THE WORD BANK

POLICY, PLANNING & RESEARCH STAFF

Infrastructure & Urban Development Department

Rsporl INU 4z

Institutional -Reform in Transport

THE BRITISH RAIL

EXPERIENCE

Sir Robert Reid Chairman, British Railways Board

DISCUSSION PAPER /'A

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CONTENTS

I. Introduction

II. History of Performance

Ill. InWtutional History

N. Reason for Change

V. Descriptions of Actions Taken

VI. Impact of Other Gmnges

VII. Evahratlon of Results

INSTITUTIONAL REFORH IN TRANSPORT - THE BRITISH RAIL EXPERIENCE

1. INTRODUCTION

This case study has been prepared in response to the World Bank document 'Institutiorul R e f o m in Transport. Case Studies r Task Proposalg. The Bank had concluded J.r its 1982 study 'The Bailvays Problemg that the underlyin~ malaise displayed by many railvays lay in their .institutiorul behavior, in particular their ability to continue to 'do all the wrong thingsg despite the pressures of the market place. It var also acknowledged that some developed countries had taken initiatives to address this problem. and the Bank expressed interest in understanding the process and context of these institutional reform. It also provided an analytical frunevork by which to give CLSJ writers a c-n approach to these issues. This paper attempts to follow the prescribed format as closely as possible. in the hope that this vill help the Review C d t t e e . It was presented to a railvay roundtable sponsored by the World Bank and the Austrian Verkchrrwissenschaftliche Gesellschaft in Vie- on 24th April, 1989.

The paper will demonstrate that since 1982 British Rail (B.R.1 has successfully undergone a major institutional reform and :hat the fruits of this are evident in financial and operational results. It is not c l a h d that the process is complete as further work is still to be done. But undoubtedly a highly significant change has taken place in the character of B.R. as an institution. It now has clear objectives frca rmernment. It is delivering to these.

This case study was presented at a Railway roundtable in Vienna. Austria. by Sir Robert Reid, C.B.E.. P.C.I.T.. Chairman. British Railways Board. It is based an the ,.,per presented by Hugh Jenkins. Managing Director. Transmark, to the World Bank on 8th Harch 1988 using published and unpublished material within B.R.

It was required t o reduce the level of Government support through public service obligation grant fo r the passenger railvay by 251 i n r ea l terms between 1983 and 1986. It did so and bet ter . It i s n w well in to a secmd three year period h e r e the objective i s a further 251 r e d u c t i ~ n in the c a l l on the public purse on the or ig inal base l ine. Confidence i s high tha t t h i s w i l l a lso be achieved.

The In te rc i ty , Freight and Parcels sectors have been s e t commercial objectives md in addition t o t h e i r f inancial objectives. the passenger sectors have formal quali ty of service objectives writ ten in to the Corporate Plan. B.R. n w has a c lear business orientation. Investment decisions a re based on businesu c r i t e r i a and the f ive sectors are accountable fo r improvements t o t h e i r bottom lines. Administration has been cut. The Divisional t i e r of management has been eliminated. Staff numbers continue t o f a l l . There i s a new recognition of the importance of the customer. Planning procedures have been overhauled t o ensure commitment t o objectives a t a l l levels. Direct cnmnmication with s t a f f has been established. Investment procedures have been thoroughly overhauled t o include a f u l l review of optiocs. business sponsorship. and independent appraisal.

It has been suggested many outside par t ies that B .R. s experience i s an appropriate annlogue f o r railvays around the world i n need of ins t i tu t iona l reform. There are transferable lessons. and ins t i tu t iona l developent should be centra l t o many technical assistance program.

2. HISTORY OF PERFOWhUCE

The - ey ins t i tu t iona l reforms took place in 1982 and 1983. 1982 can be regarded as the vntershed year.

A very f u l l account of the f inancial and s t a t i s t i c a l performance of the Br i t i sh Railvays Board i s given in the published Annual Reports and Accounts. Copies of these have been placed with the World Bank and detai led information can be derived from t h a t source. Some of the data has been sampled in t h i s section in order t o comply v i t h the Ionnat of the case study task proposal. but serious students of form are advised t o refer t o the very much greater range of information available in the Annual Reports and Accounts. In so f a r as the data a re available. the sununary b e l w covers the period from 1978 u n t i l 1987188. Up t o and including 1983 B.R.B. reported on a calendar year basis. 198415 was a t rans i t ional 15 month period. . From 198516 the Br i t i sh Railvays Board reported on the basis of years ending 31 Uarch. Specific resul ts fo r individual passenger sectors d id not' emerge u n t i l 190415. A map of the B.R. railway . system i s included as Appendix *Ag.

the resu l t s fo r 1982 were inf~uenced by railway s t r ikes and those of 1984 by the miners* s t r i k e which had a big impact on bulk coal movement and receipts.

A factor in the decline in Group Turnover and t o a l e s se r degree the group Balance Sheet war the pr ivat isa t ion of Hovercraft in 1981, Bri t i sh Transport Hotels and Sealink i n 1983.

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3 . INSTITUTIONAL HISTORY

THE ENTITY

LEGAL STAWS

B r i t i s h Rai l i s a public corporation. The B r i t i s h Railways ~ o i r d i s a public au thor i ty , appointed by the Secretary of S t a t e t o r Transport. The pr inc ipa l s t a t u t e s applicable t o the Board a r e Transport Acts of 1962 and 1968, the Railway8 Act of 1974 and Transport Acts of 1978. 1980. and 1981. The Acts confer appropri povers on the Board t o enable it t o car ry out i t s functions. ~

I I

LEGAL CONTEXT ~ The priumry dut ies of the Board derive from s t a t u t e . They include the duty under the 1962 Act t o provide railway passenger servides in Great Br i ta in , non-specific a s t o volume, qua l i t y o r mix, excdpt t h a t the passenger serv ices a r e t o be comparable generally v j t h those e x i s t i n g in 1974. ~ By a d i r ec t ion under t he 1974 Act there i s a Public Service Obligation (P.S.O.) f o r ra i lvay passenger serv ices in respect \of r a i c h t he Board i s compensated under EEC Regulation 1191169. a d r e i s a l s o a duty under the Transport Act of 1962 t o break-even w e r 11 taking one year wi th another a f t e r making proper provision f o r ape depreciat ion and r e n m l of asse ts . I

I I

POLITICAL CONTEXT I

! I

Compensation f o r the P.S.O. i s paid by c e n t r a l Government. Board a l s o receives grant funds d i r e c t from the Passenger Transp rt Executives (P.T.E. ' s ) f o r v j o r conurbations outs ide London. Thqse re la t ionships a r e contractual . I ~ But the Board i s a l s o subjec t t o a cons t ra in t on t o t a l e r t e + l finances ( t h i s i s grant p lus borrowing). Investment plans a r e s u h i t t e d a s p a r t of the Corporate Planning process. They r e p r e s k t the m h h u m l eve l the Board considers necessary t o achieve the p l forecasts . The External Finance Limit (E.F.L. ) r e f l e c t s Goverament's ove ra l l de s i r e t o cont ro l public s ec to r borrowing reduce the public s ec to r borrowing requirement (P.S.B.B.) in

f o r ind iv idua l sectors . economy a s a whole. The Government can a l s o s e t f i nanc i a l targeks ~ There i s no s t a tu to ry cont ro l of vages. nor of f a r e s and charge . although the Department of Transport i s kept informed of the Board's 8 in ten t ions and may give general guidance about what it w u l d expeck.

