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Turnaround

The implementation of a set of actions required to save an organization from business failure and return it to operational normality and financial solvency. Turnaround management usually requires strong leadership and can include corporate restructuring and redundancies, an investigation of the root causes of failure, and long-term programs to revitalize the organization

Definition of 'Turnaround'
The financial recovery of a company that has been performing poorly for an extended time. In order to effect a turnaround, a company must acknowledge and identify its problem, consider changes in management and develop and implement a problem-solving strategy. In some cases, the best strategy may be to cut losses by liquidating the company rather than trying to turn it around.

A sharp, positive reversal in the performance of a company or the overall market.


1. The process of moving from a period of losses or low profitability into a more profitable stage. A turnaround may be triggered by a number of factors, including a better use of assets or the development of new products and services. 2. A security that is in the process of reversing a declining price trend.
3. The purchase and sale of a security on the same day.

The two basic factors which may result in sickness of an industrial unit are:Mismanagement Location Implementation of project Dividend Policy

Internal Factor

Inventory Management expansion and diversion modernize the productive

BASIC FUNCTION

labour-management Energy crisis optimum capacity

External Factor

Infrastructural Credit Situation circumstances

Internal factors are those which arise within an organization. They

include: Mismanagement in various functional areas of a company like finance, production, marketing and personnel. Wrong location of a unit. Overestimation of demand and wrong dividend policy. Poor implementation of projects which may be due to improper planning or managerial inefficiency. Poor inventory management in respect of finished goods as well as inputs. Unwarranted expansion and diversion of resources such as personal extravagances, excessive overheads, acquisition of unproductive fixed assets,etc.. Failure to modernize the productive apparatus, change the product mix and other elements of marketing mix to suit the changing environment. Poor labour-management relationship and associated low workers' morale and low productivity,strikes,lockouts, etc. External factors are those which take place outside an organisation.

They include: Energy crisis arising out of power cuts or shortage of coal or oil. Failure to achieve optimum capacity due to shortage of raw materials as a result of production set-backs in the supply industries, poor agricultural output because of natural reasons,changes in the import conditions,etc.

Infrastructural problems like transport bottlenecks. Credit squeeze. Situations like market recession, changes in technology,etc. International pressures or circumstances, etc.

Industrial sickness may be caused by a combination of all such factors. It has several adverse consequences on the economy as a whole. Some of which may be enumerated as follows:

It leads to loss of substantial revenue to the Government and enhances its public expenditure; It locks up necessary resources and funds in the sick unit. This also increases the non-performing assets (NPAs) of banks and financial institutions; It leads to loss of production and productivity in the economy; It aggravates the problem of unemployment in the economy; It vitiates the industrial atmosphere and leads to workermanagement disputes, strikes, lock-outs,etc. It undermines the public confidence in the functioning of the organised sector in the country which in turn affects the overall investment climate of the economy.

In the light of the above consequences of sickness and its growing incidence by size, region and industry followed by its far-reaching adverse socio-economic effects, the Government has been taking many steps and remedial measures in order to tackle this problem in India.

Introduction to Indian Railways:-

Indian Railways, abbreviated as IR, is a departmental undertaking of Government of India, which owns and operates most of India's rail transport. It is overseen by the Ministry of Railways of the Government of India. Indian Railways has 114,500 kilometers (71,147 mi) of total track over a route of 65,000 kilometers (40,389 mi) and 7,500 stations. It has the world's fourth largest railway network after those of the United States, Russia and China. The railways carry over 30 million passengers and 2.8 million tons of freight daily. It is the world's second largest commercial or utility employer, by number of employees, with more than 1.36 million employees. As for rolling stock, IR owns over 240,000 (freight) wagons, 60,000 coaches and 9,000 locomotives. Railways were first introduced to India in 1853. By 1947, the year of India's independence, there were forty-two rail systems. In 1951 the systems were nationalised as one unit, the Indian Railways, becoming one of the largest networks in the world. IR operates both long distance and suburban rail systems on a multi-gauge network of broad, metre and narrow gauges. It also own locomotive and coach production facilities.

Salient Features of Indian Railways


Worlds third largest railway network. Prime movers to the nation. Approximately 65,000 km of rail tracks and over 7,151 railway stations. IR owns a fleet of 2,22,379 wagons, 42,441 coaches and 7,910 locomotives. It runs 16,0251 trains, including 9,550 passenger trains, carrying about 1.6 million tonnes of freight and about 15 million passengers daily. Prime infrastructural sector. Perform the dual role. Commercial Organization. Vehicle for fulfillment of social obligations. Part and parcel of the total receipts and expenditure of the Government of India.

