Brice BOUVIER – 07155935 Victor LABRIFFE – 07152540 Louis Olivier MARTIN PREVEL – 07152297
Strategic Management – 3BUS0118 UK Railways Industry – Coursework N°2 University of Hertfordshire – 2007/08
STRATEGIC MANAGEMENT 3BUS0118
UK Railways Industry COURSEWORK n°2 Brice Bouvier - 07155935 Louis Olivier Martin Prével – 07152297 Victor Labriffe - 07152540
Academic year 2007/2008 Page | 1
Brice BOUVIER – 07155935 Victor LABRIFFE – 07152540 Louis Olivier MARTIN PREVEL – 07152297
Strategic Management – 3BUS0118 UK Railways Industry – Coursework N°2 University of Hertfordshire – 2007/08
TABLE OF CONTENT INTRODUCTION A. STRATEGIC ORGANISATION 1. Current Organization 1.1 Organization of the UK rail industry 1.2 Structure of Network Rail 1.3 Weakness of the current organization 2. Strategic options for government 2.1 Machine Bureaucracy 2.2 Adhocracy B. ENABLING SUCCESS 1. Enabling the success in Machine Bureaucracy 1.1 Managing Human Resources 1.2 Managing Information 1.3 Managing Finance 1.4 Managing Technology 2. Enabling the success in Adhocracy 2.1 Managing Human Resources 2.2 Managing Information 2.3 Managing Finance 2.4 Managing Technology CONCLUSION APPENDIX ONE BIBLIOGRAPHY
3 4 4 4 5 5 6 6 7 8 8 8 8 9 9 10 10 10 10 10 12 13 18
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Brice BOUVIER – 07155935 Victor LABRIFFE – 07152540 Louis Olivier MARTIN PREVEL – 07152297
Strategic Management – 3BUS0118 UK Railways Industry – Coursework N°2 University of Hertfordshire – 2007/08
INTRODUCTION The UK railway industry knows many problems and critics since its privatization in 1994. For example, the large accidents such as at Hatfield are taken into question safety. More currently, the current “chaos” in earlier January 2008 which has taken into question the quality of the service, the performance and the liability of the system. Many acts such as the last one in 2005 tried to improve the system from year to year. However, the problems persist. Our report presents you an analysis of the current system of the UK railway industry and proposes many strategic options for government to improve this particular industry which provide vital public service in the country. This work is particularly oriented towards the complex organization of UK railway industry which is probably the main problem of this market. Before, it is necessary to bring our strategic orientation and our challenge in relation with the weaknesses and issue of the UK railway industry: -
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Environment: Only 39% of the UK rail network is electrified. Thus, there is potential benefit in long-term with new technologies and it is an important issue in a context of global warming. Cost efficiency Railway in UK is very expensive despite many public funds given to private companies by government (DfT). The strategy has to response to this issue by a better organization: better relationships, better processes and better relationships. Safety After the several accidents, the safety has to be an important issue of UK railway industry even though many progresses have been done in this area. Quality and performance The number of passenger per kilometers travelled and the number of freight by rail has much increased for ten years. Moreover, demand should continue to increase. Thus, quality and performance are a big challenge to the UK railway industry. UK railway industry has to manage this large demand notably by improving performance. The events in January 2008 show the importance of the problem. Risk-aversion: Many findings have been reported by Arthur D Little in 2005 concerning the specific Risk Aversion of the UK railway industry. This report explains that the railway accidents have created a risk aversion. The safety is became a priorities and this priority has negative impacts on performance, quality of the service and cost efficiency. It is necessary to take in account this issue in the strategy by finding an appropriate balance between safety, cost and performance. Thus, each strategic option proposed in our report tries to take into account this issue and the weaknesses of the UK railway industry. In a first part, we will analyze the current organization of the industry and will propose two different strategic options of new configuration. In a second part, we will show how manage these strategic option through human resources, information, finance and technologies.