Although t h e B r i t i s h Railways Board discharges a s t a tu to ry r o within a framework of Government pol ic ies . it i s a pub1

corporation and not a department of S ta te . I n the United Kingdom the concept of the public c . -?orat ion has evolved from t h a t f i r s t envisaged during the post-war na t iona l i sa t ion period. A t t h a t time it was widely believed a s pa r t of s o c i a l i s t doc t r ine (and enshrined in the famous Clause b of the Labour Party cons t i t u t i on ) t h a t t he S t a t e should occupy 'the comaanding heights of the economym, and fu r the r t h a t Public Corporations should a c t ( i n Herbert Horrisonms famous phrase) a s 'high custodians of the public in te res t ' . This very much suggested a 'public u t i l i t y ' r a the r than a comnercial approach.

A t the present time in the UlC the number of public corporations i s i n decline. through the p r iva t i s a t i on programne. Those t h a t renuin have an "arms length8 r e l a t i cnsh ip with Government, a r e given subs t an t i a l freedom of mnagament act ion, and a r e expected t o behave conraercially i n pursu i t of f i r u n c i a l t a rge t s . There i s no w e r - r id ing 'public senrice8 ethos. although in the case of railways there i s a public s e m i c e obl iga t ion through the P.S.O. cont rac t f o r passenger services. One e f f e c t of t h i s i s re ta in ing , on soc i a l gromds. services making subs tan t ia l losses. pa r t i cu l a r ly on secondary and ru ra l l i ne s , f o r vhich there i s no purely comerc ia1 j . ;u t~f ica t ion .

ORGANISATIONM, HISTORY

Railway!. in Great Br i t a in have a long h i s to ry da t ing back t o t he opening of the Stocktun and Darlington ra i lvay in 1825 and the Liverpool and Hanchester railway in 1830. Although the ea r ly period was charac ter i red by the construct ion of many small p r iva t e railways. 1836 8.u the beginnings of s tandardisat ion with t he adoption of the standard gauge ( 4 f t 8 112 inches) , much t o the chagrin of Brunel and the champions of the broad gauge (8 f t ) . In the g rea t age of ra i lvay expansion many small companies were formed. of ten duplicat ing each o the r sm routes. The peak of the 'railway mania' occurred in 1846 ~-fien no fewer t h a t 272 Acts were placed before Parliament seeking permission t o construct new rai lvays. It would be another 80 years before railways met any r e a l competition from other t ransport modes.

The f i r s t major reform v a s the Transport Act of 1921, vhich required the separate companies t o amalgamate i n t o groups. The grouping of 1923 es tab l i shed four geographical groups, which were the precursors of t he Railway Regions a f t e r na t iona l i sa t ion . A contemporary Gazetteer l i s t s 153 separate pre-grouping railway companies.

The four groups s e t up in 1923 were:

The London Hidland L Sco t t i sh Railway (LHSR) The Great Western Railvay (G.Y.R.) The London S North Eastern Railway (LNER) The Southern Railway (S.R.)

The four railway companies continued from 1923 u n t i l 1948.

The post-war Labour Goverrrmcnt embarked on a vholesale progranme of public ownership. I n 1948 the railways ve re nat ional ised, and f o r the f i r s t time the public encountered 'Br i t i sh Railvays' a s t he railway arm of the B r i t i s h Transport Commission. On na t iona l i sa t ion , Br i t i sh Ra i l had 20,000 route miles , 52.000 t r ack miles , over 6000 passenger s t a t i ons , 20,000 steam locomotives and 650,000 s t a f f . It resembled an army and the Government turned t o a Ceneral t o run it. The f i r s t Chairman of t he Br i t i sh Transport C d s s i o n was General S i r Brian Robertson. I n i t i a l l y , B.R. acquired a m i l i t a q r a the r than a business management ethos. The comparative s t a t i s t i c s f o r the B.R.B. in 1988 s h w 10,300 route miles, 23,000 t rack miles, 2,500 r t a t i ons , 2,400 locomotives and 161,000 s t a f f (137,000 of vhich a re employed in railways).

In 1955 a railway modernisation plan was published. It provided major new investment i n t o t he railway system, abolirhing steam and replacing it by d i e s e l o r e l e c t r i c t rac t ion . Track and s igna l l i ng were improved and investment provided in s t a t i o n s and f r e i g h t f a c i l i t i e s . With hindsight it cannot be claimed t h a t a11 of t h i s money was spentwisely. Issuos l i k e business need, s tandardisat ion, value f o r money, and even the s t r a t eg i c f tamework f o r the investment did not g e t t he a t t e n t i o n they perhaps deserved. Honey became ava i lab le . Engineers took t h e i r plans dovn from t h e shelf and dusted them. Pew doubted t h a t they were about t o experience a golden e r a of ra i lvay renaissance. The idea t h a t massive investment i s a c e r t a i n cure t o railway problems l i e s deep in the railway psyche. The euphoria d id not l a r t . Indeed it might have l ed d i r e c t l y t o the famous 'Bceching c u t s m , f o l l w i n g the publicat ion of the Beeching Report in 1963.

Another problem caused by t h e Pbdercisat ion Plan vas that the s ing l e massive tranche of investment created a s s e t s which aged together. Thir ty years l a t e r B.R. faced tke qua l i ty and maintenance problems of operat ing on a l i fe -expi red asset-base. and a massive r o l l i n g s tock r e n w a l problem. To avoid repeating t h i s mistake, cur ren t investment i n the replacement & . s e t s i s being spread over a longer period.

In t h i s period it was recognised broadly t h a t t h e s o d a 1 ro l e of t he railways had changed. The competitive envirmment had been transfonued by the spread of c a r ownership and t h e growth of t he road haulage industry. Railvays were no longer a monopoly. D r . Beeching's cen t r a l theme was t o recognise that the plethora of secondary routes and branch l i n e s , a legacy from pre-grouping days, could no longer be sustained a t a to le rab le f i nanc i a l burden because t h e i r soc i a l r c l e had changed and t h e i r f i n a n c i a l prospects were poor.

I n the 1960s there was a rash of branch l i n e closures. The debate about t he s i z e and shape of t he railway systere was s e t t l e d by

surgery. Henceforth r a i l vay management would concentrate on what i t was good a t , recognising the na tu ra l competitiveness of r a i l both f o r t he movement of passengers and f r e i g h t over trunk routes and f o r comrmting in major conurbations. The o ther s i de of t he Beeching coin was t he development of the trunk routes.

Following t he Beeching cots, t he shape and s i z e of t he railway network have been r e l a t i v e l y s tab le . Indeed t he broad shape of t he network i s cur ren t ly 'frozenm a t t he 1974 l e v e l , although t h i s does no t preclude B.R. from going through the c lo su re procedures f o r uneconomic o r dupl ica te routes. It i s ev ident , however, t h a t railway c losure proposals a t t r a c t extraordinary high l e v e l s of publ ic object ion.