Turnaround Management
The present business scenario is one wherein constant change is the name of the game, For any firm to survive in any industry, there has to be constant monitoring and improvement of its systems and operations. When a firm faces severe cash crisis or a consistent downtrend in its operating profits or net worth, it is on its way to becoming insolvent. The slide cannot be prevented unless appropriate actions, both internal and external, are initiated to change the future prospects. This process of bringing about a revival in the firms fortunes is what is termed as Turnaround Management.

3 phases in any Turnaround Management.


1 The diagnosis of the impending trouble or the danger signals 2. Choosing appropriate Turnaround Strategy 3. Implementation of the change process and its monitoring.

Let us understand each phase individually


Phase I: Watching out for the danger signal
Do companies turn sick overnight and qualify as potential candidates for turnaround, or do they become sick slowly, which can be stopped by timely corrective action? Obviously only the latter is possible. But in reality, most companies do not recognize this fact.. The following are some of the universally accepted danger signals, which a company should watch out for: Decreasing market share / Decreasing constant rupee sales

Decreasing profitability Increased dependence on debt / Restricted dividend polices Failure to plough back the profits into business / Wrong diversification at the expense of the core business. Lack of planning Inflexible CEO / Management succession problems / Unquestioning Board of Directors A management team unwilling to learn from competitors.

Phase II: Choosing appropriate Strategy


Hoffer, an expert management guru, classifies Turnaround Management into two broad categories. 1. Strategic Turnaround As the name itself suggests, strategic turnaround choices may force the company to completely change its current way of operations. The choices under this method are. A new way to compete in the existing business. Entering into an altogether new business. Under the first choice, the focus is either on increasing the market share in a given Product market frame work or in repositioning the product market relationship. The increase in market share can be achieved by improving product quality perception through dealer push or by a consumer pull. Alternatively, entering a new business as a turnaround strategy can be approached through the process of product portfolio management. 2. Operating Turnarounds Basically they are of 4 types and the strategy adopted depends on the various situations in which the firm is. All these strategies focus on short term effects only. 1. Asset reduction strategies 2. Revenue increasing strategies

3. Cost cutting strategies 4. Combination strategies

If a firm is operating much below the Breakeven level, it must take steps to reduce its assets. This will reduce the level of fixed costs and help in reducing the total costs of the firm. If the firm is operating substantially but not extremely below its breakeven level, then the appropriate turnaround strategy is to generate extra revenues. Operating closer but below breakeven levels calls for application of combination strategies. Under this method all the three namely cost reducing, revenue generating and asset reduction actions are pursued simultaneously in an integrated and balanced manner. Combination strategies have a direct favourable impact on cash flows as well as on profits. If the firm is operating around or above the breakeven level, cost reduction strategies are preferable as they are easy to carry out and the firms profits rise once the unnecessary costs are cut down.

Phase III: Implementation of the change process


Implementation plays an important role in any turnaround management. Identification of an appropriate strategy by itself will not guarantee success. Similarly partial adoption of a strategy is also not useful. The selected strategy needs to be pursued relentlessly and with Allout effort to make it work. The success or otherwise of a Turnaround strategy depends on the commitment shown by the top management as also the operating management.

What are the problems faced in Indian Railways?


Although the development of railways in our country took place rapidly, still there are numberless problems in the path of steady growth. The main problems are stated as under:

1. Old Track and Poor State of Rolling Stock:


The major problem faced by Indian railways is that the tracks are old and outdated. These old tracks cause many serious railway accidents. This has also resulted in speed restrictions. Virtually, every new timetable, running time of all trains has been increased while railways in other advanced countries are reducing it drastically.

2. Travel without Tickets:


Another problem that is being faced in India is that a large number of passengers travel without purchasing tickets. Indian railways have to bear extra loss of about Rs. 5 crore every year on account of traveling without tickets.

3. Railway Accidents:
The incidence of railway accidents in our country is greater as compared to other countries of the world. Accidents occur due to the errors and negligence of the employees.

4. Attack on Railways:
The Indian railways had to suffer a heavy loss of crores of rupees. The railways are attacked during the time of disturbances and violence's that arise in any part of the country. For instance, there was heavy loss of railways in the movements of West Bengal, Telengana and Assam etc.

5. Lack of Modern Management:


There is a lack of modern management as railway failed to attract adequate incentives and suitable talent. In addition to it, it could not make economic analysis for perspective planning tariff.

6. Outmoded Technology:

The rolling stock technology is absolutely outmoded. The system is beset with excessive man-power and manpower development has not kept pace with technology up gradation. This has made railways incapable of coping with increasing transport demand and of raising and improving the traffic volume and flows at lower unit cost of operation.

