Business Case Writing
I’m currently working on a case on the United States Postal Service (USPS). I wanted a case I could use in my strategic management classes that would require students to apply strategic management principles in a context that involved merit goods (and/or public goods) and would require some careful thinking about value creation. After the publication of a white paper in 2014 that proposed that the USPS begin offering financial services (and a PEW conference around the same time), I settled on the USPS.
I worked with two colleagues at The University of Texas at Tyler on a draft of the case that was presented at the 2015 NACRA conference. We plan on submitting the case to the Case Research Journal.
Beal, B. D., Cater, J. J, & Tarter, J. 2015. The United States Postal Service: Profit, value creation, and financial services. Presented in a case roundtable (Strategy and Policy) at the 2015 annual conference of the North American Case Research Association (NACRA), Orlando, FL, October 8-10, 2015.
Here are the case questions:
- What do the USPS’s financials tell you about whether or not (a) it creates economic value, (b) is more or less efficient than UPS or FedEx, and (c) needs to reexamine its business model? Explain your answer.”
- What positive externalities does USPS produce, and how has the value of these externalities changed over time?”
- Explain how you would calculate the economic value crated by the USPS, taking into account the positive externalities it produces.”
- What capabilities and competencies does the USPS have that would enable it to create economic value by offering financial services? Would creating economic value this way “fit” with the USPS’s overall purpose, culture, and history? Why or why not? Explain.
- If the USPS were to begin offering financial services, how would it impact its revenue, the consumer surplus it creates, and the positive externalities associated with its operation? Discuss potential impact on each of these three value components.
- Should the USPS begin offering financial services? Why or why not?
This is some of the commentary I’ve been giving to students, mostly in online discussion boards, to stimulate discussion:
Economic value is created when a producer combines inputs such as labor, capital, raw materials, and purchases components to make a product whose perceived benefit B exceeds the cost C incurred in making the product. The economic value created (or value-created, for short) is thus the difference between the perceived benefit and cost, or B – C.
All the residents in a particular neighborhood get together and decide to build a neighborhood park. They determine that the cost of building the park ($450,000) and maintaining it for a year ($50,000) comes to $200 per resident (2500 residents). Because they all the individuals in the neighborhood believe that they will derive $3000 in value from the park, they decide to build it. Everything goes as planned. In the first year, the neighborhood collects $500,000 from residents, and then builds the park. Revenue from the park in Year 1 is $0. From a financial perspective, therefore, the park “loses” $500,000 in its first year of operation. Has any economic value been created? There is a nearby for-profit water park that was profitable during the same time period. Is the neighborhood park more or less “efficient” than this water park? Finally, does the neighborhood need to rethink its business model as a result of its $500,000 dollar loss in Year 1?
In Year 2, the neighborhood decides to charge $1 per day for access to one part of the neighborhood park–the splash pad. All other areas of the park remain open to the public. In Year 2, therefore, the neighborhood realizes $20,000 in revenue. The cost to maintain the park in Year 2 remained the same ($50,000). This resulted in a “loss” of $30,000 for Year 2. Did the park create more or less economic value in Year 2 than in Year 1?
Think about how you would answer these questions about this neighborhood park, then think about how this might apply to the USPS.
The USPS has had $45 billion or so in cumulative losses over the past four decades or so (see its financials). Was what the USPS produced over the past four decades worth $45 billion to the taxpayers? Take a for-profit business like FedEx. We know the value of the company’s inputs; that’s easy, we can look at their expenses. Now, what is the value of what they produced? Let’s assume for a second that what they produced is a private good with no externalities. Let’s also assume that the value of its services to customers matched or exceeded the amount its customers paid for its services. This is a reasonable assumption, because if it weren’t the case, customers wouldn’t voluntarily engage in transactions with the company. So, what is the value of what FedEx produced? In this case, it would be its revenue plus the difference between what customers paid for Fedex’s services and the value they placed on those services. This difference is called consumer surplus. So the value of what FedEx produced in a given year would be its revenue plus the consumer surplus it generated. To see if they created any economic value, you would subtract expenses from this total.
Assuming that everything stays the same with respect to its operations and its volume of business, how FedEx prices its goods and services doesn’t change the amount of economic value it creates. If FedEx raises its prices (and its volume of business stays the same), it may increase its profits, but it would also reduce consumer surplus by the same amount, so it would be a wash. What if FedEx lowered its prices below its costs? It would lose money, but the decline in revenue would be offset by a corresponding increase in consumer surplus, so the economic value created by the company would, again, remain the same. In this example, assuming the volume of business stays the same, FedEx’s pricing decisions affect the allocation of value—i.e. how the value created by the company is split between itself and its customers—but it doesn’t effect the overall amount of value the company creates.
The USPS doesn’t produce a private good, like we assumed in the case of FedEx. What it produces is a merit good, defined as a good or service that has both private benefit and associated positive externalities. Keep this in mind as you answer these questions.
I’ve written a number of other business cases:
Cater, J. J., Beal, B. D., Tarter, J., & Swimberghe, K. 2015. Motor Trike: Building a brand community. Case Research Journal, 35(2): 73-94.
Beal, B. D., & Tarter, J. 2013. Flat World Knowledge and the college textbook market: A revolution? Journal of Case Studies, 31(2): 98-113.
Beal, B. D., & Tarter, J. 2013. Flat World Knowledge: How to pay authors to write free textbooks? Journal of Critical Incidents, 6: 67-70.
Beal, B. D., & Tarter, J. 2013. The Mormon Stories podcast: Faith, disaffiliation and strategic vision. Business Case Journal, 20(2): 15-33.
Cater, J. J., Beal, B. D., Justis, R. T. 2007. Family business in Louisiana: The case of Rabenhorst Funeral Homes. Annual Advances in Business Cases, 27: 221-237.
Beal, B. D. 2002. AllAdvantage.com: An internet infomediary. Case Research Journal, 22(3): 1-17. [Reprinted in Pearce & Robinson, 2004, Strategic Management, 9e, McGraw-Hill.]