
on the value a partner is willing to share
Assumptions
Cumulative impact of white labelled mails carrier on Trading Profit
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IV. Enhancing our proposition for customers and postmasters
A. Drop & Go
B. SPM
C. Automation, incl. self-serve and adapting our proposition to formats
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ABa1eNS SEW Z'E GEL
We are digitising and enhancing our proposition in multiple areas, using known Postmaster pain points to
inform our prioritisation and recognising different postmaster needs
A. Drop & Go B. Journey improvements
leveraging SPM
enhancements C.Automation & Self-serve
Currently drop and go is not centralised with ebay . .
or Amazon, to provide better service it would be The QR codes are working The Branch has requested a regular Royal Mail collection on a
good to synchronise with ebay or amazon. In well for the returns (e.g., Sunday. At present, staff have to turn away customers with
Keq ABareng preg 10d
addition as the branch then has to print the label Amazon). Can we have more Parcelforce packages on Saturdays & Sundays, as they don’t have
they then lose out as it costs them to print- by of this, as it makes things go any available space in-branch to accept these. :
linking it then customer service will improve and it faster
will minimise the cost
The right tools for the job Label printing
©
PS)
8
Drop & Go: very small branch with only one counter. D&G business is rising but of OD SSRIS ORE UATE
aT Oe Ursa eee egia erie eri ice clean ne cue Cere break down or are slow ona Be eed ccostity atten aidtrooate
Seana ai Crema eyo te RATE DE TE Poe NOTRE ‘that there should be thermal capabilities now. Often dust gets into the printers
out the same day but PM would like a second Horizon option in order to avoid SRC ID ERD ETCAENE ud! Ceatent poiaias We tha chartecie ete
spa ani oa aati RCN TU aCe ey OF Sate NCR with bulk business posting, the printers work successfully for the first 20 or so labels
‘customer. She'd really like this as a "pop up” option so it isn't a permanent fixture. and then go slow or stop. This can be embarassing when a customer is waiting.
APM mobile Drop & Go app would be perfect. Would like to understand what's
oon the technology roadmap for next Christmas and how it will benefit PM's,
‘ 7 ‘ 37
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A. Drop & Go: the vision is to reduce friction along the customer journey, automate processes and
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ABAIENS SEW Z°E GEL
reduce Postmaster effort. Outcomes will include protected Postmaster income, sped-up customer
transactions in branch, reduction in queues and promotion of Drop & Go adoption
Customer selects
postage for items
in a new Drop
CL
SS
Re
Customer logs into
Drop & Go account,
creates a new Drop,
selects items from
their product
catalogue with
preselected postage
product
Customer Drop
is submitted into
CDP ready for
branch visit
Once customer has
added all items to
Drop, the list is sent
into CDP where the
Postmaster will be
able to retrieve when
Drop in branch
: Postmaster Drop is
Customer arrives : ; ’ z Q
¢ checks items in Postmaster sticks confirmed with
in branch to :
: Drop & prints postage label tracking auto
Drop items off Z
§ labels after onto Drop items shared to
with account no. as :
weighing customer online
. Postmaster sticks Whilst the
Customer will take Postmaster will check postage labels onto Postmaster is
item designated in items, use account _ és ‘
. : oa number to retrieve Drop items whilst processing the Drop
fOr RS processing, items in _items, confirmation of
customer account weighing items and ready to be collected tacdeg wil
f dat labels from branch and automatically shared
Rumber on parcel P delivered with Drop account
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LZ/L0/82-120z Ainr ez
eG} JOSL
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A. Drop & Go: in addition to process improvements, we could consider improving our price point to
maintain share with Marketplace sellers, with potential consequences on margin and remuneration
Description
Key levers
and value
Postmaster
benefits and
considerations
Execution
capabilities
and risk
Investment Opportunity ‘k Execution /
[ required e size PO Capability Commercial Risk
Reprice Post Office marketplace proposition to reduce attrition to online channels. Either:
I. customer specific loyalty pricing targeted at high volume / value customers or
2. general reprice of Drop & Go products to establish parity with RMG online pricing
+ Attrition to RMG (or online providers) reduced
* Reduction in product margins borne by PO (and Postmasters) potentially at a loss-making rate
+ No changes to core processes, therefore continued attrition driven by non-price factors: competitor online journeys, pre-population of labels due to
integration with marketplace platforms e.g. eBay
+ Addresses a key area of Postmaster concern, reducing (but not eliminating) attractiveness and migration to RMG online proposition
+ Targeted, loyalty pricing is a potential relationship-building tool for Postmaster
* Postmaster remuneration may be impacted if seeking to maintain commercial alignment with PO
Option I. Targeted loyalty pricing
* Potential to embed within existing Drop & Go account functionality, addressing a sub-set of marketplace sellers
+ PO already runs a loyalty scheme for MoneyGram customers, targeting frequent users. Alternatively, PO could use existing Gift Card reward
scheme, currently applied for selected insurance products
Option 2. Reprice to match RMG online
* Potential significant commercial mis-alignment. Subsidised Marketplace products likely to be loss-making for PO. Unless impact on PO and
Postmaster remuneration is shared, this translates to a mismatch in incentives to provide the product
+ Limited execution risk as systems apply existing label pricing systems
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ABAERS SUEW Z'E GEL
G4 JO 92
B. Three key changes through SPM for customer and user experience
49 2. Journey modernisation —y ff 3. Online proof of posting cP
Label printing
Key levers and
value
- z Keg ABayeng pieog 10d
Postmaster
pact
40/82-420z Ainr gz
rd
Execution
capabi s and
Risk
Provide functionality and hardware
to print labels on-demand, in-
branch to remove reliance on
delivery of pre-printed rolls of
RMG labels
Reduced RMG cost to produce and
provide labels
Easier for customers to self-serve
(e.g. SSKs)
No wasted labels due to human
error
Saving 3-5 seconds per transaction
Easier and more simple processes ~ no
need to find the correct label for the
product or service
Reduces printer
breakdown/jamming, a common
paint point
Hardware enhancements
required for SSKs and counters in
current format
Requires RMG agreement and
support
Description
Key levers and
value
Postmaster
impact
Execution
ilities and
Simplify journey for customers and
Postmasters making them as
intuitive and streamlined as
possible, i.e. removing unnecessary
data validation fields
Enable customers to fill
information in online, either at
home or in the queue
Improve compliance through
reduced complexity
Customers are able to self-serve
which reduces queues in branch
Quicker transaction times
Easier and more simple process
New interface or e-commerce
platform for customer data
capture at home/in branch queue
Requires RMG agreement and
support, particularly for changes
impacting compliance processes
Description
Key levers and
value
Postmaster
impact
Execution
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Customer can receive proof of
posting via email or online
Reduced cost (no printing of often
multiple receipts)
Marketplace sellers can forward proof
electronically onto their customers
Environmental benefits to reduced
waste
Customer data captured
Easier and simpler processes -
no need to waste paper or time
printing a receipt
Customer interface required to
view proof of postage online
API integration to allow customer
to log into platform/interface using
third party account i.e, Facebook or
Google
Post Office can’t execute this
without RMG agreement, although
we expect they will be supportive
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ABareNg SIEW Z°¢ deL
C. Our segmented analysis of the network highlights some key priorities for the mails strategy, all geared
to driving growth and/or improving Postmaster profitability. The first area of focus will be the in-branch
automation of RMG products
Host is primarily a RETAILER Host is primarily a POST OFFICE
@ ACCELERATE AUTOMATION C3) SUPPORT HIGH VALUE SALES
x
2 HIGHER
® VALUE & = Branches in this quadrant need to balance their busy retail shop = — Mails is of existential importance to these branches. They have
a VOLUME with high mails volumes which drive staff cost pressures and the time & skills to grow their business, but we need to give
Hi il a potential challenges for customer queues them the right tools to win and retain Marketplace sellers.
& ih Pos! = Key requirement is for more in-branch automation enabling * Key requirement is a significant strengthening of Drop &
i] onice them to retain high sales value, while managing queues and Go, including platform integrations, access to better pricing,
g ig! aging q 8 Pl er Pricing,
S reducing labour costs tools, more MI on their customers, etc.
8
< @ DRIVE PROFITABLE PUDO GROWTH 4) LEVERAGE SPARE CAPACITY
S LOWER
& VALUE & * This is the segment we see shifting to the ‘Express’ format, * Small, low volume branches which are primarily required to
VOLUME enabling parcels to be managed as quick, simple transactions meet network coverage requirements
mails post alongside the main retail counter = Opportunities for growth and automation may be more limited,
office = 34 party PUDO growth should strengthen our but they are likely to have the space to deal with greater
Proposition to retailers, but it would be further boosted if we PUDO volumes and be in locations where our
could increase accept-only fees through our own digital channel competitors have weaker coverage
The separate ‘Network Strategy background materials’ deck provides further segmented analysis of the network and the
key requirements for each group — we will continue working together to ensure the strategies evolve in parallel and
lement each other
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C. Network Strategy vision is clear about what Post Office’s next generation automation must do for
Mails
Postmasters want genuine ‘self-service’ automation, and the device needs to be cheaper to buy and run. If we can deliver a low cost solution with reduced
requirement for staff supervision, we believe mails automation could benefit around 3,500 of our largest branches*
~~ SPMP has been investigating options for devices, one proposal is the
© Mails Multi-Function Device Fuchre vision tof aucomat
g
¢ 10” Tablet Self-service, no staff intervention required at all
a
Seales Kiosk paired with an acceptance kiosk (ie. Dropbox)
Scanner Shorter and Intuitive customer journey, encouraging customer
migration
iS
gS
8 sani Smaller footprint
rinter
Label
Printer Design the commercials to enable us to deploy at scale (Sk+ kiosks)
Better customer data capture and possibly integration with
a eCommerce platform such as eBay
* Please refer to'Addressing the Network Sustainability challenge’ paper
See Appendix for locker analysis Strictly Confidential
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V. Option summary and recommendations
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Post Office has some tough choices which challenge its business model, remuneration policy and risk appetite
Option A: Expand PUDO to include online Option B: Sell online as a parcels aggregator Option C: White-labelled Mails carrier
acceptance
8
z
Customer + Drop off parcels purchased online from a range of + Buy non-RMG Mails online via a PO branded site at_* PO provides online and in-branch sales and acceptance
proposition carriers at a convenient PO branch competitive prices - existing PUDO carrier partners for a new customer-centric range of parcels products
Simple scan-in acceptance interaction similar to home- + Facilitates price comparison, batch processing, _(non-RMG parcels)
shopping returns process marketplace integrations and reporting capability * Interface for customers to view, track and manage
parcels with CRM support package
Key benefits Future-proofs income streams against RMG decline + Meets Marketplace customer needs around choice, + Allows PO to take ownership of end-to-end customer
Third party price points !®="™higher than RMG integration, process and price journey
Natural extension of PUDO strategy * Closes digital functionality gap vs. competitors + Improved margins on RMG MDA2 rates due to PO
+ Reduces in-branch processing requirements brand and reach
Key risks Accepting other carriers’ items sold online removes * Could drive footfall to non-PO acceptance points and + Could result in RMG retaliation with aggressive
our competitive advantage if we want to sell online also __cannibalise sales & acceptance customer online migration
Could create capacity issues, particularly at peak + Ownership of customer relationship still lies with * High execution risk as not core PO competency / would
+ Time consuming increased carrier collections partner carriers rather than PO require significant additional capabilities
+ Mis-segregation and SLA penalties would apply + Segregation, capacity and increased complexity issues * Intensely competitive and dynamic market — carrier
also apply ownership of customers increasingly at risk from
+ New digital capabilities required Marketplaces building upstream capabilities
Postmaster Additional complexity in managing multiple carriers + Potential to cause customer confusion, eg. why RMG is > Additional operational complexity - parallel management
considerations * Segregation may need to be removed from branches not included of new PO products with RM
Financial impact
against 3YP
Our choices
Bowe
Postmaster Rem, or improve our Trading profit?