7. Problem of Replacement:
The problem of replacement of old and obsolete railways engines, wagons and other equipment has created a serious problem in India.

8. Problem of Laying Double Lines:


Most of the railway lines are single lines which create great inconvenience to the railway organization and passengers.

9. Inadequate Investment:
The railway transport has lagged behind the requirement due to inadequate investment. The shortcoming has been highlighted by different committees, The National Transport Policy Committee, The Rail Tariff Enquiry Committee and The Railway Reforms Committee.

10. Competition with Road Transport:


The competition with road transport is growing in intensity, both in passenger and in goods transport. The lack of coordination between railways and road transport has lowered the earning capacity of the railways. This has further caused delay in traffic movement and inconvenience to passengers.

Loss Making Era of Indian Railways

Sectors due to which Railways incurred Losses


Passenger Business. Reduction in the share of Transport Market. Freight Segment. Scrap Disposal. Un-remunerative Projects. Increase in wages and salaries. Social Service Obligations.

The major actions involved in the turnaround process, Khandwalla (1981) provides the most comprehensive listing, which is reproduced below.
1. A dynamic change-agent with a strong sense of mission, preferably from outside the organization. 2. Credibility building through some outstanding performance and/or through quick-pay-off strategies. 3. Mobilization of the rank-and-file by getting them involved in the organizations goals and activities. 4. Quick pay-off projects for some immediate relief. 5. Reprieve from serious external pressures, especially those relating to industrial relations, finance, key inputs, stakeholders, etc. 6. Mobilization of external resources and utilization of environmental opportunities. 7. Strengthening of mechanisms to influence the environment, such as marketing and public relations. 8. Selective changes in the product-mix, concentrating on high payoff products.

9. Selective strengthening of management functions and systems, especially the financial control system. 10. Motivating managers through participation, autonomy, challenging tasks, accountability, example setting, etc. 11. Co-ordination through regular review meetings and face-to-face interaction. 12. Performance control through goal-setting and fixing of responsibility, often creating profit and cost centers.

Table No.1 Model of Turnaround Stages and Strategies

No.
1

Stages
Arresting sickness

Strategies
Credibility building by the turnaround agent Mobilization of the organization Reprieve from external pressures Cost cutting/cost controls Staff reduction, especially in nonproductive areas Quick pay-off projects and actions Asset reduction Inventory reduction Redefining the business Changes in corporate identity/image Rationalization of product-mix to eliminate loss-making ones and to focus on core business Modernization of plant and machinery Shift from production orientation to market orientation Tie-ups with reputed companies for marketing Focus on quality and customer service Debt/capital restructuring Organizational restructuring Changes in the managerial cadre Financial incentives for managers/staff Training/retraining of employees Information dissemination Public relations and liaison Culture building through continued training, seminars, focused programmes, slogans, rituals, etc Introduction of new structures, systems, and procedures including communication and coordination mechanisms

Reorienting

Institutionalization and culture building

Growth and diversification

Introduction of new products Entry into new markets, especially international markets Related unrelated diversification Focusing and strengthening R&D Mergers and acquisitions

A Critical Appraisal of Strategies and Processes


1. Introduction
The Minister for Railways (MR), Mr Lalu Prasad, the Chairman and Members of the Railway Board (RB) were reviewing investments for the XI Five Year Plan in mid July 2006. The focus areas that had been put forth in the XI Plan Approach Paper were [Planning Commission, 2006] 1. Capacity augmentation, especially Delhi-Mumbai and DelhiHowrah dedicated freight corridors 2. Establishment of logistic parks and terminals 3. Rationalization of freight structures 4. Increased use of IT enabled services 5. World class quality passenger amenities 6. Public-private partnerships for building and operation of rail infrastructure 7. Design of high capacity wagons 8. Restructuring of IR to focus on core activities 9. Establishing a Rail Tariff Regulatory Authority The total investment being planned for the eight year time frame (20072015) was tentatively in the order of Rs 350,000 crores. This was a significant increase from the planned Rs 60,000 crores (actual expected to cross Rs 80,000 crores) in the X Plan period of 2002-07.

This confidence was a result of what the Indian Railways (IR) achieved, not only due to the rising trend of performance, but also due to the significant growth in the past two years (2004-06) (Exhibit 1). The fund balances had crossed Rs 12,000 crores. These two years coincided with Mr Lalu Prasad being at the helm of affairs of the IR, having moved into his position on 23rd May, 2004. Mr Lalu Prasad, in his opening remarks of the budget speech of 2006-07 on 24th February 2006 had said, Mr. Speaker Sir, I rise to present the Budget Estimates 2006-07 for the Indian Railways at a point in time when, there has been a historical turnaround in the financial situation of the Indian Railways.

