Highways? Aviation? Privatised public utilities such as water and electricity?
“I’m not so sure that any of those are seen as leaders of the pack,” shrugs Her Majesty’s Chief Inspector of Railways Ian Prosser.
So which other industries could teach the railway a lesson in restructuring? A consistent response is to look at oil and gas.
“The oil industry is constantly striving to get more production through a refinery, offshore platform or pipeline - getting more for less,” says former Network Rail Chief Executive Mark Carne.
“The analogy with the railway is very clear: getting more passengers on more trains, more reliably on the same track.”
He should know. Carne moved to the railway after a long career in the oil industry.
“Oil is all about organisational efficiency,” he explains. “Running a business at lower cost, merging central office functions while optimising exploration portfolios.
“Exxon Mobil, Texaco Chevron, BP Amoco: all of those mergers were founded on increasing efficiency and economies of scale. It has been a constant theme throughout my career. A key means of doing that in oil and gas was bringing in technology to be smarter - an industry always at the cutting edge of technology, so you don’t drill so many dud wells, for example. You target wasted cost.
“I do think there are lessons in that regard. In rail there has been a constant theme of fragmentation over 20 years. The taxpayer is a critical stakeholder in rail - it constantly needs to be trying to become more efficient. My view is that in rail we have lost that.”
Prosser responds: “A lot of what we have put in place over the last 15 years has come from other sectors. On health and safety, rail has not caught up with the very best, but it has moved a long way forward.
“What’s important during structural change is to make sure that people don’t drop the ball. The reason the railway ended up in a mess after privatisation in the 1990s is that people dropped the ball. Continuity and stability were lost.
“Oil and gas, and the chemical and pharmaceutical sectors, are where rail can learn a lot about structural change. Those sectors are going through change all the time, with mergers and demergers, and companies being broken up.”
Prosser came to rail in 2008 from ICI, so he has experience of this.
“The railway is not yet strong enough to withstand substantial upheaval,” he argues.
“Why? Because we don’t have full engagement with the workforce. We have to understand where we are weak, particularly within Network Rail and with some of the train operators. They have struggled with engaging staff, and that’s why they’ve had the big industrial relations issues.
“Like the major changes in Southern. They haven’t taken the time to manage change and explain why it is needed. They are driven by the timescales required by their contracts, and this has caused trouble.”
Adds Carne: “In the fragmentation, you now have each individual party trying to optimise its piece of the puzzle. It only works if the interfaces are perfect. The reality is they are not.”
Rail vs Oil
Like Mark Carne, Len Porter came to rail from the oil industry. He was formerly chief executive of the RSSB.
“In the 1970s, everything in the oil and gas sector was solved with money. The price of oil was very high. There was no discipline in how the sector organised itself to deal with performance at the right cost and the appropriate risk.
“In 1986, the backside fell out of the price of oil, from $35 a barrel to $10. Given that it cost $15 a barrel to get it out of the North Sea, it was a massive shock.
“We had to learn a different way of working - reducing the cost of getting oil out by a third without compromising risk. After the Piper Alpha disaster in 1988, and the Cullen Report into it, everything changed.
“That was the beginning of what we now know as proper infrastructure and engineering asset management - collecting the right data, information management systems, risk and reliability models.
“Since then the oil industry has led the way. But in the rail industry there are too many moving parts. It’s too difficult. The DfT, ORR, RSSB, RAIB, RDG, RSG, Network Rail itself and all the train operating companies, each pulling their little cost-performance-risk triangles in different directions.
“So, improving performance at reduced cost without compromising risk in the system as a whole is hellishly difficult.”
“People used to tell me the railway was so enormous. It’s not,” observes Carne.“I spent a lot of my life at Shell. That really is a big company, operating globally. It is brilliantly organised and brilliantly run. The railway’s size is not its problem - the problem is the way it is organised.”
“The oil and gas industry is a complex system that you are trying to optimise. Oil and gas is also constantly looking for the best place to invest scarce resources and scarce capital. And it has really sophisticated tools and techniques for thinking about where investments are made.
“The railway is far too politically oriented for that to happen at the moment. And it is not at all transparent in the way those decisions are made. It has a lot to learn in terms of transparent capital investment decisions. Which is why I set up the System Operator in the first place.
“The industry has to go to government and say that if it has
£x billion to invest, here are the top ten things that we think it should be spent on. Because that is not transparent at the moment, it makes it subject to all sorts of political influences. That is not helpful.
“You have to think of it as a total system. Start from the premise that you need to optimise performance as a system. That requires you to have a central body.
“There may be different options for organising work in different parts of the railway. I don’t want to think in terms of Network Rail and train operating companies - I want to think in terms of the whole railway and how you then bring in private sector skills, and perhaps capital, to run parts of it under an overarching guiding mind.
“People used to describe the train operators as the private sector bit and Network Rail being the state bit. But about 90% of what Network Rail spends on new projects is spent in the private sector, by companies putting their shareholder money at risk. A train operating company has shareholder risk, but it certainly doesn’t put much capital in.
“They are just different forms of contracting. The staff only belong to the train operators temporarily. They’re not really private sector staff because they are bound by all the rules associated with the franchise.
“So, for the future, start with an integrated business and then look at how it can engage with the private sector. Maybe that is by contracting out the operation of trains, or the maintenance of a piece of railway, or the building of a new one. It can be done on a case-by-case basis - just as you wouldn’t use the same method for getting oil from the North Sea as you would from under a desert.”