If delivered at scale, moves network towards
acceptance, with implications for branch format,
technology investments and Postmaster Rem
Alternative off-site segregation with logistics partner
improve our gross income and
+ Multi-carrier complexity
* Potential for double cannibalisation
+" Further” acceleration towards acceptance-only will
impact Postmaster Rem and feeds into the broader
strategic debate around how income generated from
the online channel is shared
Risk appetite around industry-standard commercial
features, eg. unlimited liabilities
+ Richer data and more timely insights into customers
Significant investment required and an agile, flexible and
technology-driven approach to compete
+ Improved PO margins are highly dependent on finding a
partner that is willing to share significant margin with us
in exchange for volume and brand
* Option to brand as PO or separate sub-brand, with
ramifications for opportunity size and risk exposure
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Our choices will also impact our relationship with RMG.We can expect our relationship to shift significantly
as we compete for the same mails volumes even if their response is costly for them
scription Best ca Worst case
* Current PUDO scope, plus accepting
parcels where postage has been bought
A- Full PUDO online
including + Moves PO to an acceptance-only model
: + New carriers offset drop in Postmaster
online remuneration
acceptance
ales PleOg Od
+ Transfers PO's reputation as a trusted
advisor to an online market player
: * Online purchase of postage enables PO
B - Online to compete more effectively for
aggregator Marketplace sellers, but reduces PO
income and Postmaster remuneration
+ Adds complexity and requires multiple
carrier relationships
IRRELEVANT
z Aine gz - z hea Al
PS)
8
PO sets the product and price, and gets
closer to customer ‘ownership’ — giving
C- Become a PO a different position in the value
chain
wn te label + White-label partnership with a new
mails ‘carrier’ carrier. We have assumed one carrier
for the purposes of modelling
Under MDA2 PO has a non-exclusive relationship with RMG. However, depending on the option taken/variances within each option, PO contractual considerations may include advance
notice requirements to RMG, particularly relating to the introduction of new carriers and ‘Renegotiation Events’ triggered by Material Changes to our existing agreement
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Our recommendations and proposed next steps
{B2}24)S Pp.
Carrier next
steps
Recommendations:
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fundamentally, we would have to believe
whilst ceding control of customer data
Launching a white-label option
we could transform our capability, and find a partner
and processes. We will explore it further, but the ;
Continuing the PUDO trajectory to include acceptance of carriers’ online Sales is a natural next step, and the one that
makes the most of our physical reach - our biggest attribute given our current position in the mails value chain
Our current instinct is to complement our full expansion of PUDO with:
* The Drop & Go, automation and SPM improvements we have laid out
+....rop.&.Go.e-cammerce. integration. subject £0. PO, risk amoe tite ence einen
IRRELEVANT
We are in regular conversations with all the key carriers in the UK market - the scope of these conversations covers, but
is not limited to, PUDO
Our broader conversations with several carriers are exploring how additional value can be created by joining forces (not
just moving existing volume from one carrier to another)
* Bias towards higher-margin carriers that can share value with PO
* Bias towards complementing the gaps in our existing product set
* Bias towards complementing any regional gaps
We will use our carrier conversations to validate and refine our assumptions on volume, price, cost, the optimal multi-
channel model and appetite to partner, e.g. in practice, a white-label approach might require multiple carriers
We will then revert with more detailed business cases for Options A, B and C
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Appendices
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Aim: Build a more balanced and diverse parcels-led, international business
Revenue YE Mar 2021
£8,649m
+12.0%Y
Operating Margin
4.0%
+250bps YOY
Parcel Volume
2020/21
1,735m
+32% YOY
Local Collect
Network
10,000 Post Offices &
1,200 RM Customer
Service Points
Ownership
Free float !00%
Strategy
Create a more agile parcels business that is laser focused on the customer
Improve and simplify the customer offering through great quality of service
and easy to understand and simple to use products
Grow the business, its share and the market through greater capacity and
new innovative products and services
Positioning
“Postage that fits around our customers”
Market Share Latest estimate
Overall UK parcels market revenue ©.35%
share
Share of Social & Marketplace ©.65%
segment
Proportion of company sales from €.20%
Social, Marketplace & E-commerce
Strengths
Weaknesses
Customer trust in brand
Ubiquitous hyper-local delivery capability due to USO
Investing in parcels automation and digital services e.g. Drop &
Go, Parcel Collect, Same-day prescriptions
Parcels market leader by volume and revenue
Playing catch-up and losing market share
Automated parcel hubs not due to open until 2022/23
Letters, where the company makes its money, have seen steep
declines during C19 and UK parcels are currently not profitable
Issues
Actions
Need to accelerate the pace of change to cope with sustained
parcels volume increase
Deliver increased operational efficiency
Complex product offering
More agile, lower cost, technology-led competitors are getting
stronger and growing share faster e.g.Amazon, Hermes, DPD
Introducing seven-days a week parcel delivery service
Migrating customers away from higher-cost channels to digital-
first ones where they have more control over the customer
experience
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® dpa
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Aim: Become the international reference in sustainable delivery and a leading enabler of e-commerce
Revenue 2020
c.£1,416
+37. 7%Y
Operating Margin
c.18%
+560bps YOY
Volume 2020
c.211m
+39% YOY
Network
>4,500
DPD PickUp shops
Ownership
La Poste Group!00%
Strategy
Be the most innovative premium X2C player, growing 15% p.a. to 2025
Densify parcel shop and locker network to 90% of population and grow
presence in burgeoning C2C segment
Commit to sustainability in all DPD's actions
Expand through partnerships (‘federator model")
Positioning
I Market Share Latest estimate
I
I Overall UK parcels market revenue ©.10%
I share
}
I Share of Social & Marketplace nk
I segment
I Proportion of company sales from I nk
I
I Social, Marketplace & E-commerce
Combining innovative technology and local knowledge to provide a
premium, flexible and user-friendly service for both shippers & shoppers
Strengths
Weaknesses
Market-leading customer-centred innovations, e.g. Predict
Investing in capacity and digital capability due to the surge in e-
commerce, which it does not see abating
PickUp partnerships with key retailers, e.g. Sainbury’s / Curry’s
PC World; recently joined the Collect+ network
Wider company well positioned in e-commerce growth sectors
including food and healthcare
Strong operational performance and brand reputation
Underpenetrated in SME space — focus to date has been on
B2C / B2B
Issues
Actions
Gig economy scrutiny
Strictly Confidential
New lifestyle courier contracts
Strengthen data intelligence to continuously improve customer
experience and revenue management
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Aim: Deliver best-in-class customer journeys for e-commerce brands over the first and last mile
Revenue YE Mar 2021
£3.6m
-10.1% YOY
Volume YE Mar 2021
26.6m
+8.3% YO
Paypoint Operating
15% Margin
-2,000bps YOY
Network
>10,000
Parcel sites
Ownership (Apr ‘20)
Paypoint 100%
Acquisition cost £6m
Strategy
Establish Collect+ as the pre-eminent technology-enabled e-
commerce delivery platform
Leverage the trends accelerated through Covid-19, including the
growing demand for online shopping fulfilment and the increase in
shopping local
Positioning
Re-positioned as a B2B2C multi-carrier e-commerce delivery platform
I
I Social, Marketplace & E-commerce
I Market Share Latest estimate
}
I Overall UK parcels market revenue <I%
I share I
I
I Share of Social & Marketplace I 1%
I segment I
I Proportion of company sales from I 100%
I
Strengths
Weaknesses
Comprehensive range of carrier partners, e.g. eBay, Amazon
Agile IT development capability - scalable proprietary software
New Zebra thermal printers improving in-store label printing
Re-launched Collect+ website
Scope to grow within PayPoint One network of 17,800 sites
Issues
Weak send proposition
Lagging overall e-commerce market growth
Poor coverage in rural areas
Actions
Reduce time and cost to serve
Improve the in-store consumer and retailer partner experience
Overall transaction growth diluted by lower-margin print-in-
store service
Simplify and speed up carrier onboarding
Strictly Confidential
Introducing enhanced StoreScan app to replace terminal
functionality ahead of peak
Scaling Send service in H! 2021/22, supported by significant
marketing investment
Expanding print-in-store services to existing partners
Adding further partners (TBC) in 2021
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Aim:To be the leading parcel delivery marketplace for SMEs and “prosumers”
Revenue YE Mar 2020
£100.6m
+12.7% YOY
Volume not disclosed,
estimated at 13.6m
Operating Margin
4.7%
+20bps YOY
Ownership
EQT private equity
acquired majority
stake for undisclosed
sum; Mayfair and
P2Go management
retain minority stakes
(June ‘21)
Strategy
Accelerate expansion through investment in new platforms and products
Ambitious plan for growth and penetration of new customer segments
and international markets, organically and via M&A
Positioning
Market-leading technology platform offering quick and easy low-cost
parcel delivery alternatives to the Post Office and white-label websites
I Market Share Latest estimate
I Overall UK parcels market revenue <1%
I share
}
I Share of Social & Marketplace 7%
I segment
;
I Proportion of company sales from I 100%
I Social, Marketplace & E-commerce
Strengths
Weaknesses
New private equity investment to support growth plans
Wide range of domestic/international parcel delivery services
Low-cost business model operating at significant scale and ina
highly efficient way
Volume-driven competitive pricing in all markets
Integrations in to leading marketplaces
Turnkey shipping software, hosted websites & customer service
Strong balance sheet with no third-party debt
Track record in double-digit profitable growth
Does not offer parcel market leader Royal Mail's services
Relatively thin margins and reliant on selling insurance
Issues
Actions
Increased competition in all markets
Raise awareness of brand
Continued investment for growth
Focus on service
Leverage scale advantages
Marketing campaigns to drive awareness / customer acquisition
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Sh Jo 8g
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1z/Lo/e2-Lzoz Aine ez - z A
Intensifying competition:
Amazon case study
Amazon is actively recruiting marketplace sellers to its
Fulfilment by Amazon service whereby products are
sold on Amazon's marketplace, stored in its fulfilment
centres and shipped via its carriers
Last year almost half (46%) of Amazon UK's shipments
were from Marketplace sellers using Fulfilment by
Amazon, with sales growing by 35% on average year-
on-year
Amazon's fulfilment centres are highly automated for
inventory stowage, picking and shipping, with high end
technology increasing storage capacity and speeding up
processing time
It’s parcel shipping label system, dubbed “Slam” (Scan,
Label, Apply, and Manifest) produces shipping labels at a
rate of one package per second
The algorithm “decides” on the carrier at the point of
labelling - factors include the size, weight, destination,
speed, customer delivery choice and carrier capacity
Amazon owns the item and customer data throughout
the end-to-end customer journey
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B2C competitor and customer demands have driven more efficient ways of working, more technology-
enabled services and increased automation. Parcel operators have accelerated their investments and
implemented further cost reduction and
Parcel
operator
Planned new capacity
‘Two automated parcel hubs
announced in Warrington (up
to 1.5m parcels/day by 2022)
and Daventry (up to I.5m
productivi
Degree of parcels
automation
Technology
enhancements
33% in 2020/21 and = * App-enabled *
targeting >50% by Augmented Reality
end 2021 parcel sizer
On runway to 90% * Automatic
measures
PUDO network
developments
1,400 Parcel
Postboxes rolled
out from 2019
Other service
enhancements
Parcel Collect
launched Oct 2020
By March 2021,>1m
parcels had been
Change in
profitability (latest
results)
* 32% parcel volume
growth enabled
margin to grow to
4% to 5.6% and
parcels/day by 2023) (industry notifications, live collected by posties adjusted operating
+ Parcel sorting machines benchmark) by tracking and in-flight on their rounds profit to increase to
processing up to 180k 2023/24 re-routing of parcels * Collect up to 5 £344m in 2020/21
parcels/day installed in 20 Mail + Barcoded 2C parcels at a time for
Centres; 4 further sites stamps pilot (Viking 72p per parcel and
announced Direct) 60p for pre-paid
returns
Hermes * Third hub announced in * Close to 100% * API with PostTagto * Doubled InPost * HermesPlay label * Profit increased 30%
Barnsley for I.3m parcels/day (small items) improve delivery parcel locker estate QR code advertising to £29m in year to
from 2022 accuracy to 830 in 2020 / messaging end Feb 2020.