Turnaround of the Indian Railways (IR)


Railway is a rising industry not just in India but in many parts of the world. Railways went out of business in the West from the 1960s to 1990s due to its inability to respond to competition from road and air traffic systems. Since railways are large entities serving vast and expansive areas it is often believed that they are unable to adapt to changes in the environment. For decades the only news about rail systems was about their decline. This decline has been halted and reversed in many parts of the world. Railways are resurging based on new ideas (e.g. high speed trains), environmental friendliness, new customer oriented services and new attitudes all over the world. Indian Railways (IR) is the largest railway network in the world operating under a single management. It is often called the `lifeline of India'. Indian Railways is the largest employer in the world, directly employing about 1.4 million people. It is also providing indirect employment to over seven million people. One survey in the early-2000s revealed that one in every ten Indians depended on Indian Railways for his livelihood, directly or indirectly (Expert Group on Indian Railways, 2001). Fifteen million people across the country travel by Indian Railways everyday on average. IR operates as a department under the Government of India. It is the only department which presents its budget separately from the annual budget, presented by the Ministry of Finance.

In the late 90s IR found itself in a grave situation. A number of studies pointed towards the poor performance indicated by the declining revenues and shrinking market share as well as the declining capacity of the IR for financing its expansion and growth. Excerpts

From two studies Kundu (1995) and Expert Group on IR (2001) reproduced below, are apt to illustrate the inevitable plight of Indian Railways during the late 1990s.
it is unlikely that Railways would resort to any major reduction in staff strength, given the strength of their labour unions. The possibility of increasing the fares is very limited due to extreme sensitivity of the issue and the political repercussions. As far as freight traffic is concerned, it contributes a much smaller proportion to the total traffic revenue than say before 20 years. It is important that the increase in earnings from commodity movement should come not necessarily through increase in rates but through growth in traffic. The rates for several commodities are already quite high and with any further increase in these, Railways run the risk of losing the traffic to road transport. Bringing out all these changes would require an innovative and enterprising management policy. In view of all these, IR maintaining a high growth in traffic revenue, generating a large part of the investible resources internally and, thereby, saving IR from the debt trap, without hampering the growth in different sectors of the economy, would be difficult and challenging task (Kundu, 1995). A similar forecast was made by the Expert Group on IR (2001) headed by Dr. Rakesh Mohan. Indian Railways is today on the verge of a financial crisis. To put it bluntly, the Business As Usual Low Growth will rapidly drive IR to fatal bankruptcy, and in sixteen years Govt. of India will be saddled with an additional financial liability of over Rs. 61,000 crores (US $ 15.06 billion). On a pure operating level, IR is in a terminal debt trap. (Expert Group on IR, 2001 p-43).

The Expert Group on IR also recommended a set of changes to be implemented in IR. Two important ones among them were the following (a) IRs manpower of 1.5 million. It should be downsized by 2.5 per cent over the next five years; and (b) second class fares should be increased by 8 to10 percent every year over the next eight years.

Causes for decline in performance

There were external as well as internal causes for the declining performance of Indian Railways. Due to opening of the Indian economy following the economic liberalization, there was increasing pressure for reducing cost and improving quality. The budgetary support from the Central Government was dwindling and its financial situation did not allow higher budgetary support to the Ministry of Railways. Besides the competition from road and air was increasing. Among the internal factors, the major ones were operational inefficiency, lack of market focus, politically driven pricing policy, lack of competitiveness, denominator based cost reduction policy, low employee productivity, uncoordinated investment decisions, investment in unremunerative projects, social obligations and the like.

Diagnosis, recommendations and initiatives taken by IR


The continuous decline in performance seized the attention of the top leadership and the need for diagnosing the sickness was felt. This resulted into the constitution of Expert Group on Indian Railways, also known as Rakesh Mohan Committee which delivered its report in the year 2001. This Committee among other things also recommended certain operational strategies to be adopted by Indian Railways, which are reproduced below

A railway traffic strategy aiming to boost current prevailing growth rates under freight and passenger would be built around the following:
(a) Increased average goods train speeds: Reduction in speed differentials between freight and passenger trains will be the best and most economical strategy for expanding the freight haulage capacity of the system. (b) High speed, modern passenger services (c) Commodity-specific freight strategies (d) Introduction of new technology: Experts estimate that a gap of nearly 20 years now separates the technology in use in Indian Railways and that of advanced systems. Inadequate attention has been paid to R&D and technology investments in IR. Being one of the largest rail systems in the world, IR must have access to R&D facilities that can be counted among the best in the world. (e) Harnessing Information Technology for freight operations and (f) Increase in capacity through advanced signaling and communication systems: Owing to the characteristics of freight and passenger movement in India, most of the potential traffic that will contribute to a high growth rate will move on the major trunk routes. Route-wise studies need to be undertaken and investment programmes drawn up on the basis of full analysis of costs and expected benefits.

