Delivering for our customers Transformation Plan. Update February 2017

Transcription

1 Delivering for our customers Transformation Plan Update February 2017

2 NETWORK RAIL IS CHANGING OUR TRANSFORMATION PLAN, PUBLISHED IN JULY 2016, SET OUT HOW WE WOULD BECOME A PUBLIC SECTOR ORGANISATION THAT BEHAVES LIKE A PRIVATE SECTOR BUSINESS That means transforming to become relentlessly customer focused, competitive and attractive to investors. Devolving power to businesses closer to our customers is central to this vision. For that to work, our routes need to be empowered to run their businesses in a way that best meets the needs of their particular train operator customers and their passengers. Everything should be devolved to these separate route businesses unless it demonstrably needs to be carried out centrally. As this report highlights we have already made significant progress across the board, with more to come in the months ahead: Between 40 and 60 per cent of each route scorecard, against which we measure business performance (and determine performance-related pay), is now based on what our route train operator customers have asked us to focus on, creating alignment between track and trains. On the Western route we have set up a route board with an independent chair and representatives from Network Rail, Great Western Railway, Heathrow Express and, on behalf of passengers, Transport Focus. We will evaluate this pilot in the summer to inform how to implement this approach across other routes, in discussion with train operators. In December, the Secretary of State for Transport set out his vision for the rail network which strongly aligned to our direction of travel. We strongly support his aspiration to bring track and train much closer together, and Network Rail is leading the way with our customer-led route scorecards that are now driving real change. I am very pleased that the Office of Rail and Road (ORR) has agreed to use these route scorecards as the basis for their regulation in the future, and also that the Department for Transport has decided to base future franchises on them. The Secretary of State also set out his desire to see more competition in the delivery of rail services, and this aligns strongly with our transformation strategy. We have initiated an independent review to identify the barriers that prevent private sector businesses from carrying out projects on our railway, as we believe increasing contestability will drive innovation and reduce costs. Rail is rarely out of the headlines at the moment, and often for the wrong reasons. Passengers are suffering unacceptably. It is time for all partners involved in the rail industry to come together and accept the scale and pace of change required to deliver the modern, high performing railway that Britain needs and that has the potential, in its turn, to transform journeys, economies and lives across the country. We have now identified new chief operating officers for six of the routes. We have also significantly increased the responsibility and authority of route managing directors, with 99 per cent of all work now able to be approved at a route level. We are ensuring they will have the capacity and capability needed by developing a new route leadership structure. Mark Carne Chief Executive Each route will have separate regulatory settlements by April 2019, the start of Control Period 6. We therefore have two years to evolve the routes to ensure they are fit and ready for this fundamental change. 1

