BURLINGTON NORTHERN

Case 1

SEPTEMBER 5, 2016
ANDREW WILKERSON
CIS410-01
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Case I: Burlington Northern – The ARES Decision

Burlington Northern Railroad is a railroad transport company that is trying to decide the

best route for the company to take in order to maintain long-term success. Upper management

have been trying to decide whether to invest in and implement a new automated railroad control

system, named ARES (Advanced Railroad Electronics System). The benefits this system would

provide include increased performance of daily operations, a more reliable scheduling system to

help with delivery times, and better control over Burlington Northern’s assets. However, the

price tag that comes along with this system is not cheap (around $350 million) and the company

already has a decent amount of debt. This is a very risky decision for the company to make. This

case analysis will include a Five Forces Analysis, an Industry Competitive Analysis and a

recommendation of what the company should do with the readily available information.

The company’s primary mission is to provide safe and profitable rail operations. This

mission allows Burlington Northern to increase profits, thus allowing them to compete with

Union Pacific, their biggest competitor in the market. This business is driven by the high demand

need to transport large quantities of items over long distances. This includes coal, agricultural

commodities, industrial products, intermodal, forest products, food and consumer products, and

automotive products. Coal represents about one-third of the Burlington Northern’s revenue,

therefore making it the largest source of revenue for the company. (Cash, 1994). The ARES

system would definitely help Burlington Northern stay ahead of the curve and increase

efficiencies in areas that they need to improve, such as scheduling and asset utilization.

Burlington Northern is based on a Cost Leadership generic strategy. This describes a way

to establish competitive advantage over the marketplace, by attempting to have the lowest cost of
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operation in the industry. This can normally be achieved by efficiency, size, scale, scope, and

cumulative experience. Firms that normally have the most success in cost leadership often have

the following strengths:

1. Significant access to disposable capital

2. Skill in designing products for efficient manufacturing

3. High level of expertise in manufacturing process engineering

4. Efficient distribution channels

This strategy fits because Burlington Northern is looking to increase efficiency and has the

capital investments in place in order to capitalize by making their system better.

The main problems that plague Burlington Northern are organizational. They include:

 Organizational structure is outdated

 Human errors

 Employees are not on predefined schedules

 Trucking competition is becoming more relevant

The organization has a basic set of stakeholders. They include Burlington Northern’s

shareholders, employees, company union, and their customers.

Five Forces IC Analysis

Competition:

Burlington Northern Railroad faces competition from two separate entities: similar

railroad companies such as Union Pacific, and the transport trucking industry. Trucking

companies tend to be more convenient due to roadways being more accessible than railways. The
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trucks work more as a Just-In-Time production system, and can travel the same amount of

distance in just a matter of days. While other railroad companies have attempted to utilize new

technology such as double tracks and fuel-efficient engines, conclusive evidence of competitive

benefit is still lacking. Coal and grain remain the biggest revenue generators, and thus Union

Pacific and other railroad companies remain the biggest competitors, but trucking is providing a

viable alternative.

Substitutes:

The primary substitutes for trains and railroad companies would be cargo trucks, semi-

trucks, and air transport. All these substitutes can be more efficient and productive if utilized

correctly. Roadways and airspace are much easier to share and maneuver multiple deliveries

upon. However, the amount each train is able to transport with each delivery still outmatches

what is possible with the alternatives.

Suppliers:

Burlington Northern’s primary suppliers come from the amount of resources that they

ship. This is due to the exclusiveness of how coal and other products are transported. Most

companies that mine coal and other minerals have long-term contracts with these railroad

companies to ship their product, so this section of the market is pretty closed off to other types of

invaders. The company also changed the marketing of grain transportation through their

Certificates of Transportation (COT) program, which allows Burlington Northern to commit to

have more consistent deliveries.

Customers:
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The main customers Burlington Northern has include the coal companies (residing in the

Powder River Basin), agricultural providers/farmers in the Midwest and Great Plains, industrial

producers, lumber, and consumer goods. If Burlington Northern was to implement ARES, they

could gain leverage by offering a higher quality of service due to their increased sustainability

and efficiency.

New Entrants:

Burlington Northern Railroad was a merger of four different railroads in the 1970’s, and

remains one of the few competitors in the market. Because massive railroad systems cost an

unbelievable amount to construct and maintain, along with the difficulty of sanctioning land to

utilize, new entrants to the market are not likely. Trucking is more lucrative to enter and has a

substantially lower initial cost of entrance, so more potential entrants decide to go into the

trucking business instead.

Courses of Action

There are a couple of different courses of action that Burlington Northern could take.

They include:

1. Implementing ARES. This system has many different benefits if it is implemented

correctly, including improving service to their customers and cutting costs in staffing.

Employees and managers could potentially lose their jobs with the new and improved

scheduling system, but the remaining employees may benefit from having a less

stressful job. The Burlington Northern customers would receive greater quality of

service and more reliable shipping times.

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2. Merge with another company. The partner choice would have to be planned out

carefully, but maybe branching into the trucking industry would provide extra

benefits to the long-term success of the company. Sharing the costs for the new

system with a new partner would be less money out of pocket, but Burlington

Northern would still see the same benefits from the better system. A reduction in staff

would be imminent. Customers would still see the increased reliability and

predictability of their deliveries, while also having more transport options.

3. Do nothing. This approach would maintain the company’s status and operations.

They would not see any increase in revenues, and the employees would likely

maintain their current positions. Customers would see no differences in operations.

My normative recommendation would be to do nothing. The reason why I chose this course of

action is that the proposed benefits do not outweigh the costs, nor are the benefits guaranteed in

any way. Implementation of this system is a critical, if not the most difficult, stage of this

proposal. The perceived benefits from this system are based on the assumption that the

implementation of the system went flawlessly, and every employee was able to utilize it to its

fullest extent in order to see the greatest return on investment. This is just not likely to happen,

especially when trying to implement new technology into an “old faithful” type of organization.

It’s obvious that there is room for improvement at Burlington Northern, but going with

the shiniest and newest technology may not be the best solution. Five steps that Gareth Morgan

outlined in Images of Organization that may help include: shifting all responsibility for the

organization of work from the workers to the manager; using scientific methods; selecting the

best person for the job; training the worker to do the work efficiently; and monitoring work
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performance. They need to utilize what they have first, before they move on to something

different.
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Works Cited

Cash, et. al. Building the Information-age Organization: Structure, Control, and

Information Technologies. Course Pack, Print.

Goldratt, Eliyahu M., and Jeff Cox. The Goal: a Process of Ongoing Improvement. Great

Barrington, MA: North River, 1992. Print.

Morgan, Gareth. Images of Organization. Beverly Hills: Sage Publications, 1986. Print.