Some of the initiatives taken by Indian Railways 2001 onwards are mentioned hereunder.
Consequent upon the recommendation of the Railway Safety Review Committee (1998) also known as Khanna Committee, non-lapsable fund of Rs.17, 000 crores (4.25 billion US $) was created in 2001. This fund was named as Special.

Railway Safety Fund and aimed at replacement and renewal of vital safety equipments. Restructuring of zonal and divisional organization was completed in the year 2003, which also marks completion of 150 years of existence on April 15th . Indian Railways have 16 (earlier 9) zones and 67 (earlier 59) divisions with effect from April 1, 2003. Regular double-stacked container service (on BLCA/BLCB flat wagons) began on the Pipavav-Jaipur route during March 2006. First private container train, owned by Boxtrans Logistics, started from Cossipore to Loni, April 2007. Maersk Line launched dedicated block train operation between Bangalore and Chennai in collaboration with the Container Corporation of India, connecting to the freight ship service from the US east coast to Chennai. Private container train by APL (formerly American President Lines) started from Loni to Jawaharlal Nehru Port, Mumbai. Enhancement of carrying capacity of wagons to increase throughput: Carrying capacity of goods trains has been raised from 3,200 tonnes to 4.000 tonnes. This was achieved due to introduction of the 22.9 tonne axle load freight trains, as compared to the previous 20 tonne axle load trains. Loading capacity was enhanced to the extent of 16 percent. Targeting 50% reduction in unit costs over a period of 5 years because of axle load increase.

Reduction in turnaround time of wagons (7 to 5 days) with additional loading of 4 to 8 tonnes per wagon which has resulted in the loading capacity increase significantly. Long term initiatives such as construction of Dedicated Freight Corridors to provide additional capacity for fast movement of freight traffic. Creation of rail linked container depots and integrated logistics parks, for non-bulk freight business. Use of data from Freight Operation Information System to make freight discount policies like empty flow direction discount schemes. Simplification of rules in key areas like free acceptance of indents for the supply of wagons, single window booking system and faxing of invoices to the destination. First long-distance train named after a corporate brand launched. South West Railway granted PepsiCo the right to run three summer trains (Bangalore-Nagarkole, Bangalore- Chennai, and Bangalore-Hubli) under the name 'Kurkure Express' with branding by PepsiCo for its lines of snacks of that name. CNG based Diesel Electrical Multiple units have been developed to reduce running cost. Speed of passenger train enhanced to 150 kmph on Delhi-Agra section in February 2006. Productivity Linked Bonus (PLB), equivalent to 65 days pay was declared by Ministry of Railways in 2006. This was further enhanced to 70 days in the year 2007. Scheme of training for officers at reputed institutes abroad, every 10 years and reputed institutes in the country, every 5 years was announced. Wheel Impact Load Dictator (WILD) has been developed to provide audio-visual signal to the train operating staff in the event of passing a wheel having higher impact load due to wheel defects. Reduction of the AC first class fares, AC second class fares, and second class fares. The Scheme of Frequent Travelers (SOFT) has been launched, which is applicable to I AC, 2 AC and AC Chair Car classes. A

frequent traveler will get a complimentary train trip after certain numbers of reward points are accumulated. Fully air-conditioned Garib Rath (chariot of the poor) trains having fares about 25 per cent lower than the present AC 3 Tier fares to run on the Delhi-Patna, Delhi-Mumbai, Delhi-Chennai and Saharsa-Amritsar sectors. Scheme for up-gradation of confirmed passengers in a lower class to vacant seats in a higher class without any extra charge with effect from January 26, 2006. The suburban trains in Mumbai were attacked by the terrorists bomb blasts on July 11, 2006. The restoration was done within 12 hours of blasts.

To popularize booking through the Internet, the delivery of tickets has been extended to more than 181 cities: Payment options have been liberalized by introducing the facility of direct Debit through the Internet and Prepaid Cash Cards in addition to Credit Cards. Integrated Train Enquiry System has been launched for ascertaining Train Running Status, PNR Status and availability of accommodation through "Interactive Voice Recording System.