+ 10 new depots also opened + New LAC returns Accounts for
during 2021/21 sorter increases 2020/21 to be
capacity to 76K / released later in
day 2021
+ Announced strategic * Close to 100% + New driver app * Sold 50% share in * Customer service + Expected to
investment in the creation of a (small items) improves efficiency, Collect+ to improving from a return to being
new Northern super-hub to leading to a better Paypoint more integrated strongly profitable
support long-term growth
(Oct 2020). Further details to
be announced
customers delivery
experience
Strictly Confidential
approach to
technology, reducing
operational costs
(PBT) in its results
to June 2021, to be
issued later 2021
53
wo
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Drop & Go is Post Office’s flagship proposition for Marketplace sellers. Compared to Royal Mail and
other providers, it is not competitive on process or price
Standard functionality of key competitors (PO in red)
Integration into Purchase
e-commerce online/through Auto top-up
platforms app
Next
Bulk discounts Tracking day delivery
Signature/
Proof of Parcel pick-up Drop-off points
delivery
+ A Drop & Go account can be set up online or in-branch
+ The service allows customers to prepare a manifest and top-up at home before they
visit a branch to drop off items.
Royal Mail's online and offline pricing differential
increasing. Competitors are
pushing into lower weight parcel categories
Next Day Services
8.00
7.00
DPD
PS Local
6.00
79
5.00
4.00
3.00
RM IC
SP & SF
£485
, a6
RM 124 7]
Hermes
Next Day
£650
2.00
100 I {mic oe
SAAR NR
RM 1C SP.
B85
750 £2.39
£ - =
Later Than Next Day Services
Ly T
2eday
279
IRRELEVANT
+ Compet in the Marketplace segment is primarily from couriers or logistics cor 7
+ Apart from Parcel pick-up, the key features are all technology-based rather than
logistics-based.
+ Royal Mail offers two affordable tracked products for companies shipping more than
1,000 items a year (Royal Mail 24 and Royal Mail 48). We do not have access to
these products.
£ 5.00
£ 4.00
£ 3.00
£ 2.00 +
« 100 [7 RM 2¢ 500-
[7 satis
VAT exempt
USO products
Primary area of pricelservice
competition
=~ Royal Mail’s stamp parcels price competitiveness has been underpinned by legacy advantages in
lighter weight formats
+ Recent price increases have widened the gap between Royal Mail’s online and offline parcels
pricing.
+ Competitors, including Hermes are taking share in previously unattractive lower weight categories
Note: LL = Large Letter, SP = Small Parcel, SF = Signed For, T24 and T48 = Tracked Next Day and Tracked 2-day. VAT
included where applicable. Includes seller protection, but excludes RM online pricing discounts
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18 areas of opportunity were identified in the McKinsey 2020 analysis. With the exception of PUDO, they
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were dismissed by the Board based on key criteria. In light of emerging market dynamics, online sales
options have been reconsidered in this paper; the remaining options are still not desirable or viable
Market
Marketplace
soliors &
non-account
SMEs
Other
Nature of Play _
Current gameboard - i... sein erin POL ae
Incremental contribution’ from play?
Wi ottensive fl Detensive
[2 Launch online channel for marketplace sellers (a ‘single carrier, b. multicarrier,
le - Price aggregator, d. expand drop & go to include upfront integration with platforms)
Growth
Extended gameboard
[5. Sell domestic POL labelled parcels and LL online (a
‘8 product and/or b. Buy
[6. Selt intermational POL-iabelled parcels and LL online
. White-tabel a Deiwery 0 Doty Paid product)
(a. stamps, b. all postage, c. multi carrier)
18. Launch consumer e-commerce
"receipt hub” to offer
19. Strike PUDO partnership deals with
loperators / retailers/ marketplaces
consolidated view of e-commerce
parcels
18. Campaign to convert home
fe ‘Accept and consolidate in-fight and undeliverable parcels
wen a
jr3.¢ Optimise operating costs as exclusive gag
Jegert for RM.
“
[16. Enable same day / hour click & collect
[through hyper-local warehousing
14, Offer services to under-served RM LVA
lb. consolidated mutti-carrier final mile)
17. increase rural asset utlisation (a. Trans-shipping,
1 Incremental contribution margin generated in 2025 as a result of enacting strategy (POL gross income net of agent fees, excluding startup investment anc
2.2018/19 contribution baseline = £166.9m (i.e. POL gross income minus Agent Variable pay) from Finance team; Not finalised ~ subject to change
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Drop & Go: Improvements and Opportunity Roadmap
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Replacement of Digidentity
user authentication service
CX update across Drop &
Go Platform
‘On-boarding experience
with Auto top up push
Prepare for a Drop &
Product Catalogue
Link from and back to.
Marketplaces (eBay)
Notification & Content
centre
DRAFT
Postage Price Service &
‘Automated Feeds
Mails customer journey &
routing tool
UK & International
Postage Finder
Prohibited & Restricted
Items Tool
Postage Basket & Share
Personalised preparation
actions prior to branch visit
Postage Finder & Quote
within Drop & Go platform
New Drop & Go user
signup with SMS,
WhatsApp or FB
messenger
Digital customs form auto
populate D&G Manifest
creation
New D&G and Mails online
help & support centre
Add RMG API Pricing &
Tracking into Drop & Go
Link to Marketplaces
(Amazon, Etsy, Shopify, e-
commerce platforms
Pause D&G in branch
transaction to pick up later
Extended D&G user life
cycle with Post Office
D&G referral to business
liabilities insurance
Customer Drop Off boxes
for Drop & Go items in
branch
Review branches with
specific drop off space,
promote locations
D&G card version for
mobile phone wallet
Postmaster guides on why
Drop & Go is important
for retaining regular
income
D&G branch terminals
review, volumes & expand
Audit inactive D&G users,
will require updated version
of Drop & Go terms &
conditions
Close Drop & Go account
online and refund
compensation with missing
or damaged items
Access VAT receipts for
past drops in online
account
Refund from Drop & Go
account online
Customer use of postage
product barcode in branch
from preparation online
Digital D&G Manifest scan
from phone in branch when
dropping off items
Pilot Selling Postage
Products Online & Printing
labels
Incentivise loyal customers
= Discount Top-Ups, Flash
Sale, Loyalty Scheme
Drop & Go / Mails App
D&G referrals to new
partners aimed at Business
customers & offers
Alternative RMG Mail top-
up insurance
Premium & new postage
products with new
partners
D&G multi carrier
selection & comparison of
products
Automatically send
confirmation & VAT
receipt
‘Automatically send tracking
code for items
Express D&G fulfilment of
drops in branch
General Mails
‘Customer/Consumer/one-
off Drop & Go proposition
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Parcel locker operators are investing heavily in the UK market, targeting densely populated high footfall i
areas where PO does not have a competitive advantage. They are unlikely to drive additional footfall due
to accessibility requirements; rural locations are unlikely to be commercially viable and would cannibalise
our existing business
istomer
proposition
Operational
Functionality
Market &
competition
Key levers and
value
Postmaster
considerations &
benefits
Execution
capabilities and
Risk
Provide customers with a secure and convenient low-touch 24/7 parcels collection and drop-off facility
Strategically sited in high footfall, high population density areas with unrestricted access
Typically used by younger male consumers for parcel collection, not marketplace sellers
App-enabled
Open infrastructure for retail partners and carriers
Re-route missed delivery
Commercial operators offer 48hr max. Holding time for collection before returning parcel to sender, postal operators longer
Launched in the UK in 2012, there are now 5.5k lockers: Amazon has 4k (closed network) and InPost I.5k (open network)
After new IPO investment, InPost plans to expand to 10k UK sites. Quadient and Lockars also planning new locker networks
Could provide coverage in place of non-commercially viable rural outreach branches
Increases migration of existing business to acceptance-only, with corresponding fall in commissions
Potential new revenue stream - popular with younger e-commerce customers, driving new repeatable footfall
Potential advertising revenue
Requires significant retail floor space if sited in-branch, reduces Post Office branch footfall if sited out of store
Easy for customers to self-serve, reducing queueing and processing time
Retail density hurdle rates for different formats unlikely to be met if sited in-branch
High SPM dependency, especially for 24/7 access commitment
Environmental benefits of multi-drop deliveries (B2B) vs. delivery to individuals (B2C)
App and software API dependent
PO may require RMG agreement to execute (tbc) 57
Strictly Confidential
a
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POST OFFICE LIMITED
BOARD REPORT
POL Board Away Day:
Title: Technology session
Meeting Date: I 28" July 2021
Zdravko Mladenov, Business
Author: I Transformation Director
Sponsor: Nick Read, Group CEO
Input Sought:
The “Technology” part of the Away Day will seek input on the future of the main three
platforms that make up the core of our technology strategy. ' These platforms are:
- The Horizon Replacement platform (currently known as SPM) - the core POL
trading platform in-branch
- Branch Hub 2.0 - this is the main digital platform POL aims to use for its interactions
and support to Postmasters, ranging from training to IT support to community-building
- POL Data - this is the programme of work focused on modernising the data
infrastructure of the organisation, augmenting POL's ability to generate value through its
data
Questions addressed?