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Brice BOUVIER – 07155935 Victor LABRIFFE – 07152540 Louis Olivier MARTIN PREVEL – 07152297
Strategic Management – 3BUS0118 UK Railways Industry – Coursework N°2 University of Hertfordshire – 2007/08
A. STRATEGIC ORGANISATION Organization which involves structure, process and relationships is a key of success notably in a complex industry such as railway. The government has to make strategic decision concerning the organization of this market where it plays a large role. 1. Current organization Inefficiency and dysfunction of the organization are one of the problems of UK rail industry caused by privatization. Indeed, railway is a vital public service which combines several private companies (Network rail, train companies, rolling stock companies and freight operators), government and public sector. 1.1 Organization of the UK rail industry The structure of the UK rail industry could be considered as a multidivisional structure due to many independent divisions: - Trains and freight companies involve the national rail, the underground and the light rail. National rail is composed by about twenty companies such as First Capital Connect, GNER and Arriva Trains Wales. - Network rail owns and manages the infrastructure of the UK railway system. It is a private companies limited by guarantee. - The Office of Rail Regulation (ORR), established in 2004 to replace Rail Regulator, is an organization independent of government which regulates the UK railway system concerning economy, safety and reliability. - Government represented by Secretary of state at the department for transport Furthermore passenger council (represent of passenger interest) and rolling stock companies play an important role in UK railway industry. There are franchises and licenses agreements or contracts between government and trains companies, between government and Network companies and between Network rail and trains companies.
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Brice BOUVIER – 07155935 Victor LABRIFFE – 07152540 Louis Olivier MARTIN PREVEL – 07152297
Strategic Management – 3BUS0118 UK Railways Industry – Coursework N°2 University of Hertfordshire – 2007/08
1.2 Structure of Network Rail The Network Rail is divided into 8 geographic areas: Western, Wessex, Sussex, Kent, Anglia, London North Western, London North Eastern and Scotland. Each area is managed by stations and work closely with private train and freight companies.
1.3 Weaknesses of the current organization The structure had been more and more improved especially after the accidents at Hatfield which taken into question reliability and safety. The last act 2005 has brought many changes in the structure. Nevertheless, this structure has got many weaknesses which explain the current several critics about the quality of this public service. This structure could have many advantages such as flexibility, competitive advantages due to privatization, specialization of competences. However, this structure does not work well because rail industry is a particular market, a public service. Thus, this structure involves many weaknesses which have impact on quality and performance. -
Cost efficiency which involves a high price and a low performance. Poor relationship and communication between organizations and institutions. Confusion about roles and a lack of clear leadership. Moreover, according the report of Arthur D little to the Department for transport in March 2005, this structure reinforces risk averse due to its weaknesses. Indeed, UK railway industry is become risk averse after the accidents at Hatfield, Potters bar, etc. (Appendix 1); safety has become the priorities in UK railway industry. Thus, the safety decisions has increased costs and reduced performance and the complex organization of the industry amplifies this effect. Page | 5
Brice BOUVIER – 07155935 Victor LABRIFFE – 07152540 Louis Olivier MARTIN PREVEL – 07152297
Strategic Management – 3BUS0118 UK Railways Industry – Coursework N°2 University of Hertfordshire – 2007/08
2. Strategic options for government After the critics in January 2008, the government has some options concerning its organization: structure design, processes and relationships. According to Mintzberg’s six organizational configurations, two strategic options concerning configurations could improve the current situation and might be a good response to the current weaknesses of the UK rail industry. The first one would be a partial “machine bureaucracy” configuration to a better control and power of the government thanks to centralization. The second one, maybe more realizable, would be a complementary organization, the “adhocracy” configuration for the particular investments by Network Rail such as engineering projects. 2.1 Machine Bureaucracy Machine Bureaucracy in the UK railway industry would consist in giving strategic planning power to the government especially concerning the infrastructure of the network rail (tracks, stations, tunnels, etc.), the network maintenance, the capacity control and the station management. This configuration involves a functional structure which allows government to control network rail and involves a planning process and a strategic planning. This configuration looks like the Netherlands’ configuration which has known accidents as UK but which much more perform (cost, liability, quality) than UK railway industry after these accidents. The strategy is to reduce costs (low price), improve performance of the system, improve efficiency and reliability and keep a good safety. Indeed, this new configuration should allow system to improve relationship between private trains and freight companies and government and should allow system to reduce the complexity of the current structure. Moreover, this configuration would allow government to have more responsibilities in this industry which is a vital public service. Nevertheless, this system does not taken into question the privatization of the operating companies. Only the current private network rail would become public company.
