The Case 2015 Following New Tracks

Home , A (S-train), B (S-train), C (S-train), DSB (railway company), E (S-train), Haslev

DSB Today For almost two years, Stig Pastwa has been the CFO and part of the Executive Board of in the rail infrastructure in Denmark, which will result in disruptions in scheduled traffic, one of the most important companies in Denmark. DSB is the backbone of the Danish and this will further increase the importance of managing customer expectations. transportation system, and a company that is vital for providing society with the necessary mobility to enable a dynamic and efficient job market. Mr. Pastwa has experienced Operating a railway in today’s Europe has the unique feature that it is typically, when a rough period and during the next couple of years, DSB will face one of the most chal- viewed alone, a bad business case for the actual railway company. However, railway op- lenging periods of its 130-year-old history. The political demand for passenger growth eration has some very significant synergies, which make it very beneficial for society as is extremely ambitious, the customers’ demands are ever increasing, and the reputation a whole. An efficient railway system is crucial for a modern European society, and there- of DSB in the Danish population is less than perfect. fore European governments typically subsidize the railway companies heavily. This has resulted in a complex ownership structure for DSB, which means it must navigate within From chaos to turnaround the limitations of a highly political environment, while remaining focused on operational It has been three years since a radical shift occurred in DSB. At that time, DSB was in a efficiency and customer satisfaction. deep crisis after economic chaos, which ended with a replacement of almost all of its top management. Fixing the bottom line was the number one priority. Therefore, the fo- With profitability reestablished, Mr Pastwa’s focus has now shifted towards growing the cal point was on recovery and re-establishing profitability. The recovery strategy includ- topline instead. Therefore, the challenge that lies ahead is how to take the initial steps ed cost cutting as well as reductions in the number of employees. After two years, DSB towards getting more people to take the train. DSB believes the key to getting more achieved profitability again, and posted profits of 483 million DKK in 2013. Therefore, people to take the train is to keep the consumer in focus at all times and continuously today, with DSB “in balance”, the focus has shifted from turn-around to future profitable improve the customer experience. Stig Pastwa – now acting CEO – therefore wants your growth through improving the customer experience. help to answer the following question:

How can DSB increase the amount of passenger kilometres in Denmark through Net Profits of DSB (in DKK million) focusing on improving the customer experience while remaining profitable? 483

338 You are asked to formulate a three-year business plan that will result in a total increase in the amount of passenger kilometres of 7.5% after three years, and serve as the first step on the journey towards supporting the political ambition of doubling 50 passenger kilometres by the year 2030. A successful business plan solution needs to impact DSB and Danish society on a triple bottom line: The economic, the political and 2009 2010 2011 2012 2013 the reputational.

-577 DSB passenger kilometers (in million) -698 Source: DSB Annual Reports 2009-2013 6267 6246

6063 Back to basics – the customer as the centre of attention In 2010, the Ministry of Transportation in Denmark published an ambitious report, which 5798 highlighted a political ambition of doubling the use of public transportation by 2030. 5659 DSB plays a vital role in reaching this goal, which would entail growth rates of a scale never seen before in a European context. In order to achieve this growth, DSB needs to put the customer experience more in focus. In other words, DSB needs to get back to basics. This is a major challenge as customers have a dreary picture of DSB as a company. A large gap exists between the cold, hard facts of operating trains efficiently, and the 2009 2010 2011 2012 2013 expectations of the customers. Moving forward, this discrepancy can lead to increased dissatisfaction among customers, unless the expectations of DSB and its customers are Source: DSB Annual Report 2013 better aligned in the future. Over the next three years, heavy investments will be made

2 DSB - CBS Case Competition 2015 DSB - CBS Case Competition 2015 3 Company Background Strategy of DSB

130 years as a socioeconomic and political important organization Regaining trust among Danes In 1847, the first railway track opened in Denmark between Copenhagen and Roskilde. In 2014, DSB launched its new overall strategy program named “Win Confidence in It was built by the private company “Sjællandske Jernbaneselskab”, and started out as DSB”. The main goals for the strategy is that DSB will return to focusing on the custom- more of an amusement than an important part of the transportation system. Around the er, through enhancing the ability to work while traveling, improving its public reputa- same time “Det Jysk-Fynske Jernbaneselskab” started operating railways in Jutland as tion, and making transportation as integrated and seamless as possible. well. In 1867 the government took over the operations of the railway tracks in Jutland and Funen, and in 1880, it also took over the railway operations on Zealand. Five years However, the main purpose of DSB going forward will still be delivering reliable passen- later, the government merged the two regional companies, and established what we to- ger trains and ensuring a high level of integration throughout the entire public transpor- day know as DSB. tation system. The future is expected to bring further demands for liberalization from the EU, increased digitalization of all links in the value chain, transfer of maintenance re- In 1934, the first S-train lines, which operate in the Greater Copenhagen area, and connect sponsibility from operators to producers of trains and finally more standardization of the majority of the Copenhagen suburbs with the city center with frequent train departures, railway operation across borders. were established. The InterCity train that connects cities at different regions in Denmark (for instance from Århus in Jutland to Copenhagen on Zealand) was established in 1974. The railway industry is very unique in some ways and is often very dependent on various national socio-economic considerations. The mobility gains that arise from having In the mid 1990s, a liberalization process occurred in many European countries for their an efficient railroad result in very large and significant benefits and synergies to society telecommunication, energy and transportation sectors. In 1997, ownership of the infra- as a whole. structure (rail tracks, signaling systems etc.) was separated into a different and completely independent company, BaneDanmark. Further, in 1999, DSB became an indepen- This is especially true in Denmark, which has the third highest rail modal-share in Eu- dent state-owned company, which means that the company basically can operate as a rope. Therefore, the responsibility of DSB to provide a reliable and efficient railroad ser- private company with its own financials, board and management team, but still has cer- vice in Denmark is of huge importance for Danish society. tain public obligations as it is still owned by the Danish state.

As an attempt to grow their customer base, DSB started an internationalization process in 2002 with attempts to enter the English, Swedish and German markets. However, the internationalization strategy did not prove a success and DSB abandoned most of its for- “We now have a viable, long term strategy eign ventures again in 2011. Therefore moving forward, the focus for DSB is not on with the aim being substantial passenger growth while growing internationally, but on increasing its penetration rate in Denmark. Following the remaining focused on profitability and operational efficiency. failed international attempts, DSB posted large losses in 2010 and 2011. In order to re- The next step is the difficult part: Execution”. store the company to profitability, the company introduced a tough cost-cutting program in 2012, which slimmed the organization and turned the company around. This Jesper Andersen - Chief Strategy Officer also means that today, the focus of the future is on increasing the topline at a steady margin — in other words, growing profitably.

Milestones in DSB’s history The Great Belt Fixed Link opens for trains, DSB initiates the rationalisation programme DSB reaches the objective of the rationalisation reducing the travelling time between Zealand “A Healthy DSB”, the objective of which is to programme “A Healthy DSB” and enters 2015 in and Funen by about one hour. reduce operating costs by DKK 1 billion. profit and with a new strategy up to 2030. InterCity trains are introduced with The first line opens between Copenhagen and Roskilde. The Little Belt Bridge opens. One thousand employees are laid off. S-tog DSB introduces the first fewer stops and a fixed timetable. A/S operating the urban rail network in the high-speed diesel trains. Greater Copenhagen area and DSB merge to become one corporation. The organisation is simplified. DSB is established. Prior to this, railway operation was organised locally. DSB relaunches itself with the campaign “The Greater Context”.