1. What are the core technology platforms for POL: Introduce briefly the scope of the
3 main technology platforms;
2. How will Technology support Vision 2025: Link the three technology platforms
(SPM, Branch Hub, POL Data) with the overall strategic vision of the organization;
3. How will Technology enable other programmes (PUDO, Network Strategy) to
deliver critical business objectives: Link the technology platforms with the key
business programmes of the organization;
4. What strategic technology choices are coming to the Board: Provide an overview
and set the stage for the main strategic decisions that will come in front of the Board in
the coming 6 months with regard to this technology agenda.
1 What will not be covered in this discussion, because it is addressed in other parts of the Away Day, are two other key strategic
technology choices — (a) the choice whether and how to sell Mails online, and (b) the choice how to approach the automation of
in-branch customer journeys for core products such as Mails and Banking.
1
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Report
What are the core technology platforms for POL?
1. The three technology platforms covered in this briefing represent POL’s core
Postmaster- and In-Branch-Customer-facing technology, including the supporting
‘data engine’. There is a range of other core technology platforms and systems that POL
deploys. Those are ‘POL Colleague-facing’ (e.g., the core enterprise IT of the
organisation) or ‘back-office facing’ (e.g., the main financial system CFS). Those
platforms are not covered in this briefing.
2. A brief description of the three platforms follows:
a. The Horizon Replacement platform, currently labelled Strategic Platform
Modernisation (SPM) until christened with a long-term name, is the sole IT
platform for Post Office in-branch trading. As such, it allows Postmasters to serve
customers for ~7 million transactions daily, but also provides a range of critical,
non-customer facing business functions for POL and the Postmaster (e.g., branch
accounting and cash management functions; acts as the foundation for most other
back-office processes; serves as the communication tool between Post Office and
Postmaster)
b. The Branch Hub platform is an online, Postmaster-facing portal. It is
currently one of several channels used to serve Postmasters with some daily
business needs (e.g., stock ordering), but its current scope is somewhat limited as
it has evolved organically. Our strategic intent behind Branch Hub 2.0, the
programme of work intended to evolve Branch Hub, is to make Branch Hub the
primary channel for Postmaster service. As such, it would cover the large majority
of relevant daily activity for the Postmaster (e.g., onboarding and training staff,
receiving IT support, viewing and interrogating branch performance data,
conducting two-ways communications with POL ‘HQ’, etc.)
c. The POL Data platform is the underpinning data infrastructure and data/MI
reporting tools that enable POL and Postmasters to leverage data for commercial or
operational gains (e.g., increasing sales for a Postmaster or optimising POL’s ability
to detect fraud). It is a nascent portfolio of work that joins up currently fragmented
components into an end-to-end data function, with the main elements being (a)
stabilisation and modernisation of the existing very old data systems, (b)
implementation of robust data governance and data ownership framework, (c)
enhancing our data exploitation/value realisation methods, and (d) embedding
more broadly a data culture across the organisation.
How will these platforms support POL’s Vision 2025?
3. POL’s Vision 2025 is anchored on 7 key themes: (1) We will prioritise strong, trusting
and rewarding relationships with all our Postmasters; (2) We will strengthen our
network; (3) We will innovate in Mails; (4) We will secure free, convenient and reliable
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access to cash in every community; (5) We will build commercial partnerships; (6) We
will invest in new branch technology; (7) We will create value for our shareholder.
4. Collectively, the three technology platforms discussed in this briefing deliver item 6: “We
will invest in new branch technology”. They also enable POL’s business and operations
with the achievement of the other six items, particularly contributing towards item 7: 44
“We will create value for our shareholder” and item 1: "We will prioritise strong, trusting
and rewarding relationships with all our Postmasters.” More specifically:
a. The Horizon Replacement platform (SPM) delivers directly Objectives 6 and 7
(invest in new branch tech and improve the financial sustainability of the business)
by reducing IT costs. SPM also enables Objectives 1,2,3 and 5 (Postmaster
relationships; grow the network; innovate in Mails; launch new products) by
providing the technology underpinning the achievement of those objectives.
b. Branch Hub 2.0 delivers directly against Objectives 1 and 6 (Postmaster
relationship; new branch tech). It will also eventually deliver towards Objective 7
(creating value for the shareholder) by allowing a rebalancing of future costs across
service channels and, thus, reducing overall spend on training, onboarding, IT
support, etc.
c. POL Data also delivers directly against Objectives 1 (Postmaster relationship) by
allowing POL to provide robust, easy to consume data to Postmasters. It also
delivers against Objective 7 (creating value for the shareholder) by reducing our
spend on data systems and FTEs working on data.
How will these platforms enable other programmes to deliver critical business
objectives?
5. The platforms provide the critical technology foundation to achieve a range of
commercial and operational objectives across Post Office. Specifically:
a. Network Enablement: The Horizon Replacement programme present the major
‘unlock’ for the ability of Post Office’s Network team to deploy different formats
(e.g., Drop and Collect). In turn, the new formats offer reduced targeted product
sets and lower operating costs to Postmasters, thus improving critically the
profitability and long-term sustainability of branches;
b. Integration with Strategic Partners: The new technology will enable the future
integration of the Post Office product set into the electronic Point-of-Sale (POS)
platforms of strategic partners such as WH Smith. Currently, this is not possible in
Horizon. As a result, our ability to expand the strategic partners footprint will
improve significantly as it becomes materially easier for a strategic partner to
onboard staff and operate Post Office services;
c. Mails and PUDO: The new platform allows for expanding the multi-carrier PUDO
offering across the full network. Prior to the go-live of the SPM platform, this
functionality is achieved via Horizon and via additional portable devices, which adds
3
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costs to the PUDO proposition. Those costs will significantly reduce with the arrival
of SPM;
d. Postmaster Experience: The different tech platforms represent a key ‘ingredient’
for the overall business objective to improve the day-to-day Postmaster
experience. This includes enabling improvements in the processes and software to
train and onboard staff, consume data on branch performance, communicate with
POL ‘HQ’, receive IT support, etc.
What strategic technology choices are coming to the Board?
6.
The majority of the Away Day discussion will focus on the impending strategic choices
that the Board will have to make with respect to the three technology platforms.
For the Horizon Replacement platform (SPM), the main strategic decision points of the
next 12 months are:
a. Plan B: When, how and at what cost should we starting preparing for a “Plan B”
(i.e., in-sourcing Horizon to accommodate SPM delays)? What does that mean for
our Fujitsu strategy? For our Horizon Improvement strategy? (Decision expected in
H1 of 2022)
b. Devices: What is our Device and Peripherals Strategy? How much are we willing to
invest in customised, best-fit devices vs. off-the-shelf (but, therefore, imperfect fit
and not space-saving) devices? (Decision expected in H2 of 2021)
c. Automation: This decision is part of a larger discussion, so is only noted here for
completeness.
d. Base EPOS: Should we ‘buy and customise’ our Base EPOS (i.e., the core functions
of a counter such as recording a transaction or managing cash in the till), or should
we ‘build’ our own? (Decision expected in H2 of 2021)
e. Sourcing Strategy: Should our longer-term IT sourcing strategy rely on a more
diversified supplier base or on a more concentrated (but, therefore, better
“knowing POL”) one? (Decision expected in H2 of 2021)
For Branch Hub, the major questions are whether the Board approves of the direction of
travel with this platform — i.e., aiming to render it into the main (but not sole!) portal for
communication and support for Postmaster. If the answer is affirmative, the remainder
of the discussion will be around the prioritisation of the main pillars of Branch Hub 2.0,
illustrated below. This prioritisation, in turn, will drive funding recommendations.
For the POL Data platform, the main strategic question is around the scope of
investment the Board is willing to make in data. The discussion will present the “must
do” elements and a matrix of options (e.g., invest in the ‘Gold package’ for Data
Governance, but only the “Do minimum” for Exploiting Data).
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Overview of the Business Transformation Unit (BTU)
Deliver >> Modernise POL’s customer- and Postmaster-facing technology and information
Objectives Support >> Serve the POL business as a ‘force multiplier’ and cross-functional enabler for a broader transformation agenda, covering
core POL commercial, operational and back-office journeys
Select projects and programmes Key additions to the BTU team
Woody Ruane, Finance Strategic Partner
Woody spent 14 years at the John Lewis
Partnership (incl. Waitrose) where he held the
Transformation Programme Director and
Finance Director role
+ Horizon replacement platform, which is the sole IT
Strategic Platform platform for Post Office in-branch trading.
Modernisation + Provides a range of critical, non-customer facing business
Programme G functions (e.g., branch accounting and cash management;
foundation for most other back-office processes)
David Steed, Chief SPM Solution Architect
During his 16 years at PayPoint, David
architected and built the PayPoint One
platform, and designed their Collect Plus
+ Our online, Postmaster-facing portal. Currently one of
several channels used to serve Postmasters with some
Branch Hub 2.0 daily business needs (e.g., stock ordering)
Strategic intent behind Branch Hub 2.0 to make it the
primary channel for Postmaster service.