The only s i gn i f i c an t proposal t o be considered recent ly , t he c losure of t he Se t t l e -Ca r l i s l e l i n e s , has' become a cause celebre and a p o l i t i c a l 'hot potato' w e l l beyond i t s i n t r i n s i c importance. The proposal a t t r a c t e d ouzr 32,000 public ob jec t ions including one from a dog, whose owner claimed it was a user! There i s no publ ic o r Government mood f o r c losures a t present because c losures would produce bene f i t s very e l l by comparison wi th t he ac t ion which i s underway t o cont ro l t he passenger grant. Af te r considering poss ib le s a l e t o another operator t h e Government eventual ly refused consent t o c losure and t he l i n e vill now be f u l l y in tegra ted i n t o t he Provinc ia l P.S.O. sector .

Heanwhile t he competitive environment has changed s ign i f i c an t l y . There i s a na t iona l motonray network: c a r ownership has grown cont inua l ly ; road t ranspor t , both passenger and f r e i g h t , has grown more e f f i c i e n t : coach and bus s e m i c e s have been de-regulated, and domestic a i r s e m i c e s b e become wel l es tab l i shed . On the passenger s i d e r a i l volume has held up, and in some cases grown, but market share has been l o s t in an expanding market. Nevertheless r a i l i s s t i l l an important passenger c a r r i e r over i n t e r - c i t y rou tes and p a r t i c u l a r l y f o r c-ting in the South East .

TEE POLITICAL FRAHEWORK

RELATIONS WITH GO-

Up u n t i l 1983 the Bailways Board was not given spec i f i c management ob jec t ives f o r t he industry. Hy pradecessor. S i r Pe te r Parker 's pa r t i c ipa t ed in a grand publ ic debate about t h e frzture of t he indus t ry in a quas i -po l i t i c a l way. Bids were made f o r more investment o f t en based on extremely op t imi s t i c f o r ecas t s ( t he 'hockey s t i c k m fo recas t syndrome).

The idea was given wide currency t h a t t he railways were su f f e r i ng from the 'crumbling edge of qua l i ty ' and t h a t massive investment was needed, both in i n f r a s t r a c t u r e and maintenance. Hajor c a p i t a l p ro j ec t s , such a s t he Advanced Passenger Train (A.P.T. ) and network e l e c t r i f i c a t i o n were being pursued.

Serious attempt? were made t o negot ia te a packege of product ivi ty measures, but Lhese ran i n t o union opposition, and l ed t o de l ibe ra t e proscraot inat ion. at!< f i n a l l y t o a s e r i e s of damaging s t r f i e s . The economy suffered a downturn between 1981 and 1983. Tiie rr~ilway f inanc i a l s i t u a t i o n deter iorated.

The Government t e t up a Colnaittee on the Review of Railway Finances (knovn as The Serpel! Committee) on 5 May 1982 with t he fol l lwing terms of reference, 'To excinine t he finances of t he r a i l vay and associated operations. in tC1 l i g h t of a11 relevant considerat ions, and t o report on options f o r a l t e r n a t i v e po l i c i e s , and t h e i r rolated objec t ives , de;igned t o secure improved f inanc i a l r e su l t8 i n an e f f i c i e n t l y run railwarr in Great Br i t a in over the next 20 years.. These were needed t o provide the bas i s f o r long-term plalaaing decisions. It reported in 3982. I t s f indings were cont rove~rs ia l and the Bailvays Board d id much t o attempt t o d i s c r e d i t t be report . But t he underlying t h r e a t -*as rea l . E i the r t he Board goq a b e t t e r g r i p on the management of the industry o r a range of unpleasant items wruld appear on the p o l i t i c a l agenda, including the i ssue of system s i ze , subs t an t i a l l y untouched s ince Beeching.

The Serpe l l Report argued the need f o r agreement between the Government and the Board on spec i f i c ob jec t ives and monitoring procedures. But it a l s o pointed the way t o imprwemeut:~ in ef f ic iency . modifications t o engineering and operating procedures, t h e scope f o r reducing Br i t i sh Rail Engineering Limited (B.R.E.L.) manufacturing and maintenance cos t s a ~ d various o ther improvements. It a l s o endorsed the business management approach B.R. had taken in s e t t i n g up t h e Sectors in 1982.

Following the Serpe l l Report and my appointment t o t he Chairmanship of t he Railways Board. the i ssue of s p e c i f i c objectLve a s caken up by the Secretary of S ta te . On mp appointment, I indicated t h a t I wanted c l e a r object ives. and t h a t I a l s o wanted t o be allowed t o g e t on with t he job of achieving them, A t h the minimum of p o l i t i c a l in te r fe rence .

GOVERNMENT OBJECTIVES FOR B.R. 1983

The f i r s t f r u i t s of this approach was t he s e t t i n g of n w objec t ives in October. These objec t ives supplemented t h e s t a tu to ry and f inanc i a l du t ies of t he Board and a r e suumarizzd below:

Thd guiding object ive was t o run an e f f ~ c i e n t railway providing good value f o r money. Seroices should be r e l i ab l e , a t t r a c t i v e , and punctual a t acceptable f a r e s and charges. The c h i : t o t he taxpayer should be reduced.

The B.R.B. should acce lera te i t s pcblished Corporate Plan in t en t ions and reduce the P.S.O. gran t by 252 over t h r ee :years

not f ive. The Plan pr2dicted a P.S.O. requirement of L635m in 1983 pr ices in 1988. Thin vas t o be achieved by 1986.

The Government d id not vant the Board t o embark on a p r o g r m e of major route closurer . but asked the Board t o erplore the scope f o r bur subs t i tu t ion on SOM routes.

It war the Board's respons ib i l i ty t o determine farer . However improved eff iciency a r t make a fs1.l contr ibution t o keeping down farer . B.R. most not ure i t r market posi t ion t o rairla fa res unreasonably.

Freight should be brought i n t o a cur rent cost operating p r o f i t of 52 in 1988. while winning a s much t r a f f i c from road an posrible. The Parcs l r businese should continue t o make n proper c ~ r c i a l return. Improvements in the indus t r i a l rel-,.ions machinery must be sought. Sealink must be prepared fo r pr iva t i sa t ion . There murt be more pr iva te sec tor involvement in the supply and support services, and the Board should continue t o develop m d dispose of property. Excess capacity should be taken out of B.R.E.L. m d future options f o r the cwpa?y explored. including pr iva t i sa t ion . Rolline; stock should be procured by competitive tendering and the railway equipment industry should be allowed t o continue its1 design role. Investment p r o g r m e s shoulc! r e l a t e :o financial. m d business object ives.

