OGGO Committee Meeting

37th PARLIAMENT, 2nd SESSION

Standing Committee on Government Operations and Estimates

EVIDENCE

CONTENTS

Monday, February 17, 2003

Á

1105

The Chair (Mr. Reg Alcock (Winnipeg South, Lib.))

Mr. Steve Mahoney (Mississauga West, Lib.)

The Chair

Mr. Steve Mahoney

The Chair

Mr. L. Philippe Lemay (Executive Vice-President, Business Development, Canada Post Corporation)

Á

1110

Á

1115

Á

1120

Mr. Cal Hart (Vice-President, Product Management and Business Transformation, Canada Post Corporation)

Á

1125

Mr. L. Philippe Lemay

Mr. Cal Hart

Á

1130

Mr. L. Philippe Lemay

Á

1135

Á

1140

The Chair

Mr. L. Philippe Lemay

The Chair

Mr. Ken Epp (Elk Island, Canadian Alliance)

Mr. L. Philippe Lemay

Mr. Ken Epp

Á

1145

Mr. L. Philippe Lemay

Mr. Ken Epp

The Chair

Mr. Ken Epp

Mr. L. Philippe Lemay

Mr. Ken Epp

Mr. L. Philippe Lemay

Mr. Ken Epp

Mr. L. Philippe Lemay

Á

1150

Mr. Ken Epp

Mr. L. Philippe Lemay

The Chair

Mr. Robert Lanctôt (Châteauguay, BQ)

Mr. L. Philippe Lemay

Mr. Robert Lanctôt

Mr. L. Philippe Lemay

Mr. Robert Lanctôt

Mr. L. Philippe Lemay

Mr. Robert Lanctôt

Mr. L. Philippe Lemay

Mr. Robert Lanctôt

Mr. L. Philippe Lemay

Mr. Robert Lanctôt

Á

1155

Mr. L. Philippe Lemay

Mr. Robert Lanctôt

Mr. L. Philippe Lemay

The Chair

Mr. Steve Mahoney

Â

1200

The Chair

Mr. Steve Mahoney

Mr. L. Philippe Lemay

Mr. Steve Mahoney

Mr. L. Philippe Lemay

Â

1205

Mr. Steve Mahoney

Mr. L. Philippe Lemay

Mr. Steve Mahoney

Mr. L. Philippe Lemay

Mr. Steve Mahoney

Mr. L. Philippe Lemay

Mr. Steve Mahoney

Mr. Cal Hart

The Chair

Mr. Paul Szabo (Mississauga South, Lib.)

Mr. L. Philippe Lemay

Mr. Paul Szabo

Â

1210

Mr. L. Philippe Lemay

Mr. Paul Szabo

Mr. Cal Hart

Mr. Paul Szabo

Mr. L. Philippe Lemay

Mr. Paul Szabo

Mr. L. Philippe Lemay

Mr. Paul Szabo

Mr. L. Philippe Lemay

Mr. Paul Szabo

Mr. L. Philippe Lemay

Mr. Paul Szabo

The Chair

---

CANADA

Standing Committee on Government Operations and Estimates

---

NUMBER 009

l

2nd SESSION

l

37th PARLIAMENT

---

EVIDENCE

Monday, February 17, 2003

[Recorded by Electronic Apparatus]

Á  (1105)  

[English]

    The Chair (Mr. Reg Alcock (Winnipeg South, Lib.)): Let's call the meeting to order.

    Before I move to the introduction of the witnesses, I should just alert members to the fact that this meeting is called until one o'clock. There has been a notice that there might be a vote, so we will have to wait and hear. The opposition may decide that they're just going to pass everything, and then there won't be a need for it and we could continue this, but we may be interrupted at some point by bells.

    I'm told that if there is a vote, it's a 30-minute bell. So even if the bells start, nobody needs to worry. We'll have somebody check the timing of it. It's just down the hall, so we'll run this meeting as long as we can so that we don't interfere with our primary task, which is to get some information about systems change on management of large public sector organizations, and on one that has been strangely silent, sort of out of the public view for some period of time. There was a time when we used to have regular debates about the post office.

    Mr. Steve Mahoney (Mississauga West, Lib.): It's because they're doing such a good job, Mr. Chairman.

    The Chair: I suppose it is. Do you think if we got government acting this way it would also sink out of the headlines?

    Mr. Steve Mahoney: If you'd turn the government over to Canada Post, there'd be no trouble.

    The Chair: On that note, I will let Philippe Lemay begin and introduce the team here with him.

    We look forward to your presentations.

    Mr. L. Philippe Lemay (Executive Vice-President, Business Development, Canada Post Corporation): Thank you, Mr. Chair. Thank you for inviting us to appear before your committee. With me today is Cal Hart, vice-president of business development and product management of Canada Post, and Peter Melanson. Peter was running the electronic post office as president up until the end of December and has now come back to Canada Post as vice-president of electronic services.

    We're delighted to have an opportunity to appear before your committee this morning. We will discuss business transformation and electronic services at Canada Post.

    I'll spend a few moments introducing business transformation and what led us to business transformation. After Cal discusses business transformation, I'll come back and talk about electronic services.

    Before I get into that background, I'd like to take you back to 1982, when Canada Post became a crown corporation. At that time the post office department, as it was called then, was losing over $500 million a year. The quality of service at Canada Post was very uneven. In fact, the delivery performance standard was being met less than 80% of the time, and the quality of labour relations was also not very good.

    Canada Post became a crown corporation in 1982, with a mandate to address some of the problems that had impacted the post office department. Canada Post was given a mandate to provide universal service to all Canadians. It was given a mandate to operate on a commercial basis, to operate on a profitable basis, and to fix the performance problem that had affected the post office department.

    As we look at Canada Post today, the first business transformation, you could say, was ended towards the end of the 1990s, and Canada Post is now meeting the delivery standard 97.5% of the time. It is providing and meeting the universal service obligation. Canada Post has been profitable for the last seven years, and our labour relations have improved significantly.