Gareth Clark, SPM Product Director
Between 2015-20, Gareth built and deployed the
Ministry of Defence's core IT platform, holding a
+ The underpinning data infrastructure and data/MI tools that
POL Data enable POL and Postmasters to leverage data I he rank equivalent to a 1-star General
programoe * Covers modernisation of legacy infrastructure; implementation of 1] 2)
data governance; enhancement of our data exploitation methods; a y Brian Hogg, Head of Technology Strategy
embedding more broadly a data culture across the organisation. 3
i I Brian (joining on 5 Oct) is the current Head of
GRO): Technology for Easyset, leading their software
I development, self-service and digital channels
+ BAFTA stands for “Branch Accounting and Financial
Transaction Activity”
Project BAFTA + This projects focus on overhauling the finance, business and
tech processes that underpin how branches conduct their
regular accounting and manage their cash ;
Zoscha Partos, Dani Ball
Previously veteran consulting
managers at McKinsey, Zoscha
and Dani are now the programme
‘engines’ behind Data and BHub
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Topic I — SPM: Upcoming major strategic decisions
Oct 21
cision: Base EPOS
Option 1: ‘Buy and customise’
our Base EPOS (i.e., the core
functions of a counter such as
recording a transaction or
managing cash in the till)
Option 2: ...or ‘build’ our own?
Key considerations:
Time from ‘flash-to-bang’,
including procurement time
Total cost of ownership,
i.e., including long-term
EPOS license costs
Trade-off between depen-
dency on external supplier
for any changes vs. risk of
reliance on POL capability
Dec 21
Decision: Devices
Option 4: Invest in customised,
best-fit devices and peripherals
Option 2: Go down the route of
off-the-shelf products (but not
space-saving or “cool”)
Key considerations:
- Counter space comes at a
high premium for retailers
High cost and time for the
design of customised options
Higher long-term support
costs for integrated devices
‘Once in a generation’
opportunity to win Post-
masters with new device
Mar 22
Decision: Sourcing Strategy
Option 4: Seek a longer term IT
strategy that relies on a fairly
diversified supplier base
Option 2: ...focus on a strategy
of max 2-3 large-scale partners
Key considerations:
- Accelerated ability to ‘get
things done’ with smaller
subset of supplier who ‘know
POL’ + lower transact costs
Better access to niche
‘best-in-class’ capabilities
with more diverse footprint
Vendor lock-in with smaller
subset of long-term partners
Public perception concems
Decision: Plan B
Jul 22
Decision: When, how and at what cost
should we starting preparing for a “Plan B”
(ie., in-sourcing Horizon to accommodate
SPM delays)? What does that mean for our
Fujitsu strategy? For our Horizon
Improvement strategy?
Key considerations:
- Having a viable ‘insource Horizon’ option
is likely a critical insurance policy
against SPM challenges
- Impact from an active Plan B on the
Fujitsu relationship and motivation to
support POL is highly uncertain
Focusing on Plan B spreads even further
an already thinly spread management
and subject matter expert capability,
while the costs add up a high total already
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Topic 2 — POL Data: Overview of main components (1/2)
Pillar
Description
1 Legacy stabilisation
Focus is on the POL legacy data infrastructure — data warehouses (Credence, Arrow) and master data management (MDM. For
all, POL is operating at risk and experiencing failures since the systems are partially or fully past end of life, with significant costs for
third parties for support. The decision of how to progress here is connected to the future data infrastructure decision below.
Future data infrastructure —
- Data Management
Data Quality
Data Governance
Data Ownership
Future data infrastructure has two components:
a) Building a new POL Data Lake (AWS). The initial focus will be to decommission Credence, POL's primary data warehouse,
by replicating data feeds to the data lake and supporting the build of equivalent output reports. Following this, the project will
move onto decommissioning Arrow (additional data warehouse) and meeting business pain points and requirements,
improving functionality
b) Replacing existing Master Data Management solution, referenced in HlJ and significantly outdated, with data quality isuses
Data Management as a pillar is an agglomeration of a several elements, partially also covered by HlJ findings:
a) Data Governance: Create the policies/standards/principles and mechanisms/processes to regulate and enforce how data is
managed across POL, ensuring we collectively comply with internal policies and external legislation
b) Data Ownership: Develop and implement a model to ensure accountability for data components is held at business level,
with single point of accountability where appropriate and clarity of what data owners and data stewards are expected to do
c) Data Quality: Drive a data clean-up and long-term ability to measure, report on data quality, ultimately driving trust in data
Data Value Realisation /
Data Exploitation
The first part of data exploitation will be optimising reporting to drive both efficiency and effectiveness across POL, rationalising
the vast number of reports and pushing self service capabilities
In addition, we will develop a centre of excellence for data science (an agglomeration of modern tools - Machine Learning,
Artificial Intelligence, Advanced Analytics), starting small and scaling, to drive the exploitation of data across POL, leveraging it
for competitive advantage. Additionally, it requires a business process reengineering capability to support these changes and
"Data Culture
To underpin the above pillars and transform POL into a data-centric organisation, a data culture and literacy programme will be
established to drive a data centric culture across POL, and facilitate the learning and development of POL’s colleagues in an
increasingly data oriented world
ry
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Topic 2 — POL Data: Overview of main components (2/2)
3
3B
Legacy Future data Data Data value Data culture Mgmt Re S
Pillar stabilisation infrastructure management realisation and literacy _ sa z
Fa
+ No stabilisation for legacy systems andno newdata 5
infrastructure (POL Data Lake) o
41.7 - - 0.8 0.2 - + Minimum required upgrades to improve future data 3
governance and ownership; no action on quality $
3 + Rationalisation of existing report ‘estate’ 3
~ — - 8
g
g
2 6-7 0.1-1.6 27 15 0.2 -
8-10 01 —~ 1.6 3.62 0.9 -
Invests fully in stabilisation of legacy systems
+ Adds external support for the Data Lake
12.9 1.6 43 3.5 1.5 04 Expands scope of data quality fixes; adds data
stewardship resources going forward
+ Includes smail-scale data culture and literacy effort
+ Adds extensive focus on data quality and long-term
Bin data stewardship at the business level
Gees 15.6 1.6 4.3 41 2.1 1.2 + Expands scope of data science capability (ML, Al,
etc.) into a POL Centre of Excellence, including
support for the business to boost adoption
+ Expands the scope of the data culture effort
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Topic 3 — Branch Hub 2.0: Overview of strategic pillars and projected costs 3
Pillar Description _
Boosting adoption to 100% and driving improvements in NPS (to be
established)
0 Platform availa
2 and ease of use
Providing Postmasters with the full slate of branch data (e.g., sales,
remuneration, conformance) to maximise their effectiveness and
profitability
Consolidating and greatly simplifying the training and onboarding
journeys for Postmasters in one location —- Branch Hub I R RE L EVA N T
Consolidating and greatly simplifying access to help and support
materials; and creating a stronger Postmaster digital community
and robust connection with POL
Digitising select paper-based processes to ease the administrative
burden on Postmasters; consolidating other relevant web-based
branch activities in one location
Provide more seamless interactions with IT for Postmasters (e.g.,
enhanced self-service and chat functionality) alongside a digital
space for the provision of IT related information
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I Branch Hub 2.0
A brief introduction
g
What is Branch Hub?
* Branch Hub is an online platform that is accessible
by Postmasters and their staff, with 93% of
enabled branches’ currently registered
+ Users can conduct a number of activities on the
Branch Hub platform including ordering coin and
stock, making declarations and receiving help and
support
+ Users are also able to suggest new features for
Branch Hub which we have used to shape our
roadmap going forward
+ Postmasters have shared generally positive
feedback about Branch Hub, with many excited
for its expansion and engaged in helping us to
shape the platform’s future
1 93% of enabied branches (10.15K) are registered; branches not yet enabled include multiple and agency branches
Branch Performance
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Branch Hub’s vision for the future:
To create a connected Postmaster community and
improve the day-to-day lives of Postmasters by
providing them with information, data, services,
help and communication channels in an easily
accessible, simple to use format
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What are the six main pillars behind our strategic intent for Branch Hub 2.0?
Pillar Description
Boosting adoption to 100% and driving improvements in
lsd SEMEL NPS (to be established)
Providing Postmasters with the full slate of branch data
(e.g., sales, remuneration, conformance) to maximise their
effectiveness and profitability
Branch Hub 2.0 expands the
ambition for the Branch Hub
platform to become the main
Postmaster portal for a range BG ae ; Consolidating and greatly simplifying the training and
of information and services i y _ onboarding journeys for Postmasters in one location —
Branch Hub
We have worked
Postmasters to identify es Oe PP Consolidating and greatly simplifying access to help and
capa les across six Sis y I support materials; and creating a stronger Postmaster
strategic pillars which will ap ae Z digital community and robust connection with POL
deliver a range of outcomes
and benefits for Po: asters Digitising select paper-based processes to ease the
administrative burden on Postmasters; consolidating other
relevant web-based branch activities in one location
Provide more seamless interactions with IT for Postmasters
(e.g., enhanced self-service and chat functionality) alongside
a digital space for the provision of IT related information
Bayes pueog
Deep dive on Pillar 0 (Platform Adoption): Only 93% of branches are registered on
Branch Hub and 36% of visitors only visit once per week, thus making further adoption
one of our priorities
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Branch
registrations
#
Percentage of
visits from 9,
visitors who 36%
have already new
visitors
visited in
week ant
‘amt
93%
registered) —
(9,419 branches)
Weekly visits
#
\ 64%
returning
visitors
Click
for a more detailed view of Branch Hub usage metrics
8000
7000
6000
5000
4000
3000
2000
1000
0
01 May 20 01 Sep 20 01 Jan 21 01 May 21
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How have we engaged with Postmasters to design Branch Hub 2.0?
We have engaged with Postmasters in a number of ways to SRN PORORANEEE HD SURARTTIONS
shape our vision for Branch Hub 2.0:
~ * Discussed Branch Hub with focus groups of 5-10
Postmasters
+ Spoke with the “very positive” and “excited” NFSP about the
future of Branch Hub
+ Conducted Postmaster interviews to gain insight into how
they use and would like to use Branch Hub
===] Branch Hub surveys
3 * Used surveys hosted on Branch Hub to capture Postmaster —
preferences for the future of Branch Hub ban
+ Connected with the Postmaster NEDs (via Zdravko
Mladenov) on what we are doing to explore his requests for
Branch Hub expansion Hi
+ Presented Branch Hub to >100 Postmasters in the IT H
Working Group and other sessions to gain feedback and H
suggestions
+ Worked with the BTU’s Postmaster Engagement team to
capture comments and concerns related to Branch Hub
raised by Postmasters in other interviews and forums nee cseeneseenitnenineeninenneninneninnininanninaen
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How does this scope support other POL aspirations, commitments and programmes?
nH youesg uo peey-eid €' GeL
Branch Hub will surface many of PSIP’s core deliverables; it is a critical enabler for
many of PSIP’s benefits — they are inextricably interlinked
SPMP will leverage Branch Hub as a main channel for support / communication with
Branch Hub Postmasters as it builds a solution that best meets Postmaster needs
underpins
and enables a
number of
POL’s
aspirations,
commitments
and
programmes Deloitte I Branch Hub was mentioned throughout the Deloitte report, with Branch Hub 2.0
report prioritising its recommendation that Branch Hub surface remuneration data
Branch Hub was called out in the ClJ legal analysis multiples times as part of the
solution to deliver compliance, and is delivering against this
POL’s 2025 vision includes prioritising “strong, trusting and rewarding relationships
with our Postmasters”; Postmasters have asked for the expansion of Branch Hub and
so Branch Hub 2.0 supports the delivery of this vision
Vision
2025
>
w
What have we learnt from Branch Hub 1.0, giving us confidence that Branch Hub 2.0
will be successful?
