The train refurbishment business in the UK:
A broader perspective
Exploring the train refurbishment market in the UK and its potentials for Volante PTIS Ltd.
University of Groningen
Faculty of Management and Organization R. Simonis
Groningen, July 2004
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The train refurbishment business in the UK:
A broader perspective
Exploring the train refurbishment market in the UK and its potentials for Volante PTIS Ltd.
Rein Simonis
Student number:: 1064657 University of Groningen
Faculty of Management and Organization This research was executed at:
Volante Public Transport Interior Systems Ltd,
Trimdon Grange, County Durham, the United Kingdom
Supervision Faculty of Management and Organization:
Mr. Drs. O.C.J. Lappöhn Second supervisor:
Ms. N. Campbell, BA (Hons)., M. Sc.
Supervision Volante P.T.I.S. Ltd.
Mr. J. A. Darlington, BiSc (Hons)., Phd.
Mr. Ir. H. A. de Mol
Groningen, July 2004
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Preface
After a nine month journey by train and the inevitable delay, I am rolling into the station, about to step onto the platform of my final destination, off to a new professional world.
The research presented in this thesis is the final assignment of my study Management and Organisation at the University of Groningen. This research is executed at Volante PTIS Ltd., an interior systems manufacturer for the public transport sector.
My acknowledgements go out to all the people of the Volante group that contributed to this research. Working with people that don’t take anything for granted, has contributed to my learning to work within a professional organization and my self-development.
Special gratitude goes out to John Darlington, Eric de Mol and Harald de Wit from Volante for their supervision during my research. John, thanks for your patience with my never-ending stream of questions and introducing me into the Volante organization.
Eric, special thanks for offering me this great opportunity and learning experience. I consider myself very lucky for getting this opportunity. Furthermore, I would like to thank Harald for his role in start-up phase of my research.
My gratitude goes out to my supervisors from the Faculty of Management and Organisation, Mr Lappöhn and Ms Campbell. First of all, I would like to thank Mr Lappöhn for holding a mirror, for all his time, for his home-made coffee and our critical conversations. Next, I would like to thank Ms Campbell for her time, our telephone conversations and her helpful insights.
Thanks to my friends, who had the occasional beer with me and who made sure I wasn’t always studying. Next, I would like to thank my parents for their unconditional support and love. Finally, special thanks to Anandi for her assistance, support, patience and love.
R. Simonis
Groningen, July 2004.
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Management summary
This research is executed at Volante P.T.I.S. Ltd. (Volante). The Volante Group is a rapidly growing engineering group focused on the production of interior systems for public transport vehicles (boats, buses, metro’s, trains, trams). This research is focused on the exploration of the UK train refurbishment business.
The main goal in this research is to: give a clear overview of the UK train refurbishment business with all its stakeholders. In order to achieve this, the following research question was formulated: “What are the requirements for train refurbishment, provided by Volante P.T.I.S. Ltd, for the Train Operating Companies and the Original End Manufacturers in the UK? How can Volante influence those requirements”?
In the first part of this research, the Volante organization and Volante’s main products are diagnosed. Laminate is the most important material Volante is offering the customer.
This material has several advantages above other materials to use as an interior application in the public transport sector. Next, Mintzberg’s theory is used to diagnose the Volante organization. It’s concluded that the organization is in a transitional stage.
Mintzberg’s configurations simple structure and machine bureaucracy most reflected Volante’s current situation and it’s named the ‘Simple Bureaucracy’.
In the second part of this research the environment of Volante is analysed, regarding train refurbishment. In this part a definition of train refurbishment is given and the main interests of the most important stakeholders in the rail business, regarding train refurbishment, are explained. Next, a market model is presented. This model includes the most important stakeholders: the TOCs, the ROSCOs, the OEMs, the SRA and Volante.
This model represents a simplification of the real train refurbishment market in the UK and this market was simplified to give more insight in the relationships between these important stakeholders.
The rolling stock supply market is global, but the market for manufacturing and financing rolling stock is dominated by a small number of big players in the UK. The SRA is keen to minimize the barriers of entry for other OEMs. Increasing the competition would promote commercial and technical innovation as well as exerting downward pressure on the price of new rolling stock and refurbishments. The train leasing market is an oligopoly. The ROSCOs enjoy a high degree of market power in relation to the negotiation of leases for existing stock., because the TOCs have limited choice between ROSCOs. All the changes and developments in the rail business make this market very complex.
In the customer analysis the UK rolling stock list is presented, to uncover the total potential in the rail business in the UK for Volante. The list gives a good and well- organized picture of status of UK’s rolling stock today. Through a number of selections, 3686 coaches were identified within 32 classes with a maximum value of approximately € 33 million. These identified coaches seem very interesting for Volante regarding train refurbishment.
To complete and integrate both analysis (internal and external), a SWOT-analysis is
made. The most important conclusions that can be drawn from the SWOT analysis are
the ‘train refurbishment‘ opportunity and the opportunity in influencing the
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complete rail network. Both these identified opportunities and a broader (marketing) perspective will form the basis of the main advise to Volante.
This research has paid less attention to the competitors of Volante from the market. An overview of the most important competitors with relevant factors are presented in a matrix given in this section. It was concluded that there were four important competitors in the UK for Volantes.
An important result of this research is the presentation of the rolling stock list of all trains operated in the United Kingdom. Through this research, Volante now knows what can be expected regarding train refurbishment and thereby Volante can act more proactive in the train refurbishment market.
Another important conclusion that can be drawn from analysing the rail network and the way Volante is approaching the rail network so far is that Volante’s marketing approach is very one-sided. Volante’s approached can defined as a ‘one-level push approach’. This research attempts to look at the train refurbishment market from a different, more broader perspective. This research states that Volante could use a ‘two-level push approach’ to market their products. Volante is advised to focus on the whole rail network with the three stakeholders in the rail network and the vehicles they built, refurbish, own and operate, instead of only focussing on the OEMs. In doing this, a better fit between the business strategy and the business environment is created. The ROSCO and the TOC of one train should have marketing focus and attention as well as the OEM.
Volante can take steps to influence the whole network instead of only the OEMs, by
combining the new broader perspective with a more proactive marketing approach
and in conjunction with the information from the UK rolling stock list.