Broad Strategy Adopted


play on volumes reduce the unit cost pass on the benefits to the consumer. improvisation or reinventing instead of restructuring

FREIGHT SECTOR

Indian Railway carries a huge variety of goods ranging from mineral ores, agricultural produce, petroleum, milk and vehicles. Indian Railways makes 70%of its profits from the freight sector

DECISION MADE IN BUDGET


No change in rates Enhancing the quality of freight trains Double stack container freight trains Increase in wagon production & locomotive production Meeting global demand

SCHEMES INTRODUCED
Engine-on-Load Terminal Incentive Scheme Electronic Payment Gateway Wagon Investment Scheme Non-peak season incremental freight discount scheme Loyalty Discount Commodities have been moved to higher brackets iron ore, fertilisers and petroleum products being some examples. A congestion charge has been put on specific commodities In addition, the Railways have raised the maximum permissible carrying capacity of its wagons by two to eight tonnes.

PASSENGER SECTOR
Indian Railways operates approx. 8,702 passenger trains and transports around 5 billion annually across twenty-seven states and three union territories

SPECIAL DECISIONS TAKEN IN BUDGET


Safety Initiatives: IR created a Special Railway Safety Fund of Rs. 170 billion to improve safety environment, through replacement of over aged railway assets, that is, tracks, bridges, rolling stock, signaling gears etc. The number of accidents have been more than halved from 473 (2001) to 200 (2007). Use of high technology for passenger safety (train safety devices like Train Protection and Warning System and Anti-Collision Devices). Security: Railway Protection Force was strengthened to escort passenger trains in security sensitive areas. Cleaner Trains Book stalls Reducing journey times Increasing bogies Special Measures for Women commuters Catering-Catering services of Indian railways consist of Mcdonalds,Nescafe,wal mart and local chaiwalas.

Operational and Financial Strategies


Cost control through intensive utilization of assets and enhancement of the capacity was an important strategy of IR turnaround. Intensive utilization has been achieved by reduction in the wagon turnaround from 7 to 5 days and capacity enhancement has been achieved through increase in the axle load from 20.3 to 22.9 tonnes. The approach has been volume-centric as marginal cost is substantially lower than the average cost of rail transportation. Cost cutting through retrenchment, most commonly adopted in the West particularly in the US, has not found favour with IR. However, a reduction in manpower has been achieved from 1.65 million in 1991 to 1.41 million in 2006 through not filling the vacancies (arising out of retirements, resignation, etc.) which amounted to about 2% per year. Use of IT in Freight Operating Information System has also helped in reducing costs.

Product Market Strategies


Focusing on the core business of earning through freight revenue, market segmentation based on the elasticity of demand (higher charges for door to door service, `tatkal reservations (reservation 5 days before the date of journey), dynamic pricing (differential off-season fares), product differentiation based on the need to provide better and comfortable service at lower prices, 3 tier air-conditioned trains (Garib Rath) and the Jan Shatabdi Expresses are examples of the market sensitivity of IR Other examples of customer friendly actions of IR The online reservation system, e-ticketing and the use of ATMs, Post offices, etc, to reach the customers, improvement in cleanliness, lighting and signage, information availability through call centers and mobile phones etc., increasing use of IT for the passenger reservation and special services like SOFT to incentivise the frequent travelers.

Human Resource Strategies


Unions cooperation was earned by not following the recommendation of the Expert Group on IR, (2001) for staff reduction by retrenchment. However, reduction in staff was achieved by not filling up the vacancies created by retirement and resignation of the employees. The increase in productivity-linked bonus (PLB) acted as incentive to the work force, the expectation for the current year is higher than the last years bonus equivalent to 65 days pay which was considered too high by the Ministry of Finance. (PLB for the current year has since been announced. It is equivalent to 70 days pay). There was an increasing emphasis on the quality of officers training and the need to expose them to international environments. The training abroad once in 10 years to every officer acts as a great incentive. A major achievement of IR in its relationship with the unions is the gaining of their support for the Public Private Partnerships for the future expansion programmed.

Growth Strategies
Leveraging on the opportunity made available by the boom in the economy has been important strategy of IR. Private investment is mobilized through wagon investment scheme, making IR resources available for other investments. In financing the massive expansion plan, a large chunk is expected to be financed through PPP (70,000 out of 250,000 crores of rupees, equivalent to 17.5 out 0f 62.5 billion US Dollars) over the five year period of 2007-2012. These include capacity enhancement through construction of Dedicated Freight Corridor. Increasing use of IT for freight operations, marketing initiatives, introduction of new products such as Jan Shatabdi, Garib Rath and customer orientation have also helped in accelerating revenue growth.