We have learnt from the past...
In Branch Hub Phase 1,
The time and cost to
deliver features in the
backlog was
underestimated
For Branch Hub 2.0, We calculated time and cost to
deliver based on a bottom-up view of the resources
needed (on a days needed basis) to deliver each of
the items in the roadmap triangulating input from
Accenture and POL resources
Branch Hub Phase 1
received many
unanticipated demands
last minute from
business
We have introduced a fortnightly Branch Hub Product
Forum (with representatives from major
interdependent programmes, Service Centre, Branch
Ops etc) to capture requirements earlier, with a more
transparent demand management process in place
Branch Hub Phase 1
did not deliver all
benefits captured in the
change request and
finance model
We are working with those in the business to ensure
alignment on the size of benefits in the Branch Hub
2.0 business case and are not committing to financial
benefits until ownership of benefits has been agreed
The Branch Hub 2.0 business case budgets for an
FTE dedicated to Postmaster engagement and
adoption and are leveraging the BTU’s fortnightly
focus group (“IT Working Group”) to engage with a
rotating group of Postmasters
Branch Hub is not used
on a regular basis by all
Postmasters
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...and set ourselves up for success
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The benefits of
Branch Hub 2.0
What benefits will Branch Hub 2.0 deliver? (1/2)
Branch Hub 2.0 will deliver
a long list of benefits to
both Postmasters and the
business
Many of the benefits are
non-financial benefits
related to meeting and
exceeding Postmaster
expectations, improving
their day-to-day experience
and building a stronger
relationship with them
Given we are at an early
stage, most of our benefits
are not yet quantified — in
the Business Case we
have only called out
financial value where a
benefits owner has been
identified
Pillar _
Branch
Performance
and MI
Training and
onboarding
Knowledge,
comms and
community
Benefit
Uplift in revenue as Postmasters will be given data (e.g., sales
by employee) enabling them to make changes in branch and
improve efficiency
Freeing up of Area Manager time currently spent giving branches
access to data relating to their branch
Potential reduction in training costs as Postmasters access
training online, reducing reliance on lengthy classroom training
Potential reduction in time to onboard new members of staff due
to streamlining on onboarding journey
Improvement to Postmaster and employee experience driven by
digitisation of journeys
Potential reduction in costs related to existing channels (e.g.,
One Site) being subsumed by Branch Hub as the first point of
contact for Postmasters
Streamlining of Postmaster experience as they are able to
access information in one place, making it easier for them to find
the support they need
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Benefit owner
Andy Kingham
Tracy Marshall
Richard Taylor
What benefits will Branch Hub 2.0 deliver? (2/2)
Branch Hub 2.0 will deliver
a long list of benefits to
both Postmasters and the
business
Many of the benefits are
non-financial benefits
related to meeting and
exceeding Postmaster
expectations, improving
their day-to-day experience
and building a stronger
relationship with them
Given we are at an early
stage, most of our benefits
are not yet quantified — in
the Business Case we
have only called out
financial value where a
benefits owner has been
identified
Pillar
Branch
operations
support
IT support
Platform
availability
and ease of
use
Benefit
+ Reduction in costs driven by in-house digitisation of outsourced
or paper-based services (e.g., payslips, P250 vetting form,
contract signing)
+ Reduction in Postmaster time and effort needed to complete
tasks in branch
Financial benefit from a reduction in dependency on a human-
heavy support model as Postmasters are able to access self-
serve help and support from Branch Hub
Improvement to Postmaster experience as Postmasters are able
to get the support they need in a convenient manner at a time
that suits them (especially key if serving customers in parallel)
Generation of ‘ir
(Grapevine)
Provision of quicker and smoother user journeys and improve
issue resolution
annual savings in reduced SMS cost
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Benefit owner
Tim Perkins
Gary Walker
Tim Perkins
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Delivery plan details
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We adopted a bottom-up approach to the development of the Branch Hub 2.0 plan,
deriving insights from a number of inputs
> Deliverables Resources needed Cost of resources
Branch Hub vision
Postmaster input (e.g., via
workshops)
Other programmes (e.g., PSIP,
Digital Enablement)
Deloitte Report
Internal Audit Report
We translated the insights from
these inputs into a set of
deliverables which we prioritised
and mapped against six pillars:
I Branch Performance and MI
2 I Training and onboarding
Knowledge, communications
and community
2 I Branch operations
5 I IT support
Platform availability and ease
of use
We translated these
requirements into the resource
cost for the Business Case and
sought further input on non-
resource costs (e.g., for
integrations) to determine the
total cost of delivering the full set
of deliverables
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What are our target timescales for delivery?
Platform availability and ease of
By December 2021
Mobile app
Home page / navigation improvements
PM-managed staff use of Branch Hub
By June 2022
Branch Hub on more devices in branch
Improved experience for multiples
Expansion of Branch Performance to
include data about more products, branch
remuneration and operations more
generally
Branch Performance for pluralists (i.e.,
aggregated data)
Tips for branches on improving their
sales performance
Access to various forms (e.g., agent
vetting form) via the Branch Hub platform
Improvements to the onboarding journey
Further improvements to the onboarding
journey (e.g., before receipt of Smart ID)
Improvements to the offboarding journey
Improved ability for Post masters to give
feedback and make complaints
Branch Hub forums to allow Postmaster
community to share best practice
Ability for Postmasters to access support
with improving their digital presence on
Branch Hub
Targeted branch messaging
Web chat / virtual agent
Stock ordering improvements
Improved access to help and support
(eg., Knowledge Articles)
Improved experience for branches when
seeking support with IT
Improved end-to-end case management
journeys
Improved end-to-end case management
journeys for IT
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PRELIMINARY
By mid-2024
'
1
'
1
1
i
'
'
'
i
1
1
I There are a range of other features we
1 are aiming to deliver by 2024, with the
1 full ist and associated timescales to
1 be determined based on Postmaster
I! feedback and suggestions and
I business requirements
i
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1
1
1
'
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t
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The Business Case is structured around six pillars developed based on what we've
heard from Postmasters and the business (1/2)
What did the Which pillar addresses this? What are the target deliverables for
Postmasters say? (Business Sponsor / Owner) FY21/22? How do these deliverables meet the Postmaster need?
We do not have access + Expansion of Branch Performance to Branch Hub will host dashboards and datasets that
include wider data set and to inform
enhancement of sales performance
to the data we need to
run our branches and
Branch Performance
are reliant on Area and MI + Digital remuneration advice forms and
Managers for this information on remuneration calculations
information * Branch Performance for pluralists
We find the onboarding + Digitisation of the agent vetting form
Postmasters need to optimally run a branch; this is a feature
that 90% of Postmasters say they would use
In particular this will contain information relating to
remuneration and compliance, data that Postmasters have
articulated demand for repeatedly (reducing need for printing)
Digitisation of the onboarding and training journeys will
accelerate those journeys and allow Postmasters and their
staff to access them in a way and at a time that suits them
Introduction of a smooth onboarding journey (i.e., from before
receipt of Smart ID onwards) will also foster Postmaster
familiarity with Branch Hub, driving its use in the future
and ‘reining Lavoe + Onboarding journey on Branch Hun
long and onerous, bot! . i vey i
when opening branches Training and Offboarding journey on Branch Hub
and for onboarding new onboarding
staff
We find it difficult to find + Branch Hub forums for Postmasters
the information we need + Improvements to formal feedback
and are overwhelmed by Knowledge, avenue for Postmasters on Branch Hub
the number of
communication channels
with Post Office
communications and + Boosting your digital presence section’
community + Targeted branch messaging
Migration of One Site onto Branch Hub
Branch Hub will be the start point for Postmasters when they
need information meaning that they are able to find all of the
information they need in one place
Branch Hub will strengthen connections across the
Postmaster network and build engagement, including via with
forums, a feature that 86% of Postmasters said they'd use
1 This was a request from the Digital Enablement team for Branch Hub to host content to support Postmasters with improving their digital presence through tools such as Google My Business
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The Business Case is structured around six pillars developed based on what we've
heard from Postmasters and the business (2/2)
What did the
Postmasters say?
Which pillar addresses this?
(Business Sponsor / Owner)
What are the target deliverables for
FY21/22?
How do these deliverables meet the Postmaster need? __
We cannot access
support with running our
branches at times that
suit us
We want to do more on
Branch Hub
Branch operations
support
We are unable to access
IT support in a
convenient manner and
at a convenient time
We want to use Branch
Hub but cannot access it
in branches (e.g.,
because we don't have
the appropriate
hardware)
IT support
Platform availability
and ease of use
+ Virtual agent / web chat
+ Case management
+ Stock and coin ordering improvements,
including forecasting cash holdings and
providing insight on item availability
+ Enhancement of IT virtual agent
+ Case management (IT)
Mobile app and addition of Branch Hub
to devices in branch to improve access
+ Postmaster-managed RBAC (role-based
access) solution for Postmasters
Journeys for multiples
Journey / process optimization / SEO
Postmasters will be able to connect with a larger number of
teams (e.g., IT, Legal, ...) at a time that suits them via virtual
agent and web chat on Branch Hub
Branch Hub will be a “one stop shop” for Postmasters to easily
conduct a range of critical branch activities (see full set of
roadmap deliverables in Appendix)
Postmasters will be able to access IT support via Branch Hub,
including answers to questions about common problems,
immediate support from a virtual assistant and contact details
for human support
Branch Hub will be accessible on a wider range of devices,
including on a mobile app, to increase Postmaster availability
Challenges with adoption for less technical will be addressed
through UX improvements (e.g., refresh of interfaces to make
them easy-to-use and highly accessible, with simple
navigation and clear language to support Postmasters)
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What will we deliver in the first tranche of FY21/22?
