Organization Structure



Introduction

This section discusses what is meant by commercial railway operations, why railways operate commercially, and how commercial railways are organized. Railways are often considered a natural monopoly and in many cases have been owned and operated by government units (or, where privately owned, have been heavily regulated). State-owned and heavily regulated railways tend to pay attention to government units, not to customers—railway management is evaluated on its attention to political concerns. Meanwhile rail services for customers stagnate or decline. In response, many governments have reorganized state-owned railways to operate as commercial entities.

State-owned or private railways that operate commercially compete for customers and revenue with other transport modes and services. Commercial railways enter into mutually beneficial contracts and pursue at least break-even financial performance in their operations. Government may provide some or all of the capital needed to build new railway lines or even renew existing lines, but most commercially oriented railways operate both government-owned and railway provided assets for profit. This requires greater focus on customers.

Commercial railways contract with government for services that government wants to provide. Government contracts, sometimes called public service obligations (PSOs) or public service contracts (PSCs) may provide minimum service levels or deeply discounted or low-price passenger services for eligible travelers, such as the disabled, students, or seniors. Public contracts can also be used to provide below-cost freight services for specific commodities such as grain, or fertilizer; or services on light density railway lines that might otherwise be closed. Commercial railways try to price each service to cover its costs and earn a return on asset investments. In the case of PSOs or PSCs, the government is a customer like any other, and pays commercial market rates for contracted services. Hence, commercial railway operations minimize or eliminate the need for railways to cross-subsidize loss-making state services by overcharging for other services, usually freight. (See )

This section focuses on commercial railway organization, and how it differs from a typical government railway department. An organizational structure is designed to focus the attention of management on the principal driving force behind organizational outputs—usually either sources of revenue or of political power.

Non-Commercial Structures

Most railways organized as government departments focus on politicians, other government departments, or internal functions designed to meet internal needs or the needs of other government units. The figure below shows the organizational structure of a typical government railway department, and often a typical government railway enterprise.



Many government-owned railways have a management board, responsible for company planning and investment programs. This type of management board of directors is internal and usually chaired by the general manager (GM). Usually, the Ministry of Finance or Ministry of Economy supplies the GM with budget allocation information; the Ministry of Transport directs railways policy and development; and another ministry or entity, independent of the railway, regulates prices. In this organizational structure, most staff are in the technical division, which includes engineering, design, (sometimes depots and drivers) and operations, which includes dispatchers, on-board staff, and station staff. Typically, the commerce unit handles waybilling, and some station staff. Only much farther down in the railway structure are major market segments seen. In fact, many organizational units have some role in dealing with each market segment. Customers interface with the railway at passenger or freight stations, or through intermediaries such as freight forwarders.

This typical government-based organization structure has two main features that distinguish it from a commercial operation. First, the organization is designed to respond to government—not customers. Second, below the GM and maybe the management board, no organizational unit is responsible for profit and loss, service versus cost trade-offs, service levels, or revenue.119 No department is responsible for investment trade-offs or return on investments.

    


119 Arguably, the commerce department is responsible for revenue–but usually it is responsible only for revenue accounting.
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