Business Strategies driven by Data Insights have become the number one priorities for the CXO level Management. Together, they promise to transform the way companies do businesses, delivering the kind of performance gains when organizations redesign their core processes. As Data-Driven strategies take hold, it will become an increasingly important point of competitive differentiation.
The advent of Big Data has certainly created bigger opportunities. But, success in implementing BIG DATA initiatives lies in being able to extract RELEVANT KNOWLEDGE from heaps of data generated. This onerous task is akin to getting a needle out of a haystack. More importantly, the right questions need to be asked within this sphere. Are conversions right or simply the number of orders, for what sort of products is price elasticity relevant?
The key often is how many are RELEVANT, and how does our current data help us in generating these solutions. It is imperative to understand that the great hope of micro-segmentation or micro-customization could often be a mirage. With a desire to micro customize we often tend to micro-segment. Our mathematical models, therefore, run a chance of overfitting.
Thus, if we were to intelligently extract long-term patterns and qualify with the excess digital information we could be doing the right thing. However, if we choose to look for too much of depth within information in a small bucket of time, we could be entering a phase of overfitting or looking for more truth than what exists in the current data.
Long-term patterns, qualified by additional information, on the other hand, help us create immense value. These values come in terms of preventing value chain snags and making the appropriate responses to potentially disappointed customers. The ability to proactively attend to such customers and prospects makes Data – BIG & PREDICTIVE. On the other hand micro-segmentation with short-term data can make your data provide you insights that may not stand the test of time and would be a waste with an excessive investment of time and resources.
Sometime in November 2014, I hailed a cab back from the airport to my house. The cab driver, as numerous of them in Mumbai are, was from Uttar Pradesh. An avid fan of the Indian Railways that I am, I asked him about the punctuality of trains from his home state (which, most railway fans will acknowledge, have a notorious reputation for being late). I was accosted by a conversation which I feel must be a primer for most politicians in India.
He said punctuality was fine, it did not pinch him much. But what about kaala dhan? For a minute I failed to countenance why he referred to kaala dhan. It struck me without much delay that he was referring to the BJP’s pre-election promise to bring back the black money stashed abroad. But what did it have to do with my poser?
He then said that when he went to drop of some of his relatives to the train station, he offered money for two platform tickets at the counter. The ticketing clerk asked him to shell twice the money he used to pay. As the acche din has dawned on the country, the platform ticket prices had then just been doubled by the NDA government.
The cabbie was of the view that had the government brought back the kaaladhan as promised, there would have been no need to raise the platform ticket prices.
The unreason behind his kaaladhan story aside, there is a fundamental truth in the entire plot which most politicians miss. You cannot pass on what you assume is user charges, unless you make your system proportionately efficient. In other words, a charge which does not provide any value addition will only create disenchantment among the consumers.
That is the simple reason why there is so much of resentment against the Indian Railways’ plan to introduce surge pricing in the premium trains such as Rajdhani, Jan Shatabdi, and Duranto. According to the plan, to be implemented from Friday, travelers booking tickets on these trains will have to pay 10-50 percent more under the dynamic surge pricing system. As per the PTI report, 10 percent of the seats will be sold in the normal fare in the beginning and then on the fares will increase by 10 percent with every 10 percent of berths sold with a ceiling of 50 percent on the fare rise.
The plan has turned out to be a political hot potato with opposition parties terming it ‘anti-people’.
It has to be remembered the surge pricing system has been introduced at a time when the commuter is already under the impression that the railways have shortchanged him. After the price rise of tatkal tickets and earmarking of tatkal quota at 30 percent, the middle class was just waiting for one more chance to start yelling again. What has made matters worse is the fact that surge pricing as a business strategy is seen in the grey area of business ethics?
To put things in perspective, one has to analyze at the latest strategy along with some of the steps taken by the railways in the past two years that are aimed at extracting money from the common man, leaving several questions unanswered.
One such case was the abolition of the half ticket in April. The current surge pricing as planned by Indian Railways has to be seen in this backdrop.
Now let’s get into the details. One could look at the surge pricing plan both from a political perspective and as a business strategy.
The railways currently start booking four months in advance and have 30 percent of the seats for tatkal. After taking into account the VIP and other forms of quota which take away another 10 percent, roughly about 60 percent of the seats are available for the general public for booking four months in advance.