This was a very s ign i f i can t milestme in the i n s t i t u t i o n a l development of B.R.. Here. a t l a s t , were c l e a r object ives and a Board t o t a l l y colrmitted t o achieving them. Relationships between the Bailways Board and the Department of Transport improved immeasurably. For a s t a r t . ve nu longer found ourselves on opposite s ides in some grand debate about the fu ture of the industry. The word went out within B r i t i s h Bail. It i s not our job t o c r i t i c i s e Government. It i s our job t o de l iver managerially. In m y case the Gcvernment i s our banker mid a l so an important customer and must be t r ea t ad as such. The debate became in t e rna l .

EXPLICIT GOVERNMENT INVOLVEUENT I N RAILWAY HATTERS

The l eve l of e x p l i c i t Government involvement in the day t o day operation of the ra i lvays i s low. When questions are asked about these things in Parliament the invariable reply i s ' that i s a matter f o r railway management'. although t k i q c m be a d i f f i c u l t l ine t o hold given the temptations of p o 1 i t i . d involvement. pa r t i cu l a r ly where ba l lo t box advantage can be gawid .

Tdere i s no d i r e c t formal involvement in personnel pol ic ies o r wage m d sa l a ry structures. although the B.R.B. i s unlikely t o behave provocativel: in t h i s f i e l d . Conversations with Ministers o r the ' Department of Transport on these topics a r e l i k e l y t o carry c e r t a i n ,

nuances vhich c m be taken a s ' g u i h c e ' .

The s t e e r on negot ia t ing structure i n t he 1983 objec t ives probably r e f l ec t ed f r u a t r a t i a a a t the a b i l i t y of the unionv t o uar the complexities of the formal negotiat ing machinery a s a delaying t a c t i c during the a r i d yrara of product ivi ty bargaining. A major new B.R. Industrial R e l a t i m a reform i n i t i r t i v e vaa announced i n 1988.

Safety i a aubject t o a ta tu tory control . w i t h the Railway Inspec tora te established aa the approprir.te independent supervisory body. Hovever. r a i l vay managera value t h e i r own profeaaionalism in aafety mattera and the r e l a t i m a h i p be twen B.R. uid the Railway Inspec tora te has alvays been construct ive. I n 1988 a Director . Safety vas appointed fo r tt-e f i r s t t h e t o bui ld on B.R.*a already exce l len t s a f e t y record.

The Railway Inagactorate inveat igatea major accidents and publishes reports . The d e v e l o p a t of aafety prac t ice on B.R. over much t o the recanmendations a r i s i n g from inquiries ca r r i ed out by the independent Inspect ing Off icers . B.R. PERFORHAHt'E AWHST GOVE-T OBJECTIVES 1983 - 1986

During the three yearr betveen 1983 and 1986 B r i t i s h Rai l appl ied i t s e l f t o the t a sk of meeting t h r Secretary of S t a t e ' s 1983 object ives. I n the AMual Report fo r 198617 1 was ab le t o repor t t h a t t he f i nanc i a l ob jec t ive b d been achieved. The support from the taxpayer had c- down not 251 but 271, a reduction of L260m in r e a l tenns. Passenger volume had a l s o been res tored t o 19.1 b i l l i o n passenger mi les - the highest l eve l s ince the beginning of the decade.

GOVERNMENT OBJECTIVES FOR B.R. - 1986

But t h a t was not the end of the atory. It was n w necessary t o reduce, t be c s l l on t he public purse by a fu r the r 251 t o L555m a t 199617 p r i c e s by a r c h 1990. and achieve a commercial re turn on the non-supported businesses.

The veh ic l e f o r conveying t h i s second s e t of Government objec t ives was once again a l e t t e r t o me from the Secretary of S ta te . This l e t t e r , in October 1986, s e t out spec i f i c new objec t ives supplementing the s t a tu to ry and f inanc i a l du t i e s of the Board. The n+w objec t ives d is t inguish between the auppcrted s ec to r s (Provincial m d Network South East) .nd t h e non-aupported businesses ( In t e r c i t y . Freight . Parcels and Fre igh t l i ne r ) .

The ' r o l l i n g forward' of the October 1983 objec t ives required the Board to: -

- Reduce the Public Service Obligation (P.S.O. ) grant ircl L763m in 198617 t o L555m in 1989190 (L768m t o L574 i n 1987188 prices1 I I

I - Achieve m w e r a l l 2.71 return on a r r e t r a t current dort before in te res t -tithin the Non-Supported Seciorr (defined a8 InterCity, Freight, Parcels, ~re ight l i rberr m d Travellers Pare1 by 1989190. These Sector8 a r e expected a lso t o plan on the basir r f a reqlired f a t e of return of 51 on the i r progrsnrnea of n w i n v e r w n t .

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Implement vigorous mearures t o broaden the participa+ion of the private rector i n the provision of rervice# t o f a c i l i t a t e a more cost-effective and coupetiffive curtomor .emice. Specific p r o g r w s t o t h i s e n d a r e required. ~

This h o r p o r a t e d a decision tha t the In terc i ty Sector w i l l c are t o qualify f o r grant beyond 1987188 m d w u l d be taken out of the P.S.O.

i ~ In detarmlnlng the P.S.O. objective. the Secretary of State .tress on the quali ty of service expected within the P.3::: supported Sectors md indicated that: - I

I I - In the Retvork Sootbeast (NSK) Sector improved efficidncy

should prwide m improved service t o the customer, reddced aperating costs and a lower proportion of cor ts met by t h e P.S.O. g r m t . Pares structures should increasingly ref qect the cor t s of provis im and improvements in quali ty of serv4ce.

I - In the Provincial Sector the pattern of aemices sh uld cantinam t o be ta i lored more closely t o demand and t

required. The Board is asked t o reviev thore cases

&1 -st, but vortkuhile reductions in P.S.O. grant w i l l be

a t t r ac t ive bus semices c ~ u l d meet the needs of customer as canveniently and a t markedly l e s s cost than present services.

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The objective f o r the ilm-Supported Sectors supersedes those s e t e a r l i e r for: - ~

I n t e r c i t y - achieve a 51 return on asse ts a t cur cos t before in te res t by 1988189 (Au 1984)

Freight - achieve a 52 return on asse ts a t curtent cost before in te res t by 1988189 (Octqber 1983 ) I

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Parcels - continue t o earn a proper comnercial re/urn (October 1983) I

The new P,S,O. and Non-Supported Sector objectives incorporate the need for the Board to have flexibility to create objectives for ach Sector cwered by these arrangements and to vary them e as circumrtances d w d . I

Internally B.R. converted the 2.71 objectives into rubsid ary objectives for each of the non-supported businesses. The 986 objectives included the need for the Board to develop qualit of semice standards for the passenger sectors and in response to t is, the Board published adjusted standards in the 1987 Corporate P an, which specified new standards for punctuality. 8emice provir on, customer response times, muimrrrn load factors and cle ing frequencies for the passenger businesses. i THE POLITICAL AND CULTUUL ROLE OF THE ENTITY

The political and cultural role of the railway system in ~ k e a t

These are reflected by fundamental differences in philosophy. B.R. culture is now one of low subsidy and high fares. and s

to population size.

whether privatisation was the way ahead and set work in han

railways seem to flourish more under Governments which favor nei public ownership nor notions of public service. Hanagers get a of 'reality therapy'. There is a realisation that survival dep nds on delivering to financial and quality targets. They get on lith the job. ~

HISTORICAL PERSPECTIVES ON TEE ROLE OF RAILWAYS I I

Historically the role of the railways in Great Britain has o ten been conceived in terms of public service. tfuch of the e k rly thinking about railways was concerned with how to curb tpeir monopoly power rather than how to equip them to be competitivk in

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the market place. Uore recently the idea of service has re-emedged in a new guise - as an element of customer orientation having at its root business objectives. Later it became fashionable to view d . ~ . as a hybrid organisation, displaying a mixture of comnercial (and public service characteristics. But the distinction between the msocial railwaym .nd the * c ~ r c i a l railwaym was alv8ys a fdlse dichotomy. Thm comaercial railway can never forget that giving a service to its customers. and the management of the railway must always employ comercia1 judgement.