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Brice BOUVIER – 07155935 Victor LABRIFFE – 07152540 Louis Olivier MARTIN PREVEL – 07152297
Strategic Management – 3BUS0118 UK Railways Industry – Coursework N°2 University of Hertfordshire – 2007/08
2.2 Adhocracy Adhocracy is the second option proposed to the government. Adhocracy would concern only investment projects and not day-to-day railway management. Indeed, UK railway industry involves several engineering projects and these projects have to be better coordinate through public and private sector. Adhocracy would consist in establishing not permanent teams through alliance between all the divisions of UK rail industry (trains companies, network rail, ORR and government) for specifics investments. It is a good configuration for the complexity of these investments which involves large competences and several stakeholders. Thus, the structure of adhocracy is named Project-based structure. This structure would be in complement to the current main structure. The performance could be improved by better flexibility, relationship and control by government. It could be a good answer to the large problems caused by Network Rail in early January 2008. The new structure proposed is in reality a combination between the current multidivisional structure and project-based structure. That why, this strategic organization is easier to take in place than the first one. The figure below shows our option proposition of combination between new project-based structure and current multidivisional structure.
Current multidimensional structure – project base structure
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Brice BOUVIER – 07155935 Victor LABRIFFE – 07152540 Louis Olivier MARTIN PREVEL – 07152297
Strategic Management – 3BUS0118 UK Railways Industry – Coursework N°2 University of Hertfordshire – 2007/08
B. ENABLING SUCCESS In order to develop different organizations proposed, The UK government should modify the support activities to enable his strategy to succeed. Although we offered two strategies to the government, we have to adapt the actual resource management to reach the goals fixed in strategies. 4 different aspects have to be managed in order to see the success of our strategy: Human Resources, Information, Finance and Technologies. The first strategy that we are going to develop under those four aspects is the machine bureaucracy organization. This specific organization, based on centralization, should influence the four resources in a better efficiency. The second one will be the adhocracy organization. Based on the cooperation of different actors on specific projects, this organization has to manage its resources as well as possible in order to minimize the impact of the project development on the firm’s efficient way of working. 1. Enabling the success in a Machine bureaucracy organization 1.1 Managing Human Resources The specificity of a Mechanic bureaucracy organization is mainly based on the centralization of decision making process, in the hands of one authority. Thus, the management of Human Resources will be as well centralized in a matter of efficiency. So, this strategy is clearly based on a planning system which should be implemented up till Human resources. In this organization, the government will have to hire people comfortable with repetitive tasks and respect of protocols. A planning of human resources needs should have to be established every year according to determine strategic objective. Incentive scheme could be a good think to motivate people to a work which could be something difficult or too repetitive. The incentive scheme should be based on the avoiding of errors and on the innovation and creativity in the way of working. Trainings should therefore be developed in the whole firm to increase the accuracy in job. The E-learning would be the best way to manage the training of employees because they are spread all over the country in stations and in maintenance centers. Government will face new challenge in the recruitment of new employees due to new job entering under its duty. Here, Human Resources should organize the way of how employees should work to be the more efficient than possible. Middle Managers should so be the organizer of this work and try not to act as “gatekeepers” in order to allow improvements; they have to be the “change relayers” and they will be in charge to relay the strategy to employees.
1.2 Managing Information Government will have to develop its IT system to comply with the demand of information from employees and customers of the rail industry. Information will have to be provided to operators and customers to keep them in touch with main events occurring on the network rail and to keep them in touch with development decisions. Development over main issues should be communicated by the web site of the new public railway structure. Information about railways works, timetables, and fares Page | 8
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Strategic Management – 3BUS0118 UK Railways Industry – Coursework N°2 University of Hertfordshire – 2007/08
should be the minimum information. Evolution in issues discussed in previous report will have to be communicated on the web site. The IT system will allow the evaluation of network performance by top managers. The day-to-day situation about the use of network will help to plan maintenance and target messes and lacks on the network. The raw data has to be communicated to top managers, analyzed then validated by the hierarchy before being communicated and used by middle managers and employees in order to apply the strategy. This two way communication of information is indispensable in a hierarchic structure. Information provided will also help to improve core competence (Operators relationship, customers’ relationship in the station). The “routinisation” should be the key driver to improve global efficiency and gains of time. In this bureaucracy model, the IT system will have to be integrated in the whole firm. Information will be the key to develop solutions for management. The