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Contents
Preface 3
Management summary 4
Chapter 1 Introduction 9
§ 1.1 Background 9
§ 1.2 Reason 9
§ 1.3 Purpose 10
§ 1.4 Research question 10
§ 1.5 Sub-questions 10
Chapter 2 Methodology 11
§ 2.1 Research model 11
§ 2.2 Research typification 12
§ 2.3 Data sources 12
§ 2.4 Part 1 internal analysis 13
§ 2.5 Part 2 external analysis 13
§ 2.6 Delineation and job responsibilities 13
Internal Analysis 15
Chapter 3 Volante and its products 17
§ 3.1 The materials 17
§ 3.2 Methods of production 18
§ 3.3 Applications 20
Chapter 4 Structuring the organization 21
§ 4.1 The operating core 21
§ 4.2 The strategic apex 22
§ 4.3 The middle line 23
§ 4.4 The technostructure 24
§ 4.5 The support staff 26
§ 4.6 The coordination mechanisms 26
§ 4.7 Conclusion: simple bureaucracy and its’ implication 27
External Analysis 29
Chapter 5 The UK refurbishment market 29
§ 5.1 UK rail business 29
§ 5.2 Maintenance table 30
§ 5.3 Refurbishment & stakeholders 33
§ 5.4 The government 36
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§ 5.5 The government policy 37
§ 5.6 Responsibility for maintenance 37
Chapter 6 Industry Analysis 40
§ 6.1 The rail industry 40
§ 6.2 The UK rail market model 41
§ 6.3 The stakeholders 42
§ 6.4 Relationships between the stakeholders 50
§ 6.5 The forces in the UK rail market 54
Chapter 7 Customer Analysis 56
§ 7.1 The rolling stock list 56
§ 7.2 A dive into the UK rolling stock 62
§ 7.3 Maximal potential value 66
§ 7.4 The growth-share matrix 66
Chapter 8 Integration 68
§ 8.1 Strengths 69
§ 8.2 Weaknesses 70
§ 8.3 Opportunities 71
§ 8.4 Threats 73
Chapter 9 Competitor Analysis 74
§ 9.1 Market segment 74
§ 9.2 Competitor matrix 75
§ 9.3 Volante in its field of competitors 77
Chapter 10 Conclusions and recommendations 79
§ 10.1 Step 1. Internal analysis 79
§ 10.2 Step 2. External analysis 79
§ 10.3 SWOT analysis 81
§ 10.4 Competitor analysis 81
§ 10.5 A broader perspective 82
§ 10.6 Conclusion and recommendations 84
Bibliography 87
Sources 88
Websites 89
Tables, Graphs and Figures 90
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Appendix 1 Glossary of terms 91
Appendix 2 Structure of Volante 92
Appendix 3 Questionnaire Volante 93
Appendix 4 Example of email contact TOCs 94 Appendix 5 TOC & Franchise expire dates 95 Appendix 6 The UK rolling stock in 63 classes 96 Appendix 7 The total potential of train refurbishment
in the UK 98
Appendix 8 Competitor matrix 100
Appendix 9 TOC list UK 102
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Chapter 1 Introduction
In this chapter the research design will be explained. At this, the reason and the background of this research will be described. Further the goal and the research question of this study will be given in this chapter.
§ 1.1 Background
Volante produces interior panelling systems for the European Public Transport Market, i.e. buses, trains, metro’s and trams. Volante started in 1997 as a result of an asset buy- out from the Swedish company Perstorp. The group has manufacturing facilities in Germany, The Netherlands and the UK and an associated company in Romania. Parts, Volante is manufacturing are being supplied to vehicle builders throughout Europe and include complete ceilings, sides, body ends, partitions, toilet modules, air ducting, vestibule and wall paneling. The main production site is situated in the UK, Trimdon Grange, County Durham. Volante further has a production site in Germany and an assembly site in The Netherlands (see appendix 2). The company strives for a 20 % growth rate each year for the next 5 years. To achieve this Volante believes that it has to
1:
1. Develop new supply strategies 2. Develop new processing techniques 3. Introduce new materials
4. Develop new design concepts 5. Explore new markets
This research is focused on the exploration of new markets for Volante, the UK train refurbishment market in particular and aims to give a clear overview of this business in the United Kingdom and its potential for Volante.
§ 1.2 Reason
Until April 1994 British Rail had a monopoly on the British railway business.
Traditionally this organization had maintenance and refurbishment departments all over Britain. In 1994 British Rail was privatised and approximately 28
2new railway organizations came into being. All the refurbishment and maintenance departments and establishments were spread over the newly-formed railway corporations, original end manufacturers or other independent refurbishment organizations. It is clear that there haven been a lot of changes in the British rail business. Volante has, as one of its most important growth strategies, to explore new markets. The Volante organization hired me to give more insight in the refurbishment industry to see whether this market would have potential for Volante.
1Marketing report, Volante PTIS Ltd., Mol, E., de, 2003.
2This number has varied overtime and will vary in future, at this moment 28 railway organizations operate on the UK network.
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§ 1.4 Purpose
The goal of this research is:
“to provide Volante P.T.I.S. Ltd insight into the needs, the developments and the future expectations of railway corporations (TOCs) and manufacturers (OEMs) concerning train refurbishment in the UK”.
§ 1.5 Research Question
This study aims to give an answer to the following questions:
“What are the requirements for train refurbishment, provided by Volante P.T.I.S.
Ltd, for the Train Operating Companies and the Original End Manufacturers in the UK? How can Volante influence those requirements”?
§ 1.6 Sub-questions
What does the internal organisation of Volante look like?
What are the implications of train refurbishment for all the identified stakeholders?
How can the rail industry be described and who are the most important stakeholders?
Who can be identified as possible customers of Volante concerning train refurbishment in the UK?
What strengths, weaknesses, opportunities and threats can be identified through the internal and external analysis for Volante concerning train refurbishment in the UK?
Who are Volante’s competitors in the train refurbishment business in the UK and what are their capabilities?
What marketing strategy and marketing focus should be applied for the train
refurbishment business in the UK?
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Chapter 2 Methodology
In this chapter the study layout is explained as well as the methods used to collect the information for this research.
§ 2.1 Research model
This model (figure 2.1) explains in short how this research is set up. The main goal is to give a clear overview of the train refurbishment business in the UK, a market analysis.