3 WHAT DOES DEVOLUTION MEAN TO ME? VIEWS FROM SOME OF OUR ROUTE MANAGING DIRECTORS The purpose of devolution is to provide better service to customers. This means sweeping away red tape and bureaucracy. It means giving routes the delegated authority needed to respond quickly to our customers. There has been huge progress during the last 12 months. The route investment panels now have the financial authority to deal locally with the vast majority of investment decisions. The route claims panel has been given ten times as much authority to deal with customer claims. These changes have enabled us to become more responsive and more decisive. Route devolution has also included the transfer of the HS2 project sponsorship team from the centre into London North West (LNW) route. This is vitally important for the route because HS2 will be doing vast amounts of work on our infrastructure during the next decade. We need to make sure that the needs of passengers are properly considered. Devolution gives us much control over all the important decisions on this massive project. The devolved route scorecards have also made a huge difference to customers. We spent lots of time listening to our customers to understand what is important to them. We put in place targets and action plans to deliver improvements. This has made a remarkable difference. For example in LNW route we have focussed on the long distance Anglo-Scots market because it is worth a lot of revenue and it has come under a great deal of pressure from the low-cost airlines. We have delivered a remarkable turn-around in this important customer market. But devolution isn t just about the routes. It s also about how Network Rail s central teams deal with the routes. This has been one of the greatest benefits of route devolution. The route services team has become much more customer-focused in its dealings with the route. They are responsive and eager to help. This makes my own life so much easier, and in turn helps improve services for customers. The rail industry and Network Rail continue to go through a period of real change when delivering levels of investment not seen since the Victorian era. At the forefront of this change is our devolution journey within Network Rail. This journey is accelerating and as route managing director I am now able to make more decisions, more effectively, in the interest of our customers than ever before. This industry change is a huge opportunity for us to transform how we deliver for our customers. The London North East & East Midlands (LNE&EM) route has great opportunity to embrace that opportunity and transform how we operate. We strive to deliver a safe and reliable railway each and every day, and in doing so ensure our railway continues to meet the needs of the communities and economies we serve. How will we do this? Well, our culture is borne of an environment that was not devolved therefore how we operate, how we behave and what we do needs to change. We have to enable our people to do the right thing and create an environment where doing the right thing is easier than not. There is huge untapped organisational memory that we have to access and focus our people on what we can really achieve. This will require decision making to be clear at all levels of our organisation and our people fully empowered to do the right thing. Our environment is a complex one and we must work hard to look outside of our immediate world, scanning the horizon for things that could affect or enable our business objectives. The needs of our customers along with the communities and economies our railway serves must be baked into our business plans. Above all, the Network Rail devolution journey places our future in our hands so that we can show we care about our people, we are proud of the work that we do and are passionate about what our railway brings to the communities and economies we serve. Martin Frobisher LNW Rob McIntosh LNE&EM 2

4 WHAT DOES DEVOLUTION MEAN TO ME? VIEWS FROM SOME OF OUR ROUTE MANAGING DIRECTORS Devolution means having a truly routeled business which puts the customer and passenger at the heart of everything we do. It gives us local accountability and responsibility for the operation, financial management and development of the railway now and in the future. It s about having stronger and greater relationships with Welsh Government, our route stakeholders, partners and those with an interest in the rail industry to build public confidence in our ability to deliver. These stronger relationships will also help us to create a bigger and better railway for Wales and the border counties that we can all continue to be proud of which, in turn, will bring economic and social benefits to the communities we serve. Andy Thomas Wales When people refer to the railways they mean something national, but when they talk about the train, it s personal; it s their train, their journey, affecting their day. Very few industries bring about such a heartfelt reaction in their customers. In order to meet that level of expectation and ownership, we need to offer as personal a service as we can. So to me, devolution means the opportunity to engage with and serve people in that way. Whilst the dozens of changes that have occurred to date might look small on paper they all add up to enabling Western Route to provide a more tailored and personal service for the train operators, passengers and communities that we serve. One of the first big changes allowed many larger financial decisions to be agreed at a local level, giving us the freedom for us to take our own decisions relating to investment, settling claims with train operators, or dealing with contractors. This means a faster, nimbler decision-making process which makes us far more responsive to our customers needs and more efficient. We are joining forces with regional train companies Great Western Railway (GWR) and Heathrow Express to create a new Western Route Supervisory Board, which includes passenger watchdog Transport Focus and will be independently chaired. This will drive improvements that are focussed on delivering the outputs of our customer scorecards. It s the latest stage of the companies commitment to working closer together to improve passenger experience. Another example of devolution in practice is that we now have management of our vehicle fleet. Our people rely on these vehicles to ensure they can get to site, work efficiently and get home safely, often outside normal working hours and in difficult weather. Devolution has enabled us to start managing our vehicle fleet more responsively, which means we are more able to make sure that our people have the right vehicles with the right equipment for them to do their job safety and quickly for the local varied conditions that we have across the route critically important to ensure an improved response to service-affecting issues. Better vehicle fleet management improves employee engagement as well as improved safety and performance. There are less-tangible benefits as well. Most of the staff who devolved into Western Route were already sat in the route offices and working to, but not often feeling part of, their route. Devolution has not just been about a reporting line change it represents a shift towards a more customer-focused team, responsible and accountable to one another as well as our local customers and communities where we live. Devolution gives us the responsibility and the power - to serve them better. Mark Langman Western 3

