Nigel Wordsworth reports
Devolution is defined as the transfer of powers from a central organisation to local units.
It was also the name given to a programme rolled out during last year by Network Rail which divided the country up into ten Routes, each with its own Managing Director.
As part of the plan, each route would not only operate as a separate business unit with its own accounts, allowing greater benchmarking of financial performance and efficiency between the routes and sharing best practice, but would also have its own management team to operate, maintain and renew the infrastructure under the control of a Route Managing Director.
David Higgins, Chief Executive of Network Rail, commented at the time:
“Network Rail is committed to building not just a bigger and better railway but a better value railway too. Devolution marks a significant change, both in terms of the way we organise ourselves as a company and the service we offer our customers.
“Empowering route teams means quicker and more responsive decision-making and will help us meet our central goal of putting the customer first.”
The term “Better Value Railway” seemed to hint that these changes had been brought about following Sir Ian McNulty’s report to government on “Realising the potential of GB Rail”.
If so, the programme had been rolled out remarkably quickly as the report by Sir Ian’s Rail Value For Money Study had only been published in May 2011 and, although they had received a preliminary report the previous year, the first two route managing directors were appointed on 3 May.
By the end of 2011, all ten route managing directors were in place. Now, almost a year after those first appointments, it was time to see how the new organisation was performing. Had it made a difference?
First call was on the architect of the whole scheme, Network Rail’s managing director of Network Operations, Robin Gisby. Talking with him in his office overlooking Kings Cross Station, the first obvious question was – why?
Robin first looked back at history. Describing himself as “The last robber baron from Railtrack days”, he had seen the formation of Network Rail first-hand.
“Iain Coucher did a fantastic job of building a new team,” he said.
“We came up with a detailed 32-point action plan, stuck rigidly to it, and it worked.”
Strict centralised control imposed a regime of planning and cost containment that was sorely needed.
It turned the maintenance of the railway around from something that was, frankly, out of control and forced it to address the important issues and hit cost targets, and then to start making cost reductions.
“However,” Robin continued, “If you run everything centrally for too long, lower level management tends to look upwards and inwards, and not out towards the customer. People don’t feel empowered. They lose the intangible, cross-functional integration that is needed to do the right thing, and not just meet targets.”
“For example, the signalling team have a plan to reduce the number of signalling control centres in the country to just 14 over the next few years. This will mean closing many of the current signal boxes.
“At the same time, another team has the task of improving security at the existing centres – fences, earth mounds, electronic doors and gates, unbreakable glass – that sort of thing. They are working to a list. So they started spending money on centres that were scheduled to close in a couple of years – simply because one team wasn’t talking to the other.”
“We needed to integrate our various teams, and also to address the problem of paying better attention to our customers. This was just at the time that Iain was leaving, and there was a delay until David Higgins took up his post as he had to be released by the Olympic Delivery Authority.
“So the board worked up plans to give more authority to the routes, to make them into separate but integrated teams, and to give them control over their own budgets.
“When David arrived we presented our plan to him, and he got it very quickly. David is huge on accountability – he believes in giving managers enough rope to do their job, but he wants to know who is accountable.
“So we went ahead with the plan and created the ten routes, and appointed their managing directors. We also started to dismantle all the steering groups and committees that had grown up under the centralised organisation.
“Under the old system, we would have set up a Devolution Steering Group – that would have appointed a Devolution Working Group – and they would have employed consultants to advise them. None of that happened this time – the last thing we wanted was a steering group to decide how to reduce the number of steering groups!”
Robin wanted to make the remaining central system not only slimmer, but also much more supportive of the regions – as he calls it “Much sharper and pokier”.
He remembered a visit to Nissan Motors that he made years ago, when he was still with automotive supplier GKN. A seat manufacturer had problems and, while the British way would have been to shout at the supplier and tell them to sort themselves out, Nissan management all went to the seat plant to help solve the problem.
Their supplier’s problems were seen as their problems. Network Rail HQ should be like that.
“Of course, we still control some areas,” Robin added.