The whole research set-up was based upon several literature regarding strategic market research, e.g. Aaker
3and Alsem
4. But the problem with this literature is that the majority focuses the strategic market
research on Business to Customer (B-to-C) markets instead of Business to Business markets (B-to-B). A
business market consists of allorganizations that buy goods and services for incorporation into other goods for consumption, use or resale
5. This research focuses on a business market, since the customers of Volante are very big and powerful multinationals. Still, I think the B-to-C strategic market research methodology is a suitable methodology to use for this market research, because this methodology first studies the internal organization then the environment and finally integrates both parts resulting in a marketing strategy. By using this methodology all facets of the Volante organization as well as all facets of the environment of Volante are being studied in
this research. In using this method, the research goal can be reached.
This research is built around five steps that were constructed after a brief review of the available theoretical frameworks and the internal analysis. Both the available theoretical
3 Aaker, D. A., 1995.
4 Alsem, K.J., 2001.
5 Hoffman, K. D., et al., 2005.
Market Analysis
External Analysis
• Refurbishment
• Industry analysis
• Customer analysis
Internal Analysis
• Internal organization
Marketing strategy and focus Integration
• SWOT-analysis
• Considerations
• Issues
Competitor analysis
Figure 2.1 The research model (based on strategic market models of Aaker, 1995 and Alsem, 2001)
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frameworks and the internal analysis form the foundation in constructing these steps.
These five steps were discussed with the management of Volante and it was agreed upon that the first three steps only should be taken into account in this research, this because of the proportion of this study. The other two steps (step 4 and step 5) should be done as a follow-up on this research.
Step 1: Internal Analysis
Step 2: External Analysis This research
Step 3: Development of the marketing strategy Step 4: Development of the marketing campaign Step 5: Execution of marketing campaign
This study’s analyses will have more of a three-fold focus instead of a four–fold focus.
Volante’s strengths and weaknesses will be thoroughly diagnosed and analysed in the internal analysis. In the external analysis the opportunities for Volante in the refurbishment market in the UK will have considerable attention, this in contrast to the market threats for Volante. Far more attention and effort will be given to explore the total potential and the opportunities of this potential, than to the threats (competitors, possible substitutes, entries, governmental regulations and other barriers). This research departs from Volante’s own strengths and resources and then tries to explore the opportunities in the refurbishment market in the UK for Volante.
§ 2.2 Research typification
The choice for a certain type of research depends on the research goal and question.
According to de Leeuw
6explorative research aims to scout relatively unknown terrain and generate ideas. Taking this into account, this study can be considered as an explorative and descriptive research. This research is set up to give more insight in the refurbishment market for Volante in the United Kingdom. This research in no way aims to answer hypothesises.
§ 2.3 Data sources
To give an answer to the main research question a number of different data sources were used in this research. This paragraph aims to explain these sources.
§ 2.3.1 Desk research
De Leeuw
7states that three types of data sources can be distinguished in desk research:
scientific literature, internal documents and external documents. In this refurbishment research, scientific literature was used with subjects like strategic market management, operation management and organization structuring.
The internal documents concern documents about Volante, an internal marketing report, previous internal studies about Volante and their website.
6 Leeuw, A.C.J. de, 1996.
7 Leeuw, A.C.J. de, 1996.
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The external documents that were used for this research are rail related magazines about rolling stock development and trends, governmental publications about the rail business and most importantly the Internet.
§ 2.3.2 Interviews
Some interviews that were used in this research were open interviews but the largest part of the interviews held was semi-structured (see questionnaire appendix 3). Open interviews give the interviewer the chance to bring up several topics that appear important during the interview itself and this may lead to new insights and perspectives.
However, the danger of this type of interview can be that some topics remain undiscussed. To limit this danger, I made sure that I was well prepared before an interview, explained the purpose of every interview at the start of it and made notes of the interview.
§ 2.4 Part 1 internal analysis
In this part of the research the focus was on the organization of Volante itself. The information for this part of the research was gathered through internal documents and interviews. The most important people (decisions makers) inside the Volante organization were interviewed in open or semi structured interviews. The result of this analysis was a SWOT analysis. This SWOT analysis was tested through several interviews and meetings. The feedback from these interviews was used to adjust the SWOT analysis.
So that the majority of the Volante organization agreed upon what the strengths, weaknesses, opportunities and threats of Volante are.
§ 2.5 Part 2 external analysis
This is the most important part of this research, because this research aims to give more insight into an external market: the refurbishment market. Several data collections techniques have been used for this part: internal and external documents, interviews with people inside the organisation and interviews with direct (Original End Manufacturer, OEMs) and indirect ( Train Operating Company, TOCs) customers. The rail business appeared to be quite opaque and I lacked documents that thoroughly described the business, so the personal interviews with people that know the business and have worked in the business for many years proved to be very useful. To be able to make proper recommendations for Volante, the total rolling stock that is operated in the UK had to be uncovered. Through an elaborate Internet research a temporary rolling stock list was formed. Next, this list was checked through telephone interviews and email contacts (see appendix 4) with all the 28 TOCs in the UK. Almost every TOC (86%, n= 28) responded. The result is a relatively good overview of the current state and the mutations in the near future of the whole rolling stock in the UK. Still 4 of the 28 didn’t or didn’t want to respond, despite all efforts of the researcher. But through the elaborate Internet research relatively good assertions can be made.
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Standard-gauge
railway
Subway/ metro Light rail Long-distance
Passenger
Goods
Bus passenger transport Urban rail
Touring
Conventional intercity
High-speed
Public Transport
Suburban/ regional
Standard
Luxurious
City Inter-regional
§ 2.6 Delineation and job responsibilities
In this paragraph the boundaries of this research will be given.
1.
Volante currently operates in three main market segments: Standard-gauge railway, urban rail and bus passenger transport. These main segments can be divided in several sub-segments as shown in figure 2.2. Volante operates in all of these segments except from the rail goods transport and the touring bus segments, as indicated in the figure. This study focuses on trains exclusively. So the bus passenger transport, metros and light rail markets aren’t considered part of this research.
