Indian railways turnround story, Eng. B D Rampala Memorial Lecture IESL 2010

100th Birth Anniversary of

Eng. B D Rampala Engineer, Entrepreneur & LegendNovember 14, 1910 – November 14, 2010

Eng. B. D. Rampala Memorial Lecture 2010

By

Eng. Keerthi K. Hewavithana Bsc (Eng) Hons. C.Eng.,(MIE)SL

Headquarters Engineer

Sri Lanka Railways

The Institution of Engineers, Sri Lanka Wimalasurendra Auditorium

Monday - November 15, 2010

A case study approach

Successful Successful Turnaround of Turnaround of Indian Railways & Indian Railways & Lessons Relevant Lessons Relevant for Sri Lanka for Sri Lanka RailwaysRailways

4Eng. B D Rampala Memorial Lecture-2010

• The Indian Railways – A Government Department• Comes under the Ministry of Railways


Total capital investment of US $ 14 billion

Contributed to 1% of the GDP Total staff of 1.5 Million Largest employer in the organized business sector Track length of 63,322 km. Carries 14 Million passengers per day. Locomotives available 7,910 Passenger service vehicles 42,441 Other coaching vehicles 5,822 Wagons 222,379 Railway stations 7,133


Bankruptcy inevitable!

Alarm

Time was running out for Indian railways!

The Committee concluded in 2001 that:"Today Indian Railways is on the verge of a financial crisis. To put it bluntly, the 'business as usual, low growth' will rapidly drive it to fatal bankruptcy, and in 16 years, the Government of India will be saddled with additional financial liability of over Rs 61,000 crores… On a pure operating level, IR is in a terminal debt trap." RMC Report - 2001

Rakesh Mohan Committee (RMC)

• Appointed by Government• Review the Indian Railways operations • Members: vast knowledge in railway and transport sector plus those with futuristic

thinking and knowledge/education background. • The RMC repot submitted in year 2001

Loss of market share in the profitable freight business Lack of flexibility in pricing High cost of internally sourced products and services Investment in un-remunerative projects


Unable to respond to changes in transport market conditions in 1990s

Symptom

Approach

Problems


Core Problem!

Politicization of the decision making process that emphasized taking populist actions, rather than hard business decisions

SolutionComplete change in PhilosophyPhilosophy of the business

“Railway need to develop market oriented and customer friendly outlook due to emerging competition within the transport sector”

Hon. Nitish Kumar – Railway Minister

Eng. B D Rampala Memorial Lecture-2010 9

Implementation• RMC report submitted in year 2001

• Turnaround started in around year 2003

• Hon Minister Lalu Prasad Yadiv (Minister since 2004) continued the philosophy & strategies

• Minister adopted a common sense based approach, and showed an astute understanding of the market reality, and demonstrated that good economies is good politics.

Within 3 years Indian Railways showed impressive results

In year 2005 -2006 operating ratio of 83.5 % compared to 98.3% in year 2000

Targeted to achieve operational ratio of 65% in year 2010

Results


Best Performance indicator in railway business

Operating Ratio =Total Operating Expenses

Gross Revenue Receipts

Year 2000 2005-06 2010-11

Operating Ratio 98.3% 83.5% 65%


1999-00

Operating ratio

Wagon Turnaround

Source : MOR India12Eng. B D Rampala Memorial Lecture-2010

Operating Ratio =Total Operating Expenses

Gross Revenue Receipts

Retrenchment strategies

Repositioning strategies

Reorganization strategies

External Environmental strategies


Strategies Adopted

Cause pain,

stress and tension

amongst stakeholders!

Retrenchment (Cost Cutting Initiative)

Several retrenchment actions identified to review business units which are not value adding.

• Withdraw from markets where firm is performing poorly• Selling assets• Reduce scale of operation• Improve efficiency• Downsizing• Outsourcing



Cause

Expectations,

Happiness!

Focus on growth

Product innovation

Product differentiation

Improving market shear



Change in planning system

Decentralizing

Human resource initiative

Change in organization culture





Indian Railway Ministry/ Railway Board

IRCON

IRFC

CONCOR RITES

RVNL

IRCTC


• IRFC: 1986 (positive effect due to facilitation of market borrowings for wagon procurement, negative effect due to high interest rates)

• CONCOR:1989 (positive effect due to focus on containerized movement of non-bulk)

• Project Unigauge: Early 90’s (negative effect in the 90’s, including due to reduction in track renewal works, positive in the recent and future years)

• Fifth Pay Commission: 1997-98 (negative in the late 90’s)

Some important steps taken by Railway Minister



• Special Railway Safety Fund: 2001-02 onwards (positive in the recent and future years)

• Reorganization from 9 to 16 zones: 2001-02 and 2002-03 (positive in the future years, due to greater focus)

• Focus on PPP (public private partnership) format for investments, catalyzed through RVNL: 2002-03 onwards (positive, due to the ability to leverage other stakeholders’ funds).

• Market oriented tariffs (positive)



• Focus on increasing asset utilization: 2004-05 and 2005-06 (positive, provided implications on asset wear and tear are appropriately dealt with)

• Competition in container movement: 2006 (expected to be positive, though implementation

has to be seen) (Ref G Raghuram .2007)


common sense based approach leverage the management and assets through empowerment and delegation.

