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Sunday, 30 May 2010

Approaches to efficiency: LMS vs LSWR - some facts and some thoughts

This week I read an excellent journal article by Roy Edwards, of Southampton University's Management school, titled 'Job analysis on the LMS: mechanisation and modernisation c.1930-c.1939'. The article focussed on how the London, Midland and Scottish Railway (LMS) came to the decision to modernise, reorganise and rebuild many of its freight depots on the network in an attempt to reduce labour costs and increase efficiency. This was part of an attempt by the company to make the LMS freight haulage services more competitive with the road hauliers that, by the mid to late 1930s, had attracted vast swathes of the company's traffic onto the roads. I hope Roy doesn't mind if I give a very brief synopsis of his article.

He describes how the LMS in 1933 employed Lewis C. Ord to investigate performance at goods yards and depots and he analysed the work using the measure of how many hours it took for a ton to move through the depot (hours per ton). His test case was the reorganisation and mechanisation of goods sheds at the company's Blackburn depot. Here he tried many experiments and reduced the time that it took for each ton to move through it. So, for example, in the forwarding goods shed a ton's movement dropped from 2 hours to 1.1 hours. He also tried experiments at the Oldbury yard.

The LMS, based on guidance in Ord's final report, thereafter began to reorganise, redesign and mechanise goods sheds. A department was set up at the LMS headquarters to examine shed design and the instillation of mechanical equipment. In attempts to bring costs under control, the department used systematic analysis of information gathered at terminals, such as the total tonnage moved, the total hours it took and the hours per ton. Yard agents then used this data to analyse operational efficiency. The information was also collated weekly for a monthly report that would aid in the control of yard and shed expenditure. In addition, a sub-section of the divisional superintendent of operation's staff was set up in 1931 to look at the shunting methods. Its remit was extended in 1937 to include 'modernisation proposals and additional monitoring.' Further, other statistical measures were gathered such as 'Daily Analysis of Work,' 'Detailed Analytical survey of work' and the district goods managers were informed of efficiency via the 'Handled tonnages and wages return.' These figures were all collated and forwarded to the monthly district goods managers meetings for analysis.

This data collected therefore became a contributory factor in decisions regarding the rearrangement, rebuilding and mechanisation of goods terminals. In 1933 Lemon, the vice president of the Institute of Transport congress, estimated that these changes could save the company £1.5 million on the wages of handling staff. However there was a problem. While reducing labour costs seemed good for the struggling company, economies that were made on staff reductions did not factor in the cost of the investment, and thus what savings were made were in many cases wiped out. Edwards describes how at Walsall economies of savings on staffing costs were estimated at £1000, but that the outlay on the modernisation cost £9950. At Tipton, the board noted that an outlay of £51,000 would result in savings in labour costs of £550 per annum, with additional charges resulting from traders using the LMS's facilities amounting to approximately £2460. The reason for this, was that the benefits of investment were not known and on many occasions the justification for investment was broad. For example at Oldbury all the directors could state was that there would be 'quicker turnaround, reducing delay, less congestion and improved service to the public'. Indeed their opinion was that, 'economy cannot be estimated.' At Tipton Edwards states that there would be 'other advantages which cannot be evaluated e.g. improvements in the shunting arrangements and in the mobility of the wagon stock.' Simply put, the benefits of investment were never worked out and never truly known.

Edwards' conclusions are clear. Firstly, the LMS was groping its way forward with regard to the systematic statistical analysis of their operations, from a point where previously there had been little, and there was the development of more sophisticated management measures to analyse the efficiency of the workplace. However, secondly, there was little accurate analysis of the financial costs and benefits that would be incurred by the investment and thus increased efficiency was not rarely remunerative. In short the LMS made their operations more efficient, and they knew it, but it came at a cost. If you feel so inclined, the article is excellent and really gives a good insight into the mindset of late 1930s railway managers operating under difficult circumstances. It can be found in Vol. 20, No.1. pp 91-105 of Accounting, Business & Financial History.

This paper really made me think about the way that the London and South Western's (L&SWR) managers thought about cost control. Indeed, I was stimulated to think about what linkages can be made between the way pre and post-1922 railway management made decisions. Edwards' research has shown that while there was increased data gathering and analysis before and after a yard was modernised so as to measure efficiency, the actual benefits were unknown, and the LMS relied on impressions and 'hunches' to make decisions. My question is why was this so? Where did this evidently deficient way of analysing investment come from? I believe that my work, that ultimately focusses on decision making in the L&SWR, may hold the answer.