1847 1885 1930 1935 1963 1974 1989 1997 1999 2000 2012 2014

The number of railway lines and train stations Locomotive Series MA, popularly known as Sølvpilen The first IC3 trains are commissioned. DSB is divided into two. DSB becomes responsible DSB becomes an The Øresund Bridge opens, connecting Denmark and reaches an all-time high with 5,296 kilometres (The Silver Arrow), is commissioned. It becomes the Over the years, the IC3 has become the for the trains and train operation, while Banedan- independent public Sweden. More than 20,000 Danes currently live in of rails and 534 ticket outlets for DSB alone. most iconic DSB locomotive. most popular and reliable train in Europe. mark becomes responsible for the rails and signals. corporation. Malmö and commute to Denmark every day.

4 DSB - CBS Case Competition 2015 DSB - CBS Case Competition 2015 5 The Political Dimension

Strong political interest and influence on the railway industry DSB is a state-owned company, and is governed by the Danish Ministry of Transportation. DSB is operating as an independent state-owned company, and the Danish government is subsidizing DSB with more than 4 billion DKK each year to support its operations.

The business of operating a national railway system The reason for DSB being subsidized by the government is that on its own, operating a national railway system is an unprofitable business. From a pure business perspective, only a few urban routes are attractive, while the majority of the routes operate at a loss. However, the national railway system plays an important role in society as a whole, and is necessary to ensure a functioning and effective infrastructure. An efficient and highly developed public infrastructure system is vital in order to increase mobility in the job force. As a result of this, railway transportation is subsidized all across Europe.

Share of subsidies in selected countries

62% 49% 42% 42% 36% Passengers

Subsidy 38% 51% 58% 58% 64% Revenue per passenger kilometer per passenger Revenue

United Kingdom The Netherlands France Denmark Germany

Source: BCG Analysis (2010)

DSB and the ministry of Transportation The contract between DSB and the government outlines the responsibilities and requirements of DSB. Specifically, it describes what DSB is allowed to do in terms of pricing, which routes it must operate, and the frequency of the routes. This means that DSB cannot adjust its prices based on supply and demand. DSB has the option to give discounts to specific groups or for specific departure times; however, they cannot increase their prices beyond a specific maximum defined in the traffic contract. In terms of frequency, DSB can increase the frequency if demand is high, but they cannot decrease the frequency below a defined threshold if certain routes are unprofitable.

Political agenda - The case of the tip-up seats Even though DSB is technically run as an independent company, the distance to the politicians is sometimes very short, and it becomes very clear that DSB is still a state-owned company. An example of this is the case of tip-up seats for students. DSB offers very ”DSB has a triple bottom line: The economic, cheap tip-up seats for students, who are traveling across Denmark in off-peak hours. In the political and the reputational. September 2014, DSB announced that it wanted to terminate this offer in order to in- As we are not a public traded company, crease room for bikes and baggage on longer routes, and also because the cheap tip-up we view our reputation as our share value.” seats only accounted for only 0.1% of travel on regional trains. The next day, the minis- ter of transportation went out publically and told DSB to keep the tip-up seats, as they Lars Kaspersen - Director of Communication and Branding served an important role for society. DSB then had to keep the seats. This is a good example of how what is best for business and what is best for society do not alway align, showing the sometimes conflicting bottom-lines of society and DSB.

6 DSB - CBS Case Competition 2015 DSB - CBS Case Competition 2015 7 Infrastructure

Complex infrastructural factors set out constraints Overview of the responsibilities of DSB and BaneDanmark The activities connected to operating a railway system can be divided into a number of different categories, such as building and maintaining the track infrastructure, running train stations, selling tickets, providing traffic information, buying and maintaining trains and, finally, actually operating and driving the trains. In Denmark, DSB is respon- D Train Syst S sible for almost everything except the construction and maintenance of the railway “The em” B track infrastructure. rk a Equipment m n This means that it is also DSB’s role to purchase new trains to meet future traffic de- a D Pu S mand on the Danish railway; however, procuring trains is a long, expensive and highly e y n s a ance t complicated process, sometimes taking up to as much as 10 years from the beginning of rc e B m s Maintain h the process to the time the trains are delivered. & n an s o ase s i & B t

S a C t aint h All of these infrastructural factors set a number of constraints for railway operation. For D S M Ticket ance - a n n example, one constraint is the tracks, which limit where the trains can go and how fast io Tra c n they can go, and another is the number of available trains, which determine the frequen- mat e or l cy and capacity of the different scheduled train departures. Taken together, all the differ- Build Planning inf s ent infrastructural factors determine the total network capacity. Today, it is difficult to Service add more frequent departures because the network capacity is limited by a number of traffic bottlenecks, such as bridges, low numbers of passing loops, highly trafficked key Oper stations and outdated signaling systems. Optimizing ating Build The Danish Parliament has recently agreed to invest more than 100 billion DKK in the Danish Dr iv rail infrastructure in order to increase the network capacity so that it will be able to accom- Servic ing ance modate the future growth of rail passenger traffic. However, these investments are scheduled s I n n an i f to span over the next 15 years. In addition, DSB and BaneDanmark have scheduled a com- r ra a e t s prehensive track maintenance and new signaling program over the next three years. t aint g r n B u M ti a ct a n u r Overall, understanding the limitations set by the infrastructure is important when it e re pe D O a comes to evaluating strategic proposals and ideas. n m a rk

Source: DSB Internal Data

“While we always focus on improving our operations, we are currently at a level of punctuality where the majority of the improvements will come from better coordination with BaneDanmark and technological development in the signaling system”.

Anders Egehus - Executive Vice President, Operations

8 DSB - CBS Case Competition 2015 DSB - CBS Case Competition 2015 9 The passenger transportation industry

An industry dominated by passenger cars and trains Political ambitions for growth in public transportation As the biggest railroad company in Denmark with the responsibility to operate passenger It is the ambition of the Danish Parliament to increase the modal share of rail in Den- trains on most of Denmark’s railways, DSB’s main market is the market for passenger mark because a higher share of public transportation is a key component in the govern- transportation. This market encompasses all passenger transportation in Denmark and ment’s sustainability strategy. Compared to historical growth of the railway sector in includes all different modes of transportation, such as bicycling and driving. Denmark, the political growth targets are highly ambitious, and require an industry CAGR of 3.4% from 2011 to 2030. This growth rate is for the entire railway sector, in- The different modes of transportation have very unique characteristics and each has its cluding regional operators, metro expansion and light railways, as well as DSB, meaning advantages and disadvantages. In 2012, trains (all operators) had a share of 10.1% in Den- that DSB will not have to deliver the entire industry growth targets alone. mark in terms of passenger kilometers traveled, while passenger cars constituted more than 80% of total passenger kilometers traveled. This has been fairly stable over the last 10 years; however, trains have managed to gradually increase their share from 9.3% in 2004. Growth in the Danish Railway Industry

