CASE STUDY SOLUTION OF PROFESSOR’ LALU SCRIPTS INDIAN RAILWAY’S TURNAROUND FOR PRODUCTION AND OPERATION MANAGEMENT
‘PROFESSOR’ LALU SCRIPTS INDIAN RAILWAY’S TURNAROUND
In December 2006, as many as 137 undergraduate students from the universities of Harvard and Wharton gathered to listen Indian Railways minister, Lalu Prasad Yadav at Rail Bhavan. These foreign universities had expressed to know how Lalu converted the loss making Indian Railway into Rs. 20 billion profit making organization within 2 years, without increasing fares. Mr. Lalu Prasad Yadav explained students in Hindi and his speech was translated in English by his aids. However the students of various countries questioned the sustainability of his model, they asked Lalu why he could not turnaround Bihar in the 15 years rule of Rashtriya Janta Dal (RJD) in that state, while he changed railways within 30 months. Lalu said, ‘Bihar needed an outside push. It had too many problems, while the railways had a lot of potential. It is like an empire’. Jeffrey Immelt, the chairman of General Electric, who visited Rail Bhavan recently, was surprised that the Rail Bhavan is now talking about unit cost, volume increment and competition. The IR has just become the second most profitable public enterprise after ONGC. Indian Railways is the world's largest employer, providing 1.6 million jobs, one of the largest and busiest rail networks in the world, carrying 18 million passengers daily. Yet it has, so far, stayed ahead of global recession. Thanks to Mr. Lalu Prasad Yadav for a job well done. He has surprised many by emerging as one of the top performing ministers in Prime Minister Manmohan Singh’s cabinet. He is being credited for the impossible—the turnaround of the monolithic Indian railways. When he took over as Railway Minister in 2004, the 156-year old Indian Railways was dismissed as a hopeless, loss-making organization, with too little revenue, too many problems and too many employees. IR was spending 91% of its income just on salaries and maintaining an aging organization. In 2001 the Rakesh Mohan Committee headed by former Reserve Bank of India deputy governor Rakesh Mohan, termed India Railways a "white elephant', with a debt of Rs 61,000 crore ($12.3 billion) and even predicted fatal bankruptcy by 2015. Now many are surprised by the successive landmarks set by the Indian Railways. In last four years, IR has turned in a cumulative cash surplus before dividend of Rs 68,778 crore ($13.9 billion). Out of this Rs 15,898 crore has been paid as dividend, Rs 39,215 crore has been invested in rail infrastructure and Rs 13,665 crore has been added to fund balances to reach Rs 20,483 cr. One of Rakesh Mohan Committee members, IIM’s Professor G. Raghuram, now has all praises for Lalu. IIM Ahmadabad, recognized Lalu’s turnaround of Indian railways, and made it a case study for its students.
What did the minister do to turnaround Indian railways?
In a nutshell,
* Refused to hike fares. Shored up earnings by carrying more passengers and freight. * Increased the load carried by a goods wagon from 81 tonnes to 90 tonnes. This gave an additional earning of Rs 7,200 crore. * Upgraded tickets if seats were going vacant in the upper class. So, waitlisted passengers could be allotted seats. * Maintained passenger profile so that bogies could be taken off or added to trains according to seasonal demand. Lalu’s Success Secrets
The explanation for his success lies in his down-to-earth attitude and rustic wisdom. Lalu puts it in his inimitable style: "My mother always told me not to handle a buffalo by its tail, but always take it by its horns. And I have used that lesson in everything in my life, including the railway ministry." Lalu says “I approached the ministry like a common man with no technical expertise. I was clear about one thing—I would not increase passenger or freight fares. It did not require rocket science to understand that the...
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