development of IT in the whole structure will avoid “gatekeeper” behaviors by providing raw material through database to top managers; raw date as delays, quantity of trains operating, etc. will help managers to decide maintenance and network development. Security rules issued by the government, customers’ feedbacks collected via the National Passenger Survey will be available to operators via the IT system and bridges develop between private operators’ IT and the public one. 1.3 Managing Finance The creation of value is not the key driver of managing the new strategy based on bureaucracy. The government will have to monitor costs and find how to invest in the current development and the improvement of the rail network. In the new strategy, the license fees paid by train operators will be the main source to fund investment on the network. The government will have to meet expectations of the different stakeholders which such as: operators, customers, bankers, employees. Improvement of the railways should be done by studying operators’ expectations, bankers would be certainly more confident in lending money to the government rather than to a private company. The social cost of the running railway should be controlled too. One of the main issues is about the impact of train on the environment. Expectations from employees have to be managed too. Some of them will come from a private structure to a public one and may be afraid about difference of wages. 1.4 Managing Technology Based on the later report issued by the Department for Transport, the technology would have a great importance in the future development. Based on the observation of the DFT, the new structure will have several technological paths. Current issues have to be the drivers for the technological development as the development of electronic sensors as monitoring devices to accelerate railway maintenance and security checks but also the development of hybrid technology and biofuel to reach environmental constraints. Developing the railway network to allow trains to go faster and so enable the increase of traffic to absorb the growing number of passengers (Appendix 1) is also a big issue. The railway network will have the bargain power of the state to find national and international technology solutions. For instance, a contract with the French company SNCF specialized in High Speed Train and in railway engineering. Technology development should be led with the cooperation of operators and national engineers Managers will have to stay aware of which technology is developing in the international railway industry.
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Brice BOUVIER – 07155935 Victor LABRIFFE – 07152540 Louis Olivier MARTIN PREVEL – 07152297
Strategic Management – 3BUS0118 UK Railways Industry – Coursework N°2 University of Hertfordshire – 2007/08
2. Enabling success in a Adhocracy organization 2.1 Managing Human Resources The specificity of the adhocracy organization is not to be permanent. In this optic, the beginning of a project should see the setting of required competences to lead it till the end. Each group participating to the project will come with its staff in the process to bring special competences. The Network Rail will bring staff specialize in railway maintenance and running process, the ORR will bring specialist in standardization and rules-makers. Train Operator via the ATOC will bring commercial and financial experts as well as train engineers. As the characteristic of this organization is to be provisional, team which will be build and in charge of the process should be neutral to avoid conflict of interest. Indeed, there will be different groups and some of them are competitors (TOCs) or some have a relation customer-firm as Network rail and TOCs. The incentive scheme and trainings of personnel would be minor. However, one group can provide staff which needs an extra training for the project. For instance, on a project of renovating railway, an employee can be form to new renovating methods or special maintenance features. 2.2 Managing Information To enable the success of this project, necessary information has to be brought once again by every participant. The development of a common temporary data platform should be done. Network rail would bring information, ORR as well as TOCs. Each will contribute in adding value in the process by bringing information coming from their core competence. In this case, the creation of a common temporary platform will be used by the team and by stakeholders to understand what the project is about and understand current issues, source of why such a structure is created. Here is the main point of the actual problem, information between different groups has to circulate to avoid situation of the Year’s Eve crisis of 2007-08. 2.3 Managing Finance What a difficult part than this one. Group acting in the project will have to agree on the financial drivers. Who is going to pay? Will the government help with government grants? As this project will be partly public and partly private, the difficulty will be to agree on a driving by cost or by value. However, as the actual problem is about efficiency and performance, funds have to be used in improving day-to-day organization of planning and an efficient IT system between TOCs and people working on railway which are, actually, the Network Rail. The financial risk is relatively low because the rail industry is well established and the use of the rail service is still important and growing every year (Appendix1). Nevertheless, the determination of the way of funding the project will be fund by the main actor of the problem that is to say TOCs and Network Rail which both have an interest of improving the system. Expectations from customers will monumental, the project has been indeed launched to reach high quality standard service. Bankers will seek for high return on investment because of the nature of the project which is improvement of the network to meet customers’ needs. Investment in environmental solutions see as a social cost will meet community expectation.