    I want to point out that profitability has not been achieved at the cost of a high cost for letter mail rate in Canada. In fact you will see on the slide that's being shown on the TV screen that of the G-7 countries, Canada Post has the lowest cost of letter mail rate in the G-7 countries--as high as $1 for a letter in Japan to 48¢ in Canada.

    When you think about it, if you look at Canadian geography, Canadian extreme climate, and low population density, you would think that the price of letter mail would be much higher than it is, compared to countries in Europe or even the U.S., where you have a much higher population density and less geography to cover. So you have to conclude that in the first business transformation, Canada Post has done an outstanding job of improving performance and keeping the price at an affordable rate.

    I was not at Canada Post during those days, but I'm very proud of what has been achieved by the corporation during this period of time. In fact by the early 1990s, other postal administrations around the world started to understand and realize what Canada Post had achieved. A number of other postal administrations started to ask Canada Post to come and help them improve their productivity, improve their approach to how they were managing the business. As a result, we created the subsidiary in 1992 called Canada Post International. Today Canada Post International has executed over 100 contracts in more than 40 different countries around the world. Canada Post continues to be known as one of the leading posts in the postal world. We're very proud of that fact.

Á  (1110)  

    I will give you a quick overview of what the Canada Post profile is today. With its subsidiaries, Canada Post had a total annual revenue for 2002 of $5.9 billion. That includes the Canada Post revenue and the revenues of its subsidiaries, which include Purolator, Progistics, epost, Intelcom, Canada Post International, and Innovapost, which is our new information technology subsidiary.

    Canada Post, on its own, today, employs 66,000 employees. We go to 13 million points of call every day. These points of call--delivery addresses--are increasing at the rate of about 150,000 per year, therefore putting cost pressure on Canada Post. We serve about 1 million businesses in addition to all Canadians, and we handle about 10 billion pieces of mail on an annual basis. That's roughly, on average, 40 million pieces of mail per day, operating at 24 mail processing plants, and we have 24,000 points of access through our network.

    Our customers in fact include all Canadians and all businesses and all governments. If you look at Canada Post today and what it's been over the past 150 years, Canada Post has been facilitating commerce across Canada and around the world through the secure delivery of mail, the secure delivery of contracts, the secure delivery of forms to governments, to business, and what have you. We are proud to serve all businesses and all customers.

    If you look at what's been happening to the postal industry over the last five to seven years, there are significant change forces at play around the postal enterprise. In Europe you have postal deregulation and liberalization that started over the last five to six years. We're seeing European posts buying distribution companies. We're seeing European posts competing with each other in the distribution market and even today in the letter mail market in England, in Sweden. We're seeing customers demanding more and more seamless services, not only to serve their customers in Canada but also to serve their customers in the U.S. and in the rest of the world.

    We're seeing technology--the Internet--impacting very much on what's happening to the communication business. Back in late 1999, when we started analyzing those change forces and looking at our revenue growth, our expense growth, looking at the fact that our expenses were increasing faster than our revenue, we concluded that over the next five to ten years we would start to lose letter mail to Internet-secure delivery. In fact that has started to happen, and I'll speak to that in a moment.

    As a result of this review in 1999, we put together a new vision for Canada Post that stated:

Canada Post will be a world leader in providing innovative physical and electronic delivery solutions, creating value for our customers, employees and all Canadians.

    It's very nice to have a vision, but behind that vision, of course, we had to develop a number of key strategic initiatives that would start to propel Canada Post toward achieving that vision. In fact, our key thrust was to defend our current business. This involved looking at the letter mail business and the distribution network we have and making sure we reduced costs and also brought in new applications that would generate new revenues.

    We needed to make sure we grew our competitive business, and that included being present in the e-commerce and the electronic post office. We want to achieve operational excellence. Even though we have improved quality of service, we're still not satisfied that we're providing the best service we can. We need to continue to improve our quality of service to our customers, the quality of our interfacing with customers, and we need to enhance our competitive capability.

Á  (1115)  

     We need to leverage our employees to make them a competitive advantage. That means better training for our employees, better communication with our employees, making sure they are energized to deliver maximum value to our shareholders and to our customers.

    Also we want to increase the corporate image of Canada Post. Despite the fact that from 1982 to 1999 Canada Post had become a much better organization, providing quality service to Canadians, the success of Canada Post was still an untold story. We decided back then that we would need to start to communicate better to get the story out that Canada Post has changed dramatically.

    As a result of the change forces affecting the postal industry, back in 1999 we put a number of initiatives together. One of those was to review letter mail applications--how letter mail is used and what would happen over time as secure Internet technology came into play. Despite the bursting of the Internet bubble that occurred, there is no question that a lot of investments are going on by government--not only in Ottawa but governments in Canada and governments elsewhere--and businesses to find electronic alternatives that would be less expensive than paper communication. In fact, in that study we concluded that over the period of 1999 to 2004, we would see a 10% erosion of our letter mail volume.

    Now it hasn't happened as fast as this, but we're now starting to see letter mail volumes--I'm talking about first class letter mail--starting to reduce by 1% per year. If you look at the operating income statement of Canada Post and if you look at the revenue and expenses, you cannot let that go on for too many years before Canada Post will get into a losing position. Obviously that's not acceptable to our shareholders.

    So that's what led us to a number of critical key strategies that Canada Post had to implement going forward. One of those was business transformation, which my colleague Cal Hart will describe to you in a moment.

    Business transformation was all about reviewing our technology, our people, and our processes to make sure we were optimized. Back at the end of 1999, despite all the work that had been done, we concluded there was still a significant amount of work to do so that we could become more productive and lower the cost of non-mail operations.

    We also had to become even more concerned with customer service, customer interface, customer care. We had the ability to deliver much better customer services.

    We also had to develop the electronic post office aggressively. As letter mail was going to be delivered over the Internet, we wanted to be there to at least not lose all the revenue we would lose from letter mail.

