For some time ago, I wrote about the chaos that materialized in Northern Stockholm’s Public Transportation System, when the multinational bus operator Arriva took over traffic after having won the largest public transportation contract ever in Sweden.
What really struck me as remarkable with that contract, was the fact that Arriva placed (an won!) with a bid that was 30% below the closest competitor!
No, you read it right, it’s not 3%, but 30%, three-zero!!!
A 30% difference is enormous by any standard, in any business, and I’ve been pondering over where Arriva’s management thought they would find all the fat that must be cut out to meet such a radical cost saving objective….? I mean, unless the objective or Arriva’s management was to drive their business straight down the drain, they must have come up with something absolutely genial, something that no other management team in the bus business of the world has ever thought of, some sort of pure magic….? (what the local politicians responsible for this procurement were thinking, simply beats me…)
For a while I thought that the “operational efficiency” program put in place by Arriva, where they cut all slack from every schedule, thereby turning the traffic situation to a complete chaos for the first few months until they, due to extreme public and political pressure, were forced to revert the schedules back to original, was that magic silver bullet.
But no, it wasn’t. It turns out that the Arriva mgmt team was more cunning than that: now, after almost 6 months of Arriva traffic, it’s very easy to observe the true magic plan of Arriva’s financial wizards:
their plan on how to meet their financial business objectives despite a contract that from any outside perspective looked like business suicide, was to use government subsidies to boost their profitability, to use tax payer money for the benefit of their shareholders and the executive bonuses: Arriva’s cunning management plan was to get rid of as many established drivers as possible, particularly the “extras”, those who typically drive on weekends etc, and replace them with unemployed people, where the Swedish unemployment office will fund 80% of the costs for up to a year. And when the poor soul’s that finally were able to get a job have done their year, thereby loosing their government subsidies, you can rest assured that Arriva will find a way to get rid of them as well, and again dip into the wast pool of almost cost-less resources administered by the Swedish Unemployement Office.
So, by making working conditions very painful for the established drivers that Arriva inherited from the previous operator, Keolis, forcing many of them to quit, they were able to turn to the unemployment office, claiming to have loads of vacancies, to be filled with people whose salary and benefit costs are funded up to 80% with tax payer money.
The fact that this magic plan of Arriva’s bean counter’s resulted in many previously established drivers now been forced into unemployment, as well as severely and unfairly boosting Arriva’s competitive advantage in the bus business, doesn’t seem to bother neither Arriva nor Swedish politicians.
For the fun of it, I did a quick “back-of-the-envelope” (image below) type of calculation over how much Arriva is able to save by this cunning strategy, and the number popping out from that calculation is 16%. Not bad! However, taking into account the likelihood of an increasing accident frequency now that Arriva’s busses are increasingly driven by people having taken the government funded fast track to their bus driver job, the savings drop down to 5%. But 5% is still a significant saving in a business that for a long time has struggled to make both ends meet.