The Toronto Transit Commission (TTC) moves 540M people a year through a rapidly growing city. As the 3rd most heavily used North American transit system with a budget over $1.5B, it’s shocking that an organization of this scale is able to get away with an ineffective operating model and continue to squander taxpayer money.
Business Strategy: The Age-Old Value Proposition
Like most public transit organizations, TTC hopes to provide a quick, cheap, and convenient ride to move people within the city. It’s an age-old proposition – pool collective funds, so all can enjoy a cheaper transportation method to their destination in a reasonable amount of time.
To deliver on this proposition, TTC needs to excel on several fronts operationally. This includes investing in infrastructure, reducing downtime, keeping costs low, leveraging its workforce to provide good service and, more recently, integrating technology to enhance efficiency.
Poor infrastructure planning
Physical infrastructure is the backbone – the critical asset that will move people around effectively. Despite it’s heavy ridership, the limited permanent infrastructure (only 4 rapid transit lines) is an ongoing joke in the country.
It’s been clear that the TTC’s infrastructure must expand to meet the demands of a growing population and integrate with the transit systems in the broader Toronto area. However, TTC’s attempts to increase the scope of the physical infrastructure has been a disaster, partially due to the political pressures and capital investment required from the government. There have been talks about creating a light rail, leveraging railways or expanding the subway, but there is still no consensus on what the future should look like. TTC’s lack of vision, poor planning and inability to manage its stakeholders has resulted in a congested system that has become less relevant for its users as the city grows.
Frequent downtime on critical assets
Given the sparse infrastructure, TTC needs to limit the downtime on its critical assets to keep service moving. But, too many times, the city has been crippled by its subway delays. In 2012, the subway had ~5,000 delays for an average of 6.5 minutes each (~3 weeks!). 27% (or 109 hours of delay) were a result of emergency repairs required on trains and 12% were due to rail infrastructure. TTC is doing a poor job in optimizing its constrained assets – especially since ~40% of these incidents appear preventable through better maintenance planning.
Trouble controlling costs
TTC’s business strategy only makes sense if it can keep the cost to its riders lower than alternative transportation. However, TTC has instead relied on fare hikes and government money to compensate for their spiralling costs. For example, the 5-mile extension of an existing line has been delayed by 2 years and grew to over $1.5 billon of it’s original cost. Part of this run-up was due to an inability for TTC to manage the project and contractors effectively.
Unionized labour force = increased wages with minimal incentive for customer service
TTC employs over 13,000 employees, most of which are front line workers that are critical to creating a positive customer experience. In recent years, the workforce has garnered significant public scrutiny. In 2013, ~10% of workers made the Sunshine List ($100K+/year) of which 21 were fare collectors. Even worse, there have been several complaints of employees caught sleeping on the job or disrespecting riders. A unionized workforce and lack of incentive structure could partially be to blame. To their credit, TTC is actively trying to turn around this image and work on customer service.
Other transit providers have effectively leveraged technology to improve efficiency. TTC continues to be behind the curve. For example, many large metropolitan cities (Hong Kong: 1997, London: 2003) have rolled out electronic payment fare-cards. PRESTO (Toronto’s version) took 6 years to approve, with a 10 year roll-out (estimated 2016) for $250M. The latest update is a 2019 roll-out for $700M – one of the most expensive fare-card systems in the world. In the meantime, TTC will continue using manual labour to collect fares and force customers to wait in long line ups during rush hour.
Fortunately for TTC, even though the operating model is grossly misaligned with the business model, there currently are very few alternatives to get around (although Uber is definitely a start). By default, many just have to grit our teeth and deal with it. It definitely shows that misalignment of the business and operating models do not necessarily dictate the longevity of a firm.