    We needed to expand our role in the supply chain. That's what led us to buy a logistics company, so that we could offer our customers a broader service beyond collection and delivery.

    At the request of our customers, we also needed to rationalize our network, not only to the U.S., which is one of the large trading partners for Canada--in fact, 75% of our mail volumes go to the U.S.--but also to the rest of the world.

    That's what we set out to do back in late 1999. In 2000 our board of directors approved that we enter into this program of business transformation. I will ask my colleague, Cal Hart, to take you through some of the details of that business transformation.

Á  (1120)  

    Mr. Cal Hart (Vice-President, Product Management and Business Transformation, Canada Post Corporation): In 1999, like many other companies and governments, we spent lots of money making 99 look like 00, but we really added no value to our customers, our employees, or our ability to do business. Coming out of that, half of our executives wanted to just say we were in the e-business world by joining together the bad processes we had. The other half wanted to jump on and do something fundamental. It was key that we were spending lots of money and effort doing things, but we were only able to make small incremental changes.

    So we convinced our executives and our board that it was time to do this business transformation. One of the reasons we had to do it was we wanted to improve our customer satisfaction. I'll give you some stats in a minute on where we started on that journey to employee satisfaction. All you had to do was sit in one of our call centres and watch what our employees went through to try to serve a customer.

    To achieve our financial goals we had to eliminate a lot of the non-value transactional work--hand off the duplicate data entry. That was the only way we'd be able to realize the vision that Phil described.

    Employees could not work effectively in generating customer value when the business processes they were working with were not integrated and were not enabled by good technology. I'll show you what we call the spaghetti map in a second. I'm amazed, when I look at the spaghetti map, how our folks ever got anything done under that.

    I talked about our billing satisfaction with customers being low. When we started measuring billing satisfaction with our commercial customers, it was at 8%. I think that was because 8% never got a bill because we didn't know back then. Customer management capabilities were low. We couldn't have a relationship with customers when they called in. They couldn't get a consistent answer when they called.

    Picture what we had to deal with. We handle about five million calls a year through three call centres. We have more retail outlets than all the commercial banks in Canada combined, and we have a face-to-face sales force out there. The challenge was to get one integrated network of information behind that, so no matter where the customer called they got a consistent answer each time.

    We didn't make a lot of the changes we wanted to make back then because the infrastructure was costly and time-consuming, and it was very risky to make changes to it because it was old and it had a legacy. We were not focused on process. Because we had such bulk in processes and systems, we had lot of checkers and balancers on our payroll.

    So the business solution we came up with was to look at integrating people, process, and technology by developing standardized processes integrated by one large ERP platform--enterprise resource planning software, which you may know as PeopleSoft or SAP--and take them and wrap them around new business processes with an empowered workforce. We wanted to move primarily from transactional work to problem solving and solution development.

    If you look at our processes when we started, I'm sure they were much the same as other businesses before they started. There were a lot of hand-offs, data entry, and re-work. One system didn't talk to another system and one group didn't talk to another group. It wasn't uncommon to go into meetings at Canada Post before we started this journey and hear a business issue being discussed and three sources of information being tabled, all of which should have been the same number. So we primarily wanted to change the work, the culture, and the way we did Canada Post, and move to a process-based organization.

    I'll lead you next to our legacy map. I'm not asking you to read that, but I stress that if you look inside many businesses and government departments, that's what they have today. That was our legacy environment, and I'm amazed that our folks were ever able to make any change at Canada Post.

Á  (1125)  

    Mr. L. Philippe Lemay: I might take you back for a moment on this spaghetti chart. If you go back to 1998-99, we were involved in Y2K, as you'll recall. At Canada Post we had to spend over $100 million to fix our system so it would work properly on January 1, 2000. That's when we discovered we had many legacy systems that contained redundant data about customers and employees, and that was adding to over-administration, poor employee service, and poor customer service. That was the basis that led us to conclude we had to transform our processes at Canada Post.

    Mr. Cal Hart: We go from this legacy application map to 18 months later. This is what we're now operating on. I'll just take a minute to explain that.

    The centre above we call core R3. That's our technology backbone system. Wrapped around that are all of our core business processes. It is one very large integrated system. When we go in now and make the change to one part of our business, it populates right across our whole network, including right up to our front-end systems--our customer shipping systems, what you'd see at our retail store.

    What we've done around this is tremendous if you look at it. It's probably the largest change we've delivered in our 150-year history in Canada Post. To put it into the words I use when I'm talking to folks, we literally ripped the engine out of our car and replaced it without losing any speed on the highway, because we remained profitable throughout this change. What this has enabled us to do going forward is we can now do things much faster. Our organization is much more agile now because of the information we had...we've eliminated a ton. I can show you some statistics of data entry work. Now we put data into the system once. We try to go back as far as getting the customer to put that data in for us, so we don't have to re-key it.

    We've now positioned ourselves for growth going forward. In fact, we'll be introducing a number of new products this year that we could only dream about in 1999-2000, because we wouldn't have been able to. I'll give you the example of our employees' time and leave.

    When we started this initiative some groups of our employees had their paycheques worked on over seven times before they actually got the right paycheque. Those employees now come into their plant, they swipe, and that goes right through--if they've worked their eight hours--to payroll with no human intervention. As a result of all these changes we've made, we've been able to--I'll just take you back.... I'll stop here for a second.

    We have something here called “supply and demand”, and we're much the same as government. If you sat in a room of postal employees today and asked how many plan to retire in the next five years, 25% to 30% would raise their hands. So we had a decision to make at Canada Post. We could either refine our processes and eliminate the non-value work or we could hire back each of those people one at a time.

    What you see on the red line is the demand of labour I'm going to need forward and what you see as the blue line is the supply. That's my natural attrition. The squiggly line is our ability to take out work. Since we started measuring this, I'm pleased to say that at the end of December we had taken 711 people out of our indirect base. This does not count any employees who sort mail, serve you at the counter, or deliver mail. This is just management and indirect. As we say at Canada Post, this is the non-value-add that our customer sees, just eliminating that from the back-end.