5 WHAT DOES DEVOLUTION MEAN TO ME? VIEWS FROM SOME OF OUR ROUTE MANAGING DIRECTORS The pace of devolution is picking up, allowing the Anglia Route and TOCs to be much more innovative in our conversations, our outlook and much quicker in our dealings with each other. It s a virtuous circle and as people see this in action they want to be part of it and challenge themselves and colleagues to do even more, with the passenger at the centre of everything. Richard Schofield Anglia Greater devolution of accountability and responsibility to our route businesses is vital to improving customer focus and providing better local delivery. It must help us respond and deliver more quickly and flexibly. As not all of our customers are local or operate predominantly on one geographical route, Freight and National Passenger Operators (FNPO) was launched as our ninth operational route. FNPO endeavour to make sure that we protect and promote the interests of FOCs and TOCs who are national businesses operating across multiple routes. Establishing FNPO as the ninth route, and bringing in CrossCountry and Caledonian Sleeper, has given extra profile in the company of these key customers. A key objective of FNPO is to provide the same benefits of route devolution to our national customers: to work and respond faster, to build better relationships and focus on the specific needs of our customers. By working closely with geographical route colleagues, the system operator and other central teams we will achieve this goal. For me devolution is about focusing locally but not forgetting that we operate on a national network and within a national framework. So, at the same time as we devolve accountability and responsibility to routes and local managers we need to retain the essential and efficient national processes. Striking the right balance in this and not getting mired in unnecessary bureaucracy to deliver it will be for me a success factor of devolution. Paul McMahon Freight and National Passenger Operators 4

6 CUSTOMER FOCUSED BETTER RAILWAYS DRIVE THE ECONOMY, THE HOUSING MARKET AND THE JOBS MARKET With so many people dependent on our network, we want to ensure customer, passenger and freight interests are at the heart of our railways. As devolution of power gathers pace across Great Britain we will also need to develop our relationships with devolved planning and funding bodies at the appropriate local, regional and national levels. DEEPER DEVOLUTION At the heart of our devolution agenda is the principle that empowered leaders can focus more precisely on the needs of their customers, take decisions faster and innovate more effectively. We have implemented changes to the financial authorities for our route managing directors so that they are now able to authorise 99 per cent of all work carried out, 98 per cent of procurement spend and 96 per cent of all contractual claims from customers. This is a step change in how we run our business and shows our commitment to the devolution agenda. In March 2016, we began the process of reviewing all services held in the centre of Network Rail and in the past five months we have reviewed 93 internal services and agreed that around 450 roles previously in the safety, technical engineering directorate, route services and other corporate functions will be devolved. This process is well on the way and we have already consulted on and devolved seven of the eleven of these services to the routes. The remaining will be transferred by the end of March Phase two of the process will review the residual central services, with the aim of having 95 per cent of our staff working either in a route or providing a cost-competitive service to it. This ensures that accountability and capability are in the right place. In Control Period 6 ( ) the devolved route businesses will each have their own regulatory settlement. To ensure effective governance arrangements are in place, we have established a pilot Route Supervisory Board on Western route. The board will have an independent chair and will bring train operating companies and Network Rail together to deliver a more aligned railway, working to improve railway performance for the end user, the passenger and freight businesses. To bring the voice of the passenger to these boards we will also have passenger representation, with a core member from Transport Focus. ROUTE-BASED SCORECARDS In 2014 we introduced our national performance scorecard and made our performance transparent to our employees and the public. We then began a 5