14 RailwayTraffic Modal transportation shares Modal transportation shares (Passenger kilometre pr. year in billions) 3,4% Denmark 2004 Denmark 2012 12 CAGR 2011-2030 Motor coaches, Motor coaches, Political Ambition buses and trolley buses and trolley 10 buses, 11,4% buses, 9,7% Historic development Trains, 10,1% 8 Trains, 9,3% Passenger Passenger cars, 79,3% cars, 80,2% 6 1,5% DSB’s Source: Eurostat Modal Shares 2004-2012 2,2% 4 CAGR development CAGR 2003-2011 1996-2003 In order to understand the value proposition of train travel and in order to improve 2 the customer experience, it is also important to understand the main alternatives and competitors that DSB is up against on the passenger transportation market. As can be 0 1995 2000 2005 2010 2015 2020 2025 2030 seen on the graph, the biggest competitor by far is passenger cars. This mode of transportation has become more popular with the introduction of “micro” cars available at Source: DSB Internal data, Trafikstyrelsen: “Trafikplan for den Statslige Jernbane 2012-2027” (2012) very cheap prices of less than 100,000 DKK. These micro cars are small and very fuel efficient, which makes them relatively cheap, compared to other transportation modes. A key advantage for the cars is the flexibility they bring, as the driver decides when to In order to support the political ambition on passenger growth, it is necessary for DSB depart. Additionally, the driver can often complete the journey in one leg, rather than to get more people to use the train in the future. Currently 10.1% of all public transpor- having to go through multiple legs such as is often the case with public transporta- tation in Denmark is by train, which is among the highest penetration rates in Europe. tion. However, the cars also have certain drawbacks — for instance, with the increased This underlines the challenges within the political growth targets. number of cars on the roads, traffic congestion is increasingly becoming a hassle, and, similarly, parking spots are becoming more difficult to find within cities. Rail modal share EU comparison 2012 20% Drivers for change The main drivers for changes in modal shares between trains and cars have histori- 15% cally been availability of cars, development of highways, door-to-door speed of cars vs. trains and the number of train services operated. In the future, the key drivers for 10% growth in the modal share of rail transportation is expected to be investments in rail- 5% way infrastructure, continuous improvements in business performance and customer experiences, and technological changes that advance door-to-door connectivity. 0% Italy Spain Latvia France Turkey Ireland Greece Poland Austria Croatia In order to achieve the passenger growth targets set for DSB, it is imperative to under- Finland Estonia Norway Sweden Belgium Bulgaria Hungary Slovakia Slovenia Portugal Romania Germany Denmark Lithuania

stand the alternative offerings in the market, and to recognize that different modes can Macedonia Switzerland Netherlands Luxembourg

be seen both as competitors and as complementary services. Multi-modal journeys and Republic Czech European Union European United Kingdom United better integration across different means of transportation are ways to improve cus- Source: Eurostat Modal Shares 2012 tomer experience, and therefore represent a significant growth opportunity.

10 DSB - CBS Case Competition 2015 DSB - CBS Case Competition 2015 11 Integration across different modes of transportation

Facilitating other transportation vehicles: DSB as the backbone of the Danish transportation system A way of making the train more attractive is increasing the reachability of the stations. DSB has an ambition to be the backbone of the Danish transportation system. This The figure shows that distance to the stations is very important when people choose means that they will play an ever more important role in further integrating the public their mode of transportation. By increasing parking facilities for cars and bikes, the train with the private transportation system. This goal requires taking responsibility for the can become a more attractive alternative. customers’ journey from A-Z, and ensuring that the travel experience is as seamless as possible. In order to achieve higher levels of integration, critical factors include improv- 60% % that uses public transportation ing the traffic information provided to customers, making ticketing easier, and accom- to and from work modating other transportation modes such as busses, the metro, cars and bikes. Public Administration workers Consulting engineers 40% Insurance companies

Traffic information between Rejseplanen.dk different transportation methods 20% Informing customers about how to get from point A to Z in an easy, available, fast and reliable way across different transpor- Rejseplanen.dk is a portal tation forms is a task DSB has undertaken to ensure connec- that contains all scheduled and current departures and 0% Distance from nearest tivity for the customer, thereby providing one focal point (one station to workplace arrivals within the Danish 0 200 400 600 800 M point of touch) to customers and giving them a better travel public transportation system. experience. It contains running times for Source: By- og Landskabsstyrelsen, Fingerplan 2007 all operators and transport Rejseplanen.dk is an example of a digital solution that inte- modes, and users can find The development of car and bike sharing can provide new opportunities for integration travel information from/to grates the different public transportation systems; however, with the train. In Paris, for example, rental cars, city bikes and trains have been so close- all addresses in Denmark. the system still faces challenges in giving fast and reliable up- Scheduled maintenance and ly integrated that you are able to pre-book cars, train tickets, bicycles and even parking dates in case of delays. Generally, improvements are neces- cancelations are also shown spots from one app on your mobile phone. This enables a seamless travel experience sary to proactively inform customers about potential delays on Rejseplanen.dk. Rejse- across different means of transportation. upfront, and to inform them of alternative ways of reaching planen.dk is available both their destination. online and as an app.

Rejsekortet Easier ticketing across Rejsekortet was introduced different means of transportation in 2011 as an electronic Purchasing tickets needs to be a one-stop shop, which ticketing card. It is a col- laboration among all public was attempted with the introduction of “Rejsekortet” in transportation operators in 2010. Originally, the plan was that this card should re- Denmark. It works similar to place normal tickets and be the only way to purchase the Oyster card that is used tickets, but it is now used as a supplementary product. in London. Passengers ”check in” with the Rejsekort when With Rejsekortet, the Danish transportation system has they start a journey, and ”check out” when the jour- taken a big step to integrate the ticketing of different ney is completed, and the modes of transportation. However, “Rejsekortet” still fac- price of the journey is auto- es challenges with a highly non-transparent pricing sys- matically calculated and paid tem for customers, a software capacity issue, and a com- by the account holder. plex ownership structure.

12 DSB - CBS Case Competition 2015 DSB - CBS Case Competition 2015 13 Train systems of DSB

Map of F&R and Øresund trains S-trains (greater Copenhagen)

Three key train systems in Denmark Skagen DSB operates three rail systems in Denmark. The S-Trains, which operate in and around greater Copenhagen, the regional and long distance InterCity trains, which serve and Hirtshals vn connect the different regions in Denmark, and the Øresund Trains, which connect Copen- sha l ing lne o hagen with southern Sweden. The different train systems of DSB also cater to different Hjørr Sindal T Kvisse Frederik

customer types. Commuters going to and from work primarily use the S-Trains and the Vrå regional trains, whereas the long distance InterCity trains in the “East-West” segment are mostly used by leisure travelers visiting friends and family, and business travelers Brønderslev

