The stresses and damages of World War II, the Korean War, and the recessions of the 1950s had severe impacts on various industries. In order to survive and recover after those terrifying years, the industries needed to implement a number of changes and try to restructure their systems in order not to go bankrupt but instead increase their performance. For example, according to Martland (2012), “the unexpected bankruptcy of the Penn Central Railroad in 1970 led to a decade of restructuring the national rail network, the railroads that operated over that network,” and many regulations (p. 83). However, the actual and successful changes began in the 1980s, and over the next three decades, the rail industry managed to increase its profitability, improve productivity, and lower its prices.
In the article, there is a number of items that may be interesting for an accountant or cost analyst at a railway company. To begin with, it was a rather serious decision to reduce the workforce and make the wages higher in order to achieve lower costs and increase performance (Martland, 2012). Moreover, this decisive step allowed the railroads to make sure that the remaining workers’ productivity was also increased, and average savings per employee were satisfactory. Second, the railroads chose to increase fuel efficiency (Martland, 2012). Though it meant that they had to pay more at the beginning of their transformation process, they finally managed to save huge amounts of money. Still being a major part of operating revenues, high fuel efficiency is beneficial for the railroads.
Further, it is rather interesting that the railroads managed to increase their revenue by reducing all costs and prices – in other words, they produced less but earned more. Additionally, the fact that the railroads were in decline but still managed to attract investors and then use their money to improve train productivity is impressive. Finally, one of the key factors that allowed the initiatives to be successful is that the managers did not try to improve the situation in one or even five years. Instead, they analyzed the issues and implemented all changes gradually, investing the money wisely in the needed areas. This approach allowed the railroads not to lose their funds but make the outputs more impressive.
Over the article’s study period, average total costs and marginal costs in the railway industry used to change thanks to the improvements implemented by the management. According to Figure 1, between 1966 and 2008, the output doubled, but resource requirements declined (Martland, 2012, p. 84). In other words, the railroads managed to increase their productivity and simultaneously reduce total and marginal costs by introducing a number of changes, involving the ones mentioned above (Martland, 2012). As for the modifications that happened to the isoquants in the industry over the same time, it is possible to say that the railroads managed to adapt their resources usage and, after gradually reducing track miles, employees, and freight cars, they enhanced their performance and increased revenue (Martland, 2012).
Reference
Martland, C. D. (2012). Productivity improvements in the U.S. Rail Freight Industry, 1980-2010. Journal of the Transportation Research Forum, 51(3), 83-107.