    We've had some of the success recognized. This is the ROI report, and when I came into the room today I was asked about this report. This report--we're going to hand out a copy at the end--is proof that our business case has been validated by a private group in the U.S. They were impressed enough with it that they've published it as a case study. We're going to leave copies of that to be handed out to each of the members.

    One of the awards that we're very proud of, which was a recognition of our work, is the Customer Relationship Management Excellence Award. I want to give you a bit of background on this award. There are 190 companies that have been nominated from around the world to receive this award. It was brought down to three finalists, the awards were presented, and the finalists determined in Chicago. That's important because one of the finalists was Bank One, which is headquartered in Chicago, the other one was General Motors of America, and the third was Canada Post. We joked a bit at Canada Post that when this was judged in the U.S., they probably thought we were the national newspaper, not the national postal service. But we are very proud to be recognized for that award. We've received publicity and numerous requests from other companies to come and see what we've done.

    The next award we received was a standard of excellence award around our website, canadapost.ca. I'm just going to talk about that in a second. This was a tremendous work of accomplishment. It took us from business capabilities that we didn't even envision in 1999 to what we're providing on-line today. What we wanted to do with our Internet is to create a rich, uniform customer experience across all the channels. You'll recall I talked to you about the retail channel, that we have more stores, all the commercial customers, the five million calls we handle. We saw that if we could move customers to the Internet and let them serve themselves 7/24, when they wanted, the cost of that transaction is fractions compared to a phone call into one of our service centres.

Á  (1130)  

    I'll just tell you of some of the success we've had there. This is now the number one directory website in Canada, and there's a tremendous opportunity for us to leverage that. And I encourage you—it's your post office—to go on and look at it, at canadapost.ca, and see some of the richness we've built there.

    We actually have 1,500 commercial customers right now—this is our launch pad on our business side—ordering their supplies on-line. That used to require a call into our customer service centre three or four times. They're now allowed to go on-line and do that.

    We have 9,000 customers who give us their shipping data every day for their commercial shipments, right into our system. We're able to bill from that with no human intervention. We're also able to cube and reweigh now, because we've put in this integrated system.

    We have 6,000 customers right now who go on each day and validate their mailing charges to us. Those used to be end-of-the month phone calls, with lots going back and forth. Now if there is an issue that day, they're logging it in with us. Because we've now got this traffic, the number one directory website, and this functionality, we're well positioned to offer new services on-line.

    This is just a summary of the journey. I haven't done it justice here today. I'm more than ready to bring any member of my team back to show you all the components of this 18-month journey. But we're now doing e-business for our commercial customers; we've lowered our total cost of ownership—think of the costs of maintaining that legacy map I showed you as opposed to maintaining the integrated system we have today—we've created new value opportunities for our customers that we only envisioned and dreamt about in 1999; and we've now moved to a process-based organization around our four core processes, which are the only ones our customers see value in: our market, our sell, our serve, and our fulfill. That's where our customers see value.

    At this point I'd like to turn it back to Phil, who can explain how we've leveraged some of that in our e-services environment.

    Mr. L. Philippe Lemay: Thank you, Cal.

    In summary, if you look at business transformation at Canada Post, it's all about business process re-engineering. Back in the 1980s and early 1990s I was working in the computer industry in the Silicon Valley in California. If you were living in California back in the 1980s, you will recall that Japan was going to take over the world with its technology. Japan was starting to beat the U.S. in terms of productivity in the automobile industry, in the computer industry, in the consumer electronic industry, and so on. In fact, they had just bought the Rockefeller Center in New York. They had bought Pebble Beach in California. There was a psychosis in the U.S. that Japan was taking over the world.

    In the early 1980s there was a book published in the U.S. by Dr. Michael Hammer on business process re-engineering That book did not get much notice initially, but as the U.S. was starting to lose more and more business to Japan, business in the U.S. started to take notice of Michael Hammer's book and many U.S. companies started to re-engineer their businesses along the Michael Hammer concept.

    The concept is very simple. Michael Hammer starts with a view from the customer of how does an enterprise, how does a government, how does a postal organization deliver value to its customer. Working back in terms of how you're organized to deliver those values, you start to realize that by working through silo organization and through broken processes, you cannot deliver value. Company after company started to re-engineer, to the point where in the mid-1990s the U.S. became very competitive again and in fact put in place one of the best economies in the world.

    The same phenomenon happened in Canada and is still happening. Canada Post leveraged that to transform its enterprise and to take in total about $150 million off costs each year while maintaining and improving customer service. That's all about business transformation at Canada Post.

    In parallel with that--and I'll go to e-services now--the Internet became a phenomenon, as you know, in the late 1990s and early 2000. It became known as the big Internet bubble. The bubble burst. The stock market is still reeling from that, in addition to what's going on around the world today, but the fact is that business, government, industry, companies are leveraging this phenomenal Internet technology. We at Canada Post are no different.

    The Internet is important to Canada Post today and in the future. We need to leverage the Internet technology to better serve our customers. Business transformation was one of the ways we would do that so we could provide more self-service to our customers over the Internet. We wanted to leverage the Internet so that it would be easy for consumers to return things they had bought over the Internet in a simple manner. That is what we call e-returns. We need to leverage the Internet technology to get more visibility in the supply chain so that we can take action before an incident occurs. For example, if a plane is arriving late from Paris, we need to redirect mail to another flight, and those kinds of activities.

    We also concluded that migration of letter mail to secure Internet delivery would happen, and at the same time we started hearing about the government secure channel and where service delivery would occur in a secure manner over the Internet. E-procurement and all of those things are going to impact letter mail, because most of those things in the past have been done through letter mail.