going to meetings. Lindholm Thisted Sjørring Aalborg Vestby Snedsted Aalborg Share of DSB’s total Share of DSB’s total Share of DSB’s Hørdum Skalborg Bedsted Thy Svenstrup passenger kilometres 2013 number of travels 2013 total revenue 2013 Hurup Thy Støvring Ydby Skørping Lyngs Thyborøn Hvidbjerg East-West 4,9% Uglev Arden Others 2% Others 7,4% Oddesund Nord East-West Others 0,5% East-West o 35% sbr DSB Øresund up v Hobro d 38% Humlum rg up DSB Øresund bro aa East inder øjsle oholm ibo ke mgår 8% o lind en S-Train, Struer V Skive H St V Rødkær ring ør y ustr r M R Ko Tr G 13,8% p 12,7% Bjer u S-Train 59,0% Hjerm Randers Hornslet Ulstr Løgten West 21% S-Train Holstebro Skødstrup West Vemb å Hjortshøj Bur ng a Hovmarken lum L 16% 28,9% Ulfborg u up 9,1% A g adsten Lystrup rk H Tim a inner Torsøvej West p H ildbjer um Vestre Strandallé Hee V ng rg a o Østbanetorvet sv Gilleleje 13% e Ringkøbing k Center æk H Skolebakken Herning ammer ng ilkeb ørning East 18% East 12,8% Lem Bir H Ikast BordingE S Aarhus H Tisvildeleje Svejb en Helsingør v Skjern Bo Tr K S H a Viby J Snekkersten o ib tudsgåer r L rr ldhedeæk ning M y Ta rm is nde R Espergærde Source: DSB Annual Report 2013 lken Hundested od A Humlebæk d Bra Ølgod e Odder ssec Nykøbing Sj Nivå Gårde Thyreg Kokkedal enter Skanderborg Hillerød e Rungsted Kyst Tistrup Frederikssund Giv Vedbæk Nørre Nebel ehus Sig lling g Horsens H Farum Skodsborg Je øje Taastru H Klampenborg Varde Nord Hedensted Kalu edehusene ejle Sy K Vipper V Sv nab R RoskTilde Hellerup Varde ndb JyderuMørk eg Holb rekr V eb TølløHvalsø alby S-Trains str strup L Østerport or ølle ejr oner Varde Kaserne ejle ø u æk ø p V g p p d se e Nørreport ejning v ia The S-Train is an urban city-train system operating in the Greater Copenhagen Area. Guldager Br kop København H Bør Vib Gjesing rg Malmö C Frederic y p Spangsbjerg mming Bo S Triangeln øru Ringsted j There are 84 stations on the S-Train network, and at several of the stations you are able ru TjæreboBra GørdingHolsted Br Vejen p Hyllie Esbjerg up Odense Sl Ny Ko a ØreT K Svedala g årnbøbenhavns L b S rup to change to local and regional trains that serve the rest of Zealand, as well as long dis- L K Tau org r e d stad u o sør lse or Gadstr v Skurup Ystad nder lding ø a ed Ølby y Sejstrup lo H v art v skov lf Køge tance InterCity trains that connect Copenhagen with Jutland and Funen. At most sta- Gredstedbro Vamdrup y u Midde y ft Ribe Nørremark havn ausluned-Åe b Odense Sygehus Lille Skens Herfølge K r Ejb p g tions, you are also able to change to the local busses in Copenhagen. The S-Train sta- ed ru ed up Fruens Bøge Ribe a Br Tureby Nør lst A albjer Hjallese Ge lmstr Hviding Vojens Sk o Haslev TommerupH Højby Rødvig tions are typically placed fairly close to each other, especially in the city center. Årslev Rejsby Glumsø Holme-Olstrup Faxe Ladeplads Pederstrup Brøns Ringe Næstved Nord Rønne Rudme Næstved Skærbæk Rødekro Kværndrup Øresund Trains Døstrup Sdrjylland Stenstrup Lundby g Stenstrup Syd or Bredebro b Svendborg Vest Vordingborg en The Øresund Trains is a regional train network serving the Øresund region. It runs from Visby Tinglev Svendborg råst ønder Kliplev G S Nørre Alslev Tønder Nord Helsingør in Denmark and goes to Malmö in Sweden, from which point trains continue Eskilstrup Tønder InterCityLyn Padborg Nykøbing F to Karlskrona, Kalmar or Gothenburg. Nakskov InterCity Regionaltog Regional trains S-tog S-train Rødby Færge F&R Trains (Regional and InterCity Trains) Flensburg Andre togselskaber Other railways Standsning. Se køreplan Stop. See Timetable The F&R Trains are DSB’s main train system, which connect various cities and regions of Den- mark. This system is made up of regional trains and long-distance InterCity trains. It can be segmented into the following three areas: “East”, which covers local and regional travel on East-West - number of passengers, annual level Zealand and Lolland-Falster; “West”, which covers local and regional travel in Jutland and Fu- 40 120 nen; and finally the “East-West” segment, which covers the long distance InterCity trains that 33,8 35 32,3 32,7 32,4 32,3 32,5 32,7 33,1 115 run between Copenhagen-Odense-Århus- Ålborg as well as various other locations in Jutland. 29,4 31,0 30 27,5 28,5 110 25,7 26,3 26,9 25 105 It is expected that the East-West segment will be impacted heavily by track maintenance 20 100 during the next three years. During the maintenance period, it will be difficult to sustain cur- 15 95 rent levels of punctuality and customer satisfaction. Additionally, it is also the East-West 10 90

segment that has been affected the most by the increased competition from cheap mi- (mio. travels). bridge 5 85 cro-cars. This is a key challenge for DSB, because the East-West segment is at the same 0 80 2000 2001 2002 2003 2004 2005 2007 2009 2010 2011 2012 2013 2014 Index compared to the previous year the previous to compared Index

time also DSB’s most popular service, as measured in passenger-kilometers. 2006 2008 Number of journeys across the Great Belt the Great across journeys Number of DSB Car Bus Flight Train Index Car Index

14 DSB - CBS Case Competition 2015 DSB - CBS Case Competition 2015 15 Experience of the customer

Increasing passenger growth through bikes – Case of the S-Train Denmark is a nation of bicycles; therefore, as an attempt to increase passenger growth, DSB began to offer free bike transportation in the S-Trains. Passengers must still purchase a ticket, but they can now bring their bikes for free, while it used to cost around 10 DKK. Drivers for customer satisfaction and customer experience An important part of reaching the political goal of growth in passenger kilometers is un- The project started in 2010, and has resulted in significant passenger growth in an other- derstanding the customers’ needs and priorities when they travel. Some factors carry wise stagnating market. The amount of passengers using the S-Train has boomed since more importance than others, and it is especially punctuality and frequency, comfort, the introduction of the free-bike initiative. Additionally, the majority of the new passen- and traffic information that drive customer satisfaction. gers in the S-Trains are bringing a bike. Before the initiative was started in 2010, 2 million annual travels included a bike, and already in 2012, this figure was up to 9 million. Drivers for customer satisfaction (% of total customer satisfaction) This is a strong indicator that the option of bringing a bike for free in the S-Train has re- Safety, Stations sulted in more people using the S-Train, and this is an example of how the company can & Cleaning Puntuality & create growth by improving the customer experience. However, these improvements 17% . Frequency 27% also came at a cost, in terms of modifying existing train cars and other operational diffi- Product, Price culties that resulted from the increased number of bike passengers. & Service 15% Traffic Information Comfort 21% Number of Bikes in the S-train per year 20% Source: DSB Internal Data, 2014

12,000,000 Punctuality and Frequency 10,000,000 DSB has improved its level of punctuality during the last four years, and the current level is among the highest compared to its European peers. Often the root cause for delays 8,000,000 involves signaling or planning errors, which are out of the hands of DSB as they are BaneDanmark’s responsibility. 6,000,000

4,000,000 However, since DSB is driving the trains, it often gets the blame for the delays.

2,000,000 Punctuality of DSB

96% 97% 0 94% 95% 94% 93% 2006 2007 2008 2009 2010 2011 2012 2013 2014 90% 91%

Passenger Growth in the S-trains 2010 2011 2012 2013 8.0 Punctuality is defined as the relative number of trains that arrived at the platform with a maximum delay F&R S-Trains Passengers with bikes of 5.59 minutes for Long-distance & Regional Trains (F&R), a delay of 2.29 minutes for S-Trains 7.0 Source: DSB Annual Report 2013 Passengers without bikes 6.0 Responsibiliy of delays 3.0 5.0 2.5 2.3 F&R Trains S-Train 4.0 100% 100% 1.0 3.0 80% 80%

4.0 2.0 3.6 3.6 60% 60% 0.3 2.8 Growth in mil of Passengers in mil of Growth 1.0 40% 40% 1.3 0.0 20% 20% 2010 2011 2012 2013 2014 0% 0%

Source: DSB Internal Data, 2014 Q1 Q2 Q3 Q1 Q2 Q3 YTQ YTQ YTQ 2010 2011 2012 2013 2014 2014 2014 2014 2010 2011 2012 2013 2014 2014 2014 2014

Source: DSB Internal Data, 2014 DSB BaneDanmark External Factors

16 DSB - CBS Case Competition 2015 DSB - CBS Case Competition 2015 17 Comfort: The Danes have high levels of expectations regarding their experience with using the train. They expect a high level of service, clean trains and stations, and the ability to sit in the train at all times. A high level of service also means being able to utilize the time “We need to be better spent in the train most efficiently. This could mean the ability to work while sitting in at giving fast and the train, which is a feature that differentiates the train from other modes of transporta- correct information tion. Increasing the ability to work in the train is a way to improve the customer experi- to our customers when ence significantly. DSB has branded this efficient working time as “+time”. unforeseen events occur”.