THE RAILWAY TRADE UNIONS

The railway Trade Unions in the UK have always been reason ly strong. with an industry rather than a craft focus. In s-+s they have been impressively enlightened. For example they a st always support major investment in the industry even where the manpower reductions are substantial. But on issues like terms conditions of employment they are slow to accept change. and an almost pathological suspicion of productivity bargaining. ,

reaction in the prevailing climate.

THE RAILWAY LOBBY

The railway lobby is powerful on one main issue - closures. It b s become increasingly difficult to achieve even a minor line closure without a huge public furor. There are probably economic argume ts in the UK which would point to the soundness of the case for furt er rail closures, if the only criteria were value for money provision of transport services. However it is probably politically untena le to pursue this except on the margin. This is why the ideas of 1 us substitution within the 1983 objectives have borne little fruit so far. A watered down version re-appears in the 1986 objectives which 1 refers to reviewing 'those areas where attractive bus semices co Id meet the needs of travellers as conveniently and often at marke ly less costs than the present rail services*. d

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However, the geography of the adjacent road system has promising cases reviewed by the Board so far. It looks likely that investment in a single car version of

diesel uni t i s the most cost effective solution t o the ruCal railway. . I

Under exis t ing procedures where closure i s proposed the key i s ue addressed by the Transport Users Consultative C d t t e e s (wh ch report t o the Secretary of State) i s hardship. :

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CONPRONTINC THE PROBLEM I

I n ins t i tu t iona l terms, the problem came t o a head in 1982. Government was d i s sa t i s f i ed v i t h B.R.*s performance. The level. irn. of

accountancy convention, no t rue bottom l i n e responsibil i ty coul exercised. responsibil i ty f o r receipts.

Plans were put together in isola t ion by planners rather t an b i m p l m n t e r s , w i t h the resu l t tbt they were paper exercises onFy. Historically, the problem had not been d i f f i c u l t t o confront, but previous solutions had been t r i e d and fa i led . Neither hFgh investment, a s in the 1955 modemisation plan, nor branch lline surgery in the Beaching era of the 1960's had solved the r a i l T y s problm. Furthermore the scope fo r deterioration seemed t o be greater than the scope f o r imprwement. I

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The min constraint on B.R. was the 'freezingm of system s ize a t the

of opportunity.

4. REASON FOR CHANGE

Financial performance was deteriorating. The Government

environment was gett ing harsher. The Serpell Report had e various options f o r system s i z e and there was a belief tha t

WHY CHANGE WAS UBDF3TAKEN 1

It was recognised tha t t ~ i l w a y s vere losing market share growing market. The passenger transport market in the UK t rebled over 30 years and the Freight market had doubled.

now conveyed heavy l o r r i e s and luxury coaches around the countdy. Thir ty years ago the r a i l share of the market had been 201 passen e r and 401 f r e igh t . It was now 71 and 91 respect ively. Only i n Lon ! on commuting does B.R. r e t a i n market leadership wi th 401 share of 411 movement. E l a i l t ranspor t had sustained volume f o r i t s core busindss but hrd not shared in the grovth of the t o t a l market. I I

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A s a t r a d i t i o n a l inward-looking industry B.R. had been slow t o r e c t t o change. The organisat ion was production-led and not responsfve t o customer demand. S t a f f did not be l ieve t h a t t h e i r fu tq re depended on sa t i s fy ing t h e customer. Planning was cent ra l i sed and lacked the determined commitment of l i n e managers. Investment d a s needed, pa r t i cu l a r ly where a s s e t s were a t t he end of t h e i r usedul l i f e , but there was no commitment by Government t o inves t (in railways per s e unlers it could be sham t o be a sound busin s s

c a l l on t h e public purse. Open doubts were expressed about 'I case. There was a l s o considerable pressure on B.R. t o reduce $he

a b i l i t y of 1.8. t o give value f o r money. The o rgmisa t ion % i n sens i t i ve t o n e t revenue i s rue r . exhibi ted bureaucrat ic f ea tu e r m d lacked proper l i n e s of comunicat ion t o t he employees. I

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' inrurancem cos ts by low r i s k over-provision of f a c i l i t i e s in t rack layouts f o r example.

UHY CHANGE WAS POSSIBLE

CIRCUMSTANCES 1 Change had f i n a l l y become possible i n 1983 f o r a number of reaso s: There was a consensus between Government and railway management t 4 a t t h e s i t u a t i o n was de t e r io ra t i ng and tha t was necessary. The i s sue was what kind of interpention. pressures on management were such t h a t in te rvent ion was the only defensive s t r a t egy avai lable.

Between 1981 and 1983 the economic climate was f a i r l y hos t i l e . e)nd the downfall i n the economy, r e f l ec t ed i n t he demand f o r r a i l e j services, had d iscred i ted the production-led s t r a t e g i e s of B r i t i s h Railways Board, where the assumption had been t h a t i f $ improve the qua l i t y and a v a i l a b i l i t y of the product, demand wo Id 4 look a f t e r i t s e l f . When this proved unsustainable and faced w i t h coach deregulation, B.R. went f o r high volume. through very low o peak fa res . This was no t an economic success. A more connnerc approach would have addressed the i ssue of 7arke t posi t ioning the p r i ce lqua l i t y t rade-off .

It would be wrong t o suggest t h a t 1983 was a sudden

downwards.

Also between 1974 and 1983 some ear ly spec i f i c ob jec t ives r e coming through. For example I n t e r City was given in te r im f i rmic a1 t a r g e t s based on i t s 'contribution' , b u t t h e accountancy conventi ns then in force could not r e a l l y i den t i fy t he t r u e range of I n t e r C t y cort.8 and revenues myway.

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During the 1970s the vagueness of the remit and the lack iof d i s c ip l ine in t a rge t s e t t i n g allowed the production ethos continue unchecked. But t he s e t t i n g up of t he sec tors in 1 provided f o r the f i r s t time the organi ra t iona l means t o address p o s s i b i l i t y of a business-led railway.