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Brice BOUVIER – 07155935 Victor LABRIFFE – 07152540 Louis Olivier MARTIN PREVEL – 07152297
Strategic Management – 3BUS0118 UK Railways Industry – Coursework N°2 University of Hertfordshire – 2007/08
2.4 Managing Technology The challenge will be to evaluate which technology has to be used. Issues have to be solved with the technology. The main technological path is environment and the reflection over technologic choices has to led to two essential point The amelioration of non-polluting technology and the need of a large IT system is the best technologic combination. The development of technology will not create competitive advantages because this modification will benefit to every TOC. The fact that the debate is between main actors will allow raising a technological solution which meet government goals, business expectations and improve scheduling and planning of trains. Every actor will bring his own technological solutions thanks to his expertise. The core competence of Network Rail and TOCs will be strengthened. Thus, those processes of management are both support by the strategy they fit in. Adhocracy will launch the process and then will dissolve the team having created the project to let the solution in action. In this case, when the IT system will be implement and the managing of schedule finished, the group will stop the association to step back in their original position and do their original job. As to Machine Bureaucracy, it is here to see the Rail service as a semi-public service where government has the control of the “play ground” but let the players compete against each other. This strategy will be lead in order to regularize the market and avoid congestion by controlling development.
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Brice BOUVIER – 07155935 Victor LABRIFFE – 07152540 Louis Olivier MARTIN PREVEL – 07152297
Strategic Management – 3BUS0118 UK Railways Industry – Coursework N°2 University of Hertfordshire – 2007/08
CONCLUSION The very specific market of the Rail Industry has known and knows many issues concerning its development, its actors and its strategic model. Despite a chaotic development and several accidents, the train industry has to realize that the complexity of his structure and the necessity of its existence are challenges which have to be surmounted by the establishment of complex strategies. The first strategy which could be implemented is a Machine Bureaucracy based on semi-nationalization where the government controls the network: who can use it? How they can use it? Communicating for the whole structure, the government rationalizes operations. Market is free for those who respect entrance criteria. Technologic development is led by the government using his power to cut cost and invest in the best way. But a second specific strategic way could be developed to face specific project in a multidivisional structure. This is the Adhocracy structure which will gather all active participants of the market to find solutions. This strategy need to be led with a specific coordination to allow synergies between the Network Rail, Train operators companies and the ORR. Finally, the development of UK rail system is complex and its market is complex; only centralization or coordination could surpass issues raised over the years to enable a long term strategy.
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Brice BOUVIER – 07155935 Victor LABRIFFE – 07152540 Louis Olivier MARTIN PREVEL – 07152297
Strategic Management – 3BUS0118 UK Railways Industry – Coursework N°2 University of Hertfordshire – 2007/08
APPENDIX ONE CASE STUDY THE RAILWAYS INDUSTRY, AN OLD STORY: With the appearance of probably the first rail service in the world, 1825 could be considered as the birth of the passengers’ rail transport period. But since this first service between Stockton and Darlington, the railway industry went through many pressures and thus, many mutations.1 The development of this market has been so important that the railway industry is considered like one of the biggest of the Victorian period. From few companies at the beginning, the market became very competitive by World War I: a process of private companies’ concentration with different sizes and importance was identified. This strong competition created a lack of profitability of these companies. But after the outbreak of WWI, the British government decided to take control of the market. As a consequence, in 1923 all the competitors were regrouped into four big groups: London Midland & Scottish (LMS), the London & North Eastern Railway (LNER), the Great Western Railway (GWR) and the Southern Railway (SR). However, the implication of the state has not been nationalized before 1947 with the Transport act of 1947. Until the mid sixties, the mains efforts of the whole companies were related to a strategy of expansions and merger activities.2 But after the publication of a paper called The Reshaping of British Railways by Dr Beeching (Chairman of the British government Railways Board), and due to the wish of the government to reduce the cost of managing the railway industry, an important part of the network had been closed.3 Then, there were no major changes in the industry until the Railways Act of 1993.