• Non interference• Direct approach• Caring attitude• Right people for right job (Identify right

people)• Image building

(Ref : G Raghuram .2007)Minister set goals and expect results from the setup

Railway board functions as a cohesive entity due to the force exerted on legitimate initiatives.


Pillars of successes are the following five characteristics of the Minister.

Role of the Minister

The operationalisation of strategies over past years depended significantly on the leadership style of Mr Lalu prasad.

Non interfering

Sets goals

Expects results

Ensures organization alignment

Follows up fundamental initiatives

Autonomy to Railway Board


Non Interference

Periodically communicate with general managers.

Setting and reinforcing priorities.

Precisely set targets and standards for the prevailing matters.


Direct Approach

Positive attitude when dealing with staff and unions.

Personally intervene to provide contributions to the staff welfare

fund when staff able to show financial performance better than

recommended.

Whenever concerns were raised about downsizing of the Indian

railway, he came out with his Hindi one liner which translated to,


Caring Attitude “Downsizing may make Indian railway thinner, but not necessarily healthier.”He set his strategy based on “regenerate competitiveness and leverage resources rather than restructure and downsize.”He believed in instilling hope and excitement rather than fear and anxiety.

Appointment of Officer on Special Duty (OSD)

All dealings with Minister and Indian Railway Board has been through a noble person appointed as officer on special duty (OSD), Mr Sudhir Kumar.

Role:Specially chosen by the minister for this position based on earlier experiences and interactions with him. His role would be to provide the link between the minister and railway board and translate the vision of minister into action in railway.

Some of the initiatives related to 1. axle load increase, 2. market oriented tariffs, 3. reducing wagon turnaround, 4. innumerable freight incentive schemes, 5. passenger profile management, up gradation of passengers, 6. leasing of parcel capacity and catering,

all this has happened through the existing systems and culture of the Indian railway.


Identify Right People

Achievements & Campaigns Publicized

Up lift the image of railway , its services and staff…….


Image Building


Salient Results of Indian Railways TurnaroundSalient Results of Indian Railways Turnaround

Following results speak volumes about the success of the strategies adopted:

Increase in income through advertising on all Rajdhani Expresses coaches with the cost of advertising being around US $ 1.26 million per train.

Introduction of new generation trains that would be fuel efficient, recyclable and have low emission to generate certified emission reduction credits.



Construction of dedicated freight corridor, with an investment of US $ 81.92 million invested in 2008 to 2009 and US$ 614.4 in 2009-2010.

Renewal of 44.5 million pre–stressed concrete sleepers set for open line network.

Development of PPP in new routes, railway stations, logistics parks, cargo aggregation and warehouses.

Development of 100 budget hotels with private partnership in the vicinity of railway stations.



Installation of Wi-Fi to provide wireless access at 500 stations.

Development of agri-retail hubs, cold chains, multi-purpose warehouses on surplus land with in the Indian Railways.

Training of railway managers to meet future challenges, Indian railway is planning to set up an International Management Institute in New Delhi.

Discount schemes, loyalty discount schemes and long term fright discount schemes.

(Ref: Indian railway website. www.impactlab.net)

Will Indian Railway capable to sustain the growth and achievement?

strategies and processes are mainly focused on following areas to maintain sustainability

Customer/Passenger oriented setup

Scientifically based strategies and processes

Sustainability

ICT as successes factor

(Ref Desh Gupta and Milind Sathye.2008)


Sustainability of Strategies & Processes




Sri Lanka Railway – Current Situation Lost its market share in profitable freight business;

Lack of flexibility in pricing and unrealistic pricing

methods;

High cost of internally sourced products and services

Investment in projects that do not yield a return;

Operating expenses much higher than gross revenue

(Grater than 100% operating ratio).

Lack of market orientation

Politicization of the decision making process


Same as Indian railways in 1990s!


Energy efficiency★ Rail is on average 2 - 5 t imes more energy eff icient than road, shipping and aviation

climate change and cO2 emissions★ Travell ing by rai l is on average 3-10 t imes less cO2 intensive compared to road or air transport

★ The rail sector has committed itself to cut the specif ic emissions of rail transport by 30% over the period 1990-2020

Ref: UIC off icial web site.

Land take★ Railway infrastructure occupies 2-3 t imes less land per passenger or freight unit than other modes of transport

★ Railways, having a market share of 6-10%, occupy less than 2% of the land used for transport infrastructure in Europe( Benchmark)

External costs ★ The external costs of rail may be as low as 1% of those of roads


Sri Lanka Railway – The Future

Introduce


Plan to Turnaround

References;

•G Raghuram (Turnaround of Indian railway).2007. Indian institute of management report.

•Rakesh Mohan Committee .2001. Highlights of the executive summary, available at http:/www.irastimes.org/rkmreportingexesummary.htm accessed on 30 may 2007.

•World Bank. 1994. The World Bank railway database available at http:/www.worldbank.org/transport/rail/rdb.htm.

•Desh Gupta and Milind sathye (Financial turnaround of Indian railway) 2008. Accessed from Scribed web site. On 17.6.2010.•IRFC Indian Railway Finance Corporation. 2004. Anual report of the Indian railway financial cooperation. New Delhi.



Thank You!

Engineering

Indian railways turnround story, Eng. B D Rampala Memorial Lecture IESL 2010