The expectation of always getting a seat has proved to be a challenge, as there are Susanne Mørch Koch times during peak hours where high demand means that the trains are full and some - Executive Vice President, people have to stand. This is not very different from most European countries, but the Commercial and HR difference is that Danes expect to always have a seat, even in rush hours. If more people are going to use the train in the future, this will increase the pressure on capacity, meaning that dealing with customer expectations becomes necessary.

Customer’s satisfaction on a scale from 1-10

9,09,0

8,58,5

8,08,0 7,57,5 Traffic information 7,07,0 Generally, traffic information is functioning well, with a combination of different methods to inform customers about their travel arrangements that range from updated moni- 6,56,5 tor screens on every station, to speakers on the stations and in the train, to digital solu- 6,06,0 tions such as the DSB app and the rejseplanen.dk app, where people can get information 5,55,5 about how to most efficiently get from one destination to another across different 2011 20122012 20132013 Q22013 2013 Q32013 2013 Q42013 2013 Q12014 2014 Q22014 2014 modes of transportation. Q2 Q3 Q4 Q1 Q2

Source: DSB Internal Data, 2014 On Time Delayed Traffic information works relatively smoothly when there are no delays in the system; however, once unforeseen delays occur, the quality of traffic information decreases significantly. Due to the complicated and interconnected nature of the railway infrastructure, the delay of one train affects several other trains in the system. In these cases, it becomes a challenge to communicate alternative routes to the passengers, and so when these unforeseen delays occur, the customer satisfaction rate drops significantly.

The upcoming track maintenance projects that are planned for the next three years again underline the importance of being able to provide fast and accurate traffic information in cases where unforeseen delays occur. This communication will provide a way to improve the customer experience when the delays occur, as well as minimize the impact and has- sles that track maintenance inflicts on passengers. Providing traffic information is carried out jointly between DSB and BaneDanmark, and therefore cooperation between the two is very important. However, as DSB and BaneDanmark have different success criteria, their goals are not always aligned, and this has in the past created some conflicts of interest.

In many cases, the train is not the only mode of transportation the passengers are using to reach their destination. Solutions such as rejseplanen.dk help passengers get a more seamless travel experience across different transportation modes. However, the customer experience can still be improved by better integration between using the train and a car, bike, bus or other forms of transportation.

18 DSB - CBS Case Competition 2015 DSB - CBS Case Competition 2015 19 Customer segmentation Customer segments

Motivated heavy Motivated medium Motivated light Motivated non users users users users Lives in Jutland more Young persons and Women and singles. Elder and married than 2 kilometers away Key characteristics of DSB’s customers singles. Lives in the Lives in the capital persons. Lives in larg- from the nearest train Every day, 500,000 customers are traveling with DSB; out of these travels, 300,000 capital region, and uses region and Aarhus, and er cities outside the station and work. Take take place in the Copenhagen area. DSB’s customers differ a lot in terms of travel pur- monthly train passes. uses different public capital region. Have a the car or the bus. Believes that taking transportation types in high income and are pose, motivation for using public transportation as well as the frequency with which the train is efficient their spare time. Cares wellestablished. Likes they use the train. Some people need to take the train every day to work or school, and flexible. about environmentally relaxed social sur- while others only use the train occasionally. As the national train operator of Den- friendly transportation. roundings. mark, DSB effectively regards the entire Danish population as its potential customers. 15 % of DSB’s 15 % of DSB’s 33 % of DSB’s In order to better understand these customer groups, DSB has divided its customers customers customers customers into three different groups based on their travel purposes: commuters, leisure travelers 9 % of Danes 9 % of Danes 19 % of Danes 13 % of Danes and business travelers.

Unmotivated heavy Unmotivated Unmotivated light Unmotivated non Travel purposes users medium users users users Lives in the capital Creatures of habit, that Lives in smaller cities Men and pensioners region, uses monthly lives in the capital region more than 2 kilometers that lives in Jutland. Commuters Leisure travelers Business travelers train passes and are and Aarhus. Finds it away from the nearest Would never consider People who are traveling to Leisure travelers include peo- Business travelers are people digital savvy. Finds it difficult to travel with train station. Finds taking the train. and from work or school. ple traveling to visit friends traveling with work related stressful to travel with train and gets annoyed public transportation People with this travel purpose and relatives in other parts of travel purposes, that do not trains and need their by waiting time. Believes limiting in general, and typically travel using a month- Denmark, as well as people directly include traveling to personal space. in the prejudices about love their car. ly commuter card ticket. In traveling to go to concerts, and from the regular place of DSB, for instance that addition they travel relatively to go shopping or for similar work. Travel purposes include they are always delayed. short distances, typically from purposes. This group often meeting with clients or going smaller cities to larger nearby travel longer distances using to congresses or seminars. The 5 % of DSB’s 5 % of DSB’s 28 % of DSB’s cities. Commuters use the train the InterCity or regional trains. business travelers normally customers customers customers almost every day. Leisure travelers use the train have a lower frequency for 3 % of Danes 3 % of Danes 16 % of Danes 28 % of Danes with medium frequency. using the trains. Source: DSB Internal Data, 2012

Commuters account Leisure travelers account Business travelers ac- for 56.2% of journeys for 37% of journeys count for 6.8% of jour- on the F&R trains and on the F&R trains and neys on the F&R trains Key figures for customer segments 58.3% on the S-Trains. 38.5% on the S-Trains. and 3.1% on the S-Trains. Share of revenue Share of travels

Source: DSB Internal Data, 2014 Motivated heavy users = 52 % Motivated heavy users = 56 %

Unmotivated heavy users = 20 % Unmotivated heavy users = 23 % In addition, DSB has also divided the entire Danish population even further into eight Motivated medium users = 11 % Motivated medium users = 8 % segments. Six of these segments contain DSB customers, while the last two segments contain non-users. The segments are based upon the frequency of usage (ranging from Motivated light users = 8 % Motivated light users = 8 % heavy users to non-users) and on their motivation for taking the train (motivated and Unmotivated light users = 5 % Unmotivated light users = 4 %

unmotivated users). The motivation of users is determined by their predisposition to- Unmotivated medium users = 3 % Unmotivated medium users = 2 % wards public transportation with train, as well as how they experience traveling with Total Passenger Revenues: 4.771 million DKK Total travels: 182.595 (in thousand) public transportation. Business travellers Leisure travellers Commuters

The figure shows that motivated heavy users and unmotivated heavy users have 79% of Source: DSB Internal Data, 2012; DSB Annual Report 2012 the total travels, and constitute 72% of the revenue. This shows that the heavy users are using the train considerably more often than the other groups, and it also shows that heavy users pay a lower average price per travel than medium and light users. Further, motivated users are using the train more frequently than unmotivated users across the different groups, and the travel purpose varies across groups as well. Possible solutions to increase passenger growth can therefore be to: 1) Motivate the unmotivated users to increase their frequency, 2) Get medium and light users to use the train more frequently, and 3) Get non-users to start using the train.