Pillar
Target deliverables
oe Pillar
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Target deliverables
Branch sales data (by branch, by Smart ID) to all
Deliverables postposed for 2022 onwards
Deliverables postposed for 2022 onwards
branches Branch
+ Branch customer sessions data to all branches operations
* Operational reporting to all branches Support
Branch + Branch messaging
Performance + Ability to export to excel
and MI + Sales support information, information on sales
campaigns IT support
+ Digital remuneration advice forms
+ Portal on Branch Hub for Postmasters to access a
Training and range of forms needed to run a branch (e.g.,
onboarding P260)
+ Digitisation of some aspects of the onboarding Platform
journey (working with PSIP) availability and
~ a ~ — ease of use
* Improvements to Branch Hub as a formal
Knowledge, feedback avenue for Postmasters (e.g., creation of
comms and digital discrepancy form)
community + Creation of Branch Hub forums for Postmasters to
connect on Branch Hub, share best practice etc.
+ Branch Hub home page refresh and optimisation
of journeys from home page
Creation of mobile app
+ Postmaster managed role-based access, allowing
Postmasters to select what their employees can
see
+ Addition of Branch Hub to ID tablets (feasibility
currently being explored)
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Early progress on
Branch Hub 2.0
What has Branch Hub 2.0 delivered to date?
To date, Branch Hub has
driven improvement in
platform fundamentals
(e.g., registration, single
sign on, search
improvements) as well as
delivering a number of
new features for
Postmasters
Branch Hub responded
quickly to the COVID-19
pandemic, releasing a
number of new features to
provide Postmasters with
operational support
throughout the
pandemic (e.g., the
ability to order PPE)
ies delivered to date
What do Postmasters want?
Postmasters shared that it was often
challenging to conduct activities (e.g.,
report IT issues, update opening hours)
through existing available channels
which often required the Postmaster to
dial in
Postmasters reported that the ordering
process on Horizon was cumbersome,
with over 20 screens for stock ordering
and an inability to amend their planned
orders
Postmasters asked for the ability to
self-serve information about their
branch, with 90% saying that this was
a feature on Branch Hub they would
use
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What have we delivered?
We've added a range of digitised journeys to Branch
Hub, allowing Postmasters to do many critical activities
(e.g., report IT issues, complete Fit & Proper self-
declarations, give feedback, access Knowledge Articles,
update opening hours) in one easily-accessible place
We have created tools to allow Postmasters to order
both coins, currency (USD, Euros) and value and
non-value stock items on Branch Hub (with just 3
screens), as well as allowing Postmasters to amend their
planned orders
We've developed Branch Performance (currently in pilot
form), giving Postmasters a range of information about
their branch/es including sales data (by staff member),
transactions data and customer sessions data; feedback
from Postmasters on this feature has been
overwhelmingly positive to date
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What are Postmasters saying about the early versions of Branch Hub 2.0?
We are committed to building a
Branch Hub that works for those
who will be using it -
Postmasters
To build Branch Hub with
Postmasters, we engage with
them through a number of
channels, from surveys to
interviews and workshops
Feedback from Postmasters on
Branch Hub has been
resoundingly positive — they are
enthused by progress to date
and excited for future
expansion, with many
suggestions for what we can do
Branch Hub is the way forward
It's a great tool and would
recommend to everyone to use
Branch Hub is brilliant — keep it
coming -— I use it for all my
stock, all my currency, all my
ATMs - it's brilliant! 5 5
It's great that you can easily
access the information
whenever you want
Branch Hub is the future — I like
it
Branch Performance looks
fantastic — I’m 62 years of age
and I can easily understand it
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youesg uo pei
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Appendix
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FY21/22:We worked with a range of parties to develop a triangulated view of the
resource time needed to deliver the deliverables in the roadmap
Deliverables (through to Mar’22) _ Priority Sprints Developers 21122 days by pillar patented pri Developer UX Tester
Branch Performance and MI 74 74 296 59 56
Training and onboarding 74 74 262 49 47
Knowledge, comms and 37 74 262 59 56
Postmaster-managed RBAC solution community
Branch operations support 37 118 210 49 47
Multiples registration and log-in
IT support 37 30 52 30 28
Branch Hub on devices in branch 2 2 Platform availability and 37 74 580 49 47
ease-of-use
Pluralist Branch Performance 2 2 ——
Sales performance enhancement 3 2
Pillar Resource Non-resource Total
S [Branch Perf for A
= IMenages 4 2 Branch Performance and MI
© onboarding journey 2 2 Training and onboarding
8 Knowledge, comms and
Agent vetting form 4 2 community
Branch operations support
Branch Hub forums 1 2
IT support
Migrate One Site 3 2 Platform availability and
ease-of-use
Total
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POL Data
Board document, pre-read
July 2021
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BIEG Od UO pesy-ald Py GEL
messages
The current ‘state’ of data at POL shows a fragmented overall function, with
a number of outdated and out-of-support legacy systems,
i __jand limited organisational ability to extract business value out
of available or future data
The proposed “POL Data Programme” body of work both addresses
immediate challenges and establishes the foundation for an end-to-end data
function. This includes:
— Stabilising and retiring legacy systems, replacing with a modern “data lake”
IRRELEVANT
- Building ‘capabilities, n mechanisms and culture to better I leverage data for POL.
and postmaster benefit (e.g., through advanced analytics capabilities)
The mid-point of the proposed funding envelope is) : (ROI
of ~9 years compared to current costs). The discussion at Board level will offer a
menu of further options to choose from, ranging from ‘Do Nothing/Minimum’ to
‘Best in Class’
CONFIDENTIAL AND COMMERCIALLY SENSITIVE - FOR POST OFFICE INTERNAL USE ONLY
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3
F
Contents 3
+ What are some of the current challenges with POL Data?
< + What is the proposal for a "POL Data Programme"?
7 + What are the underlying financials?
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cts significant
pany
chall
Data sets Data platforms Data Marts - None Data realisation
Reporting
1000s of reports are currently
generated by POL with unclear
usage. Most areas then manually
process data via Excel exports
Credence
Self-Serve - None
>
Camelot matching ag:
remuneration file
Barclays Cheques
Data science (e.g., Machine Learning,
Advanced Analytics, Artificial Intelligence) -
None
Dynamics 365 — Call
Centre
Ir ind Go
Local Collect pom
User Management, Security, Permissions etc
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The current POL Data landscape reflects significant challenges (2/5)
Q
as =
Data sets Data platforms Data Marts - None Data realisation
Credence
Sales Targets
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Legacy data warehouses require stabilisation: Credence
and Arrow are beyond end of life, out of support, and
eres ~> frequently fail - causing systems to be offline, which leads to
amelot mate! ing agent + . .
business disruption
Arrow
Local Collect
Barclays Cheques
Dynamics 365 — Call
Centre
User Management, Security, Permissions etc
CONFIDENTIAL AND COMMERCIALLY SENSITIVE - FOR POST OFFICE INTERNAL USE ONLY
ae
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Od uo peay-aig py GEL
The current POL Data landscape reflects significant challenges (3/5)
Limited
(tc
Q
Data sets Data platforms Data Marts - None Data realisation
(B) Reporting
Credence
In addition, Legacy systems do not meet the needs of
POL for the future; they:
¢ Drive very high costs for legacy support
an + Cannot be scaled for greater business use and are very
remuneration fi Sef y 4
Arrow * Limit data available to the business (e.g., relying on batch
2
3
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3
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3
ee eae processes and offering only 90 days of data)
+ Do not easily support self-serve or advanced analytics
capabilities
+ Are architecturally subobtimal (e.g. Credence feeding
CFS)
Dynamics 365 — Call
Centre
User Management, Security, Permissions etc
CONFIDENTIAL AND COMMERCIALLY SENSITIVE - FOR POST OFFICE INTERNAL USE ONLY a
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The current POL Data landscape reflects significant challenges (4/5)
Q
Currently at POL we have little overall Data Management:
Data sets limited Data Governance and Data Quality Measurements
in place and a lack of single points of accountability (Data
Ownership)
1000s of reports exist in POL
Excel is used largely across
organisation for analysis (fed by
This restricts POL’s ability to measure, report and trust the Credence/Arrow reports)
quality of our data, which is critical to becoming a data driven
I FRES organisation + None
Camelot matching agen
Local Collect
Data science - None
Dynamics 365 — Call
Centre
Horace
User Management, Security, Permissions etc
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The current POL Data landscape reflects significant challenges (5/5)
if
Q
«ca
Data sets Data platforms Data Marts Data realisation
[Je MOC BRDS NGA
SRDE Reporting
1000s of reports exist in POL
Credence Excel is used largely across
La organisation for analysis (fed by
egies o é Credence/Arrow reports:
POL lacks the capabilities to systemically exploit me
data for strategic advantage:
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Self-Serve - None
Camelot
Camelot matching agent ~POL has no effective self-serve MI capabilities -
remuneration file . ‘ sie
Credence is not an intuitive system; most teams use
Business Objects (Credence MI) to export to Excel and
work from there
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Data science - None
POL has no data science capabilities - There is a lack of
Al and Advanced Analytics which could be used to drive
strategic insights and capture value
Dynamics 365 — Call
User Management, Security, Permissions etc
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3
Fa
Contents 3
+ What are some of the current challenges with POL Data?
< + What is the proposal for a "POL Data Programme"?
7 + What are the underlying financials?
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POL Data Programme’s vision is to create a consolidated, best-
in-class data function, and to transform Post Office into a data
centric organisation, where data driven business decisions are
the norm and robust data governance is part of POL’s DNA,
enabling Postmasters and POL to unlock the commercial value of
our data.