Figure 2.2 Market segments8. 2. This study aims to explore the refurbishment market. In this research
refurbishment is defined as: The action or process of stripping a train vehicle down, remove
the old or obsolete parts, than rebuilding the vehicle with new or existing parts.3. Volante has a broad customer base in Western Europe with customers in Germany, UK, Switzerland, Belgium, France, Italy and The Netherlands. This study will focus on the UK market, because the UK market is the most developed in terms of privatisation and thereby more complex. This market can be considered the home market of Volante. Perstorp (see § 1.1) in the early days, as well as Volante have a long history in this market. This research on the UK market will be used to set up a model that can be used for other countries in Europe. The UK market consists of the English, the Welsh and the Scottish markets. This study can be used as a base for refurbishment market research for other West-European countries.
8 http://www.vossloh.de/en-GB/download/SCI_Report_US.pdf
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Internal Analysis
Introduction
This part of the research will focus on the organization of Volante itself. To understand the organization, a number of components and issues about the Volante organization will be explained. The product will be discussed as well as all the implications the Volante products have, for the production process. Further, Mintzberg’s
9theory is used to describe the organization and the structure of the organization. This will be the starting point for further analysis, but first a brief explanation of the market will be given, to put the organization in the right perspective.
The rail business in the UK
A large part of the rolling stock, that is used today, was produced under the authority of British Rail. Up to 1994 British Rail was responsible for all rail services in the UK. This includes passenger transport, freight transport and the complete rail infrastructure. In April 1994 approximately 25 Train Operating Companies (TOCs) were set up as wholly owned subsidiaries of British Rail. The transfer of these TOCs to the private sector was completed in April 1997
10. Network rail is the company that operates the infrastructure core of the railways system. It owns and operates the tracks and the associated infrastructure such as signalling. It also owns stations, but most of these are leased to and operated by the TOCs. Three main companies undertake the freight operations in the UK: English, Welsh and Scottish Railway, Direct Rail service and GB Railfreight.
Nowadays (March 2004) there are approximately 28 Train Operating Companies (TOCs) in the United Kingdom. These companies transport the British public throughout the country. The rolling stock in the UK is owned and financed by the rolling stock owning companies (ROSCOs). Angel trains, HSBC rail and Porterbrook together, now own approximately 92%
11of all the rolling stock in the UK. The rest is owned by other small or foreign ROSCOs or are owned by the train operators themselves. The ROSCOs lease their rolling stock to the TOCs and the TOCs, in the end, operate the trains. The TOCs have to make an annual payment to the ROSCOs for using their trains.
The rolling stock the TOCs operate, was produced by several train manufacturers, the Original End Manufacturers (OEMs). There used to be a lot of different OEMs in the UK, but because of the growing international competition only 3 important OEMs remain in the UK; Alstom, Bombardier and Siemens.
For the production of one single train, one OEM cooperates with a lot of suppliers. The Volante Company is one of such suppliers. Volante produces complete interiors or parts for the interior of trains, buses, trams or metro’s. Volante products are for instance:
body-ends, ceilings, sidewalls, vestibules, toilet units. There are a number of companies that offer interiors to the OEMs. Some suppliers offer the same material as Volante (competitors); laminate or composite panels with a laminate face, other offer different materials such as different sorts of plastics or aluminium (substitutes).
9 Mintzberg, H., 1979.
10 ON TRACK, Strategic Rail Authority (SRA) October 2002 - March 2003
11 Rolling stock strategy, Britain’s railway properly delivered, SRA, December 2003.
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Rail Operating Network
SRA ROSCO
TOC
Lease OEM
Contract
Requirements
Contract & control
Competition
Volante
Marketing mix
The ‘watchdog’ of the rail business in the UK is the Strategic Rail Authority (SRA). This party represents the government. The SRA has several tasks and duties, the three most important being:
1. Awarding franchises to the TOCs,
2. Giving loans, grants and guarantees for the development of the railway business, 3. Filtering the government subsidy for the TOCs.
Due to the privatisation, competition between TOCs has increased. The newly created competition between the TOCs have several implications for them. First it is very important that the TOCs are profitable. Otherwise the ROSCOs won’t extent the franchises of the TOCs in the future. Secondly the public now has some sort of choice which TOC to use. The appearance and the comfort of the train are therefore increasingly important.
A significant percentage of the rolling stock today is old and in a bad condition. The TOCs have to invest in better trains. The train operators can choose to buy complete new or to refurbish parts of their rolling stock. One of the most important advantages of the refurbishment option is that it is much cheaper (approximately 25 to 30 % compared to new built trains). It is therefore that there is a growing trend towards refurbishing the existing stock. Next a model is given to explain how the different stakeholders interrelate;
the UK rail market model.
Figure part 1 the UK rail market model.
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Chapter 3 Volante and its products
The Volante Group is a rapidly growing engineering and production group, focussed on the production of interiors for public transport vehicles (buses, trains and passenger ships). There is no standard product that Volante produces for its customers. All products are designed, developed, engineered and fabricated to customers’ specifications.
The Volante Group produces a wide variety of products for the public transport sector.
To meet all the customers demands Volante developed its own production system, what they call in marketing terms: the Volante System. To explain this system as well as the complexity of the product, a number of aspects will be discussed here. First the wide variety of materials used will be discussed. Next, the production methods will be pointed out. To conclude a number of applications of the Volante products will be discussed.
§ 3.1 The materials
Laminate
As was mentioned before(§ 1.1), Volante offers a wide variety of products. Volante has its core in the processing of laminate panels. The Volante Company came into being after an assets buy-out from the Swedish laminate manufacturer Perstorp. Perstorp is now part of Formica, which is, at this moment, one of Volante’s most important suppliers of laminate. The most important material is and will continue to be laminate.
Laminate panels are used for the interior for buses, trams, metro’s and trains. Volante can fabricate a wide range of laminate panels. The panels can vary in form, thickness, colour or pattern, composition and application.
The thickness of the laminate panels can vary approximately between 1 à 2 mm and 25 mm, all depends on the customer specification. A “normal” laminate panel consists of an upper layer and an under layer. The upper layer gives the laminate its ‘face’ and other important features like being graffiti proof and scratch resistance. This layer determines the colour and pattern as well. For the under layer different materials can also be used.
For instance: plywood, aluminium or other types of metal or wood. This layer determines the actual thickness and the strength of the laminate. Depending on the (fire and smoke) specifications different epoxies and glues can be used.
The laminate technique has several advantages compared to other techniques used for interiors in the public transport industry.