7 cultural transformation of closer collaboration between our route managing directors and the managing directors of train and freight operating companions. In 2015 we introduced route-based scorecards and this financial year, for the first time, we have consulted with our TOC and FOC customers to develop bespoke, customer-led scorecards for each devolved business. This step, moving from targets set by the ORR to targets set by our customers, allows us to align our objetives with train and freight operating companies. This has been universally welcomed by operators, the ORR and the Department for Transport. The 2017/18 scorecard process began in September and we are working closely with our customers to further align our objectives, so we can better work together to improve railway performance we aim to bring track and train together for the benefit of passengers. It makes profound sense for all parts of the railway to be pulling in the same direction, and that we move to greater weighting on route performance for performance related pay. We are also building on our experience of alliancing on the Wessex route and in Scotland to seek new forms of alliancing in other routes. LEADERSHIP CAPABILITY Our devolved businesses are, by any measure, big and complex organisations, and will need to continue to evolve over time. That is why, over the past five months, we have reviewed the capability of the devolved route business leadership teams and are supporting them to secure the skills and experience needed to deliver the new responsibilities they have been assigned. We have consulted on a new leadership structure in every route which will deliver a greater focus on customers and new commercial capability to bring in third party funding, reducing the burden on the taxpayer. We are particularly pleased to have recruited women into three senior leadership positions in recent months: Becky Lumlock as route managing director of the Wessex route, Janice Crawford as our Infrastructure Projects (IP) southern regional director, and Helen Samuels as IP engineering director. 6

8 NORTHERN INVESTMENT ORGANISATION Following an extensive review of how best we can be aligned to customer and stakeholder needs in the north of England, we announced in October our plans to create a new Northern Investment organisation to work alongside Transport for the North (TfN) to secure and deliver the best investment for our customers. With TfN, we are currently recruiting for a managing director to head up this organisation, who will be responsible for driving future rail expansion, modernisation and investment across the north to deliver a better railway, bringing economic growth, jobs and more housing. At the same time we have made changes to existing structures to ensure our strategy and planning and major programme delivery functions align with the new organisation and with TfN. NATIONAL FRAMEWORK At the same time as deepening devolution, we firmly believe that the railway needs to operate as a single interrelated system. The National System Operator (NSO) is a business unit within Network Rail that ensures the network is planned and managed fairly and optimised for the benefit of all. From 2019, there will be a separate regulatory settlement for the NSO and we are currently working with the ORR and the wider industry on what our objectives should be and how they should be measured. This could include a greater role in the franchising process and in the decisions surrounding the allocation of access rights to the railway, and in pro-actively modelling capacity across the network to identify opportunities to improve train performance. It is also important that we run a safe and reliable railway and it is the role of the Technical Authority, another business unit within Network Rail, to provide the overall management systems and standards for health, safety, asset management, sustainability and engineering. This involves setting the associated strategic direction and policy, having a sound understanding and oversight of key risks, establishing and maintaining the baseline risk controls for network-wide application through our standards framework, and continually developing the capability of our people. The Technical Authority also provides essential learning from performance monitoring, assurance activities and investigations and is accountable for our technical strategy, in line with the industry s Rail Technical Strategy. 7

9 FREIGHT AND NATIONAL PASSENGER OPERATORS We are also strengthening our relationship with our freight and national passenger train operators customers whose interests cut across our geographical route boundaries. To ensure that their national needs are addressed within our devolved structure, in September 2016 we established Freight and National Passenger Operators as our ninth operational route to serve these customers. We have now entered into the next phase of this work, where we are building the capability of the team, including to support the growth of rail freight. We are determined to continue the strong improvement in freight customer satisfaction that we have seen in the past few years. WHAT WE HAVE DONE We have created devolved route businesses with performance targets set by customers. In October 2016 we significantly increased the delegation of authorities to route managing directors. Now, 99 per cent of all work carried out, 98 per cent of procurement spend and 96 per cent of all contractual claims from customers can be approved at the route level. We have reviewed 93 internal services and completed the transfer of 75 per cent, with the rest to be transferred by 31 March WHAT WE WILL DO The new Northern Investment Organisation will be set up by 1 April We will review the remaining services within the centre of Network Rail, to identify those which could be devolved. We will finalise the 2017/18 scorecard to be further aligned to our customers. We are piloting a Route Supervisory Board on the Western route, including TOC and passenger representation, and associated governance structure that will go live by 1 April Following this pilot our aim is for all routes to have equivalent supervisory boards by February We have designed and consulted on a new leadership team structure for each route that will be finalised and in many cases recruited into by 1 April We will work with DfT to create franchise targets that are aligned between Network Rail and TOCs. 8