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POL Data — core principles
PDP’s core principles
PDP will exist for the purpose of making analysis and reporting easier across POL and for postmasters
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PDP will create a ‘single source of truth’ for data across Post Office, through building a Data Lake and breaking
down silos to increase validity of data and drive trust
PDP will develop cross-POL data driven ways of working and a data centric culture, where colleagues are
encouraged to develop their data skills and make data driven decisions in all areas of their work
PDP will build data management into our DNA, adopting a governance framework and accompanying policies and
accountabilities for the ownership and management of data
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PDP will increase the availability of easy-to-use data provided to postmasters to accelerate their businesses,
working closely with Branch Hub
PDP will drive data exploitation, using advanced analytics and Al on our data to generate strategic or tactical
advantages
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The POL Data programme will focus on addressing four key areas
fA)
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+ Legacy system stabilisation. upgrading the out of support components of Credence (and connected: MDM), would
Legacy systems omnes ~ . - .
stabilisation + The decision in principle (depending on external assurance) is to continue operating at risk and accelerate the
Credence decommissioning aspect of the POL Data Platform — aiming for ~ October 2022 for Credence
decommissioning
+ The initial focus of building the POL Data Platform will be to build the POL Data Lake (AWS) and replicate the data
source feeds and output feeds / reporting feeds of Credence, so that Credence can be decommissioned, replaced
POL Data Platform by the Data Lake and Power BI front end
* The data lake build will then move onto replacing Arrow, and meeting business pain points and requirements,
improving functionality beyond that of Credence and Arrow and removing the need for federated MI
+ The initial pillars of data management to be driven forward are
— Data Governance:
Date Manager ont — Data Quality: Drive the ability to measure, report and trust the Quality of data
— Data Ownership: Transfer accountability for data to the business; a single point of accountability
+ The first part of data exploitation will be optimising reporting to drive both efficiency and effectiveness across POL,
rationalising the vast number of reports and pushing self service capabilities
Data exploitation + In addition, we will develop a centre of excellence for data science, starting small and scaling, to drive the
exploitation of data across POL, leveraging it for competitive advantage
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Bayes pueog
CA) Legacy systems would take:
IRRELEVANT
seeking instead to replace them as soon as possible
Stabilisation
. . / upgrade
Before we invest we will costs
investigate what the minimum we [Estimates]
need to spend is to fit with our
replacement plan for This would
Credence/MDM and Arrow take ~8-12
months
1 Accenture cost estimate from Aug 202 ortion only — internal costs in internal tine
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© Vision for POL Data Platform
Prater Goveenance
oF secypten ooneeraen ‘oe
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@ Our aim is to create a world-class data driven business through Data Management,
which includes Data Governance, Quality and Ownership
With the publication of the HIJ and subsequent analysis by both POL and external consultants, the need for a clear and coherent plan
around Data Management and subsequent deployment of appropriate capabilities has never been greater. Currently at POL we have little to no
Data Management in place — we need to resolve this to build a POL with world class data in our DNA
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Initial three pillars of Data Management
The creation of a series of Policies, Standards and Principles that will regulate and
enforce how data is managed. Whether its how POL manages data confidentiality, how POL
manages access to datastores or how data issues are dealt with and corrected; Governance
will create the rules and regulations which are critical to the end-to-end data function
The implementation of a data Quality programme. The journey to becoming a world-class
Governance data driven business relies on having the ability to measure, report and trust the Quality of
data across POL and its partners. Whether it be using data for analytics to predict future
growth or the amount of cash in transit at any given point in time or calculating Postmaster
renumeration, having trust in the Quality of data is critical for POL and its Postmasters
Transferring the accountability for data from IT to the business segments that master
the information. IT merely host the data, good Data Management dictates that Ownership
must rest within the business. Ownership ensures a single point of accountability, ensuring
data is protected, controlled, measured and reported
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8
@ Data Governance roadmap to April 2022 3
oS
Full project start, January 2022 April 2022 Onwards a
October 2021
® @-
@ Data Governance Framework and @ Data Governance reporting (including
2 Data accompanying artefacts deployed compliance reporting) established
fa Governance a
g @ Data Council stood up @ Data Governance zone / training stood up
@
é @ Data Quality requirements published ® PoC Data Quality Too! stood up and longer oat ually
2 Data term tooling selected ashboar
S Quality @ Data Quality programme established
fa @ data Quality Zone/Training stood up
8
8 ight touch data ownership model publishe: ull Data Ownership/Steward Mode!
g @ Ligh h di h del published @ Full Data O hip/S' d Model
8 Data : i
Ownership @ Data Ownership Zone/Training stood up
@ Draft RFP for Data Management tooling Tooling
Cross-pillar complete integrated
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© Reporting will become more based upon self-serve principles, reducing churn and 3
driving data capabilities across the business
> This will be supported by an MI team aligned
In the future, we will have 3 stages of reporting / MI functionality: to the demand cycle, with colleagues in 4 roles:
Demand: gather requirements, identify
sources
Ty Rationalised set of reports, including dashboards Governance: warke with datalouneric
= that meet multiple business users’ requirements agree usage and KPls
Delivery: build dashboards
Sustain: maintain reports, manage user
©: Self serve dashboards in Power BI — MI team ‘pre can’
= access
data into commonly used structures which business
users can then pull cuts from (reports)
8
... and underpinned by an increasingly data-
Increasing data capability, driven by
data culture and literacy
8 @ ‘Superusers’ across the business will have the option to centric culture, and increased data literacy
& receive training Power BI and build their own dashboards across POL. These are key enablers to ensure
/ reports fed from the data lake (with guardrails such as colleagues are using the systems in the optimal
data catalogues, a clear data ownership model etc) way (€.g. as opposed to downloading to excel
+
and processing there, or using federated Ml)
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© Our approach to data science capabilities at POL will be to start small and build, to
drive increased value realisation from our data
To build data science
capabilities at POL, we
will start by introducing
off the shelf tools,
building on the data lake
through AWS. We will
then stand up a data
science team in future
years, and work with the
wider data culture
transformation to embed
data science
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Plan for data science at POL
FY 21/22
Bring in AWS data science
tools (e.g. Metrics)
These tools enable data
science capability without
POL data scientists
To run these tools, we plan to
train a member of the
existing MI team
FY 22/23
Once we have the POL data
platform stood up we will build
a team of data scientists (~2-
3 SMEs)
This will be a core unit to
leverage Al and Advanced
Analytics, working with the
business
This will include investigating
how POL can monetise our
data for postmasters and POL
FY 23/24
We will have a data science
centre of excellence
established, leveraging Al and
Advanced Analytics
We will have established a data
culture and increased level of
data literacy across POL
which facilitates the leveraging
of our data to drive competitive
advantage
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Data sets Data platforms Data Marts
BRDB
a a Sales Reportin
parting
FTEL Branch Detail
FRES
>
Camelot matching ag z ‘i
remuneration file POL Data lake Anti Money Laundering
vy
Local Collect
Barclays Cheques
Barcla sonal ban!
Success Factors - LMS
Dynamics 365 — Call
Centre
& Master Data
MDM replacement
User Management, Security, Permissions etc
Data realisation
Reporting
Self-Serve
Data science
Dashboards
Periodic reports
Operational reports
Ad hoc queries
SQL interfaces
Machine Learning
Artificial Intelligence
Notebooks
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Contents 3
+ What are some of the current challenges with POL Data?
< + What is the proposal for a "POL Data Programme"?
7 + What are the underlying financials?
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a
8
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POL Data Programme is seeking to unlock significant financial and non financial
benefits, for both POL and postmasters
Beto Reduction of ‘run costs’: running the new platform will be cheaper than continuing to run the current platforms
anc
(2] Improved data quality and governance will drive increased trust in data, enabling data led strategic decisions
(3] More sustainable and efficient business processes within POL, reducing time spent on analysis and reporting
Alea (4) Improved fraud detection and prevention due to more detailed ‘one source of truth’ view of branch activity
financial
Financial
(5) Opportunity to prevent remuneration breaches and to prevent contractual reputation damage, avoiding overcharging bank clients
(6) Improved knowledge of customers to facilitate personalisation and targeting and to improve customer experience and satisfaction [TBD]
Cost @ Avoidance of cost incurred if Credence breaks down, and avoidance of significant reputational damage
evoldance © Transparency of information on Anti Money Laundering (AML) activities in branch avoids potential cost
[9] Reduction of risk from existing systems failing and preventing BAU activities
® Significant increase in data and an ability) in POL, including introduction of Advanced Analytics and Al on our data
_ @) Improved ability to analyse and forecast Po
Pra Support data management improvements which emerged from HIJ requirements
Hid
® Greater clarity and transparency for postmasters of branch data and management information (i.e. supporting Branch Hub in delivering MI to
postmasters)
Non-Financial
Postmaster
satisfaction ® Improved management of, and support for, postmasters stemming from improved visibility of branch transactional data (real time and historic
data)
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IRRELEVANT
4 UO
As a baseline, POL currently spends
Credence operating costs (excl. licenses)
Arrow operating costs (excl. licenses)
MDM operating costs (excl. licenses)
: Horice operating costs [ R R E L EV, A N T
Credence/MDM License costs
8 Arrow Azure spend
TOTAL r
Mt FY 2 in L & Peop _
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a
POL currently has ~139 Data roles across the business 3
Data roles by POL Division °
Post Office Ltd C139
45
40
3
» 35
3 Post Office Insurance ~8 a
g 25
20
7 Payzone ~4 e
8 10
- & £ < a & & Ss
s SF co. ea Ka is oe
Ko cad & Pa ry FS
ee “2 ¥ eS
oe & es
=
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IRRELEVANT __
POL Data Programme is seeking for ¢
1 10d uo pea;
Cost breakdown
Legacy stabilisation
MDM replacement
8 POL Data Platform (replacing Credence and Arrow) :
i) Incl. in i
2 ROI Data value realisation (incl. POCs already approved, £125k) i
Fy Central team (incl business change) H
8 I
= IRRELEVANT
8 Data Quality ' I
8 Data Governance i
8 Excl. Data Ownership (incl. stewards) I
from ROI H
Data Culture and Literacy
TOTAL i
TOTAL i
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APPENDIX
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We have three Proof of Concepts underway to demonstrate the ability to exploit data 3
from the POL Data Platform
66 As a Postmaster, I want to view Horizon transactional information related to my branch so
alos that I can investigate potential reasons for accounting discrepancies or shortfalls and try
and to resolve them myself, without having to engage the Branch Support Centre and the
S investigations teams 5
x
2
a
i
8
66 As a Banking Product Manager, I want to identify branches where debit cards are
being used to inflate remuneration and contact the branches to correct behaviour bb)
e to As the Head of Postmaster Experience, I want to receive KPIs in near real time — there is
©) an existing dashboard, which receives data from excel and other batch processes 99
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Tab 4.5 Pre-Read on SPM
@
POST OFFICE LIMITED
BOARD REPORT
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Title:
POL Board Away Day:
Technology session
Meeting Date:
28" July 2021
Author:
Zdravko Mladenov, Business
Transformation Director
Sponsor:
Nick Read, Group CEO
SPM video demo
Confidential
152 of 153
POL Board Strategy Day 2 - 28 July 2021-28/07/21
Tab 4.6 Branch Hub video demo
@
POST OFFICE LIMITED
BOARD REPORT
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wer POL Board Away Day: + . th
Title: Technology session Meeting Date: I 28" July 2021
Author: Zdravko Miadenov, Business Sponsor: Nick Read, Group CEO
Transformation Director
Branch Hub video demo
Web address: https://vimeo.com/578169120/603b5caac3
Password: GRO
Confidential
POL Board Strategy Day 2 - 28 July 2021-28/07/21