20 DSB - CBS Case Competition 2015 DSB - CBS Case Competition 2015 21 Product portfolio

A large and complicated product portfolio DSB Revenue Breakdown (2013) is non-transparent and inefficient DSB solves an important task in society by providing frequent and reliable transporta- Other tion in all regions of Denmark. DSB is required to ensure a certain number of departures Orange 3% 5% DSB 1' ticket 5% at all stations, even the small and unprofitable ones, and for this service they are com- Standard pensated from the government with an annual traffic contract payment. This again 28% Reserved Seat 5% shows that several bottom lines exist in railway transportation. It might not be profitable for DSB to stop at a certain station, but when seen from the perspective of society 65+ticket 5% as a whole, it can still be beneficial, and therefore DSB is subsidized through traffic contract payments. The biggest contributors to DSB’s revenue are passenger revenue and Rejsekort 9% traffic contract payments from the government.

Youth ticket 12% Commuters 9% DSB Revenue Breakdown (2013)

Youth Card Vouchers 9% 10% Leasing of trains Passenger revenues 2% Source: DSB Internal Data, 2013 Repair and 44% Maintenance of Trains 3% Sales from shop 7% Digitalization of Sales Channels Traffic contract DSB has traditionally sold tickets mainly through manned ticket booths at the stations. payments DSB has since 2008 focused both on improving the user experience and reducing costs 44% through increasing the degree of self-service. Today, passengers can pay for their tickets Source: DSB Annual Report 2013 online or through a ticket machine, a manned ticket booth, the DSB app, text-messages, or by Rejsekortet. While mobile purchases account for most of the transactions today, manned ticket booth sales still constitute a significant amount of the transactions.

DSB expects that the degree of self-serving customers will increase drastically in the fu- DSB has a large product portfolio, and offers everything from regular tickets, to a youth ture. This will happen through increased sales through digital solutions, and result in a card, to a “65 ticket” for people over the age of 65. In total, DSB has had around 200 dif- gradual closing of manned ticket stores. ferent products, which created a rather non-transparent ticketing system for customers. It carries high administrative costs to maintain a large number of products, and DSB has therefore initiated a process of limiting the number of product types. They removed 90 product types from 2012 to 2014, and expect to continue to reduce the number of prod- Revenue split on sales channel transactions, 1H 2014 ucts by removing additional products within the next couple of years. Rejsekort, 10% Mobile, The figure shows that 92% of the revenue comes from nine product types, which indicates 27% that DSB has a lot of products that don’t generate significant sales. Therefore, moving forward, DSB needs to figure out which products are necessary to foster future passenger Online, growth, and how they can simplify their product portfolio without compromising import- 13% ant target groups such as the elderly or students. Additionally, this is an area in which the political influence is sometimes high. An example of this is the case of the tip-up seats. Ticket store, 25% Vending Machine, 25%

Source: DSB Annual Report 2013

22 DSB - CBS Case Competition 2015 DSB - CBS Case Competition 2015 23 Rush hour capacity limitations Possible solutions to reduce capacity issues Two overall solutions have been identified to mitigate the rush hour capacity issue, and they are as follows. The first thing is doing nothing and staying with status quo; this will result in an increasing number of passengers having to stand up in the trains. The big chal- Large demand fluctuations throughout the day lenge here is that passengers in Danish trains expect to be seated, even though they are In addition to being subject to infrastructural constraints, DSB also has a difficult chal- traveling in the peak periods, and therefore this solution entails a large gap between the lenge in handling the peak capacity demand that occurs during the morning and after- level of service customers expect and the level they receive. noon rush hours. The morning rush hour is the point during the day with the highest demand; therefore, it is this peak demand that defines the total capacity requirements of The second solution is price differentiation, where tickets for the trains in the rush hour are trains that DSB needs to own and operate. more expensive. This leads to price-sensitive passengers moving away from these departures, which again reduces demand and leads to less crowded trains. Price differentiation In addition to this, the marginal capacity used during peak hours can only be utilized is already used heavily in Sweden and UK and to some extent in Germany as well. The dif- during those peak hours, and is therefore excess capacity during the rest of the day. This ficulty in Denmark, however, is that the government so far has restricted the amount of results in extremely high marginal costs for operating additional trains during rush hours, price differentiation that DSB is allowed to do, with the exception of the DSB 1st class as they can only generate revenue during a small portion of the day. Therefore, the solu- tickets, which can be sold at a 60% higher price. In the future, though, it is expected that tion to reduce overcrowding during rush hour is not to schedule more trains. DSB will be given more leniency in using price differentiation to influence passengers’ choice of trains. This will be done through requiring that passengers not only have a ticket, but also a seat reservation in order to board specific trains during rush hour. 100 15

80 14

60 13

40 12 Utilization (%)

20 11 Revenue per passenger (DKK) per passenger Revenue

0 10 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 Hour of the day Revenue per passenger Utilization Source: DSB Internal Data, 2012

Another issue that is connected to the peak demand spikes is the revenue per passenger generated during this time. The majority of passengers using the trains during rush hours are commuters on their way to and from work; these commuters typically pay a very low price per train ride through a monthly commuter card, and, additionally, they receive tax deductions for commuting. Therefore, contrary to what you should expect, the lowest average price per passenger is actually during periods with the highest demand.

Consequently, the cheapest tickets are sold to the trains that are the most costly to operate (the ones with the highest marginal costs). This is illogical and completely oppo- site to what can be seen in the airline industry, for instance, where tickets are much more expensive for peak departure times. This is because it has been politically decided not to price-differentiate on different departures during the day, and therefore this is a factor that DSB just has to accept for now.

24 DSB - CBS Case Competition 2015 DSB - CBS Case Competition 2015 25 +Time

Travel time as efficient working time A key advantage that train travel has over other forms of transportation is the fact that travelers can work comfortably and efficiently. In a train, travelers have a table, Wi-Fi access, plenty of legroom and access to power outlets for charging laptops. This is a huge advantage over for instance cars and even airplanes.

In a train, work can occur from the moment a traveler sits down in the train until the train arrives at the destination, while in a plane, because of restrictions during travel, waiting time and boarding procedures, it is not possible to get as much efficient working time out of the same amount of travel time. Train transportation has this very unique competitive advantage, and it is one that DSB is actively trying to promote to its customers. However, plenty more work can be done in this matter.

Today, the Internet connection in the trains is still not good enough to ensure a seamless and trouble-free connection throughout the entire duration of the travel, and this is especially true in lesser-populated areas. This is an area that DSB has focused on; however, this factor is dependent on the underlying telecommunications infrastructure being developed, and it will cost up to 400 million DKK, depending on the degree of investment. This process will require significant negotiation with the telecommunication companies regarding how much they must invest in access networks, and would take at least two years to implement. Therefore, other initiatives to increase the quality of “+time” onboard the trains should be thought out as well.

This “+time” advantage is very unique for trains, and there is a large potential to use this further in the positioning of train transportation.

Previously, DSB had a sales cart that went through the trains, where customers were able to purchase snacks and drinks. However, this ended up being a very unprofitable service, as it was too costly to operate compared to what DSB earned in revenues, and therefore it was abandoned in 2014. DSB still serves breakfast to its first class customers.

”Basically you have to ask yourself the following question — what would make you take the train more often?”