“If a route has a major finance problem, or a safety problem area, Patrick Butcher (Finance Director) and Gareth Llewellyn (Safety Director) are quite at liberty to jump straight in to sort it out. They don’t have to go through me, a major problem needs putting right quickly. But that should seldom happen.
“For everything else, the local managing director runs his own route. They still come to me and ask about an idea they have, and I just tell them to go with their own plans – it’s their business and they have to run it.”
It seems that Network Rail is fully committed to this Devolution. But one of the main aims was a better interface with their customers. How is that getting along?
A mile away from Network Rail’s headquarters are the offices of ATOC – the Association of Train Operating Companies. RailStaff met with Alec McTavish, Director of Policy and Operations, to ask how it was all working out for them.
“Train operators are very devolved businesses,” he started, “with powerful managing directors. It’s a successful model.
“Devolution is not new, of course. British Rail had various flavours of devolution, with sector management, and it was pretty successful. From that, we all learned that it is best if local issues are sorted out at local level – we are big fans of Devolution.
“At a local level, train operators have always worked with devolved bodies such as the Scottish and Welsh assemblies and local passenger transport executives, and done so pretty successfully.
“We very much understood Network Rail’s need to get discipline in the company. But time has moved on, and now it’s time for something different. We recognise the benefits from having aligned incentives.
“There are huge benefits to be gained out of having Network Rail and the train operators working closely together.”
Alec discussed several examples where benefits have already been gained by collaborative working. Energy saving on trains was one.
Train operators have installed regenerative braking on their trains, and Network Rail has responded with improvements to the supply system, and energy metering, so that the energy generated can be recycled and the train operator credited accordingly.
Stations are another area where Network Rail, as the landlord, is now working together with local operators both to improve the passenger experience and to achieve better value for money.
Closer cooperation has also reduced delays caused by work on the infrastructure.
The Office of Rail Regulation (ORR) measures the disruption to passengers caused by engineering possessions, and this level has recently halved.
ATOC believes that, when there is success at a local level, that success must be shared. It is early days, but there have been some encouraging signs such as sharing objectives and having transparency as to costs.
A recent initiative has been the calculation of aggregate financial accounts. These bring together both train operator and Network Rail costs and revenues to calculate an overall cost of running a particular route.
This helps everyone understand where money is being spent locally and aids in developing new initiatives to improve who industry performance.
For many years, operating companies have shared income with Network Rail through a Volume Incentive.
In effect, if an operating company has a large increase in passengers, and therefore in revenue, then some of that gets paid to Network Rail through the Volume Incentive to enable them to provide more capacity for additional trains.
However, during Control Period 3 (2004-2009), although the operators paid a large amount to Network Rail centrally, that didn’t get through to local level. So, regional infrastructure managers didn’t benefit from that success.
In the current control period, CP4, there is a new Benefit Sharing arrangement that works the other way. If Network Rail does well, then the train operators benefit. But this is again a national scheme.
For CP5, which commences in 2014, Alec would like to see both the Benefit Sharing arrangements and the Volume Incentive working at route level to give everyone an incentive to hit targets, and even exceed them. The industry hasn’t been good at sharing financial success in the past, but Alec is convinced that doing so will have a “big impact”.
All this talk of combined accounts, and combined incentives, gives rise to the question of whether train operators would like to have Network Rail abolished altogether, and to run their own infrastructure. Alec is quite clear about this.
“There needs to be more discussion on vertical integration, but currently it is all government-driven,” he stated.
“There is not currently a common view, and ATOC is not lobbying for any changes.
“However, rail is a strategic industry. Understanding where the money goes is the first step towards looking for greater efficiencies and how much taxpayer support will be needed.
“We will never get away from regulation, although that will vary from region to region. Social obligations will be placed on us to provide a service in the more remote areas of the country – that’s normal, regulators do it all the time.
“Devolution is a mechanism for delivering greater efficiency, and so reducing costs and also political pressure.”
So that’s the view from the top – both Network Rail and ATOC. But how is Devolution being received around the country? Next month ‘at the sharp end’ in the East Midlands.