    The Canada Post strategy in the electronic postmark is very critical in that context. If you look at the letter mail business over the last 150 years, the postmark you get on a letter when you receive it indicates that it's been entrusted to Canada Post.

Á  (1135)  

    Under the Canada Post act we are obliged to protect the content of the message inside of that letter to respect security, privacy, and to make sure it is sent to the person who is intended to be receiving this letter. Overall Canada Post has done a pretty good job of that.

    As a result of that, the law in fact establishes the postmark. For example, when you submit your tax return, you have to make sure it is mailed before 12 p.m. on April 30. The law attests that if it's postmarked, it was sent before that date.

    We want to do the same thing with the electronic postmark. In commerce you need a trusted third party to authenticate transaction, to validate that the sender and the receiver of the transaction are who they say they are, and that the content of the message is protected. That's our way of leveraging the trust that Canada Post has earned in the marketplace, and also the protection of the law.

    In offering end-to-end electronic services, and I'll describe some of those in a moment, the electronic postmark becomes as important as the physical postmark in the physical world. We want it to authenticate parties to transaction, to offer non-repudiation services, to provide additional signature services. The electronic postmark does all of that. In fact, we did develop the electronic postmark as part of the government's secure channel.

    Let me describe a few of our services.

    The electronic post office. If you think of a large mailer today, whether it's the Bank of Montreal, the Royal Bank, or HRDC, they print letters, envelope letters, and give the letters to Canada Post. We sort the letters. We transport them across the country. We finally deliver them to consumers or businesses. With the Internet you can recreate the same thing except it's electronic end to end. In fact, we launched the electronic post office in November 1999.

    Yes, sir.

Á  (1140)  

    The Chair: It's time to draw to a close.

    Mr. L. Philippe Lemay: Let me conclude very quickly then.

    The electronic post office today has 285,000 consumers registered and 60 large-volume mailers that are enabled to send mail electronically to consumers--from Sears, from the City of Ottawa for your tax bills, from the Bay, etc.

    The next page describes a document delivery service that allows you, from any desktop, to send a document securely to any Internet address around the world in a secure manner with the electronic postmark.

    The other one I'd like to talk to you briefly about is the change of address. The fact is 17% of Canadians change their address every year. It's expensive for governments, for business, and for consumers. It's important that people receive their mail because they have bills, mortgages to pay, etc. It's expensive for business.

    It has been estimated that for a single change of address it costs an organization, and an organization may have multiple accounts, $5 per change of address. Today secure technology allows you to do that on the Internet. We have proposed to the government that we build a universal change of address front-end, so that consumers would come to Canada Post, enter their change of address, submit it securely, digitally signed to not only government but also to business, and help increase the competitiveness of Canada by reducing the cost of doing business.

    Sorry if we've taken a little longer than we had planned. As you can see, we're passionate about what we're talking about and we're excited about the service we deliver.

    Thank you very much, Mr. Chairman.

    The Chair: Good. Thank you, Mr. Lemay.

    Mr. Epp.

    Mr. Ken Epp (Elk Island, Canadian Alliance): Thank you, Mr. Chairman, and thank you for being here.

    I have had an interest in the post office over a great number of years. I would like to commend you first by saying that in my years as a member of Parliament I don't think I've had but maybe ten complaints about the post office, which I think is a pretty good number in ten years. That's one per year in my riding. That's an estimate.

    Before I get onto the electronic part, which is the focus of our study today, I would like to ask you a little bit about Purolator. How's it doing financially? What are the numbers for the last couple of years?

    Mr. L. Philippe Lemay: Purolator was profitable for the year 2002, to December 31. It had a good year. Its revenue has grown slightly. They've been very aggressive at managing their costs and they had a very good year in 2002, a little less good in 2001, but as you know, we have new management at Purolator and they've turned in an excellent year through cost management.

    Mr. Ken Epp: A very interesting thing that we've been following over the years, on behalf of all of those private couriers out there, is of course their objection that you were cross-subsidizing them.

    We've never been able to get the numbers on this. Your corporation is hidden from the Auditor General. It's hidden from detailed publication of its accounts and so on. I wonder whether you guys are ever going to come clean on that and show us to what degree you are cross-subsidizing them with the regular post office.

    We see vehicles that are delivering post that stop in at the Purolator office, and we see that in the local riding. There's a Purolator office real close to my office, and I often see a Canada Post truck there, which tells me you're using the Canada Post truck to pick up the stuff there, which would help the bottom line for Purolator quite a bit and really make it tough for the other private enterprise guys to compete with them.

Á  (1145)  

    Mr. L. Philippe Lemay: I understand your question. It's been asked many times since I've been at Canada Post.

    First of all, let me tell you very categorically that Canada Post does not cross-subsidize Purolator or any other of its affiliates. This has been the subject of questions ever since I've come to Canada Post and before. It's been reviewed a number of times, including by the Radwanski mandate review. It's been referred to the Competition Bureau. The Competition Bureau has reviewed the Canada Post books, and every time it's been asked, it always stated that Canada Post does not cross-subsidize, and we do not.

    With regard to the fact that you see Canada Post trucks at Purolator, if you come to Canada Post, you'll see FedEx trucks at Canada Post office, you'll see UPS trucks. That happens. You'll also see UPS trucks at some Canada Post plant sites at times. These are things that happen in the business.

    I would also indicate that there is a lot of competition in Canada in the distribution business. UPS is here. FedEx is here. They are very aggressive. Deutsche Post, the German post office, has just bought a courier company in Canada, Loomis. So we are now seeing increasing competition from other postal organizations in Canada. TNT, which is part of the Dutch postal organization, is active in Canada. So there's lots of competition in Canada, but Canada Post does not cross-subsidize Purolator or any other affiliates.

    Thank you.

    Mr. Ken Epp: I have a question with respect to your presentation. I'm rather discouraged. This is no fault of yours; it's the fact that the House of Commons doesn't have 17-foot screens here, but I was able to see very little of the display because of my aging eyes. I just don't have 80/20 vision any more.