Changes Introduced
Tatkal (instant)-reserved tickets
In the last three years, the number of tatkal seats more than doubled. In 2005-06, the daily average number of berths in tatkal quota was 43,000. The next year, it increased to 57,000 and in 2007-08 raised further to 98,000. Tatkal revenue for the Railways almost doubled from Rs 200 crore in 2006-07 to Rs 396 crore in 2007-08. No slack season (February-March and August) for trains that see high purchase of such tickets 80 per cent and above of the quota .The tatkal quota in such trains has been kept higher than others. In the last four years, the Railways have upgraded 210 mail and express trains to the super-fast category, taking the total number of such trains to 350. These trains run at an average speed of 55 km per hour and, after the conversion, their journey time has been cut by three to six hours. However, this reclassification has also resulted in more money (over Rs 114 crore in 2007-08) for the Railways as each passenger needs to fork out Rs 15 for super-fast charges. Today, over a fifth of all passenger trains operated by the Railways are super-fast trains.

MOTIVATION OF RAILWAY EMPLOYEES


Changes in organizational culture from politicized decision making to commercial, business oriented decision making. Facilities for licensed porters Crew friendly drivers cabins and brake vans were designed.

Establishment of International Railway Strategic Management Institute in 2005 Participation of Railway Employees in Management (PREM) Corporate Welfare Plan, Staff Welfare, sports club Evolved a system of ensuring managerial accountability, Performance based rewards

Turnaround strategies of IR: A classified analysis. In order to understand the directions of IR turnaround, a classified analysis of IRs turnaround strategies will be useful. Accordingly, we discuss them under a few categories identified as important by prior literature.

The turnaround over the past two years has demonstrated that IR is indeed a sunrise sector. With the right moves, nothing can hold it back from being world class.

Exhibit 1: 2001- 2002- 2003- 2004- 2005Performance of IR 2002 2003 2004 2005 2006
Gross Traffic Receipts Growth (%) Earnings Goods1 Passengers Other (Coaching, Sundry and Suspense) Total Working Expenses Growth (%) Net Misc. Receipts Operating Ratio Net Revenue Net Dividend Payable Net Surplus Fund Balance 37,838 8.5 24,845 11,196 1,797 36,293 4.7 793 96.0 2,338 1,337 1,000 1,527 41,068 8.5 26,505 12,575 1,988 38,026 4.8 788 92.3 3,830 2,715 1,115 3,391 42,905 4.5 27,618 13,298 1,989 39,482 3.8 1,056 92.1 4,478 3,387 1,091 5,228 47,370 10.4 30,778 14,113 2,479 42,759 8.3 662 91.0 5,273 3,199 2,074 7,785 54,491 15.0 36,287 15,126 3,078 45,575 6.6 -912 83.7 8,005 3,668 4,337 12,141

Some of the key strategies the Indian Railways adopted were Downsizing
The number of employees, which peaked at 1.652 million in 1991, was brought down progressively to 1.472 million by 2003, and to 1.412 million by 2006. One of the elements of retrenchment strategy is to trim off excess staff. The approach that the IR adopted was not to fill in vacancies created due to retirement or other reasons.

Outsourcing
Besides the catering and parcel service activity, the IR also outsourced advertising activity. In the other business areas of parcel, catering and advertising, the strategy of outsourcing through public private partnership and wholesaling rather than retailing was adopted

Product Innovation
The IR introduced double stack container trains on some diesel routes. These containers increased the carrying capacity of each train to 2,500 tonnes against 1,500 tonnes, and also reduced line capacity constraint by nearly half and led to saving of about seven percent on capital cost and 25 percent in operating expense Further, it introduced new design of wagons with higher pay load (carrying capacity) but lower tare weight (weight of the empty wagon) that improved safety features. The effect of these measures can be seen in higher freight revenue.

Rise in demand
The rise in freight revenue - the main plank of the IR turnaround. IR raised the freight on iron ore by 17%.

Results of the Strategy


Internal revenue generation increased from Rs 6,902 cr in 2003-04 to Rs 13,612 cr in 2005-2006. The operating ratio improved from 92% in 2003-2004 to 83.7% in 2005-2006. The railways transported freight weighing 667 tonnes in 2005-06, a 20% increase over the last year. IR generated a Rs 13,612 cr with 1.422 million employees on its rolls, ignoring the recommendations of the Rakesh Mohan committee which emphasized on having a thinner organization. More effective use of manpower led to improvement in staff productivity. Revenue per staff witnessed a rise by 68 percent (2001-2006) as against 49 percent (1996-2001).

Outcome
Various steps have been taken since 2001. Consequent to these actions, the performance of Indian Railways started showing an upward trend, as can be seen from the tables of growth in physical performance (measured in terms of growth in freight and passenger traffic) and the financial performance (measured in terms of operating ratio, net revenue as a percentage of capital at charge * and capital fund.