10 CASE STUDY SCOTRAIL ALLIANCE The ScotRail Alliance is a close working relationship between Abellio ScotRail and Network Rail s Scotland route, with the aim of improving services for passengers by working more closely together. Over the past 18 months, we have: Established an integrated control function, to enable joint operational decisions to be made more quickly when an incident happens. Taken an integrated planning approach to timetabling our disruptive engineering work on the Edinburgh-Glasgow Improvement Programme. This has resulted in reduced costs and helped us achieve key milestones. Integrated our communications teams to ensure constant messages for external audiences and for our staff. Combined our property and maintenance teams, to more efficiently manage contracts and tendering.

11 COST COMPETITIVE EVERY PENNY WE SPEND MUST RETURN THE MAXIMUM POSSIBLE BENEFIT OPERATING COSTS DOWN 46% SINCE We have delivered sustained improvements in efficiency over our last two funding periods and government subsidy is half that in France, a third the level of Germany and continues to fall. We must continue to drive down the costs of the railway through better ways of working and by embedding structured continuous improvement. Analysis by the Rail Delivery Group (RDG) shows Network Rail operating costs have fallen by 46 per cent since and our plans for this control period contain significant efficiencies, with savings of eight per cent in operating and maintenance costs targeted over the next two years. Our route businesses must innovate to find new ways of working to bring down the cost of running their businesses. We will further embed a culture of cost consciousness throughout our organisation, ensuring that we spend money wisely to deliver the best possible services for our customers. We have embarked on a lean transformation programme and are well on the way to transforming how we work. Lean is an important part of the company s commitment to being better every day by eliminating wasteful activities, often by better planning (please see page 16 for how we are embedding lean into our organisational culture). It also makes sense to maximise the benefits of the economies of scale that come from aggregating services that the routes need. Our new route services directorate is now established and providing 135 different services to the routes and other customers. The priorities for these services are being agreed in detail with these customers, and an extensive programme of lean approaches and market testing is underway to maximise value for money and optimise the use of specialist skills. The scope and role of route services will evolve over time to make sure it is set up to make best use of the supply market and provide the value-add that the routes really need. We remain committed to making it less bureaucratic for other project delivery organisations to work on the network, and share the government s aspiration for greater contestability in project delivery. We have asked Professor Peter Hansford to chair an independent review into the barriers to increased competition and to explore how we harness opportunities around third-party funding and financing of projects and new models of delivery. WHAT WE HAVE DONE We have established the route services transformation programme, to improve efficiency and commerciality across its service portfolio. As part of the Hendy review, Infrastructure Projects (IP) accepted a 200m efficiency challenge and has identified 170m of opportunity. We have begun a review, chaired by Professor Peter Hansford, into the contestability of the UK rail market, with the intent of encouraging third party investment in rail infrastructure projects. WHAT WE WILL DO By April 2017, 70 per cent of all route services directorate activity will be market tested, and improvement plans will be in place. (Please see the Culture section for our commitments in relation to lean culture.) 10

12 CASE STUDY ESTABLISHING THE HANSFORD REVIEW We have established an independent review into the barriers that are discouraging third parties from investing in, and delivering, rail infrastructure projects. It is being chaired by Professor Peter Hansford, who has over 40 years experience in major infrastructure and building projects in the UK and overseas and is currently professor of construction and infrastructure policy at University College London. He has established a panel of six industry leaders to support the review: Alistair Gordon, chief executive officer at Keolis; Andy Milner, chief executive officer at Amey; John Smith, managing director at GB Railfreight; Matthew Symes, partner at Concerto; Mike Gerrard, an independent expert with a background in the development, financing and delivery of major infrastructure investment; and Zara Lamont, performance improvement director at Carillion. The review is currently taking evidence from interested parties and is due to report to the Network Rail Board in spring 2017.