    The Chair: You also raised that with the clerk. I think we should have had this on proper full projection screens, because it's very difficult to see.

    Mr. Ken Epp: Yes. Anyway, one thing I did pick up was that you were expecting an increase in business B2B, B2C, G2B, G2C, with the twos being the numeric twos. What is the meaning of that? What is that an acronym for?

    Mr. L. Philippe Lemay: B2B refers to business to business activities. B2C refers to business to consumer activities.

    Mr. Ken Epp: And G is government, I bet.

    Mr. L. Philippe Lemay: And so on. G2C is government to consumer, government secure channel.

    Mr. Ken Epp: Now you've gotten into e-mail, and my question is why? Every provider of Internet services has e-mail accounts added. I've never needed Canada Post in order to send and receive e-mail. So why are you in it, and how do you generate your money from it?

    Mr. L. Philippe Lemay: We are not in the Internet e-mail business per se, à la Microsoft, à la Sympatico, à la Yahoo, etc. The distinction is that e-mail on the Internet, such as signing onto the Microsoft site or Sympatico site, etc., is not secure. You would not trust to receive on that open e-mail your financial statements, your bills, or private correspondence.

    What we have done with the electronic post office is to create a secure electronic post office box that is strictly limited for you to receive your private mail, and that is also associated with the electronic postmark--which attests that the message or the content has not been modified, it has been secured, and it has not been seen by anybody else.

    Why are we doing this? We're doing this for a number of reasons. First of all, the Canada Post Corporation Act provided, when it was passed by Parliament, that Canada Post should evolve with electronic communication. Mail that is given to Canada Post, whether in physical form or electronic form, is protected by the Canada Post Corporation Act. So you have all the privacy protection there and the security and the protection of the act.

Á  (1150)  

    Mr. Ken Epp: Okay. Now, to receive and send that secure e-mail then, do both sender and receiver have to be equal subscribers?

    Mr. L. Philippe Lemay: Yes. The sender of mail needs to be enabled at epost to be able to deposit mail for the subscribers who have said at epost, yes, I want to receive my hydro bill electronically at epost. They both have to be enabled.

    The Chair: Mr. Lanctôt.

[Translation]

    Mr. Robert Lanctôt (Châteauguay, BQ): Thank you, Mr. Chairman. I'd like to start by focussing on an issue that has many Quebeckers, and Canadians as well, concerned, namely the decision to choose Intelcom. The subject is all the more relevant given that technology and information are very much in the news these days. A number of our constituents, SMEs and small messenging services are writing to us and providing us with concrete proof. We've asked Minister Collenette to publicly disclose the allegations of unfair competition.

    Have you conducted your own internal investigation? Is there privileged information about services in place -- let's assume that this is not the direct work of Canada Post and Intelcom -- that Intelcom might benefit from and in the process, compete unfairly with all messenging services operated by small businesses either in Quebec or elsewhere? Where exactly is Intelcom operating? Only in Montreal and in Quebec, or elsewhere in Canada as well?

    Mr. L. Philippe Lemay: First off, Mr. Lanctôt, I'd like to point out that Canada Post turned to Intelcom further to requests from our clients for access to expanded Canada Post services. We live in a highly competitive world and businesses often want a single collection and delivery drop point. We invested in Intelcom on a business basis to restore some profitability to Canada Post, in keeping with our standards.

    Canada Post will not put up with one of its representatives taking advantage of Canada Post's weight to secure contracts for Intelcom. In any event, Intelcom has its own sales forces, its own billing scheme and its own board of directors. It does not rely on Canada Post's computer systems. Intelcom already had its own systems when we made the decision to invest in the company. Our investigations did not reveal any inappropriate behaviour on the part of Intelcom representatives in dealing with clients. If you have any specific cases for me, I would be happy to review them.

    Mr. Robert Lanctôt: How many investigations did you conduct?

    Mr. L. Philippe Lemay: I'm not aware of these investigations, as they are not my direct responsibility.

    Mr. Robert Lanctôt: Can you hazard a guess as to the number of investigations? Might we be talking about one, ten or even one hundred?

    Mr. L. Philippe Lemay: I understand that one complaint has been filed, but I'm not aware of any others. As I said, this is not my organization's area of responsibility.

    Mr. Robert Lanctôt: Would it be possible to forward that information to my office?

    Mr. L. Philippe Lemay: Exactly which incidents are you referring to, sir?

    Mr. Robert Lanctôt: We could certainly provide you with the details today.

    Mr. L. Philippe Lemay: Thank you.

    Mr. Robert Lanctôt: We rarely have an opportunity to speak to Canada Post representatives. Normally, we focus on questions relating to government operations, but on occasion, we consider other issues.

    Several years ago, when Mr. Ouellet was first appointed to office, there was much talk of the deficits incurred by the Canada Post Corporation. It would seem that the corporation is now back on track, at least from a financial standpoint.

    However, a group working for you and providing service to rural areas is made up of self-employed workers. If we look closely at the situation, though, it's hard to argue that these people are in fact self-employed.

    Now that the Canada Post Corporation is on solid ground, financially, and is performing well, have you considered hiring these workers who then might have an opportunity to job a union, negotiate working conditions and earn a decent income? Apparently, these workers are living below the poverty line. It seems that they are being threatened and told that if they're unhappy, there are at least 10 other people willing to do their job. Do you have any plans to introduce a new policy in this area?

Á  (1155)  

    Mr. L. Philippe Lemay: To my knowledge, Mr. Lanctôt, Canada Post has never threatened these workers.

    As I noted in my opening remarks, Canada Post's operating costs are currently increasing faster than revenues. If this trend is allowed to continue, in short order, Canada Post will start to lose money at the expense of its shareholders.

    Our aims are often contradictory. The Canadian government wants us to maintain post offices in rural areas, even though these offices operate at a loss. They want us to keep postage as low as possible. As I also stated in my opening remarks, it makes no sense for the price of stamps to be as low as it is in Canada. One need only compare our postage with the rates in effect in other G-7 countries.