PERSONALITY 1 ~ Another key element was

I was appointed a s Executive Chairman in 1983. and I saw no reason why railway man2gement could not a s s e r t cont ro l over i t s dest iny. There has been tuu main ca t a ly s t s . The Serpe l l Report of 1982 had s igna i led ser ious t h r ea t s . The message a t i t s simplest d a s 'put your OWR house in order o r else....'. The second c a t a l y s t w/as the NUR a d ASLEF railway t rade union s t r i k e s of 1982. t h i s was two years befoze Hargaret Thatcher's c l a s s i c Arthur S c a r g i l l and the NCRI. t o some exten t t he wr i t i ng was on tpe wal l . The Government was h a t i e n t a t B.R.*s apparent i n a b i l i t y [to secure product ivi ty improvements within a reasonable time d without damaging i n d u s t r i a l disputes. The Government was prepa ed t o be firm. There was f r u s t r a t i o n ins ide B.R. too. and the h s gained ascendancy in the dovecote. The days of fudge and smudge were over. and out of the s t r i k e emerged a much more tough-min ed

anway

4 no-nonsense approach t o t he railway unions. whose power had e r o ed d I sensed t h a t I could do a deal with the Goverunent. Hy ea l y deal ing wi th Nicholas Ridley. the Secretary of S t a t e f o r franspo t. went we l l and there was an m e d i a t e change in the r e l a t i onsh ip v 4 t h

the Department. The f i r s t success was agreeing a new kindl of . contractual arrangement. For '.:te f i r s t t h e a B.R. Chainnan was

given expl ic i t objectives. tough but achievable. But +re importantly I was given freedom t o get on with the job, a perio s t ab i l i t y without o re r t po l i t i ca l interference. i n which t o s h y : could deliver.

SITUATION ~ Another background factor was the clear role remaining within the m[ economy for a viable railway system. A successful mrdet- oriented railway w u l d be a significant and valuable part of t he social and industrial infrastructure. Even around the fringe of the netwrk. where operating ra t ios of 3001 were not unccmmn. there i n s a lso a lack of po l i t i ca l w i l l t o grasp the ne t t l e of such was the sensit ivity of the issue. I f it were reduce the c a l l on the public purse without dras t ic would s u i t the irmediate needs both of the Government

It was not a painless process.

mnagement. The basic approach was t o give B.R. a strong busi ess orientation. The problem was tackled a t the level of i n s t i t u t i a1 behaviour. Forces w r e s e t in motion t o change the whole cu l t re. i A f i na l factor. without which no real progress could have been d d e . was the availabil i ty within B.R. of some high calibre managers who vere able t o respund t o t h i s lead. Organisation change structure and amny able people vere se t in effect 'now s h w us what you can dom. the appropriate human resources t o carry it out.

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5. DESCRIPTIONS OF ACtIOBS TAKEN

THE OVERALL P R O G U M E OF ACTION I I

The prime objective of the overall p r o g r u u of action wasl t o reverse the deteriorating railway financial performance. The mepod chosen was that of a radical managerial intervention which was a a t the fundamental culture of the organisation. The Ihang$% structure was one means towards the end of achieving true bus ess orientation for B.R. I

THE OBJECTIVES OF TEE PARTIES I

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The objectives of the Government were t o reduce the f i n a n i a l burdens on the taxpayer and the railway contribution t o the pu$lic sector borrowing requirement. They vanted t o introduce more s l f - reliance in railway mnrgement and realism in the workforce. a f ose in effect of Thatcherism. The Govenment a lso wanted t o s e t c f inancial targets f o r the public sector and hold them account for results .

The Board knew tha t the Government probably wanted t o re ta in t h e passenger railvay reasonably close t o i t s present s ize because/ of the p o l i t i c a l sens i t iv i ty of closures. The Serpell Comnittee had considered various system s ize options and there were c lear thrqats to the future, unless the f inancial burden could be rsduced by mrslaganenr action. I

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I welcmaed the n w f inancia l objectives and freedom to get on q i t h the job. It vas f e l t v i t h i n B.R. t ha t the objectives *re achievable ( in fac t they were B.R.'s own f ive year targets bro f o m r d by tvo years) and that success o r f a i lu re would be meas i n ten- of achieving them. I I

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From the very f i r s t . commitment towards tha t target was t o t a l . I signalled h i s position early: the centra l theme was thnt t h e railway should become more se l f sufficient . The less dependent an industry i s on any source other than the paying customer, the dore e f f i c i en t ly it v i l l run. The vay t o prosper in any business ia/ t o sa t i s fy the customers by giving value fo r money. I

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TBS PROCESSES OF ACTION

The process through vhich the plan of action developed vere i n t e ra ther than external. No fresh legis la t ion came in to effect . $:: was no public part icipation in a grand debate. A t the i n t e r w i t h Government relationships quiet ly improved. No longer was seeking overly t o influence Government transport policy. The centra l f ac t vas tha t now the Government gave B.R. c lear f inandial objectives in 1962 and had suff ic ieut confidence i n the Boar '3 get on with it. No addit ional resources vere provided. Indeed the changes were accompanied by an overall net reduction in 4. l . management and administration. I

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Bowever. the Government made additional money available t o fund t h e redundancy costs of the t rans i t ion, and fac i l i t a t ed the inves*nt which was one of the approaches t o cost reduction. I

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ORGANISATION CHANGE I I I

The f i r s t s tep vas a development of an organisational change d i c h had been s e t up i n 1982. Up u n t i l 1982 the main focus of t h e railway organisation below board level had been the dive geographical Regions ( the Eastern Region. London tfidland ~ e ~ d o n . Scott ish Region. Southern Region and Western Regior.) . Until 4984 regions were 3 - t i e r e n t i t i e s (except Scotland) which hadl an intermediate Divisional level between Regional Headquarters and Area Managers i n the f ie ld . Areas are the ground level uni ts fo r dach of the four production functions (operations, mechanicaq 5 e l e c t r i c a l engineering. signal L telecoaanunications engineeringand c i v i l engineering).

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Until 1982 Railway management war organised functionally w i t h q the Regional structurer. A t Regional level marketing managers coulp be

.found f o r pasrenger. f re ight and parcels t r a f f i c s : spenping departments were represented by the four production funct ons (above) and there were the urual rervice departments. personnel and pluming.

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A rimilar structure exirted a t B.R. Board HQ level and functibnal managers in the Region8 had 'dotted l ine ' responsibil i td on standards and procedures. but not fo r d i rec t control. I Control of receipts and expenditure was based upon the t r a f f i c convention'. Receipts were accrued a t the o r ig

whole. I Below the Chief Executive rerponribil i ty f o r cos t r and receipts was divided. Some progrerr h ~ d bran made t o create Passenger and Freight service p ro f i t centres but a t a 'contribution' level. since no mechanism existed of al locating track. signall ing and a i- s t r a t i o n costs. The a l l w t i o n of track and signall ing cos t t o the Freight and Parcels borinerses as a whole was based l? an avoidable costing convention. There was a 'hierarchy of aqkda- b i l i t y ' which meant tha t nan-pasrengsr businesses were charged ith

primarily t o run a passenger buuiners. i. the incremental costr only. on the premise t h a t the railways existed

~ In 1982 f ive mbottom l inem manngerr were appointed. They were kibown as Sector Directors. There a re the Director In terc i ty . the DireIctor Network South East. the D i n c t o r Provincial. the Director Fre~ight and the Director Parcelr. fhe introduction of Sector ~ana~emend was c!esigned t o spea--head the cul tura l change from a largely produc ion- ti led organisation t o one which i r business-led. This has been achieved by disaggregating the 'bottom l ine ' responsibil i ty and focussing at tention on the p ro f i t and loss s i tuat ion rather receipts and costs in isolat ion. The supported grants) railway consists of Network South East.

and Parcels. currently. Interci ty. The rum-supported railway

The subdivision of the Passenger business was based upon the generally recognised patterns of t r a i n services (and, there p r o f i t centres) where ce r t a in services were c lear ly Interci ty. senred the London and South East commuters and the balance considered t o be mprovincialm in thnt they were concerned commuting in the provinces and secondary cross country and senrices.