1. Low tooling costs Tools are relative easy to develop. So it’s cost effective to produce in low quantities.
2. Quick delivery times 5 – 6 weeks compared to 8 – 10 weeks of other substitute products.
3. Very good graffiti proof one of the best selling points!
4. Wide variety of colours/ patterns laminate technique is easy to vary the colours and patterns.
5. Weight 1,4 kg/ m³ compared to approximately 2.7 kg/ m³ of other
techniques.
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The laminate panels do have some disadvantages in comparison to other material techniques:
1. The laminate panels are not very impact resistant compared to other material panels.
2. It’s only possible to create 2D shapes, 3D shaped panels are impossible.
3. High degrees (above 110°) bents are difficult.
4. It’s not always the easiest material. There is a lot of experience and know-how necessary.
Metal
Aluminium is a metal that is often used in the transport industry. That’s because of the characteristics of aluminium. It is a lightweight metal and it’s strong as well. Volante uses aluminium for multiple purposes. Aluminium plates with a laminate face or powder coated aluminium plates can be used for the production of panels, if the customer requires this. Aluminium is more often used for extrusions that are assembled with laminate panels. Aluminium finishing or aluminium strips are also used in assembly. The aluminium parts were normally provided by a number of suppliers. Volante has recently purchased a metal production company, DDS Ltd. and has renamed it Volante Metal.
The complete production site has been moved to the Volante site at Trimdon Grange, County Durham. Now Volante can produce a lot of metal application in-house. This is seen as a big advantage, by the Volante management, since now they have:
More in-house knowledge of the new product (aluminium extrusions)
Better margins Volante doesn’t have to buy the material from an independent company
Better control on the metal materials needed more influence on the aluminium company
Expansion of the product range Volante can now offer the client more different solutions
Expansion of the customer range DDS Ltd. customers.
Other materials
In assembly a lot of other materials are used. In the assembly area the components are fitted in, welded, glued, etc, just in the way the customer requires. Examples of these materials are component as rubber strips, screws, small metal strips, lights, metal handles, locks or small glass windows. More about other (substitute) materials will be discussed in the competitor analysis.
§ 3.2 Methods of production
The production process
Volante uses a variety of state of the art manufacturing technologies to produce both 2-
dimensional and 3-dimensional components. It’s a highly divers production process, in
which products follow different production routes with very divers actions determined
by the customer’s specifications. To organize this production process as good as
possible, the machines on the site in the UK are arranged in a certain manner. There are
some practical reasons why the layout decision is an important one in most operations. If
the layout is wrong, it can lead to over-long or confused flow patterns and inventory of
materials, customer queues building up in the operation, customers being
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inconvenienced, long process times, inflexible operations, unpredictable flow and high costs
12.
There is a connection between the process type and the layout type. The position of an operation on the volume-variety continuum shapes the general approach it takes to manage its processes. These ‘general approaches’ are called process types
13. Each process type in manufacturing implies a different way of organizing operations’ activities with different volume and variety. The Volante production processes have to deal with a very high variety and relatively low volume. Whereas in project processes each product has resources devoted more or less exclusively to it, in jobbing processes each product has to share the operations’ resources with many others. The machines will process a series of products but, although all the products will require the same kind of attention, each will differ in its exact needs
14. This describes the processes at Volante. But sometimes the products are produced in batches. Batch processes resemble jobbing processes. The only difference lies in the fact that each part of the operation (machines for instance) repeats itself, at least while the batch is being processed. In the case of Volante batch sizes differ from 1 to 25. But the latter isn’t very common. Normally the batch size is around 7 to 8 at Volante. So the process type at the factory site in Trimdon Grange is somewhere between a jobbing process and a (small) batch process.
The Layout Type
The basic layout type is the general form of the arrangement of the facilities in the operations
15. There are four basic layout types to distinguish: Fixed-position layout, Process layout, Cell layout and Product layout.
In a product layout, the production means are arranged completely focussed on one product. The routing is fixed and is the same all the time. The complete opposite of a product layout is a fixed position layout.
The production floor at Volante UK is arranged in a process layout. The products can follow different routings through the factory, depending on the particular product specifications. The manufacturing processes available to Volante include multiple CNC- machinery, large format flat presses, vacuum forming presses, cutting machines, the unique post forming technology and a large assembly area. The machines at Volante that perform similar activities are grouped together. The assembly area somewhat resembles a cell layout. Several different assembly activities are performed at the same location. After these activities have been performed, the product or the small batch of products is moved to the next cell in the assembly area. The cell layout is an attempt to bring some order to the complexity of flow, which characterizes process layout
16. In a cell layout the product is assigned to a certain cell where the necessary activities take place. Within this cell different layout types are possible.
12 Slack, N., Chambers, S. & Johnston, R., 2000, page 184.
13 Slack, N., Chambers, S. & Johnston, R., 2000, page 104.
14 Slack, N., Chambers, S. & Johnston, R., 2000, page 105.
15 Slack, N., Chambers, S. & Johnston, R., 2000, page 185.
16 Slack, N., Chambers, S. & Johnston, R., 2000, page 191.
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§ 3.3 Applications
The products of Volante are applied in the public transport sector. Volante creates interiors for the train, bus, metro and tram industry. They offer a wide variety of applications like: body-ends, ceilings, sidewalls, vestibules, toilet units etc. Volante considers it a challenge to engineer, design and to develop shapes, materials and construction methods, which offer top quality at minimum cost. The engineers and developers of the company have to take into account aesthetics, as well as function, creating systems that are strong yet lightweight, attractive and functional. The Volante system offers the customer cost-effective solutions, with low tooling costs, short lead- times and high productivity on small production runs. Another feature of the product is that Volante can offer lightweight sandwich constructions.
Volante is the place to go for bus, tram or train builders who require interior panelling systems that are able to stand up to the extreme demands placed on modern public service vehicles. If people are going to be tempted out of their cars, and onto buses, they need interiors that not only look good when they are new, but continue to do so throughout the vehicle's life
17. The techniques used by Volante can resist wear and tear, and vandalism. Many projects have been successfully implemented in the rail and bus industry worldwide, including United Kingdom, Germany, Switzerland, Sweden, America and Hong-Kong. Main customers are Bombardier, Alstom, Transbus and Siemens.
Overall you could say that Volante can offer a satisfying product to its customer’s world wide in the bus and rail industry. The growing order portfolio and the steady growing customer base of Volante are confirmations for the company.
