Egged - case study-2 - Business principles/management case study PDF

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EGGED – AN ISRAELI BUS COMPANY Strengths Weaknesses Opportunities Threats The Egged Bus Cooperative is the largest bus company in Israel, and the world's second largest (second only to London Buses). A cooperative owned by its members, Egged employs more than 6,191 workers and has more than 3,500 buses running on 1,050 regular lines. Egged's bus routes reach every settlement, kibbutz and city in Israel. Egged is also running internal-city bus network in most Israeli cities and towns. Egged was created in 1933 by a merger of four smaller bus cooperatives. In 1951 Egged merged with the northern Shahar bus company and the southern Drom Yehuda bus company, creating a cross-country public transportation network. The name Egged (lit. Union) was given to the cooperative by the Israeli poet Chaim Nachman Bialik. After the Six Day War Egged merged with the Hamekasher bus company of Jerusalem. During the wars of 1956, 1967 and 1973, Egged buses and drivers helped to reinforce the logistics system of the IDF and drove soldiers and food to the battlefields. Soldiers still ride free to date on the Egged lines. While that may seem comforting to some, there are problems which are associated with the area in which Egged delivers their service. Since March, 2001, suicide bombers have blown themselves up inside or alongside 20 Egged buses. On average, that is an attack on buses, drivers and passengers every 6 months (although some have come in clusters). The attacks have killed 143 passengers and two Egged drivers. Egged officials say that the goal of the terrorists is to take a once reliable object – mass transportation, and turn it into an object of uncertainty. These incidents have increased in the past few months, and Israel has stepped up the use of military throughout the country. “Buses are the easiest target with the highest number of possible victims,” said Arik Feldman, chairman of Egged. “But we live with it. That’s our harsh reality, and if a bus blows up, it doesn’t stop us from running public transportation. It give us more courage

to continue so no one can prevent us from living here.” The company operates more than 70% of the public bus service in Israel. Everyday, the buses carry more than 1 million Israeli and Arab-Israeli residents. That includes school children, professionals and soldiers. The bombings have curtailed about 10% of Egged ridership in the last three years, however, the company has not had one driver resign due to the bombings, nor have they surrendered a single route, despite some of the routes yielding the majority of the attacks. With the latest governmental change to the Hamas for the Palestinians, new challenges have arrived on the scene for the bus company.

What would be one country’s nightmare, Egged management confronts the situation as ordinary and with purpose. Lior Brantz, one of Egged’s veteran drivers, responded this way: “After a bombing, we act as if nothing happened. Our mentality is that we don’t like to look inside ourselves and think about it. We’re not like that.” Management views their continued operations as a matter of pride, ingenuity and circumstances which are beyond their control. An example is Route 835, which runs along the Wadi Ara Road, from Afula to Tel Aviv and back. The route has been a target of 6 bombs in the last two years. Reuven Rothchild, a veteran driver of Egged for 18 years, says a prayer and straps two small boxes containing Torah scrolls on his bus before each daily journey. It’s his way of fear management. His daily routine, like other drivers, consists of a walk through for any packages which may have been left, or may be harboring a bomb. One driver prevented such a disaster when he removed a bomb, which was hidden inside a watermelon. They also count on their passengers as being their eyes and ears, in case they spot something suspicious or hear of some damaging talk. The belief is that the responsibility rests with everyone who utilizes the services of Egged. Egged places all this into perspective: It is safer riding the busses than driving a car – during the same period, more than 1,000 people have died in car accidents, seven times the number from bus attacks. CFO Opher Linchefski has organized an 8 year plan to restructure the company. They will first un-wind the cooperative ownership structure now in place. Of the 6,191 employees, about 191 have bought into the cooperative and have a say in company operations. Linchefski feels the need to centralize the operation is essential to future success. The company has 31 operational branches, including 4 intersection terminals. The company is managed by a “secretariat” of 5 members who head the operations. The company has two divisions: Operations and the Head Office. Within the company are 5 departments: Finance, Traffic, Marketing, Maintenance and Human Resources and Research & Development. To fend off the government’s opening routes to more competition, Egged is moving into new businesses, including van service and light rail. The company has three subsidiaries, Egged Taavura, Egged Tours and Egged Holdings. The Ministry has imposed high emission standards on public transportation, forcing companies to become more eco-friendly. In early 2009, Egged secured 185 buses, of which the majority contain the EURO-5, low emission engines. Sixty percent of the fleet

is now made up of new, 40 seat capacity sulfur-emission reduced diesel busses, cushioned seats and air-conditioning. Linchefski hopes to build on their National Production Plant, established in 1999 to aid in the maintenance and reconditioning of buses, from engines and gear boxes, to electronics and tires. The company is spending a larger amount annually on research and development to assist in many areas of efficiency, including a recycling system for washing the buses, where 95% of the water is reused, allowing for energy and water savings. The company also complies with higher than required noise standards for their fleet. Egged provides special discount rates to youth and seniors, as well as a network of informational booths, which provide assistance to more than 270,000 travelers, monthly. They are also working on a pilot program designed to assist the disabled in their travel needs and are cooperating with the Ministry of Transportation on an assessment of the benefits to the communities which the company serves. In 2002, Egged participated in the Clean up the World campaign, by providing 12 buses for transportation of volunteers to help in cleaning efforts at a number of locations. Egged contributes to the Jewish National Fund and provides buses to attend the celebration of Tu B Shavat, Jerusalem’s equivalent of Arbor Day, replenishing the forests. Egged officials share that workforce will continue to be reduced by attrition and Linchefski hopes to maintain market share and increased revenue, along with morale and customer service through various methods. In a country where unemployment is high, (above 10%), Egged drivers are satisfied and believe to be compensated well and Linchefski looks to make that a continued part of their program. In addition, Linchefski has added sustainable development, environmental practices, social responsibility, mobility and adaptive management a part of the new structure. This all signals a commitment to long term viability. Egged is also looking into bombing detection equipment and other defensive mechanisms to make their company less vulnerable. They also are looking at bus design to better protect riders and drivers. All of this will take time and money, and the patience of their customers and drivers. They have also installed a dedicated security force (450 people) on buses and at terminals as a show of force to deter bombings. The guards are between the ages of 22 and 31, and receive intense physical training, including hand to hand combat skills. The company uses Qwest Central as its database operation. The system monitors daily activity and distributes the tickets for all the bus schedules. Data is refreshed within 2 hours, compared to their previous 8 hour turnaround time. That makes a difference between starting the date with outdated information or having everything up to date. The system also handles the Travel Information, a system that provides information to customers and drivers. Inside the bus, precautions are taken, including the warning: “Vigilance prevents disaster!” Egged is looking to Qwest for help in their human resource department, to create efficiencies that will insure a stronger, long term workforce. The company feels it must be poised to predict future transportation needs and be proactive in legislative matters for their industry. Egged’s design is with a future vision and an integration of those components which they hope will lend to their continued success. Even with the most

recent fighting that has taken place with Hamas, Egged has been able to protect their rider citizens. However, in the past few weeks, more than 100 Palestinian bus drivers have quit their positions, about 1/3 of the Palestinian drivers of Egged – who are paid quite well for their employment with Egged....