I n e s t ab l i sh ing the f i v e Sectors. it war determined tha t . t o the pol icy d i r ec t ion of the Board. the Sector Directors mu d bet ' in chargem and responsible f o r the development and implement ti on^

object ives.

"re=' of s t r a t e g i e s t o achieve agreed f i nanc i a l and qua l i t y of s ey i ce !

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It vas recognised t h a t m y of the rerourcer could not be un i i d e n t i f i e d t o each Sector. Conrequently, t he Reg~onal Ge Mnagerr , through t h e i r Functional Hanagerr, were made respon ible! f o r the 'delivery' of required changer a s vell a r the day-t -day running of the rai lvay. We Functional Director8 w r e requi r d t o a c t in an advisory capaci ty, pa r t i cu l a r ly in rerpec t of profess onal.

i n i t i a t i v e s .

i standards and the deve lopen t of acrosr t he Board cos t s vine;

Below the Sectors. sub-sector managers fvers es tab l i shed v i t h bottom l i n e respons ib i l i ty f o r a number of col~lnodity o r service groups. ~ 1n:erCity has e ight rub-rectorr covering four rov:e~, c ross c o h t r y serv ices , the Gatvick-London exprerr , Anglia m d cha r t e r t r j i n s . each v i t h i t s own manager; Provincial har four sub-rectorr on4 f o r each Region except the Southern: Network South Ear t has s k sub- sec tors r e f l ec t i ng geographical service groupri Parcels ha4 two rub-sectors. r e f l ec t i ng i t s business r t ruc ture : m d f r e i g h t has f o u r product-based rub-rectors plus newly formed R a i l f r j i g h t Dis t r ibu t ion . ~ REVISED RESPONSIBILITIES

w a g e r s report ing t o Regional -gars. But t he resources used and the l e v e l of cos t s t o be incurred a r e de te by the business managers. This introducer contractual* el$:: i n t o t h e re la t ionship between business managerr m d the geograp4ical. managers. a s shown in the diagram b e l w t

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OR!3HISATIONAL RELATIONSHIPS . -

sector ,4 - - - - - - - - - - - - - - - 'I . Dl t tc to ts I t I

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1 Sub-sector Busine~s - Functional !

Relationships:

Coawnd Contractual M v t ~ 3 - ---

Regional production managers are required t o deliver the spe quali ty of service a t the cost specified by the business man

Significant improvements were made in the Corporate Planning t o accoamnodate Sector objectives. s trategies. and performance The planning system has both ' top-dm' and 'bottom-up' proc It ensures tha t action plans are produced in support of Rai intentions. Individual managers are expected t o deliver com and monitorable action plaas.

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f ied ,ers . stem a l s . ses. Plan . t ted

With the introduction of Sector Uanagement, the Board continued t o s e t the broad pol ic ies under which B.R. operates. Within these pol ic ies the Sector Directors develop and define t h e i r s t ra tegies . The plans of the f ive sectors a re co-ordinated by myself and :he Board. They are implemented by the Regional Gengral Managers, using resources under the technical guidance of the f S c t i ~ o n a 1 di rec tors .

Uanagement Information Systems (HIS) were developed t o support the new structure. Inf ras t ructure cos ts were al located t o the prime business sector with other sec tors operating on the margins being charged the additional cos ts tha t they inccrre~d. Erperience has enabled f ine tuning of the system t o provide a v4ry ef fec t ive method of identifying the r ea l cost of nmnfr;g groups pf srarvices. There i s no doubt tha t i t enabled r e a l savings t o be q d e i n a l l areas of h f r a s t r u c t u r e as the r ea l cos t of retaining *rgdaal f a c i l i t i e s has emerged.

I f m organisation i s attempting a deep cu l tu ra i change it i s not znough t o introduce business or ienta t ion i n t o the managerial s tructure. Somehow the understanding and loyalty of the vhole workfor.-- has t o be engaged. Alongside the sictol: revolution a system wide 'cuutomer f i r s t ' campaign was launched. In time most s t a f f w i l l have passed through a special ly designed t ra in ing ,:rograme. Ir. t i a l p r io r i ty i s being given t o fkont l i n e customer contact s t a f f . In pa ra l l e l with t h i s there was u/ider;rread adoption of the t e r n briefing approach t o d i r ec t colnwurication with the workforce. By making sure tha t a21 s t a f f knew what was going on. how the business was going. and vhy the c u s t d e r was important. management l a id a grounding of understanding which made it l e s s l ike ly tha t militancy would thr ive on ignorance.

Since 1983 the railway investment scene in the UK b s been transformed. The Government was alvaya nnxious ' lemonstrate the trade off between f?.nancial performance and in\ uant. b y of the a s se t s were a t the end of t h e i r useful IL. .. and business managers were able t o produce sound investment schemes. This was helped by a new s e t of Investment regulations vhich required a proper examination of options and an independent finaslcial appraisal. A l l investment schemes have t o be sponsored by a business manager vho w i l l be very much aware of the e f fec t on h i s bottom l ine .

Betveen 1983 and 1987 B.R. was able t o invest L4010m in the renewal of the railway. the highest l eve l f o r 25 years. L65Om has been spent on track and signals. L30Om on new d iese l and e l e c t r i c t ra ins . and main i .ae coaches. L26Om on new and refurbished stat ions. B.S. now plans t o spend more than L3.000m a t 1987188 pr ices over the next f i v e years: LllOOm on n w locomotive coaches md d iese l units . LlOOOm on infrastructure. LSOOm on s t a t ions and the f i r s t L30Om of the planned LSOOm investment in the Ckannel Tunnel.

Another element of the overall programm i s the dribe fo r service qualitp. With the narrower role of the Regions came {he rea l isa t ion that it warn the job of the production functions abovela11 t o deliver rervicer of acceptable quali ty a t agreed costs. ( A range of h w a t i o a r were adopted in p u r r ~ l i t of t h i s goal, 1 including the appointmant of a Director. Quality. rupported by ~ u a j i t y Leaderr in *he Sector8 and Punctionr. I

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Antrmg the healthy r i m 8 which emerged a8 a r e su i t of the new buninerr focur war that the invertatent p r o ~ o s a l s were ,given much more careful rcrutiny by the i r burinesr sponsors. hi a resul t they reprerented be t t e r value fo r money and investment scqeme costs have been brought down. An early ruccerr f o r rector man8 ement was the re-allocation of some high speed t r a i n re t s from 1 es vhere the

advaatage was greater.

b production thinking had placed them t o other8 vherq tho businesr

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I Aaother helpful ractor war the continuing trend towar 8 pkivatising di f ferent fr inge ~ c t i v i t i o r (BT Hotels, Sealink. B r i 1 i s h Transport Adwrtir ing and BrJrirh P ~ i l Engineering Ltd). T h i s ( l e f t nunagere t o concentrate on the ruccerr of the core business. $imilarly when product developmmt. rather rhur derign rpec i f i ca t i n. was taking place within the organiratioa. it tended t o r -inforce the engineering ethos.