17 www.volante.nl
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Chapter 4 Structuring the organization
In this chapter the organization is described in her five basic parts. To understand how the organization works, it is first necessary to know how the organization functions.
Every component part of the organization must be known as well as what function each part performs and how these functions interrelate. Next, the prevailing coordinating mechanisms for each of the five basic parts of the organization are described. This is described in the first part of this chapter (§ 4.1 to § 4.5). The five basic parts of the organization described by Mintzberg
18are: the operating core, the middle line, the technostructure, the support staff and the strategic apex. At the end of this paragraph a choice is made for one of Mintzberg’s configurations (§ 4.6). To conclude this chapter the implications of the chosen configuration are given (§ 4.7).
§ 4.1 The operating core
The operating core of the organization encompasses those members, the operators, who perform the basic work related directly to the production of the products and services
19.
In the case of the Volante Company the operating core consist of all the people that produce the actual products. In number it’s by far the biggest part of the organization. At this moment Volante has approximately 90 people in service on the shop floor at the UK site in Trimdon Grange, county Durham. 35 of the workers are in full time service with full contracts and 55 of them have temporary employment. To produce the panels a number of actions have to be taken. There are 6 main areas where similar actions are performed by the workers: the cutting area, the vacuum forming area, the CNC area, the flat press area, the post forming area and the assembly area.
On the Volante website it is stated that: “The basis of our success is the enthusiastic and competent workforce, leading to high quality products, and cost effective solutions”
20. This statement point out how important the operation core is for Volante. The company tries to make the work as interesting as possible for their employees. They try to apply HRM-tools like: job rotation and task rotation on the production floor. But that isn’t always possible. Certain jobs demand a lot of experience and knowledge of the product and of the production manner. This isn’t always there and a lot of the information about the production is tacit knowledge
21and can’t be learned in school. This knowledge is embedded within the processes of the organization and is very difficult to copy. The production people have to have an education or have some sort of experience in a certain job. It’s the policy of Volante to educate and train their production people, so that they can work on several different kinds of jobs in the factory. But training costs time of the trainee and trainer and that isn’t always available.
In size this part of the organization is by far the biggest. The people that work on the production floor have a relative low education level and their work is standardized as much as possible. In a lot of parts of the production the coordination mechanism is
18 Mintzberg, H., 1979.
19 Mintzberg, H., 1979.
20 www.volante.nl
21 Polanyi, 1966.
22
standardization of work processes. The ISO 9002 is the example for this. The ISO 9000 series is a set of worldwide standards that establish requirements for companies’ quality management systems. It is used to provide a framework for quality assurance. ISO 9002 Deals with … ‘quality systems model for quality assurance in production and installation’
22.
Sometimes standardization of outputs is used for the assembly area. It then doesn’t matter how the production people do it; the result, the actual output is important. The coordination with the other parts of the organization is done by direct supervision. One could say that the operating core is at the bottom of the food chain and always has to report to someone above it.
§ 4.2 The strategic apex
The strategic apex is charged with ensuring that the organization serves its mission in an effective way and also that it serves the needs of those people who control or otherwise have power of the organization
23.
The most import person in a strategic sense is the owner of Volante. He recently became the 100% owner of the company after he bought his fellow shareholder out. They both had 50% of the shares of the company and started the company in 1997. These two persons both keep on working in the marketing and sales team at Volante. There have been a lot of changes recently at Volante. Recently a new (Dutch) general manager (GM) has been appointed. The new GM has financial background. In the next few years he will try to improve the organizations’ internal performance by reducing the amount of material waste, and improve the creditor and debtor base of the organization.
The marketing and sales team consists of 4 people: the two shareholders and two other marketing men. This team, as I mentioned before, plays a very import and strategic role in the organization. This is because of a number of reasons. They deliver new work to the factory and it is the nature of the new projects that determines what actions must be taken by the rest of the organization. The marketing team also decides which markets to penetrate and with what sorts of products. The team is the mediating force between the environment and the organization. This is a way in which strategy can be viewed.
“Strategy formulation involves the interpretation of the environment and the development of consistent patterns in streams of organizational decisions (strategies) to deal with it”
24The products that are fabricated by Volante are specified to the customers’ demands.
There’s no one job the same. Further, a lot of projects will run up to 2 to 3 years, this means that the projects that are brought in by the marketing team determine what will happen inside the factory for a very long period of time. So the output of the team has a significant impact on the whole organization on the short as well as on the long term.
Further the production and the financial manager are also considered part of the strategic apex because they both have decisive roles in the performance of the organization as a whole.
22 Slack, N., Chambers, S. & Johnston, R., 2000, page 687.
23 Mintzberg, H., 1979, page 25.
24 Mintzberg, H., 1979, page 25.
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As mentioned before, the strategic apex is a very important part of the Volante organization. Several reasons were brought up. All long and mid term decisions are made by this part of the organization and the strategic apex forms the connexion between the environment (the customer) and the rest of the organization. It’s this part that delivers the new work, by doing this: they determine the complexity, the variety and the volume of the work. This has great consequences for the other four basic parts of the organization.
The dominating coordinating mechanism used within this part of the organization is mutual adjustment. In this business it’s essential to know your customers and suppliers on a personal basis. This requires a lot of the marketing and sales team. They have to communicate a lot with each other. Everything they hear, directly or indirectly from their customers, suppliers or from friendly people in the same industry, can be important and vital information for, e.g. a big contract or an investment decision. The best way to interact is in an informal manner, where everybody can say what he wants, when he wants to, is their philosophy. Wearing a suit or even a tie is strange in the organization.
Only when there are customers or suppliers in the factory they wear a tie. This points out that the strategic apex likes to work and communicate in a very informal manner. A part of the team is in England and another part stays in The Netherlands. This sometimes hampers the communication. It is also for this reason that the telephone bills are very high. But every Monday and Friday there is a meeting of some members of the marketing team and the new GM. And every two weeks the people in Holland visit the site in England for a few days.
The coordinating mechanism that is most commonly used, between the strategic apex and the other parts of the organization, is direct supervision. The strategic apex in the end takes responsibility for the output of the rest of the organization. The production (operating core) has to report to the production manager. He in turn has to report to the GM. Both production manager and general manager are part of the strategic apex. The financial manager is responsible for the support staff and she has to report again to the GM. All the coordination is done by direct supervision.