Table No. 2 - Physical Performance


(Growth in freight and passenger traffic)

Year Freight Freight Passenger Passenger GDP growth rate March (NTKM in (% (PKMs in (% at factor billions) Growth) billions) Growth) Cost (1999-2000 prices)
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 284.25 281.51 305.20 311.00 323.00 353.19 381.24 407.40 439.60 476.77 0.00 -0.96% 8.42% 1.90% 3.86% 9.35% 7.94% 6.86% 7.90% 8.46% 380.53 404.60 431.39 458.50 473.50 516.00 542.00 576.00 617.00 700.00 0.00% 6.33% 6.62% 6.28% 3.27% 8.98% 5.04% 6.27% 7.12% 13.45% 0.00% 0.00% 0.00% 4.40% 5.80% 3.80% 8.50% 7.50% 8.40% 9.30%

Capital at charge is the capital received from central government through budgetary support, for the capital investment.

Capital fund is created from the internally generated resources, for the capital investment
The Railway Budget presented in the Parliament in February 2007 announced a cash surplus of Rs 20,000 Crores (US $5 billion). This includes adding back the non-cash expenditure on depreciation. Dividend to Government was paid at the rate of 7 percent leaving no liability for unpaid dividends for the previous years. The financial performance was all the more impressive, as the fares were not increased despite hike in the cost of diesel and other input costs; rather there was decline in passenger fares and in the freight charges for select commodities, which give a message that the increased revenues are the result of operational efficiency and productivity and not due to price rise. Operating ratio was at an all time low at 78.7 percent. There

was spectacular growth in total revenues and modest decrease in the number of staff, as can be seen from Tables 3 and 4. These figures are often treated as unequivocal indicators and of financial performance and unmistaken signals of IRs turnaround.

Table 3 -Total Revenue(In INR and US Dollars) (year ending March)


2001 2002 2003 2004 2005 2006 2007

Rs. (10 million)


36,001 39,358 41,856 43,961 47,320 54.491 63,220

Billion (US Dollar)


9.00 9.83 10.46 10.99 11.83 13.62 15.86

Table 4 - Number of Staff (in 000)


2001 2002 2003 2004 2005 2006 2007 1,545 1,511 1,472 1,442 1424 1,412 NA

LALU AND INDIAN RAILWAYS


He disallowed plastic cups used for serving tea at railway stations and announced that they will be replaced by kulhads(earthen cups). -generate rural employment. -reduce garbage as the kulhads are bio- degradable. He made personal inspections in the railways. He undertook a surprise check at Rail Bhavan in New Delhi. He deducted the salaries of about 500 latecomer employees and sent them back. Lalu carried out a surprise check on a goods train coming from Mumbai at Danapur station. He found that weights of consignments were under-assessed, leading to loss of revenue for Railways. He claimed that railway officials, transporters and consignees were part of a racket. A few top BJP leaders, associated with a company called Samrudha Overseas Pvt Ltd, were allegedly involved in the racket.

He said that he would revoke the contract of A H Wheeler & Co, which runs newspaper stands on most Indian railway stations, because they were enjoying monopoly ever since English (British) left India and would invite open tender. He maintained passenger profile so that compartments could be taken off or added to trains according to seasonal demand. As part of his drive to modernize the railways Lalu Prasad Yadav has decided to send nearly 100 top officials abroad for training in latest techniques and sharpen their managerial skills in Management Schools of USA and France.

Lalu Prasad Yadav is now credited with engineering the financial turnaround of Indian Railways, which was on the verge of bankruptcy. Under him, the Railways booked an unprecedented surplus of 110 billion rupees (2.47 billion dollars).

Conclusion:The Indian Railways has always been the worst managed India Public Sector enterprise, at least till before Lalu Yadav the magician came along as Indian Railways Minister under UPA/Congress government. Railways notorious for being a loss making enterprise has seen much radical changes over the last 5 years. Long known for incurring losses , the Railways has dramatically improved under Prasad's tenure by enhancing technology and cutting fares to boost traffic. Thegrowth rate in the volume of goods carried by the Indian Railways has doubled to an average of 8% in the last five years from 3% in 2000-2001 . The Railways expects total number of passengers to climb 7% in the current fiscal year and in the next . Mr. Prasad said the Railways will likely end the current year through March with asurplus of 193.2 billion rupees and pay 47.11 billion rupees to the federal government as its share of the profit. The Railways expects total income from moving people and goods in the next fiscal year to rise 13% to 931.59 billion rupees from an upwardly revised estimate of 823.93 billion rupees in the current year ending March. In this years interim railway budget Lalu Yadav has kept the human aspect alive and focussed on keeping freight prices low and cutting passenger fares across the board by 2%. Also giving a boost to the infrastructure & employment sector,

43 new trains will be launched $7.8 billion to be spent to moderize 63.000 km of railway network.