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The concept of business model is a useful tool with many facets used to analyse and communicate the essence of a business. It is believed that a business might succeed or fail depending on its business model (Tikkanen, Lamberg, Parvinen, & Kallunki, 2005). In addition the idea of the importance in concept determines the business model elements and its architecture where it was born out of the need to understand and explain the new ways of doing business. If the business model is termed to have long-term utility, there must be consensus on what a business model actually is and how it should be represented.
In this essay, we will look at the business model of the Singapore Bus Services (SBS Transit) and interrogate its business model to understand how the company make money through the interaction between its service market and capital market. The BCG matrix will be used to analyse and evaluate the services provided by SBS transit and how it can further improve to maximum its profit. The internal structure of the company will be touch on to allow us to understand how the company works to meet commuter’s expectations.
Background of SBS
SBS Transit is a leading bus and rail operator in Singapore, with a daily average of more than three million passengers on the extensive bus and rail network. They believe in providing a better travelling experience to its customer and invested extensively in technology and training, constantly upgrading its operations and people (SBS Transit). SBS were formed in 1973 through the merger of three private bus companies; they grew quickly and were listed on the Singapore Stock Exchange as Singapore Bus Service by 1978. The Company was renamed as DelGro Corporation Limited with a subsidiary, Singapore Bus Services Limited where they were listed separately on the SGX in November 1997. In November 2001, Singapore Bus Services Limited had changed its name to SBS Transit Ltd to reflect the new bi-modal status as a bus and rail operator when they won the licence to operate the North East MRT Line. SBS Transit became a part of the ComfortDelGro Group when Comfort Group and DelGro Corp merged to form ComfortDelGro Corporation in 2003, one of the world's largest land transport companies. As part of an international, multi-modal transport company, they have been able to leverage on the Group's extensive resources, expertise and knowledge to bring about higher levels of service and comfort for the Singapore commuters.
SBS Transit aims to provide a world-class public transport which is safe, comfortable, affordable, reliable and friendly to all Singapore commuters. Today, they operate about 250 bus services with a fleet of more than 3,200 buses. The buses serve 17 interchanges and more than 3,500 bus stops island-wide. The North East MRT Line which is the world's first fully automated, underground heavy rail system that connects Punggol to HarbourFront, as well as the Light Rail System in the Punggol and Sengkang new towns. SBS Transit also operates the Downtown Line. When fully completed, this 42km line with 34 stations will be the longest underground line in Singapore. The first stage of the Downtown Line commenced passenger service on 22 December 2013. The second and third stages will be ready in 2016 and 2017 respectively.
Necessities such as food, clothing, and shelter are categories that falls under the “bought” services. These necessities have expanded over time which includes internet, cell phone, transportation and computers. Bought items have to become part of how we live in our daily lives (Fannin). With a small country like Singapore, the public transport was intended to serve Singaporeans who do not own private cars and affordability was a key factor to the commuters (Bin & Ching, 2013).
The three main services that SBS Transit provides are namely the bus service, the rail service and the outdoor advertising and rental service. The bus service is Singapore’s largest scheduled bus service operator with 75% of the market share. In order to cater to different commuter needs, 255 bus services were operate that comprises of 201 basic services, 31 premium services and 23 niche bus services. For the year of 2013, the fleet of buses operated about 31,000 trips and ferried a total of 973.5 million passengers on a daily average. Operating hours for selected bus services were extended during festive season such as Christmas and New Year. For events like the F1 Grand Prix night races, four special late night routes were put into service to complement the extended train hours.
The demand for rail services remains strong in 2013 with more than 204.8 million passenger trips made with an increase in daily ridership on the North East Line (NEL) grew by 6.1. The first phase of Downtown Line which opened for service on 22 December 2013 had a ridership record of about 670,000 passenger trips in its first 10 days of service. The increase in passenger demands were about 2,500 additional weekly trips added to the schedules of the LRT systems. Train operating hours were also extended during major events and public holidays. The innovative use of advertising and rental space has become an additional source of supplemental income. Advertising is undertaken by the sister company, Moove Media Pte Ltd where they faced a challenging year in 2013 as advertisers scaled back on their budgets due to the slowing economy.
The BCG matrix by the Boston Consulting Group allows us to classify and evaluate the services provided by SBS. This decision making tool balance the activities of a company among those which make profits, those that ensure growth, those which constitute the future of the firm or those who are its heritage (Jurevicius , 2013). With this tool, development policies of the company are able to be identified.
The bus services would be classify under the cash cows where it has a high market share among the three services provided by SBS with a slow growing industry. Little investment is required for the bus service as it has established its reputation to cater to the different groups of consumers. Hence, extra cash generated can be used to invest in other business units.
As for the rail services, it would be classified under the stars with high market share in a fast growing industry. With increasing passenger demand weekly, rail service has to do something to keep up with its demand such as having more frequent train services. The rail services may generate cash but because it is a growing market, more investment is required to maintain their lead by coming up with new stations to meet the demand of the commuters.
Lastly, the outdoor advertising and rental services would be classified under the dog with low market share in a mature industry. SBS Transit had made a loss in 2013 due to the slowing economy. This service generates low or negative cash returns which might seems as it is not worth investing. However, campaign and charities events are always put up to reach out to people. This might be profitable in the long run when companies and individual being to be aware of such service.
