In 2002 Royal Mail was losing £1m a day and employee relations had reached a low.

Three years later, the group - which includes Royal Mail, Post Office and Parcelforce - has introduced systems to improve working practices and posted record annual profits of £537m (Computing, 2 June).

Business change, redundancies and Post Office closures were necessary tenets of the organisation's modernisation programme, but major changes to business processes using technology also played a fundamental role in its transformation.

'IT has made a big contribution to the overall bottom line in many ways. It has been a major component of the change,' Wendy Powney, Royal Mail's enterprise IT director, told Computing.

Royal Mail took the first steps to streamline its IT operations in May 2003, announcing a £1.5bn, 10-year outsourcing contract with Prism Alliance, comprising CSC, BT and Xansa.

As part of the agreement, Royal Mail outsourced data centres, networks and more than 600 business applications. Some 1,735 Royal Mail IT employees also transferred to the outsourcing companies, but still provide support and maintenance.

'It has been a real point of learning and there have been some positives and some things that could have been done differently,' says Powney. 'There have been tremendous benefits in terms of performance and there have been projects where Prism has been able to bring its expertise to bear.'

The deal also delivered savings of £30m to Royal Mail's annual accounts of 2003/04.

By increasing web services, Royal Mail has also made savings and developed additional revenue streams.

Sapient and CSC have worked with the organisation to introduce more than 100 ebusiness applications, such as electronic smart-stamps and postal re-routing services, leading to a 35 per cent rise in online usage last year, with five million customers now registered to Royal Mail sites.

Hosting services have been moved from EDS to CSC's hosting centre in Copenhagen to handle the increased demand.

'Ebusiness has been a major part of the drive for cost reduction,' says Powney. 'We are urging customers to move to self-service online and we are now getting about one million hits each day.'

Royal Mail is planning to improve communications with its major business customers by introducing a web-based sales order management portal, using SAP software, to better manage the large volumes of mail that corporate customers need collecting.

'This is one area where there is a lot of paper that we have to process coming from our customers, telling us how much mail will be delivered into our mailing centres,' says Powney. 'By making the process web-based it should make invoicing far more accurate.'

The SAP 'order to cash' project builds on other SAP implementations in business areas, such as accounts, business warehouse reporting, revenue management and business planning, with the earliest project dating back to December 1999.

'We are probably one of the largest SAP implementations in Europe and it has played a major role in automating and transforming parts of the business,' says Powney.

With 196,000 employees working for Royal Mail, human resources (HR) is another area where technology can make improvements, says Powney. Six months ago the group introduced an online recruitment page where potential recruits could post their employment details. Some 30 per cent of applications are now received through the internet.

'We have high turnover and high levels of attrition so we needed to look at new ways to keep people coming into the business,' says Powney.

Royal Mail has also introduced SAP call centre software to deal more efficiently with enquiries from its many thousands of staff.

Post Office employees can now phone in to record sickness days and ask pay-related questions. HR management information systems are also used to measure employee satisfaction and to process wages.

'It is our most critical application. HR used to be a very manually intensive process, but now it is a lot more automated and we have a quicker turnaround of information, so people can see information on their screens much faster,' says Powney.

'Over the next few years IT will need to play more of a pivotal role in front-line communications, management and employee self-service.'

Royal Mail IT Delivery

*Royal Mail spends £70m a year on IT systems and support

*Some 400 business applications and 200 in-house IT staff provide IT services to 196,000 employees

*Some 1,735 Royal Mail employees transferred to CSC, BT and Xansa as part of a £1.5bn, 10-year outsourcing deal announced in May 2003. The deal saw Royal Mail make IT savings of £30m in its financial year 2003/04

*IT staff and contractors support 70,000 computers and electronic point-of-sale systems, 75,000 phones and 630 different mail-sorting machines

*Some 8,000 staff at 1,400 delivery offices use SAP financial and business intelligence software. SAP systems help reduce time and cost involved in processing the two million invoices issued to 250,000 business customers each year

*Thirty per cent of job applications are now received through Royal Mail?s HR web portal

*Royal Mail's ebusiness sites have seen a 35 per cent increase in user volume over the past year and now have five million registered customers

*Some 28,000 Royal Mail staff are hiring home PCs as part of an elearning initiative run with Futuremedia