The new policy states that 10 percent of the tickets would be sold at the current base rate. Assume these are exhausted in the first ten to 15 days. Your price now goes up by another 10 percent. So effectively approximately 50 percent of the seats are left for you after the first surge pricing has taken place. As these get consumed at each progressive step of 10 percent increase in occupancy there is a rise of 10 percent in the base fare. So the last 10 percent which is available to the public will be at a full surge price of 50 percent.
So in a decent season approximately 50-60 days before the date of travel you are likely to hit the peak surge fare. After that, it’s party time for the railways. It is going to charge 50 percent hike on the normal ticket or force you to buy a tatkal ticket, which will be priced even higher with a tatkal charge.
Let us work out a few scenarios for the Mumbai-Delhi Rajdhani.
The surge price ticket for 2AC is likely to be Rs 4,054 about 50 days in advance. Now assume I am getting a waitlisted ticket, as the approximate 60 percent general quota is exhausted. Then will I risk myself with an unconfirmed travel or buy a flight ticket? A flight ticket about two months in advance is most likely to be reasonably priced around Rs 5,000. So what is railway minister Suresh Prabhu effectively doing? He is ensuring that you junk the railways and migrate faster to the airlines.
Let us take the scenario still later in time, say 20 days in advance before the travel. You now have a wait-listed ticket, which looks like having a hopeless chance of getting confirmed. The railways then provide you a still riskier option. It says to wait until the day before the scheduled travel, and then you may get a tatkal ticket which has the tatkal premium as well added to the latest fare (this we are yet to get clarity about). The truth is your travel is the last 24 hours.
A simple math shows you that is the Railways levies a tatkal premium on top of my surge price, the ticket charge approximately is Rs 4,500. Isn’t it better to trade off the uncertainty well in advance with a small premium? So you pay Rs 6,000 to an airline, which will give you a confirmed ticket and, of course, peace of mind. It’s actually a double-whammy for the railways.
Above all this, as a government that promised access din, should the NDA be trading in the grey area of business ethics? The methods the government uses to arrive at the pricing of its services should be reasonable. The common man will indeed understand that – but only that.
Remember in 1998 he tolerated onions even at Rs 40 a kg? But when onion prices touched an unreasonable Rs 70 per kg, the government fell. The common man may not understand the mathematics of the Rail Bhavan but much like the invisible hand in the market, he has an idea of what is reasonable pricing. It’s about getting the numbers by honest means. Mandarins at the Rail Bhavan don’t have to face the electorate. Those who govern don’t have a choice.
The surge pricing as a business strategy is myopic. It might get frustrated passengers to pay more in the short run, and the railways might earn a few pennies now. But in the long run, it will turn the passengers away. The government will get anti-incumbency as an added bonus. The railways should shun such silly ideas.
The Indian Railways (IR) is expecting a 94 percent Operating Ratio, (they had targeted an operating ratio of 92 percent) despite wage hikes, and falling revenue. What is more, a matter of concern than managing the operating ratio is the falling passenger and freight revenue of the Indian Railways.
The dip in gross earnings in the first five months of FY’16-17 is about 13 percent lower than targets and five percent lower than the same period a year ago. On the freight side, the Indian Railways increased its tariff in late August by up to 19 percent to compensate for the loss in traffic volumes. Whether that has really helped IT recover freight revenues is a matter of debate.
On the passenger revenue side, in September, Indian Railways came up with surge pricing in select trains. They were expecting to mop up close to a 1000 crore through the surge pricing scheme. In this financial, however, in a small window of 1-10 October, their revenues fell by 232 crores, including passenger revenues from surge pricing.
One of the responses has been to finally acquiesce to having a fair regulator, to decide upon fares regularly.
While this is being hailed as a revolutionary decision, the real challenge is what would be the content of decision-making of the regulator. Will it understand the dynamics of market forces or follow the same beaten path of surge pricing which will further make passenger services non-remunerative for Indian Railways? That is the real question of the moment.
Following surge pricing, a number of trains like Mumbai Rajdhani, August Kranti Rajdhani, Sealdah Rajdhani and Trivandrum Rajdhani have a large number of vacant seats in mid-December. Often there used to be a scramble to even obtain tickets in these trains in the tatkal quota. What the Railways failed to understand is that they were in the business of transportation, and not in the business of just running a public undertaking with pay commission obligations, that incidentally had a railway line also to take care.