Susanne Mørch Koch - Executive Vice President, Commercial and HR

26 DSB - CBS Case Competition 2015 DSB - CBS Case Competition 2015 27 The stations

The stations as focal points Commercialization of stations It is not just the trains and the tracks that are an integral part of the railway infrastructure; Another key question to answer is how DSB can commercialize the now empty space in the train stations also play a huge role in serving the customers, even though this role has unused station buildings. Previously, DSB has tried to commercialize some of the areas changed in recent years. in the buildings by renting space out to shops such as 7-Eleven and other convenience stores; however, this has only proved feasible in the largest of DSB’s many stations. Traditionally, train stations served as waiting rooms, cargo storage and ticketing venues; Elsewhere in Europe, commercialization is a lot further than it is in Denmark. For exam- however, this stems from a time when train schedules were unreliable and trains were fre- ple, the Dutch national train operator, NS, has created an independent company solely quently delayed. Today, passengers expect the train to arrive according to the schedule, to operate and maintain the train stations in the country; this has led to a higher degree and thus plan to arrive at the train station just a couple of minutes before scheduled de- of commercialization. parture times. Furthermore, tickets are currently purchased online or through apps and ticket machines. This has reduced the demand for waiting space and manned ticketing Therefore, DSB has much to learn from comparing themselves to other European rail op- booths at most stations throughout Denmark, and therefore it has also rendered the sta- erators. Commercializing the stations is complicated by the fact that 101 of DSB’s station buildings largely empty and without any role to fill. tions have preservation status, and cannot easily be modified or torn down. Another complicating factor is that ownership of the stations is shared with BaneDanmark and However, the stations are a still part of the overall travel experience when traveling with local municipalities. This complicated ownership structure inhibits development of the trains, and therefore the train stations also remain a heavy factor in determining customer stations, as no one has the clear overall responsibility. satisfaction. DSBs stations vary a lot in terms of design and maintenance and there is a high degree of local adaption and customized solutions on the stations. This makes it Responsibility of the stations more difficult to operate them in an efficient manner and to use a one-size-fits-all solution in developing the stations.

Currently, DSB has 298 stations located throughout Denmark, and they differ a lot in terms of size and urban location. The 20 biggest stations, for instance, account for more than 50% of the total number of passenger departures, and the two largest — Copenha- gen Central Station and Nørreport — alone account for 18% of all boardings.

Boardings per day (2011)

80.000 The two largest stations, Nørreport and Kbh. H, account for 18% of all boardings The 20 largest stations account for 50% of all boardings 60.000

The 20-100 largest stations account 40.000 for 40% of all boardings

The remaining 200 stations account DSB Banedanmark Other: Municipality, Regional for 10% of all boardings traffic companies, ect. 20.000 Source: DSB Internal Data, 2013

It is important to consider how to continuously increase the customer satisfaction of the 0 stations; for instance, through increased safety, improved traffic information systems, ac- 1 50 100 150 200 250 298 cess to wireless internet and other comfort measures that increase the ability to work at Source: DSB Internal Data, 2011 the stations.

28 DSB - CBS Case Competition 2015 DSB - CBS Case Competition 2015 29 Reputation

Reputation as an obstacle in a world with constant dilemmas DSB is also in the paradox situation that they are among the top three operators in Europe Every year, more than 18,000 articles about DSB are published in the Danish media, when it comes to accuracy and timeliness, and DSB’s customer satisfaction, contrary to its making DSB one of the most discussed and talked about companies in Denmark. Addi- image, is high compared with DSB’s European counterparts. However, more than 75% of tionally, a lot of attention comes from politicians and other participants in the public de- Danes still want more liberalization of the Danish railway system, which is higher than in bate actively commenting on the management and the operation of DSB. Combined countries where customer satisfaction of the national railway company is lower. with the fact that almost everyone uses DSB from time to time, this has the result that everyone in Denmark knows and has an opinion about DSB. Satisfaction with railway system Attitude towards increased liberalization Therefore, the image and the branding of DSB is also hugely important, as this has been an Positive Negative Positive Negative area in which DSB has been facing some tough challenges. There is very little understanding DK 64% 21% DK 70% 20% in the general public about DSB and how the company operates, and what it actually takes

to operate a national railroad system. People tend to blame DSB every time something goes NL 64% 23% DE 75% 18% wrong with the trains, though 65-70% of delays are caused by either unforeseen events or by errors on the tracks or the signaling systems, which are managed by BaneDanmark. FR 59% 22% EU 71% 21%

A top-of-mind survey of the Danish population reveals that many people associate DSB UK 55% 27% UK 71% 21% with delays and other things that negatively impact reputation. However, data also EU 46% 36% FR 66% 27% shows that the image of DSB is better among the customers who regularly use DSB than among the people who only use DSB occasionally. DE 45% 34% NL 46% 52%

Source: “Rail Competition, Special Eurobarometer 388” European Commission (2012); BCG analysis Top of Mind - When you think about DSB what is the first thing that comes to your mind? DSB is in the position in which the customer satisfaction among its customers is at par or Trains / Operating Trains 23,8% better compared to other European operators; however, at the same time, the image of Delays / Waiting time / Slow 17,6% DSB in the general population is suffering compared to other Danish companies. Train Travels / Public Transportation 10,7% Expensive Tickets 8,7% Troubled Economy / Economic Chaos 7,1% Reputation Score (RepTrak) of selected companies Bad Quality / Poor Customer Service 5,6% 100 Scandals / IC 4 / Rejsekort 5,2% 90 Bad Image 3,4% 80 Red Trains / S Trains 2,9% 70 Old / Worn Down / Maintanance 2,9% 60 State Owned 2,0% 50 40 Trains on Time 2,0% 30 Comfortable Transport / Good Customer Service 1,9% 20 Pleasant Experiences 1,6% 10 Monopoly 1,4% Source: RepTrak: Tracking af DSB’s 0 3 BP ISS Aldi DSB Others Omdømme Q3 2014, DSB Internal Data TDC JYSK

3,0% Telia IKEA Lego H&M Falck Coop Apple Matas Vestas Google Nordea Telenor Danfoss Microsoft Coloplast Superbest Grundfoss Saxo Bank Saxo Arla Foods McDonalds Novozymes Danske Bank Danske Novo Nordisk Novo Danish Crown Shell Denmark Bang & Olufsen Carlsberg Group Carlsberg JP/Politikens Hus JP/Politikens Berlingske Media Berlingske PANDORA Group PANDORA A.P. Møller Mærsk A.P. Dansk Supermarked

Reputation on a scale to 100 Siemens Wind Power Source: Reptrak Pulse 2013 The Coca-Cola Company

53 48 52 49 51 44 47 39 As if this was not enough, DSB also has a set of built-in dilemmas in its operations, which often result in bad publicity situations and a worsening of its image. For example, if DSB has to wait for passengers who are arriving late for a train, delays for the next 10 trains in the chain can occur; however, if DSB does not wait and instead leaves right in front of a person who is on the platform, it is perceived as indifferent and inconsiderate. 2011 2012 2013 2014

Source: RepTrak: Tracking af DSB’s Omdømme Q3 2014, DSB Internal Data User Non-user Therefore, ways in which DSB can improve its image among the Danes are important to consider, because an improved image would likely also result in higher passenger growth.

30 DSB - CBS Case Competition 2015 DSB - CBS Case Competition 2015 31 Closing statement

On track towards the future At the moment, DSB is emerging from a successful turn-around, and the focus now has to be on growing the top line. DSB is the national railway operator of Denmark, and as such it carries a huge responsibility of always providing reliable and efficient rail transportation. DSB launched a new strategy in 2014. The core of this new strategy was getting back to basics, putting the customer experience in the center of priorities, as well as rebuilding DSB’s image.

However, this challenge is complicated by a series of factors that characterize the environment in which DSB has to navigate. The infrastructure sets out certain limitations of operation, and the political ownership also plays a large role in determining the possibil- ities of DSB. With the strategy in place, it is now time for execution, and Mr. Pastwa is now focused on how to achieve the political goals for passenger growth in the future.

“I see DSB as the main pillar of the Danish public transportation system, now and in the future.

In order to reach the political growth ambitions, DSB needs to continue to grow its passenger base in the future, while still navigating within the political and operational constraints.

