Tuesday, March 19, 2013

Bus service and Incentives

Mar 13, 2013

Incentives to ensure buses run on time

AFTER years of wielding the stick to get bus operators to improve
service standards, the Government is changing tack - with carrots.
A bus quality incentive framework it is launching mirrors a
carrot-and-stick approach taken by other cities to ensure buses pull up
at each bus stop at designated times, not later or earlier.

Transport Minister Lui Tuck Yew told Parliament yesterday that the
Land Transport Authority (LTA) "aims to trial this scheme on some 25
services, or about 10 per cent of bus services, towards the end of this

Singapore has long relied solely on a penalty system, which will
become far more severe from next month, with bus operators facing fines
of $100,000 a month per breach, up from $10,000.

And until now, standards were measured at the point when buses left a
depot or terminal. There were no measures to ensure they reach bus
stops punctually.

The plan is one of two new initiatives that revealed the Government
is willing to try almost anything to improve the lot of public transport

The other is free travel. Mr Lui said his ministry is looking
"seriously" at this novel approach to ease the peak crush between 8.30am
and 9.30am.

Free travel for people who commute before the morning peak was mooted
a week ago by MP Janil Puthucheary (Pasir Ris-Punggol GRC). Mr Lui said
it is being considered.

"What we are still studying is whether we should simply increase the
current 50-cent discount substantially to say, $1, or to go all the way
to make it free," said Mr Lui.

"If we can get even 10 to 15 per cent of commuters in the peak period
to travel up to an hour earlier, we would achieve a very perceptible
improvement in commuters' daily travel experience."

Previous plans to nudge people to travel before the peak have largely
been ineffective. The latest 50-cent discount reduced the peak load by 3
to 4 per cent.

The two radical moves come on the back of a third consecutive drop in
public transport satisfaction in a survey done by UniSIM. Last year's
poll showed 88.8 per cent of commuters were satisfied with standards -
down from 90.3 per cent in 2011, 92.2 per cent in 2010 and 93.8 per cent
in 2009.

Meanwhile, bus and train rides have increased by about 25 per cent to more than 6.1 million a day since 2009.

Mr Lui said long-term plans are in place to expand the capacity of
the rail system to meet the demand of a growing population by 2030. But
steps are being taken to accelerate interim measures.

Yesterday, he said most of the 550 additional buses promised in the
Bus Service Enhancement Programme will be on the road by end-2014,
instead of 2016 as previously targeted. "I would like to assure
Singaporeans that dealing with the needs of our commuters 'here and now'
is the key focus for my ministry, even as our longer-term
infrastructure plans are rolled out," he said.

Transport consultant Bruno Wildermuth welcomed the scheme to improve
bus punctuality. "This lapse is so common of late that it's pathetic,"
he said. "It's about time."

[Incentives are no guarantee that effects are as you intended. See this next article:]

When your company’s incentive system backfires

How many times have you seen an incentive system produce the exact opposite of the desired behaviour? Why does this happen? And why can’t organisations see, let alone fix, these problems?

By Vijay Govindarajan

11 March

How many times have you seen an incentive system produce the exact opposite of the desired behaviour? Why does this happen? And why can’t organisations see, let alone fix, these problems?

Here’s one example of how incentive systems can backfire. Srikanth went to visit a client in an Asian city. The client suggested that Srikanth catch a bus to his factory. He went to the bus stop and waited. Several buses whizzed by without stopping, even though they all had plenty of empty seats. After half a dozen buses failed to stop. Srikanth finally caught a cab.

Upon arriving late at the factory, he apologised to the client and told him the cause for his delay. The client laughed and said, “The driver’s bonus depends on whether or not he reaches his destination on time. So when drivers find themselves running behind schedule during peak hours, they do not bother picking up passengers.”

This was the height of insanity — an incentive system that succeeded only in defeating its purpose.

During rush hour, the exact time when more passengers needed to be picked up, it was better for the driver to leave them on the curb. Frustrated citizens, lost revenue and increased costs, all thanks to a misaligned incentive system.

Furthermore, everyone seemed to be aware of the problem except the organisation that ran the buses. Or, equally baffling, the company knew about the issue but chose to ignore it.


Ever since this incident, we have become more attuned to seeing misalignments between a company’s purpose and what its employees actually do. And it turns out this problem is far more widespread than we realised.

Here are a few common examples:

Bankers maximise their bonuses while forgetting about the health and integrity of the financial system.

Call-centre staff hurry customers off the line or transfer them so the employees can meet their quota of calls per hour.

Salespeople maximise their commissions and forget about what best meets the client’s needs or what is best aligned with the firm’s capabilities. When top sales executives are incentivised to maximise their bonuses and options, the result is “channel stuffing”, in other words, overloading retailers with goods just before the end of reporting periods.

Whenever production is incentivised in terms of the number of units produced or the cost per unit, the result is simply more inventory, more cash tied up in inventory and less flexibility in coping with changing demand.

Clearly, what we have listed here is just the tip of the iceberg. So what can organisations do to correct these mismatches?


The first step is simply awareness.

Once management teams understand the behaviours that are driven by their measurement and reward systems, they can calibrate them to make sure they’re incentivising exactly the outcomes the firm desires.

Executives should remind managers and employees alike of what should be measured and rewarded. They should also be on the lookout for any undesirable behaviours to see if they can be traced back to the company’s reward systems.

But even the best-designed incentive systems can only go so far. In the final analysis, it is essential that leaders have a strong inner compass to do the right thing, regardless of any measurement system. Purpose must shine through loud and clear.

Bangalore’s Narayana Hrudayalaya Hospital is one such organisation. Its vision, as articulated on its website, is “affordable, quality health care for the masses worldwide.”

Despite the fact that it is much cheaper than comparable Indian hospitals, and only 40 per cent of its patients pay full fees for care, Narayana Hrudayalaya is a profitable organisation.

Why? The hospital started with the question, “How can we provide quality, affordable care to the masses?”, rather than “How do we maximise stockholder returns by designing the right incentives?”

That led to a strategy focused on both lowering costs and attracting paying patients by leveraging the hospital’s reputation for high-quality care. The surplus gained from these full-paying patients helps subsidise the cost of care for everyone else.

With the specialisation of its surgeons and the large volume of operations they perform, Narayana Hrudayalaya is able to produce world-class outcomes at a fraction of the cost of other hospitals. There are no incentives based on volume or revenue for its surgeons and other employees. Purpose is the driver while profits are the enabler.

In the end, there are no easy answers. On one hand, good measurement systems are needed to track progress, and incentive systems are needed to motivate and align people. On the other hand, it is far more important to stay true to the purpose of your organisation.

We believe the pendulum has swung too far towards incentives, and that balance must be restored.

Srikanth Srinivas is a retired management consultant and Vijay Govindarajan is a professor of international business at the Tuck School of Business at Dartmouth College.

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