So while the IR increased its fares dynamically, airlines undercut the market by offering tickets at Rs 3,000 to popular destinations like Goa and Kochi, often cheaper than the Rajdhani and Shatabdi fares.
While there is a long-term vision of offering value-added services and creating a new class of greater service offerings to passengers such as UDAY, Humsafar, DeenDayalu etc., the fundamental premise of each one of them is to seek better cost recovery.
The question that nobody is asking is, whether that cost in itself is competitive in the market or not. Else, how could the airlines and even bus services beat the Railways at costs over a huge spectrum of routes and time periods? The question of the fare regulator is therefore in a way a little secondary, and also not the right solution to a problem whose symptoms are at least seen rightly.
On long-haul sectors such as Mumbai-Delhi and Delhi-Sealdah, the Rajdhanis were beaten by airlines, while on sectors such as Chennai-Bangalore, the Shatabdis were beaten by private bus operators.
So what can the fare regulator do, replicate a policy that has already failed?
Rather than a fair regulator, which will only tinkle with fares keeping the Railways cost structure in mind, what is needed is a professionally-run revenue management stream for railways. Much like most airlines also have a revenue management function.
The revenue management function needs to optionally discount fares, or increase them with a single goal of increasing occupancy and thus the amount of marginal revenue. The operating costs of a train do not decline or increase with the occupancy. However, if you can increase marginal revenue over the same operating cost you make more money. That needs to be the fundamental premise. In fact, discount prices should kick-in far in advance just like airlines do, not waiting for the last day to kick in a 10 percent discount like Railways have ideated, and that too on the last surge pricing fare, which just does not work.
In fact, the huge investments in road infrastructure and reducing airline fuel costs are facts that railways need to live with. They will, therefore, have to work more on discounting fares rather than passing the so-called cost burden through the portal of a regulator to the consumer, and increasing fares. That would be more suicidal than the surge pricing scheme itself.
So there we go: Are there any CVs of Revenue Managers available? Fare Regulator should be considered passé.
Reflect on these questions for a moment, please?
Is BI really the solution?
Are an intuitive understanding of business and an intuitive slicing of data actually giving us the rare insights we needed from data to complete this journey?
Is a Data warehouse really the solution?
What should I chase to get my first insights from data?
What should be the journey we actually traverse to be able to reach a point where one not only says that they got decisive insights into business but also got them through a methodology that was lucid as well as ease of use of the utility to business?
A strategy thinker often needs to depend upon a whole host of reports and other information indirectly sieved out of a multitude of Data-warehouses and Data Marts to be able to take the right decisions, and the right strategy. Invariably this would mean unavailability of preprocessed data or simply the lack of data at the right levels. A bigger handicap could be the inability to ascertain which Mathematical model is the right one to follow to arrive at the right decision.
If it were to be one time, this could be a consultants job. However if the strategy would need to be recreated or re-designed from time to time, then a mere consulting engagement might not help. It might need a different software platform that is intelligent to recreate business strategies from time to time, repeatedly learn from Data Sets, and feed them back to the strategy team. This requires an intelligent strategy bed to be created, where the business user creates a strategy by mixing and matching different sets of processed information provided to him, and thus innovate on his strategy as well as his actionable. These systems need to provide actionables, and Early warnings for the tactical strategies, as well as provide Key numerical indicators that will help plan a long-term strategy as well.
What databases were to the ERP revolution, the strategy bed will be to the Analytics Revolution. What MS Excel was to an Office, MOBOT will be a Business, the new spreadsheet of Business Strategy.
The Japanese rose as a global manufacturing power out of their processes and techniques, not just technology. Some of their early principles were based upon simple but very powerful techniques to manage the manufacturing process and shop floor (factory) maintenance.
One of the most common Japanese principles is 5S – sort, set in order, shine, standardize, and sustain. Of these principles, the most important is set in order and standardize. Sustenance follows automatically. These two principles, when they fall in place, necessarily institutionalize a protocol, a governance structure to execute.
In contrast, there are several issues of protocol and governance in India, which can be gleaned from the Utkal Express train accident that occurred on Saturday.