I believe the key to this growth is focusing on continuously improving the customer experience”.

Stig Pastwa - Acting CEO

It is in this context that you are asked to develop a three-year business plan for how DSB should increase its passenger growth and, in a higher extent, become the backbone of the Danish public transportation system. This goal could be achieved by either focusing on a few key elements within the case, or by encompassing several elements and connecting them in a large and holistic business plan. Just remember that it has to fit in with the overall strategy of DSB and the context of the Danish market.

Good Luck!

32 DSB - CBS Case Competition 2015 DSB - CBS Case Competition 2015 33 Appendix 1: Glossary Appendix 2: Company overview

Passenger kilometer: Unit of transportation measure. Calculated by multiplying the A complex organization number of travels by the average distance traveled. DSB is divided into the following nine divisions: Strategy, Safety & Environment, Corpo- rate Secretary and Legal Affairs, Communication and Branding, Finance, Commercial, DSB Youth Ticket: Discount ticket for people aged 16-25 and students Human Resources, Operations, and Maintenance.

65+ ticket: Discount ticket for people aged 65+

Board of Directors Internal Audit DSB 1’ ticket: Tickets for people who want extra service, complementary access to the Remuneration Train and component Audit internet, and access to a designated area. Up to 60% higher price than regular tickets. Committeee Committee Committee

Orange tickets: Discounted tickets for people traveling the East-West route at non- peak hours, and excluding Fridays and Sundays. Must be reserved in advance, and has up Chief Executive Officer Customer ambassador to 60% discount compared to regular tickets.

Modal share of transportation: Percentage of travelers using a particular mode of Safety, Emergency Management, Corporate Secretariat Occupational health & Environment & Legal affairs transportation.

BaneDanmark: Independent company responsible for the Danish railway infrastructure Strategy Communication & Branding and partly responsible for the stations.

Arriva: Denmark’s largest bus operator with city and regional busses throughout Den- Finance Commercial Operations Maintenance Human Resources mark. Also operates local trains in the western part of Jutland. Owned by Deutche Bahn.

Copenhagen Metro: Operates Copenhagen’s metro in the central Copenhagen Area. Strategy: This division works as a cross-sectional unit, and deals with the corporate Movia: One of Denmark’s largest traffic companies and operates busses and local trains strategy and business development of the company. The key challenge for this unit is to in the Greater Copenhagen Area. figure out what strategy DSB should follow to reach the goal of passenger growth in 2030, and how the different divisions should interact to reach that goal. Midttrafik, Sydtrafik, NT: Local traffic companies. Safety & Environment: Potential train accidents can cause tremendous damage due to Nordjyske Jernbaner, Lokalbanen, Midtjyske jernbaner: Local train operators. the speed of the trains, and the many people they carry. Ensuring that the trains are as safe as possible and potential safety mechanisms are in place in case of an accident are therefore very important. The main challenge for this division is to ensure that safety is not compromised when the number of passengers is growing towards the 2030 goal.

Corporate Secretary and Legal Affairs: The political interests still play an important role for DSB, and this division discusses and negotiates the traffic contract between DSB and the government. The traffic contract determines the role of DSB, what they can le- gally do, and what obligations they must follow. This division must manage the rela- tionship with the government, and ensure DSB can operate as effectively as possible given their ownership situation.

Communication and Branding: DSB has a less-than-perfect reputation and it suffers from a series of widespread misperceptions among the general public — an example of this is the myth that DSB is “always late”. Factually, DSB has a punctuality that is well in line with contractual obligations, and is on par with European peers. The main challenge for this division is therefore to improve the image of DSB.

34 DSB - CBS Case Competition 2015 DSB - CBS Case Competition 2015 35 Appendix 4: Financial Highlights

Finance: DSB returned to profitability in 2013, and it is important to ensure that while new initiatives must be put in place to gain passenger growth, the company still stays profitable to satisfy the owners. It is also Finance that handles the large property portfolio (e.g., maintaining stations), and IT/digitalization.

Commercial: The commercial division must figure out how to get more people to use the train, and more specifically which segments to focus on, how to reach them, and with which tools. The challenge is to find out what services people find valuable, and how much they are willing to pay for these. It is also the role of Commercial to continuously find ways to improve the customer experience. In addition, Commercial has the responsibility of developing the stations of tomorrow.

Human Resources: Gearing the organization for the new strategy is important, and the Human Resource division’s main challenge is to ensure that the organization is suited for implementing the new strategic initiatives.

Operations: Managing a railway system is a complex task. This is further complicated by the fact that it is not DSB who owns the tracks, because the ownership of the infrastructure was separated into a different company, BaneDanmark, in 1997. Coordinating with BaneDanmark is therefore important moving forward, especially because the expected passenger growth will require even better integration. Today, DSB’s operations are basically split into three different train types: the S-Trains (S-Tog) - a suburban train in the Greater Copenhagen Area, and the regional trains (F&R Tog) - which are trains that connect different cities in Denmark, and the Øresund Trains. This division is also responsible for purchasing new trains. The process of purchasing trains is complex, and takes up to 10 years from the time the need is identified to the time the trains are ready and have passed all safety checks.

Maintenance: Maintenance is important to ensure the longevity of the trains, and therefore a key task is to ensure that all trains, both new and old, are kept in good condition at all times. A main challenge is to ensure the new IC4 trains are up and running, and ready to take on the expected passenger growth, as it is not possible to purchase new trains in the next couple of years.

Appendix 3: Price examples

Distance Travel Time Price Copenhagen - Århus 2t49m DKK 382 Copenhagen - Odense 1t15m DKK 276 Copenhagen - Aalborg 4t19m DKK 431 Source: DSB Annual Report 2013, p. 20 Copenhagen - Roskilde 25m DKK 96 Copenhagen - Nykøbing Falster 1t43m DKK 171 Copenhagen 2-Zone Ticket (1hour) N/A DKK 24 Copenhagen 2-Zone Monthly Card N/A DKK 365 Copenhagen - Roskilde Monthly Card N/A DKK 1.195

Source: rejseplanen.dk

36 DSB - CBS Case Competition 2015 DSB - CBS Case Competition 2015 37 38 DSB - CBS Case Competition 2015 DSB - CBS Case Competition 2015 39 Case Writers Abel Chernet Mads Schou-Andreasen

Thanks to On behalf of the CBS Case Competition 2015, the case writers wish to thank the following people for their invaluable inputs throughout the case writing process:

The Case Company: Everyone at DSB, and especially: Stig Pastwa, Acting CEO and CFO Susanne Mørch Koch, Executive Vice President, Commercial and HR Steen Schougaard Christensen, CEO of DSB Vedligehold A/S Anders Egehus, Executive Vice President, Operations Lars Kaspersen, Director of Communications and Branding Thomas Thellersen Børner, Vice President of Corporate Secretariat and Legal Affairs Jesper Andersen, Chief Strategy Officer Clarissa Eva Leon, Strategy Søren Damm, Communication Jesper Lok, Former CEO of DSB

Mentoring: Mads Peter Langhorn, The Boston Consulting Group Mads Wadstrøm Christensen, The Boston Consulting Group

Case Testing: Theis Malmborg Katja Eberhardt Andreas Justsen Jannika-Maria Graff Finn Jannick Schmidt Sarah Landsted

Inspiration and support: The Organizing Committee 2015

Case Video: Copenhagen Film Company

Graphic Design: MindMovers

Disclaimer: The information presented within this case is the responsibility of the writers alone. DSB is subsequently not responsible for any statement regarding its business put forward in this case. This case cannot be used as a supporting source outside of CBS Case Compe- tition 2015 and may not be publicly quoted without the written consent of the authors.