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TTC Case Study #2: Modernizing TTC Fare System (Business Environment)

There are many internal and external factors that affect the TTC organization and its fare system. Porter’s Five Force will be used to describe the business environment.

porter

1. Supplier (High power)

The first type of suppliers is the employees. They include bus driver, sildenafil station worker, ambulance transit police officer and corporate officer. These employees have high power over TTC’s strategy and operations because they are unionized workers. In fact, TTC services had been interrupted before due to the negotiation failure with the union. Another supplier is the vendors, such as bus vehicle manufacturers or IT solution providers. These vendors have to be selected through rigorous procurement process with audit requirements, which results their low negotiation power. The government is also a supplier for TTC for its land uses. Unlike any other organizations from the private section, the government is the most critical stakeholder for TTC because it is both the supplier (land use) and buyer (government subsidy), as well as the major impacting force regarding TTC’s internal strategy and operations through CEO appointment. In conclusion, suppliers have high power over the organization.

2. Buyer (High power)

TTC has dual revenue streams transit fare box and government subsidy (property tax), ultimately both revenue streams come from Toronto residents. Since TTC’s CEO is appointed by the City government, Toronto residents have influential power over TTC’s strategy and operations.

3. Competitive Rivalry (Low power)

TTC is the monopoly transit service providers for Toronto. Although there is some service overlapping with Go transit, Go does not provide compatible quality in terms of service frequency and coverage.

4. Threat of Substitution (High)

Many Toronto residents choose many commute alternatives. For example, people who commute long haul often choose Go over TTC for its reliability and speed. Others would drive for the convenience. Also, taxi services or Uber are popular choices for short distance trips, especially since Uber launched commuting service model (frequency Uber service for fixed route with fixed price) targeting high demand routes, it has gained popularity with high-density population [TrontoStar.com, Uber launches Toronto commuting service on four routes]. It is important for TTC to compete against these substitutions because the volume of transit usage will impact government’s funding model. For example, if increasing number of commuters choose driving over taking TTC, the government might discontinue the subsidy for TTC and reallocate the fund to public infrastructure construction. Therefore, TTC needs to continuously improve service SLA and seize the market.

5. Threat of New Entry (Low)

The threat of new entry is low since public transit is a publically regulated industry in Canada.

In addition to Porter’s Five Force, a few points from the Business Model Canvas are worth noting:

6. Key Partner

One of the major drivers for the new fare system is more integrated transit systems with other key partners. Metrolinx, an agency of the Government of Ontario, was created to improve the coordination and integration of all modes of transportation in the Greater Toronto and Hamilton Area. [METROLINX OVERVIEW] TTC must maintain a close relationship and communication with Metrolinx throughout the fare system project in order to collaborate and deliver a seamless customer experience.

Metrolinx Go Train

7. Key Resources

Some existing assets and resources can be leveraged in the new solution. With respect to fare system, TTC distributes tokens as a form of fare, it also maintains a physical paid zone system (riders pay a token or cash to entry into the paid area) with mechanical gates. Alternatively, passes with magnetic strips can be swiped to enter the paid area, and pass readers are equipped on the gates as well. Paper transfers can be obtained to indicate paid status when leaving the paid area.

8. Cost Structure

The largest expenditure category is salaries and benefits cost, account for about 73% of TTC total annual cost ($1,268 millions). About 18% of total cost is spent on materials and supplies. The rest are divided between Service and Rent (5%), Equipment (2%), Inter-Divisional charges (<1%) and Other (2%). [TTC 2016 Annual Report]

9. Revenue Stream

TTC has a dual funding model: one-third of revenue comes from government subsidy and two third from the fare box. Thus, the fare system is an essential part of the transit service delivery, and the completed fare-system architecture would be used to support the largest revenue generator for the organization. Less than 5% of the revenue comes from other sources, such as advertising. [TTC 2016 Annual Report]

 

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