‘Unofficial maintenance’ is being blamed for the Utkal Express accident. This means that something was not ‘set in order’ before the exercise began. Else it would have been official maintenance. There are several reasons why the derailment could have ultimately taken place – a fish plate could have been loose; there could have been a cracking web rail that was not attended to; there could be local embrittlement; or, simply improper welding of rail sections could have been the cause.
Simply put, someone operating on a maintenance job did not close it accurately before leaving the situation and the lack of inspection left behind a snag that led to the accident – lack of standardization of procedures. It means that either the maintenance manual was not followed, or track inspection was not carried out as per standards, or the speed restrictions were not put in place, or the basic red flags were not put in place to slow down the speed of the train. Else the train would not have been traveling at a speed of 106 km/h at the time of the accident. This is where the second ‘S’ of the 5S principle comes in – standardization of procedures.
There are other procedural issues that cause haphazard work, the primary one being heavy congestion on the networks, leaving little time for maintenance. Most of the Category A networks are those with heavy traffic and therefore intense planning is devoted to carrying out the maintenance of these networks. Both the Jhansi-Kanpur section, where the Indore-Patna Express met with a fatal derailment in November 2016, and the Utkal Express are on Category B networks, for which maintenance is perhaps not planned as well, and not that systematically.
With the populism of the previous decade, the traffic volume on Category B networks has grown, though their traffic has not yet hit saturation levels. The systems have to be standardized across the network, be it Category A or Category B.
One critical factor, which directly relates to the cost of human resources for the Indian Railways, is the policy of ‘surrendering of posts’. Surrendering of posts means that you abolish a post completely, thereby preventing the size of the workforce from bloating up unnecessarily. The railways have, over a period of time, reduced their workforce from 16 lakh to 14 lakh.
According to an unstated policy, this has been partly achieved by creating new vacancies or filling up existing ones, only if a parallel quantity of posts is surrendered. This to some extent explains why, with increasing traffic density on various routes, a proportionate number of maintenance resources might not be deployed, as they may not have been employed in the first place.
Last year, the East Coast Railway had 15,000 vacancies. Of these 2,500 were vacancies for gangmen and trackmen who perform track maintenance and surveillance duties. Similarly, South Central Railway had 20,000 vacancies, of which 3,000 of them were for gangmen and trackmen positions.
Overall, last year, over a lakh posts in the Safety Category were vacant. The Centre’s policy on surrendering three percent of posts from existing vacancies could sometimes stretch maintenance resources too far. A judicious call needs to be taken on vacancies that need to be filled up with increasing traffic density and those that actually should wait for another post to be surrendered.
Maintenance needs to be planned well in advance, with operational checklists and standard operations procedures (SOPs) being watertight.
The traffic density may be high, but an ad-hoc schedule can be made for the traffic as well; like the Konkan Railways Monsoon schedule, so that adequate time can be devoted to maintenance activities, without compromising the time needed for a perfect maintenance job.
In fact, this could be a great opportunity for the Skill India mission to look inwards – at those that the government employs. Clearly, the gangmen and trackmen could go in for some skill enhancement, that blend their tools and tackles with basic concepts of shop floor maintenance, just as the Japanese do in their factories.
Not a single Japanese worker is untrained on how he could see a potential accident through visual inspection on a factory floor, and prevent it from happening. They have mastered not just quality, but also visual inspection and accident prevention, and all this at the lowest levels of employment in their enterprise. This could perhaps turn out to be the biggest Skill India mission – this time for the government employees and not for the citizens.
The author is Jai Mrug CEO of M76 Analytics, a SINE IIT Bombay Company.
It’s the year 2020, we are sitting in a room called the Health Cockpit of a prominent municipal corporation in India, and there is an emergency meeting to prevent a possible outbreak of Leptospirosis, which the municipal corporation feels it should check with the anticipated heavy rainfall in the city and the relationship between rainfall, rodent population, and garbage that their in-house data scientists just established. Leptospirosis (also known as field fever, rat catcher’s yellows, and pretibial fever) is an infection caused by corkscrew-shaped bacteria called Leptospira.
Cut to 2015. Currently, Mumbai has already witnessed close to one-and-a-half-dozen deaths due to Leptospirosis. The age of information has raised the delivery bar for most elected governments and the institutions they run. Continue reading…