A New Study Explores the Link Between European Railway Performance and Allocation of Public Subsidies
Marketwired
PARIS, FRANCE--(Marketwired - Apr 28, 2015) - Understanding the most effective model for allocating public subsidies between infrastructure managers and train-operating companies is critical for improving railway performance in Europe, according to a new report by The Boston Consulting Group (BCG), titled The 2015 European Railway Performance Index: Exploring the Link Between Performance and Public Cost.
For national railway systems in Europe, public subsidies provide essential funds to support infrastructure maintenance and passenger and freight operations. Some countries allocate the lion's share of public subsidies to either infrastructure managers or train-operating companies, while others allocate subsidies relatively evenly between these organizations. "Our study indicates that the model for allocating public subsidies correlates with a railway system's performance," says Sylvain Duranton, a BCG senior partner and a coauthor of the report. "Simply put, countries that get the most value from public spending on railway systems also allocate the highest percentage of subsidies to infrastructure managers."
"This correlation does not mean that more effective subsidy allocation is a magic bullet for improving railway performance," cautions Agnès Audier, a BCG partner and a coauthor of the report. "However, it suggests that national governments and railway companies can gain valuable insights into what drives railway performance by taking a fresh look at their country's model for allocating public subsidies."
Three Tiers of National Railways
The relationship between public funding models and railway performance is central to the analysis in BCG's 2015 European Railway Performance Index (RPI) study. "The RPI provides a holistic measurement that includes all three critical components of railway performance: intensity of use, quality of service, and safety," says Joël Hazan, a BCG principal and a coauthor of the report. "The benchmarking provides valuable insights for all stakeholders that seek to promote high performance of European railway systems."
Three groupings emerged from the RPI analysis:
In tier one, six countries have high-performing railway systems: Switzerland, Sweden, Denmark, France, Finland, and Germany.
In tier two, nine countries perform generally well, but their results vary widely among the three dimensions: Austria, Great Britain, Czech Republic, the Netherlands, Luxembourg, Spain, Italy, Belgium, and Norway.
In tier three, ten countries have low overall ratings, in most cases because of poor safety: Slovenia, Ireland, Lithuania, Hungary, Latvia, Slovakia, Romania, Poland, Portugal, and Bulgaria.
Overall, the results of BCG's 2015 study are consistent with the first study, in 2012. For example, Switzerland, Sweden, France, and Germany are still among the countries with the best-performing railway systems, while ratings for safety continued to show the greatest variation among countries.
Key Performance Drivers: Public Cost and Subsidy Allocation
The 2015 RPI again found that a railway system's overall performance typically correlates with the level of public cost (the sum of public subsidies and investments in the system). Probing deeper into this relationship, the authors also found that the value that countries derive from their public cost typically correlates with the percentage of public subsidies allocated to infrastructure managers.
Directing subsidies to a national railway's infrastructure manager appears to correlate with greater efficiency and effectiveness compared with spreading the funds among multiple train-operating companies. It is important to emphasize that the study found merely a correlation -- not a direct cause-and-effect connection -- between railway performance and the model for allocating public subsidies. Other factors, such as a country's consistently high investments in the system over time, play strong roles in determining the extent to which public spending on railway systems generates value for a country. Variations in how railway systems have applied traditional optimization levers also contribute to current differences in performance.
"Many factors come into play in promoting high performance, such as asset and network optimization, marketing effectiveness, operations performance, strategic workforce planning, and governance efficiency," says Hazan. "Even so, the study's finding should encourage stakeholders to closely examine the options for increasing public support of infrastructure managers -- whether by increasing the amount of public subsidies overall or the percentage allocated to infrastructure managers."
The report will be available for download on bcgperspectives.com on May 1, 2015.
To arrange an interview with one of the authors, please contact Eric Gregoire at +1 617 850 3783 or gregoire.eric@bcg.com.
To receive a PDF of the report, please contact Jenelle Tortorella at +1 617 850 3927 or tortorella.jenelle@bcg.com.
About The Boston Consulting Group The Boston Consulting Group (BCG) is a global management consulting firm and the world's leading advisor on business strategy. We partner with clients from the private, public, and not-for-profit sectors in all regions to identify their highest-value opportunities, address their most critical challenges, and transform their enterprises. Our customized approach combines deep insight into the dynamics of companies and markets with close collaboration at all levels of the client organization. This ensures that our clients achieve sustainable competitive advantage, build more capable organizations, and secure lasting results. Founded in 1963, BCG is a private company with 81 offices in 45 countries. For more information, please visit bcg.com.
About bcgperspectives.com Bcgperspectives.com features the latest thinking from BCG experts as well as from CEOs, academics, and other leaders. It covers issues at the top of senior management's agenda. It also provides unprecedented access to BCG's extensive archive of thought leadership stretching back 50 years to the days of Bruce Henderson, the firm's founder and one of the architects of modern management consulting. All of our content -- including videos, podcasts, commentaries, and reports -- can be accessed by PC, mobile, iPad, Facebook, Twitter and LinkedIn.