To conclude the strategic apex is a very important part of the organization. Within this part mutual adjustment is the main coordination mechanism. The coordination mechanism used for the other four parts is direct supervision.
§ 4.3 The middle line
The strategic apex is joined to the operating core by the chain of middle-line managers with formal authority
25.
This chain runs from the senior managers just below the strategic apex to the first-line supervisors, who have direct authority over the operators. This chain embodies the coordinating mechanism that Mintzberg calls direct supervision. In the case of Volante the middle line isn’t very large. The strategy makers in the organization have chosen for very short lines. They want to keep close ties to the actual production. Only a few managers are between the operation core and the strategic apex.
25 Mintzberg, H., 1979, page 26.
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First there are the account managers. These managers will do the after-sales work between the customer and the production people. They also function as intermediates between the engineers (who also make the drawings) and the customer. Every account manager has customers from its’ own market, the bus market or the train market.
Second there are the production foremen. They are responsible for a small group of production employees (an organizational unit) and have to report to the Production manager.
Next there is the Quality and Control manager, he is responsible for Quality Assurance.
It is his job to audit and control all the products and make sure that the number of NCR’s (Non Conformancy Report) stays below a certain level. With a NCR a customer reports that a certain product, delivered by Volante, doesn’t comply with the agreed specifications. The quality manager will make adjustments in the way certain products are produced, packed or shipped in close cooperation with the account manager, the marketing team or people on the work floor. He is also responsible for control and maintenance of the ISO 9002 certificates.
Planning is a very important component of the production process at Volante. A good planning will give happy customers, less NCR’s, less production cost, less material waste, higher machine time usage, shorter product lead times, etc.. However planning is also one of the most complex tasks within the Volante organization, due to the complex production process. The company uses some sort of a MRP-II (Material Requirement Planning) system to plan the material flow through production. The organization can exactly see what kind of material is where inside the organization. Planning still isn’t one of the best components/ features of the organization. They are having some problems with planning. There are a number of reasons for this. The organization is growing at such a pace that it’s difficult for planning to keep up with this. Next there isn’t enough factory space, this causes some difficulties. To cope with this problem Volante has just done some restructuring and this will improve their planning capabilities.
It all depends on the complexity of the work what kind of coordinating mechanism is used in this part of the organization. When a job is very complex the job is coordinated with mutual adjustments. A lot of information is exchanged with the customer and a lot of informal contact with the marketing team and the customer is needed. When the account manager has to process a repetition job, for instance, coordination is done by direct supervision.
§ 4.4 The technostructure
“In the technostructure we find the analysts (and their supporting clerical staff), who serve the organization by effecting the work of others. These analysts are removed from the operating workflow. They may design it, plan it change it or train the people who do it, but they don’t do it themselves
26”.
It’s difficult to directly point out who is in the technostructure at Volante. This is because there isn’t a genuine department that supports the whole production process with its technical knowledge and which is removed from the operating workflow.
Members of the marketing and sales team do a lot of the engineering. All these members have an engineering background and do a lot of development and engineering together
26 Mintzberg, H., 1979, page 29.
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with the customer. This is because of the nature of most of the products; complex product in low quantities, high variety and high material mix. In a lot of cases the customer doesn’t know exactly how the product should look like or what it should consist of (which material). It often happens that drawings and/ or specifications are revised several times. Adjustments are than often made in a conjunct process with the engineers and procurement people of the customer and the marketing and sales team.
Together with the customer the marketing team specifies the definitive product specifications.
After this work has been done, the job is handed over to whom I consider the technostructure as well. That is the people who process the drawings into programmes of the different machines (CNC machines, cutting machines, etc.) and the toolmakers. The programmers process the drawings they got from the marketing and sales team or the account managers into complete computer programmes. They develop the path the CNC machines cut and grind the panels. In fact they standardize the new designs and ideas.
The toolmakers produce tools for a lot of the different parts of the operating workflow.
Very important are the tools for the post forming area. In this area their work provides the tools that help to bent the panels in exact the right angle and shape. For the people on the work floor, the work is standardized by the tools of the toolmakers; the floor workers now can perform the same job on and on, but on different tools.
The tools and the toolmakers are considered to provide a Sustainable Competitive Advantage (SCA). Sustainable competitive advantage is a competitive edge that cannot be easily or quickly copied by competitors in the short run
27. Using resources that are rare, valuable, hard to copy and have no good substitutes in favourable industry conditions provides sustainable competitive advantage
28. Years of experience and knowledge is needed to build and develop the tools. Most of this experience and knowledge is embedded in the routines of the toolmakers. A lot of this knowledge is tacit
29and is not free available inside the organization. For this reasons it’s hard to copy Volante’s work by potential competitors or new entrants. In this way it provides a SCA for the company.
Mintzberg describes the technostructure as the people who “serve to effect standardization in the organization”
30. And this is what the toolmakers and the programmers actually do. They transform the plans, drawings and designs of the customer and the marketing team into tools and programmes so that the people on the operating workflow can do (partly) standardized work.
The two most important coordinating mechanisms are standardization of skills and standardization of outputs. The programming of the CNC machines for instance is something that is specified by some sort of training. For the tool making, it doesn’t matter how they produce the tools, the output is important: the actual tools. These have to be exactly right and the production people must be able to use them easily. The toolmakers have a lot of experience and knowledge. It is a profession according to traditional methods. The coordination with the strategic apex is sometimes mutual adjustment sometimes direct supervision. This depends on the complexity of the job.
27 Hoffman, K.D., et al., 2005.
28 Dollinger, M.J., 1999.
29 Polanyi, 1966.
30 Mintzberg, 1979, page 30.
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§ 4.5 The support staff
“A glance at the chart of almost any large contemporary organization reveals a great number of units, all specialized, that exist to provide support to the organization outside the operating work flow”
31.
Those comprise the support staff. The financial manager is responsible for a lot of what is considered support staff. The departments: sales administration, human resource management and the accounting have to report to the financial manager. What distincts the support staff from the technostructure is the fact that they aren’t considered as advisors and they aren’t preoccupied with standardization. So the department, who are considered support staff, perform their own (more or less independent) job.