It is clear that the L&SWR managers were not as advanced as those on the LMS years later. They exhibited the same uncertainty in decision-making as those that followed them on later railway companies. If there is a consideration of efficiency measures that were implemented throughout the company's history Edwards' assessment that there was 'little' or no cost-benefit analysis and that decisions were made on impressionistic grounds, are more prolific in the period before 1922.

For example, in 1879 a special committee of L&SWR directors instructed their senior managers to proffer 'any suggestions that may occur to them upon it or any method by which the revenue of the company may be increased. Also any information as to possible reductions of Train mileage, reductions of trains or reductions of working expenses.' Accompanied with no analysis, the result was a list of ideas from the different departments, some of which were highly speculative with regard to their benefits in terms of cost or efficiency. For example, amongst the suggestions were included, better timetables and advertising, more powerful engines that would save fuel, better organisation at the Nine Elms goods yard, the expedition of workshop improvements at Nine Elms and improved services between Southampton, Salisbury and Portsmouth.

This said, there were some suggestions where the savings would have been much easier to quantify, for example, reductions in gas and water consumption, dispensing with the stores' department's branch offices, e.g. at Bishopstoke, reducing the number of travelling inspectors overall and restricting numbers of guards on goods trains to one. Indeed, another economy drive in 1885 categorised some of the company's ongoing buildings works by their immediate necessity to operations, enabling it to put on hold a number and enabling the company to defer identifiable costs. However, overall in the long run there was no way that they could determine the benefits of these measures using rudimentary assessments.

Further, day to day decision making in committees, for example the building of new goods sheds, extra sidings for traffic, new rolling stock and extra staff, all tended to have no cost-benefit conducted beforehand. In the case of many station alterations, decisions to augment facilities are simply made without any detailed job or process analysis, rather investments were made, in some cases, simply on the recommendation from the Traffic Manager, Superintendent of the Line, or even the Station Agent. Therefore, I have become aware of a major difference in the decision-making process between the majority of the decisions that the L&SWR made between 1850 and 1922 and the those made by the LMS that relied on more detailed job analysis. Whereas the LMS tried to work out the efficiency of the operations and attempted to improve them, even if the cost-benefit analysis was lacking, the L&SWR's whole decision-making process was based on untested justifications. Therefore, I feel I may have found a reason why their was such a laissez-faire attitude towards analysis of investment, and it has already been hinted at.

It is quite evident that the managers of the L&SWR had one constant that shaped the way that policy was dictated from the 1830s right through to the end of the company in 1922. This was the expectation that traffic levels would continue to increase unabated. In 1860 the L&SWR, whose main goods depot was at Nine Elms, started to find that because of traffic increases that this site was getting cramped, especially as it was shared with the Locomotive, Carriage and Wagon works of the company. A special committee of the board was formed to discuss the question. One option was to move the works into the country. This was not done, and eventually they were relocated to the southern side of the main line so the goods yard and sheds could be expanded. In the course of the discussions the Traffic Manager of the company, Archibald Scott, stated that in the 20 years after 1860 'should the Traffic increase as was seasonally expected,' the land given over to the Traffic department would be insufficient for its management. This statement illustrates a possible mindset of the L&SWR management before 1922.

The period before 1922 was when the railways had the biggest share of the market with regard to traffic movement. They were a virtual monopoly and as such, with the increasingly expanding economy, traffic continued to rise exponentially. Therefore the most pressing issue for managers was how the infrastructure would cope with this fact. Cost reduction, except in the Locomotive department (for which a whole paper could be written) was not an ongoing concern like on the LMS where they attempted over time to reduce costs of operations. Cost reduction in major affairs was simply a matter of the company instituting economy drives when profits dropped, like the special committees noted above, or the company securing the cheapest contractor when contracts were put out to tender. Operational effectiveness was not assessed, and possibly this is because the expectation was that eventually any investment would be covered by the constantly rising revenues.

One last point, isn't it interesting that the LMS only started looking at its operational practices in detail when the company was under financial pressure, whereas the L&SWR, who never had the same strained and was graced with constantly rising traffic and revenue, never felt the need to assess how their operations worked in half as much detail. Of course I hope to develop my ideas further, and this has been a rushed effort at developing a theory, but I hope that I have made a good start. Oh, and thank you Roy for stimulating me.

Sources: Edwards, Roy, 'Job analysis on the LMS: mechanisation and modernisation c.1930-c.1939,' Accounting, Business & Financial History, (2010) Vol. 20, No.1. pp 91-105

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