    Canada Post faces tremendous pressures in so far as costs are concerned. We need to come up with a long-term solution to this problem. Canada Post must satisfy the expectations of its shareholder, namely the Canadian government, pay it dividends and keep postage rates as low as possible.

    Right now, we cannot raise prices any more than two-thirds the inflation rate and moreover, we cannot close any rural post offices. In short, Canada Post is doing a good job, but we cannot do the impossible.

    Mr. Robert Lanctôt: Do I have a little time remaining, Mr. Chairman?

    I did not get a specific answer to my question about self-employed workers who deliver mail in rural areas; I wasn't only referring to rural post offices. However, I'll ask another question about that subject later.

    I did, however, ask a very specific question about persons hired on contract to work for Canada Post, persons who you maintain are self-employed. Clearly, however, they work solely for Canada Post. You tell them what to do, and they do it

    Getting back to the threats they received, namely that others were quite willing to take their place, do you intend to implement a new policy respecting contract workers and are you prepared to be more open to the idea of making them permanent, or temporary employees -- I'm not sure whether that's the correct term -- so that they can at least earn a decent living?

    Mr. L. Philippe Lemay: This matter is still being reviewed. It is part of a much broader analysis that will be done over the next five years and that will focus on revenues, costs and cost-effectiveness. We haven't yet made any decisions as far as this matter is concerned.

[English]

    The Chair: Okay.

    Thank you, Mr. Lanctôt.

    For the information of members, this is a 30-minute bell on a motion to adjourn the House. We will rise with about five minutes to go. We'll watch the time and just let you know so we all get there on time, those of us who choose to go.

    Mr. Mahoney.

    Mr. Steve Mahoney: Thank you, Mr. Chair.

    I should declare my bias as parliamentary secretary for crown corporations, and Canada Post is one of the areas of my concern. Mr. Chairman, it might be of real interest to this committee to arrange for a tour of the facility here in Ottawa. I think if you haven't seen it you'd be quite surprised, as I was, at the technology that's in place and the systems they have for tracking the mail--I'm talking about the hard mail, not the e-mail necessarily. The mapping system and the situation they have is really quite positive.

  (1200)  

    The Chair: Could I break in on you for a moment? I'm sorry.

    For the information of the members, that invitation has also been made by the president. If members are interested in that they should let the clerk know, and maybe we'll arrange a time to go down there. I quite agree, it would be quite welcome.

    Mr. Steve Mahoney: I would encourage members, because it's a real eye opener, and it would be very helpful in understanding just how Canada Post has evolved.

    As you can see, my colleagues are asking questions about the UPS file. There's a lawsuit currently pending. And there is the concern about competition in Quebec and everywhere else, and I think it's a concern we all have, because we all talk with the people in the private sector. It seems to me that Canada Post, in accomplishing this turnaround, this transformation, in business services has gone from being a heavily laden bureaucratic department of the government to a somewhat independent, competitive, private sector business.

    But at the same time, Canada Post should be--and my question will be on this--accountable to the Government of Canada, to Parliament, and to the people. I wonder if you could tell the committee just how you see your accountability to Parliament.

    Mr. L. Philippe Lemay: We are accountable to the government through our annual submission to Treasury Board of our corporate plan. That corporate plan details Canada Post's financial status. It details our investment activities going forward, our plan for new products and the introduction of new products, and our plans for expanding our role in the supply chain business.

    What's been happening in Europe over the last five or seven years, where you've seen Royal Mail, the French post, and Deutsche Post acquiring distribution companies, is starting to happen in Canada. When you see over the last five years that large postal organizations like USPS and Royal Mail have lost a significant amount of money, especially over the last two years, you have to conclude that Canada Post has done a reasonable job of not getting into that situation despite the fact that we have kept the letter mail rate at the lowest in the G-7 countries.

    In fact, our participation in the competitive business in distribution and in logistics is helping us keep the cost of letter mail low. We do submit our corporate plan, and it has to be approved by Treasury Board before we can implement it. So that's how we are accountable to the government.

    Mr. Steve Mahoney: What about an audit procedure? The statement was made that you're not subject to audit by the Auditor General. Is there some kind of an audit procedure that would be public, shall we say?

    Mr. L. Philippe Lemay: We are audited every year by our external auditors, and they submit, in the annual report of Canada Post, their management letter that approves the financial reporting. They've never noted any irregularities.

    To the questions of cross-subsidization, we've been reviewed time and again over the years by the Competition Bureau, who have always concluded that Canada Post was not cross-subsidizing Purolator or any other business. So I'm not quite sure what other added value another audit would bring.

    We also have a special audit every three or four years that gets reported to our board of directors directly by external auditors, not the same auditor as the one who does the annual audit. I think we have adequate protection in that regard.

  (1205)  

    Mr. Steve Mahoney: Concerning the retail establishments that Canada Post has developed, the transformation and over-the-counter postal services--when you walk in, interactive opportunities for consumers to purchase various products--I appreciate the fact that due to certain constraints, such as the lawsuit, you may have some difficulty in some areas in dealing with this, but has there ever been any thought given to using those retail outlets for more competitive purposes, in allowing, for example, other companies to list their products the same way that Purolator does on the shelves so that people could go in and make a choice?

    Mr. L. Philippe Lemay: We are looking into that. In fact, we hope to conclude this year that we can open our network to other competitive products.

    Mr. Steve Mahoney: How do you answer the charge that Purolator has a price advantage?

    Mr. L. Philippe Lemay: Price advantage with regard to...

    Mr. Steve Mahoney: A price advantage over other private sector competitors.

    Mr. L. Philippe Lemay: I cannot--

    Mr. Steve Mahoney: I've heard there's as much as a 15% advantage in favour of Purolator over UPS or any of the other couriers, and I'd like to know how you respond to that.