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The changes involved are fu l ly inrt i tut i- l ised in re f l ec t new rtructures, rcles. rerpoasibi l i t ies . ryetanu. Po l i t i ca l compromise d id not play a the i n r t i t u t i o m l refozm. The actions f i t t e d both of the Government .ad round when the three year support by 252 war achieved in 1986187.

6. RIPACT OF OTHER CWGES I

The -in iatpact of other changes re la tes t o things badpening in the brr,rder environment and in the m r k e t place, I

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In the United U p d o . the transport market has =banged. Car ovnership has grown t o the point where over 21 mLllioslJ vehicles are licensed. Since 1979 38 tonne l o r r i e s have been authdrised. Entry t o markets i s eas ier with coach and bus deregulation Modern j e t a i r c r a f t operate the internal dcmestic routes in rha m. b s t Br i t i sh Airways Shuttle f l i g h t s a re nou operated by 757s. Competiti m i s gett ing tougher. I

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The social. induntrial and po l i t i ca l c l h t e of the( UK has been another factor, Since the defeat of the 1384 miner4 st1:ike. the . indust r ia l relatior.3 climate bas been c b r a c t e r i s e q by the nev realism. Tough minded management i s more l ike ly t o e progreer vhen militancy i s fir recession, although it i s beg id!? g 1:o appear

that Uargaret Thatcher brought a new relat ionrhip w i t the unions. a t l e a s t in tixrt8s of high unesployment. h

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Finally, the underlying financial climate has belen ,generally -

favourable since 1984 v i t h buoyancy in the passe4ger markets. par t icular ly in the prosperous South East where London1 house prices have r isen d m t i c a l l y and forced many people t o opt f)or long range commrting. Although there are danger signs tha t the e~onamy i s now overheating i t i s too early t o anticipat , what e f fec t phis may have on B.R. I

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7. EVALUATION OF RESULTS 1 I I I

It v i l l be several more years before A f i ~ l assesaneng c m be made of the turn around in B.R.*s fortunesr but on an i n t e r 9 evaluation the resu l t s arm highly encouraging. There has a bees (deep and i r revers ib le s h i f t in the a t t i tudes v i t h i n r a i l m y mmagement. B.R. has undergone A major change uid become A business-led. productivity-minded orgadsat ion. I

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Campared with 1981. the r a i l business i s operating uitt( over 30.000 fewer s t a f f ( 2 2 X reduction) 2.824 l e s s locorrrotives (29P reduction) 4.284 fewer coaches (23Z reduction) and 59.443 l e s s f rp ight vagons (671 reduction). In the current Bail Plan 2.000 seprrate aetion plans have bear ident i f ied t o e f fec t further hprwcrmbnt over the next f ive years. I

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Since the Govenrmt s e t f h c i a l objectives in 1983.) the c a l l on the public purse has been reduced by 27X in rea l te*. Br i t i sh Rail is n w the most productive and cost-effective) railway in

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remain a p i l l a r of t h i s cost ef fec t ive railway. I I I

WHERE THE PROGlU-W WAS UNREALISTICALLY OPTIHISTIC ~ I I

1989 and 198617. This was a major achievement. ver. it i s proper in the in t e re s t s of a balanced qualifying cam-n t s . The underlying trends in the

recession. 8ad in one senre the t rue t e s t may be on I

Tho progr- a l so delivered the 198617 f inancia l t a rge s by a route s l i g h t l y d i f f e ren t from the planned route. Productivi y gains were marginally down but o f f se t by an ' o i l p r ice bo us' and a 'maintenance holiday', so t o t h a t ex tent the huge su cesres were helped a l i t t l e by a gratui tous benef i t and by the defe ea t of non- e s r e n t i a l mf intenance. ! 1

B.R. have l r a r rud f r o a t h r i r experience of vorking towadds the f i r s t s e t of objec t ives and the lessons w i l l be applied t o tackling the second s e t o f objectives. I I

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organisat ion t o be folloved by r e spons ib i l i t i e s . This gave r i s e t o some c o n f l i c t s o f i n t e r e s t betwren bur inrss and production.

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management processes.

A s Chairman. I have been qui te happy wi th t h i s ' c r ea t i e tensionw, which conferred a ne t benefi t . but lover down the orgsai a t iun there were 'winners and losers ' and qu i t e high leve ls of jealously, resentment and in-fighting. Sometimes it seemed tha corporate t eawork would become one of t he casual t ies . and even s n io r people

competitors not the* colleagues. \ sometimes needed reminding t h a t the r e a l enemies were t h e i r

I Hanagrrs emergcd fram t h i s period much more aggressive (and tougher . minded than they had necessary process t o confront the r e a l i t i e e

b o t h e r v i m vould be tha t the change process could havb been bet ter managed. The basic proposition appeared t o be ' se t the1 t ige r s loose and see what happens'. Some of the early e f fo r t s were directed towards sectors 'playing the al locations game' a d &tempting t o pass costs off t o other sectors. Hanagers had t o clfmb( the learning curve. There i s no sudden ' f l ip over' i n to business madagernent , but a sustained period of development. I I

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CHANGING EXPECTATIONS AND PERFORMANCE

The key t o success vas managaent motivation. Hany ( individuals flourished in the n w climate and made personal contribrj t iws of tbe h ighestorder . I twasdemonstrated t h a t h i g h p e r f o ceiandhigh aspirat ions go together. The existence of indi-idua management objectives (some formalised within the p e r f o ~ c e rev ew process, others created within the budgetary control system created a pattern of sustained motivation. Hundreds of manager 7 th~coughout the system had t o come t o terms with the business ethos. A few f e l l by the wayside. but the vast majority made the t rans tion. For those who did not themselves becme business managers t h i s meant they had t o adjust t o a ccmpletely new pattern of r e l a t i nships, and often accomnodate changes in t h e i r own role. The n w r lat ionships were contractual rather than hierarchical . 1

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For many people, such as Area Hanagers, there was a n network of accountability by vhich they had t o cope w i t h d i f ferent 9 emands from

ADDITIONAL MEASURES - The inmediate need is to consolidate on the gains alr4ady made and a

encourage the emerging business skills to develop. Uqderrtandably the initial business thrust was directed towards cost~cuteing. It is n w important that even greater weight is given to winning new businer8 in the market place. There are encouragj,ng signs of innovative marketing initiatives now emerging.

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With another demanding set of Government financial and quality objectives on the horizon there are clear signs that tthe mn up to privatisation of our transformed industry will be as c$allsnging ae the last six years.