The Royal Mail is moving in the right direction, but it needs to start delivering on its promises

Where the Royal Mail is concerned, all news seems to be bad news these days. In the past 12 months, there have been strikes by postal workers, complaints over rises in postage prices, a television documentary exposing theft in sorting offices and the revelation by the industry regulator that millions of letters go missing every year. Joining this litany of bad publicity is an admission from the Royal Mail that it has failed to hit any of its 15 performance targets for the first quarter of this year.

The knives will be out for the chief executive, Adam Crozier, if he fails to deliver significant improvements in the service by the end of the year. But bad management is by no means the whole story. The wider context needs to be taken into consideration. In April 2007, the Royal Mail will make a transition from a cosy national monopoly into a company that exists in the harsh world of market forces and competition. The troubles afflicting the Royal Mail are largely a result of efforts that have been made to prepare for this transition. Yesterday's missed targets suggest that the three-year plan to turn around the Royal Mail devised by Mr Crozier and the chairman, Allan Leighton, will not be a comfortable ride.

In fairness, however, they are moving in the right direction. Cutting the workforce by 30,000 is necessary given the organisation's chronic inefficiencies and notorious overstaffing. The reorganisation of collection routes is overdue, as is the reshaping of its national transport distribution business. The second post has also had its day, despite the sentimental attachment many feel to it. The Royal Mail needs to make itself a lean, competitive organisation if it is to prosper in a de-regulated environment. A slimmed-down service is also more appropriate to an age when people are just as likely to send an e-mail as a letter.

The greatest restraint on the Royal Mail is its public service commitment. It is bound by the requirement that it deliver letters anywhere in the British Isles for the price of a stamp. The Royal Mail finds itself in a peculiar halfway house. It is expected to act like a private industry, maximising profitability and cutting costs, while at the same time providing a universal service at a fixed, low price. If the Royal Mail operated as a typical company, it would, in all likelihood, cease to serve remote areas of the UK and plough its resources into the lucrative parcel delivery market, where competition already exists. But unlike a typical company, shares in the Royal Mail are wholly owned by the Government, which would never allow this to happen. The political consequences would be dire. It seems, therefore, that the Royal Mail is in a no-win situation.

Or, at least, no win in the short term. In the long term, both the British public and the Royal Mail can do well out of the process of privatisation. Competition, when it arrives, should keep down the costs of sending a letter, and create a superior service. It will also enable the Royal Mail to compete in overseas markets. The successful privatisation of the German and Dutch postal services ought to serve as an example. The fact that the Dutch Royal Mail is already making inroads into the British market is a lesson in itself.

The Royal Mail finds itself faced with a politically-sensitive balancing act. It must drive through reforms, but at the same time maintain certain service standards. The second post has been scrapped and the workforce has been cut, which demonstrates that progress has been made. And the company is in the black again, registering a £220m profit in March.

But yesterday's missed targets show standards have become a casualty and this, taken with increases in postage prices, show that the public is still being short-changed. It is to be hoped that this is the pain before the gain, as Mr Crozier argued yesterday. He should be in no doubt, however, that the only way for the Royal Mail to safeguard its future is for it to start delivering value for money again.