    Mr. Cal Hart: If that were true, Purolator would be the number one courier company in Canada. Companies are choosing UPS, FedEx, or alternatives, and I would suggest to you that a lot of that is driven by price.

    One thing we don't enjoy in Canada is that the large multinationals are able to bring their technology into Canada and put it into the Canadian marketplace, whereas if we want to do that--Purolator, Canada Post, or any other Canadian company--we have to build that ourselves. So I doubt very much if Purolator would be a price leader.

    The Chair: Thank you very much.

    I'm going to go to Mr. Szabo now.

    Mr. Paul Szabo (Mississauga South, Lib.): Thank you.

    Gentlemen, thank you for the presentation. As a former parliamentary secretary responsible for Canada Post, I took the tour. There's no question that Canada Post is near the leading edge on the technology and communications side. But it concerns me that we've talked about all the good things and have given a few little pieces about some spectres down the road.

    Certainly on the whole aspect of converting business from surface mail to electronic forms or other alternatives for consumers, and your own admission that volumes will be going down possibly as much as 1% a year, it would appear that we have to face a strategic reality. I'm wondering what Canada Post has in mind in the longer term to rationalize the surface mail situation to ensure that service levels are relatively maintained and at the same time that we're not seeing pressures on the cost of a stamp to consumers.

    Mr. L. Philippe Lemay: This is almost asking for the impossible in terms of the future.

    One of the advantages of the mandate that Canada Post has is that it can leverage a competitive business to keep the price of letter mail low. Down the road this is going to continue to be a factor. If Canada Post were to be prevented from operating a competitive business, you can be assured that given our geography, our climate, and low population density, by all logic the price of a stamp in Canada would be very much higher than it is today.

    So I think our shareholders, as they look at what's happening in the postal industry around the world, will probably have some decisions to make in the next five or six years.

    Mr. Paul Szabo: I asked, probably more motivated by the labour consequences, because as we get rationalization or shifting of the delivery modes, the cost savings is people. You have opportunities, through normal attrition and so on, to prepare for that, but with, as you say, the low density of the population there are going to be uneconomic areas, and your mandate is to continue to provide equitable service to all Canadians. So there's an issue to deal with.

    I want to move on.

  (1210)  

    Mr. L. Philippe Lemay: But that's why--

    Mr. Paul Szabo: Well, we can talk about that all day, but I have only a couple of minutes.

    The other risk area is that Canada Post is reliant on existing commercial air carriers, particularly Air Canada, to get the mail across. Our airline industry is in a very volatile climate. I'm wondering why Air Canada is being relied on so much and why we haven't moved towards acquiring our own aircraft for Canada Post to ensure the security of timely delivery across the country.

    Mr. Cal Hart: If you look at what we've done with our network, over the last three or four years we've really minimalized the amount of cargo we're putting on that network at night. For example, because we're able to have better process control in our network, we're now able to truck mail across the country, which we used to fly. A lot of that was regulated to us after the incidents of 9/11, so we had to change that whole business proposition.

    As you know, we use carriers other than Air Canada to transport our mail, both domestic and international. We're well positioned to handle a turn of events there. Someone else would pick up that cargo business.

    Mr. Paul Szabo: Finally, on the courier side I think you've advised us there's no cross-subsidization in terms of costs, although there are economies of scale in consolidating business segments. Pricing is not an issue; it's competitive across the line.

    It leads to the question that if there's no cross-subsidization of cost and pricing is competitive, how do you explain--if I read the notes correctly, and correct me if I'm wrong--why Purolator went from a net income of $10 million in 2001 after a loss of $22 million in 2000, a $32 million improvement in the bottom line in the one year? To what do you attribute that significant improvement in the bottom line?

    Mr. L. Philippe Lemay: Purolator had new management starting in 2000. They shed some customers who were unprofitable. They managed their costs much more aggressively than they had previously. Those are the two key driving factors that helped improve Purolator's position in the marketplace in terms of revenue and profit.

    Mr. Paul Szabo: You didn't give a number, and I wasn't sure what you said when you commented on the question about the 2002 bottom line. I think you said it was “less better”, and I didn't hear the article. It was either “than” or “in” 2001. Which was it? Was it lower or higher than $10 million?

    Mr. L. Philippe Lemay: I said their 2002 results have not been published yet, but they will be better than those of 2001.

    Mr. Paul Szabo: Your year end is March 31?

    Mr. L. Philippe Lemay: No, it's December.

    Mr. Paul Szabo: You're on a December year-end. Okay, I understand. But your estimate is that 2002 will be--

    Mr. L. Philippe Lemay: It will be better than 2001.

    Mr. Paul Szabo: Thank you, Mr. Chair.

    The Chair: Thank you.

    I have a couple of organizational notes before we rise to go and vote. We have a few more minutes here.

    The subcommittee on public service renewal is meeting today at 5:30. There's going to be some discussion about the bill that may come and how we are going to handle the bill that is coming through.

    Since we're now into the vote, I think we will adjourn the meeting rather than recess. Given people's schedules around question period, it's going to be difficult to come back for a very few minutes.

    I would point out a couple of things. It's not for the chairman to select the questions for folks here. We have a very large public sector organization that operates a monopoly space, basically, Canada Post, even though they're in a competitive space with Purolator. But basically they're a large public monopoly that has gone through a rather remarkable transformation.

    I think if people look under the hood and read through this deck they will see an organization with 66,000 employees--that's a little better than one-quarter the size of the entire federal public service--that has managed to go through some remarkable changes in how it conducts itself, how it manages, and how it uses technology to understand the work it does. I think there are some very interesting examples and lessons as we get into this.

    I would encourage members to have a look at the information. We may well ask you, Mr. Lemay, to return to discuss business transformation now that we've disposed of Purolator.

    Thank you very much for coming. I appreciate it. I apologize for the short notice, but only Mr. Cullen controls the House. We have to just go when he says.

    This meeting is adjourned.