THE RAILWAYS ACT OF 1993: Even after the Beeching axe, the network kept becoming more and more complicated to run and also really expensive for the government. For this reason, a need of restructuration was highlighted. As a result, the railway act of 1993 has been created under the regime of John Major's Conservative government. This Act made the railway industry gradually controlled by the private sector. However, the railways industry has not been fluently owned by the private sector until 1997. A signal of this privatization could be the floating of the national railway track and Railtrack on the stock exchange in 1996. THE EFFECTS OF THE ACT ON THE INDUSTRY: This Act has been amended many times with:
1
th
The world's first trainspotter – [Accessed on February, 26 , 2008] - http://news.bbc.co.uk/1/hi/magazine/7179030.stm
2
Strategic decision-taking in the British Railway Industry, 1870-1912, by A J Arnold and S McCartney – [Accessed on February, 26th, 2008] - http://www.essex.ac.uk/AFM/Research/working_papers/WP03-06.pdf 3
Maps of the network before and after the report [Accessed on February, 26th, 2008] http://www.joyce.whitchurch.btinternet.co.uk/maps.htm
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Strategic Management – 3BUS0118 UK Railways Industry – Coursework N°2 University of Hertfordshire – 2007/08
The transport Act of 2000. The Railways and Transport Safety Act 2003. Railways Act 2005. Each Act has its own influence on the industry. With the Act of 1993, the responsibility has been gradually transferred from Government to private companies. With the Transport Act of 2000, it is the regulatory system which is reviewed. Indeed, the Office of Rail Regulation (ORR) and the Strategic Rail Authority (SRA) which are respectively an independent body and a body linked to the Government are created in order to insure the regulation of the railways industry in the UK.4 However, despite the care taken, it were not sufficient and many train crashes happened soon after: Only in the area close to the University of Hertfordshire, 2 crashes happened in only 2 years time. The first one was close to Hatfield station (on 17 October 2000). This crash unfortunately made 4 deaths. The research revealed that the main cause of this crash is the poor conditions of the rails. 5 On 10 May 2002, the crash at Potters Bar has caused 7 deaths and the quality of the equipment was again incriminated. It is believed that this incident is due to a poor maintenance of network by private companies. As a consequence, and after many discussions, it has been decided that the maintenance of railways (at the time operated by Railtrack) will not be left to private contractors anymore. Thus, Railtrack has been sold in late 2002 to Network Rail Infrastructure, a company without a share capital or shareholders.6 The Railway and Transport Safety Act of 2003 is more about security. The British Transport Police and the Rail Accident Investigation Branch are created.7 Later in 2005, the Railways Act of 2005 improved the quality of the regulatory system by abolishing the SRA judged too independent from government. Some of its responsibility has been transferred to the ORR and others to the newly created Department for Transport (DfT). It also developed the idea of consumer representation and new rules about the closures process were created. 8 Concerning the level of involvement of the government in the industry, we can say that there is a mix of public and private companies known as Public and Private Partnership (PPP).
THE MARKET: The railway market has a really optimistic forecast which could be seen in a paper called Delivering a Sustainable Railway from the Department for Transport, the government has projected a passengers’
4
Transport Act 2000– [Accessed on February, 26 , 2008] - http://www.opsi.gov.uk/acts/acts2000/ukpga_20000038_en_1
th
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Network Rail guilty over Hatfield – [Accessed on February, 27th, 2008] - http://news.bbc.co.uk/1/hi/uk/4219352.stm
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Network Rail takes repairs in-house - [Accessed on February, 27th, 2008] - http://news.bbc.co.uk/1/hi/business/3209609.stm
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Railways and Transport Safety Act 2003– [Accessed on February, 27 , 2008] http://www.opsi.gov.uk/acts/acts2003/ukpga_20030020_en_1
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Railways Act 2005 – [Accessed on February, 27 , 2008] - http://www.opsi.gov.uk/acts/acts2005/ukpga_20050014_en_1
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growth of 22.5% up to 2014. Moreover, it is also forecasted in this paper that their will be a doubling of passenger volume in the next 30 years.