The main coordinating mechanism here is direct supervision. One can imagine that standardization of outputs would apply here too. For ‘admin’ it doesn’t matter how they do their work, the result is the most important, but in the end, direct supervision is the most important. Every department here has to report to the financial manager, Julie Wilkinson and she has to report to the GM again.
§ 4.6 The Coordination Mechanisms
The structure of an organisation can be defined simply as the total sum of the ways in which it divides its labour into distinct tasks and then achieves coordination among them.
Mintzberg defines this as coordinating mechanisms. Five coordinating mechanisms seem to explain the fundamental ways in which organizations coordinate their work: mutual adjustment, direct supervision, standardization of work processes, standardization of work outputs, and standardization of worker skills. These should be considered the most basic elements of structure, the glue that holds the organization together
32. For each of the five basic parts the prevailing coordination mechanism were explained in the preceding paragraphs. Next a choice of a certain configuration must be made.
Every organization is different; there is no organization exactly the same. Mintzberg developed the five structural configurations as if the five configurations are perfectly distinct and encompass all of organizational reality. There are times when we need to caricature or stereotype reality to sharpen differences and so better to understand it
33. No single organisation exactly fits one of the configurations. Each organization is a pure (ideal) type. Together the five may be thought of as bounding a pentagon within which real structures may be found
34.
Mintzberg gives a brief description of the basic structure of a Machine Bureaucracy:
A clear configuration of the design parameters has held up consistently in the research: highly specialized, routine operating tasks, very formalized procedures in the operating core, a proliferations of rules, regulations and formalized communication throughout the organization, large sized units at the operating level , reliance on the functional basis for grouping tasks, relatively centralized power for decision making and an elaborate administrative structure with sharp distinction between line and staff35
.
31 Mintzberg, H., 1979, page 31.
32 Mintzberg, H., 1979, page 3.
33 Mintzberg, H., 1979, page 304.
34 Mintzberg, H., 1979, page 304.
35 Mintzberg, H., 1979, page 315.
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It is my opinion that at first sight the organization most resembles the machine bureaucracy configuration. An argument for this is the formalized way the operating core is organized. The work is highly standardized (standardization of work processes) in spite of the high product variety and the high product routings. The actual work doesn’t change a lot for the work floor employees. Further the importance of the technostructure is an argument. The toolmakers form a sustainable competitive advantage (SCA) for the Volante Company. Using resources that are rare, valuable, hard to copy and have no good substitutes can provide sustainable competitive advantage
36. Their experience and (tacit) knowledge are very hard to copy or duplicate for competitors and new entrants. This gives Volante a big competitive advantage in their market. When looking at grouping and unit size, Volante is wide at the bottom and narrow at the top (or elsewhere), this is another argument for the choice of a machine bureaucracy.
Next the Volante Company is in a transitional stage between a young organization and a mature organization. According to Mintzberg simple structures reflect normally young organizations (first stage) and machine bureaucracies are normally old and large organisations (second stage). I think that the organization is in the middle of the growth phase in the organization life cycle. At the moment the organization grows at a very fast pace, about 20 % growth in revenue each year. I think again that this forms an argument why it’s difficult to make a clear choice between machine bureaucracy and simple structure.
Another argument is the centralized power of decision making (see the description of the machine bureaucracy above). Almost every decision is made by a member of the strategic apex. This is one of the most important features, I think. It also makes one doubt between a simple structure and a machine bureaucracy. But the importance of the technostructure in the end makes me choose for a machine bureaucracy. But with a strong pull towards a simple structure. One could name it a ‘simple bureaucracy
37’. Wherethe entrepreneurial skills of the strategic apex are important as well as the skills in the technostructure and their ability to standardize complex jobs into the work place. Direct supervision and mutual adjustment for the top level and standardization of work processes for the operating core are applicable to Volante.
§ 4.7 Conclusion: simple bureaucracy and its’ implications
The Simple Bureaucracy is a combination of two of the basic configurations Mintzberg described; Simple Structure and Machine Bureaucracy. Because the Volante organization is in a transition towards a more mature and larger organization, the urge to standardize is increasing. Yet the strategic apex wants to retain its entrepreneurial abilities and power.
The fact that the top-level managers have all the power enables the company to react better to sudden changes in the environment. The Volante organization is a very flat and centralized one. This centralization favours flexibility and adaptability in strategic response: only one person needs to act
38. The communication lines are short and it’s easy for the management to communicate with other parts of the organization like the technostructure or the operating core. But centralization can also cause confusion
36 Dollinger, M.J., 1999.
37 Mintzberg, H., 1979, page 470.
38 Mintzberg, H., 1979, page 312.
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between strategic and operating issues
39. The firm has been growing for the last few years at a very high pace. The increased volume, complexity and variety of the work have increased the need for more standardization and rules in the organization. It’s an ever- present dilemma for the top management to find a balance between a more mechanistic and a more organic organization. This is also one of the reasons why the Volante organization is in between the Simple Structure and the Machine Bureaucracy.
A great advantage of the simple structure is its sense of mission. Many people enjoy working in a small, intimate organization, where its leader, often charismatic, knows where he is taking it
40. In this case the obvious leader is the company owner. But other people, who work in the organization, can perceive the simple structure as highly restrictive. Because one individual calls all the shots, they feel not like the participants on an exciting journey, but like the cattle being led to the market
41. At this moment this isn’t the case. But because of the lack of real career opportunities, this could form a problem in the future. Important employees (from the Strategic Apex) could chose for another job in a new organization. The success of the Volante organization is, for a great deal, the result of the skills and dedication of people who work in it. The owner is aware of this problem and he will take the necessary steps, in future, to cope with this.
What could form a problem is, in the future, the fact that the operating core is by far the largest group in the organization. The people in this group are relatively low educated and do a lot of standardized work. The personnel costs form a substantial part of the total cost. This could cause a competitive weaker position for the organization. Due to the fact that Volante is active on many international markets and that the competition comes from all over Europe and sometimes from all over the world. Nowadays there is an overall international trend of moving assembly and production to low wage countries.
The production of Volante is based in Germany, England and the Netherlands. These countries aren’t typically low wage countries. The production and personnel costs may, in future, be too high in comparison with some competitors of Volante. The size or magnitude of the operating core may thus form an issue in future.
39 Mintzberg, H., 1979, page 312.
40 Mintzberg, H., 1979, page 312.
41 Mintzberg, H., 1979, page 313.
