Page 1: Introduction
In today’s rapidly changing business world, managers are repeatedly faced with a series of problems requiring a range of solutions. Although everyday problems are routine and relatively easy to solve, strategic problems are longer-term and require considerable judgement, intuition and experience. In order to solve such problems, therefore, the decision-making process needs to be based on hard data and informed analysis. It should also involve the freedom and flexibility for individuals to work together to make both critical and creative choices between a range of alternatives.
This case study focuses on a transportation joint venture between Adtranz, a manufacturer of railway vehicles and equipment, and Angel Train Contracts, a rolling stock leasing company. (Rolling stock is the term used to describe the stock of all types such as locomotives, coaches etc that run upon a railway.)
The challenge for this collaborative project was to develop high quality and affordable rolling stock which would meet the customer needs and requirements of a modern railway system. The joint venture needed to act quickly as the railway industry was concerned about the number of ageing multiple unit vehicles currently being used.
An industry which is owned by the government is known as a nationalised industry or a public corporation. In 1979, the Conservative Government pledged to return selected publicly-owned enterprises to the private sector. Returning public corporations to the private sector is known as privatisation. The privatisation process for the Railway industry began with the 1993 Railways’ Act.
Initially, it was difficult to predict exactly what form privatisation would take and how it would affect the different areas of the railway industry. As a nationalised industry, the railways had suffered from insufficient investment. This meant there were very few new rolling stock programmes and many railway vehicles were becoming run-down.
For example, there are nearly 1,400 Mark 1 multiple unit vehicles still in operation on the busy commuter lines in the south of England and many of these vehicles are more than 30 years old. The Clapham and Cannon Street accidents raised serious concerns regarding the safety of these vehicles and two major problems were highlighted - poor crash protection properties and slam doors. In an ideal world, these trains would have been replaced many years ago but little money was available for new trains.
Rolling stock leasing companies (ROSCOs) own and lease out vehicles and also purchase new vehicles; train operating companies (TOCs) lease out from ROSCOs and have their own operating staff (e.g. station staff, drivers cleaners and caterers.
Part of the privatisation deal with ROSCOs and TOCs involved an investment requirement in new trains. However, leases were generally offered for seven years. Both rolling stock and train operating companies were committed to new investment but the short-term leases meant that if they were to reap the rewards from capital expenditure within the lifetime of their franchises, they would require new and high quality rolling stock quickly and at an affordable price.