Image exacted from: (QuickMBA, 2010)
The revenue of SBS Transit had shown a constant increase of revenue over the past 5 years and in 2013, there is an increase of 6.9% from $792.3 million to $847.3 million. Revenue from bus operations grew by 7.3% which is fuelled by ridership growth of 3.1% despite of lower average fares charged. Revenue from rail operations increased by 6.9% which is attributable to the ridership growth of 5.8% on the NEL and 11.2% on the Sengkang/Punggol LRT systems as well as the commencement of passenger service on the Downtown line. Revenue from the advertisement business fell by 5.3% due to a drop in bus advertising sales while on the other hand, revenue from the rental business increase 22.1%. The increase in revenue of $55.0 million at the Group level was less than the increase in operating expenses of $64.9 million mainly due to higher wage costs, higher repairs and maintenance costs, higher depreciation and higher premises costs.
As a result, operating profit fell by 38.9% to $15.5 million. Finance costs due to increased borrowings to fund the purchase of new buses also increased by 51.5% or $1.5 million to $4.3 million.
For the first time since 2007, the rail business incurred an operating loss of $5.8 million due mainly to higher staff costs largely from the preparation for the start-up of the DTL 1 and higher repairs and maintenance costs, offset by higher rail fare revenue and lower electricity cost. If not for the DTL 1 start-up costs, the operating profit for the rail business would have increased by 22.4% or $2.5 million to $13.6 million.
Earnings per share were 3.62 cents which is 39.8% lower than the previous year, while net asset value per share increased by 0.9% to 112 cents. At 31 December 2013, the total equity for the Group increased by 0.7% to $344.3 million due to profits generated mainly from non-bus and train operations, which were partially offset by the payment of dividends.
The commuting public expected good quality in public transport services and operators at the same time had to keep their profits healthy. Regulating the transport fares was crucial and important in balancing between affordability, profitability and quality. With government involvements and subsidies being the key instruments to maintain the right balance, SBS Transit is able to meet commuter’s expectation. Since 1987, the three-way tensions of ensuring profitability and acceptable quality had been the task of the Public Transport Council (PTC), which regulates the transport fares for both buses and rails.
Image extracted from: (Bin & Ching, 2013)
Safety and security are key elements of the bus and train operations, with this importance SBS Transit places strongly in their policies, procedures, training and community engagement programmes. The Driving Skills Enhancement Programme (DSEP) was developed to focus on our Bus Captains’ safety driving skills, it uses motion sensors, cameras and mapping software to measure and analyse driving habits where Bus Captains will be given an objective report of their driving performance. The programme was reviewed and customised for two distinct groups of bus captains; one with less than six months of service, and the other for those with more than six months of bus driving experience. The first group focuses more on providing training on core safety skills with common driving faults highlighted while the more experienced group focused more on defensive driving. To complement the training in safety driving, safety messages were put up on electronic displays at the exits of interchanges to remind bus captains of the need to be safe as they head out on their routes. Safety checks conducted by safety officers have also been stepped up at junctions and pedestrian crossings to ensure SBS Transit bus captain put into practice the skills learnt in training.
Continuous investment was place on training and developing its people. To ensure new bus captains are able to operate all three types of bus models in SBS’s fleet. Besides technical skills, bus captains also attended the Continual Operations Training to refresh their knowledge and skills in handling on board customer issues and incidents such as disputes, breakdowns, and fire safety. In 2013, more than 1,692 bus captains attended this course with a total of 1,072 new bus captains successfully certified under the Workforce Skills Qualifications (WSQ) programme in bus operations while other 1,359 existing bus captains were certified under the “Recognition of Prior Learning Scheme”. This means that all existing BCs have achieved this certification which is designed to professionalise and raise competency standards of public transport workers. In customer service training, the CARES programme runs on two parallel tracks, with CARES 1 anchored in eight service standards to deliver quality service to commuters and CARES 2 which focuses on customers with special needs and service enhancement techniques.
The staff commitment to excellence has been recognised in the awards received. For the year of 2013, a total of 1,205 staff received the national Excellent Service Awards (EXSA) while another 120 staff received the Transport Gold Award for service delivery. Five bus captains were also spotted demonstrating courtesy on the road by the Traffic Police and awarded the “Courteous Motorist Award 2013”. Another 369 staff received internal recognition during the Annual CARES Award Ceremony for consistently delighting the commuters.
Corporate Social Responsibility
SBS have reach out to the community by funding numerous charitable projects and offering free transport services to the elderly residents of Kwong Wai Shiu Hospital. Cash donations were also contributed to several community outreach programmes. Free usage of space at the bus and rail stations as well as advertisement space on the buses and trains were offered to support charities and community efforts. On an individual level, SBS’s staff are encourage to actively participated in the Community Chest’s SHARE programme where a fixed amount of contributions is deducted from their monthly salaries and contributed to the charity on a monthly basis. In order to protect the environment, older buses were replaced with environmentally friendly ones. In 2013, a total number of 2,269 environmentally friendly buses which include Euro 4, Euro 5/Euro 5EEV and Compressed Natural Gas models were own by SBS to ensure that they play their role in being environmental responsible.
In conclusion, it is clearly stated that SBS transit is a bought service that is necessary for most citizens to consume. The BCG Matrix allow us to evaluate and understand the categories that each individual services falls in and make better future decision to bring profitability in long term. Understanding the capital market of the business also give us exact financial figure to know exactly how well the business is doing and it future sustainability. Lastly, the internal structure is the most important factor to be considered in a business as it forms the skeleton of the business such as how it operated and how it trains it staff to provide quality service delivery. Without the internal structure, the business might loss it direction to achieve its business goal.