Concerning the recent development of the market, there are important trends to highlight. First of all, it is important to say that the railway industry had to face a lot of troubles such as its competition with the airways. Here, a differentiation between Freight and passengers’ travel has to be made: Indeed concerning the freight, the airways and the railways cannot compete because they have not the same use. Nevertheless according to the statistics published by the ODD, it appears that the rail freight market had enjoyed a growth in the past years. From 2001 to 2005, the freight receipts (in £m) jumped from 630 to 740, that is to say a 17.5% growth of the market.9 Concerning the passengers transport, the railways are commonly considered out of fashion because of many factors such as the fares, security or timing which are less common with planes. •
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Indeed, the price for a flight could be really low for the kind of service provided (thanks to low cost operators such as Ryanair or Easyjet), whereas the rail fares have increased a lot over the past decade. According to a study of the ODD, the price of a train ticket has increased at a rate of 9.2% between 1995 and 2006. More striking, a first class ticket has increased over 39%.10 Planes are safer than trains. The successive incidents on the network over the last years, with the terrorist attacks of in London’s underground have spread in people’s minds that rail is not safe. But this feeling is not true because in 2004 (the latest year for which comparable figures are available), there were fewer than 0.01 air-passenger fatalities per billion passenger kilometers travelled, compared with 0.2 for rail, 2.7 for private cars, 35 for pedal cycles and 108 for motorcycles.11 Consequently, there is currently a debate about whether or not huge amounts of money should be invested in rail network while roads remain so dangerous. Planes are more likely to be on time than trains. According to a report from the ODD, the rail crash of Hatfield in 2000 seemed to have a deep impact on trains’ punctuality: an average decrease of 9.9% in comparison with 1999. But from 2000 to 2006, its punctuality has grown at a rate of 11.4%.12 There is also an important paradox in the railways industry: the complexity against the choice. The UK system is often criticized for its complexity in the fares. There are so many different prices that it is sometimes difficult to find the optimal solution. But if the decision of reducing this complexity is taken, then many users will complain about the lack of choice. As a result of this misunderstanding, a survey
9
The Overview Report - Improving Rail Data - [Accessed on February, 29th, 2008] - http://www.railreg.gov.uk/upload/pdf/sw-improving-raildata.pdf
10
National Rail Trends 2005-2006 Yearbook - [Accessed on February, 29th, 2008] - http://www.railreg.gov.uk/upload/pdf/294.pdf
11
transport safety performance In the EU a statistical overview - [Accessed on February, 29th, 2008] http://www.etsc.be/oldsite/statoverv.pdf
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National Rail Trends 2006-2007 Yearbook - [Accessed on February, 29th, 2008] - http://www.railreg.gov.uk/upload/pdf/294.pdf
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from the Gfk NOP reveals that 45% of the sample thinks that train tickets in the UK are too expensive.13 But that complexity of the system is also in the patchwork of the industry, controlled by both public and private sector. But some franchises are in a monopoly situation and therefore, they don’t want to take risks and keep their prices high to meet their liabilities.
It is also true that somehow, innovation could be in contrast with the infrastructure. Indeed, one of the recent trends is that trains are often crowded at specific times (going to work, end of work, school holidays…). An innovative solution has been proposed to improve passengers comfort: create double deck trains. But unfortunately, this idea is not makeable in practice because most of the network would not be able to run such trains. In the UK, most of the network’s lines are crossed by bridges and the height of this kind of trains would imply to destroy and rebuilt higher ones. Thus, the investments required are too important for their returns and the infrastructure had slow down the innovation.
But even if the railways industry is in bad condition, some strengths and opportunities could make the future brighter. The first striking one is about the ecology. The trains appear to be a far better green value than the plane, the bus or the boats. With the current problem of global warming, the attention of the public is partly focused on the ecology. This could be one of the most important strengths of the railways industry and thus become again one of the preferred ways of travelling. Secondly, the timing of a journey by train is likely to be strength. Indeed, in the UK, the trains are faster and faster and their capacity is more and more important. As a result, for a typical worker who does not live close to their work, a journey time to the office is shorter by train than by his own car. For a longer journey, train could be more efficient than plane or car, and also less expensive. If someone wants to go to Liverpool for instance, going by plane would imply a journey to the airport, a ‘before boarding’ waiting time of at least one hour in the airport and then, the flight itself. If the train is used, there is no waiting time but the journey itself. It is also important to specify that the train is also more comfortable than planes. Indeed, in a plane the seats are really small, the turbulences are sometimes annoying and the food is not often appetizing. On the contrary in the trains, the different companies add coaches to offer more available space, there are no turbulences and the quality of the food has improved over the last years. In addition, we should get onto the booking area. We have seen before that it is widely admitted that booking is complicated and fare are said expensive. But the public is not aware of the advance booking features. Several companies are doing strong effort to reduce fares at maximum if the tickets are booked in advance. Developing the network in that direction could represent an important opportunity.
13
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Hot issues - cost and complexity of buying a ticket - [Accessed on March, 03 , 2008] http://www.passengerfocus.org.uk/hot-issues/issue.asp?dsid=1348
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Brice BOUVIER – 07155935 Victor LABRIFFE – 07152540 Louis Olivier MARTIN PREVEL – 07152297
Strategic Management – 3BUS0118 UK Railways Industry – Coursework N°2 University of Hertfordshire – 2007/08
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Brice BOUVIER – 07155935 Victor LABRIFFE – 07152540 Louis Olivier MARTIN PREVEL – 07152297
Strategic Management – 3BUS0118 UK Railways Industry – Coursework N°2 University of Hertfordshire – 2007/08
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