13 COMMERCIAL THE RAIL NETWORK IS A NATIONAL ASSET AND A KEY PUBLIC SERVICE. IN FUTURE, TAXPAYER FUNDING WILL BE INSUFFICIENT TO FUND ALL THE IMPROVEMENTS REQUIRED TO MEET GROWING DEMAND This could include the installation of new systems such as digital signalling, for example, or the construction of a new piece of railway. We have worked with the RDG on its Alternative Delivery and Financing of Enhancements work stream, looking at the obstacles for introducing third party financing into rail enhancements and how they could be overcome, as well as reviewing a number of case studies. This will help inform the Hansford Review into increasing competition (see page 11). We have also begun work to inform the potential of letting part of our infrastructure on a concession basis. We are working with Transport for Wales and Welsh Government on their plans to develop a new transport system in the Cardiff Capital Region, which includes the potential for alternative models of building and operating the railway. And we are exploring new models for the management and ownership of our 18 managed stations with the goal of bringing improvements for both passengers and the communities they serve. As part of increasing devolution to route managing directors, routes are starting to develop their local funding strategies to address their particular opportunities and challenges. Today almost all of the funding for our enhancement programme is provided by the tax-payer in one form or another. Working with government, we are now exploring ways in which private capital might help deliver improvements for passengers more quickly or with better value for money. That will include approaches to capture higher levels of third party contributions (outside direct government funding) and by exploring the feasibility of different railway models - whether infrastructure concessions, for example, could take responsibility for parts of our network, with the aim of driving innovation that can then be replicated elsewhere. We are also looking at how the private sector might help in the delivery, financing and operation of discrete elements of our network in order to reduce costs on the taxpayer and increase innovation. We committed to generate up to 1.8bn of funds to help pay for the CP5 enhancement programme through the sale of assets including parts of our commercial estate, freight sites, surplus land and car parks. This sort of portfolio management is exactly what private sector businesses do when they reach their loan ceiling. Unlike private sector businesses, however, all of our asset sales have to be assessed against government debt and deficit tests. This adds considerable complexity to our ability to sell assets and potentially reduces the amount of sales proceeds that can be reinvested in the railway. This issue is under active discussion with HM Treasury and the Department for Transport. Working with Transport for London, we are exploring Land Value Capture as a way of recognising the increase in land value that results from infrastructure projects. We have undertaken desktop research into how this is done in other countries and are now looking at how this could be practically applied here. 12

14 WHAT WE HAVE DONE In January 2016 we signed a memorandum of understanding with the Welsh Government who are exploring the case for a new railway model to operate and manage the Welsh Valley lines. Network Rail has supported the competitive process to enable submission of outline solutions by preferred bidders in November In March 2016, we embarked on a programme of asset disposals so that we can reinvest the proceeds to maximise passenger benefits. We are empowering routes to secure third party funding opportunities and reviewing the relevant capability within routes needed to do so. We have begun a review into the contestability of the UK rail market, with the intent of encouraging third party investment in rail infrastructure projects (see page 11). WHAT WE WILL DO By spring 2017 we will have scoped the business development director role or its equivalent in each route, to enhance commercial capability to secure third party funding. We will enhance commercial frameworks to support third party funding by 28 February We aim to attract private capital for currently unfunded CP6 and CP7 projects. We will continue to assist in the review of the South Wales Metro outline proposal, which is currently in progress and will continue until 30 June We will explore ways to capture a share of higher land value resulting from railway investments in London and potentially elsewhere, including establishing a joint working group with Transport for London, local authorities and other interested parties to develop a joined up Land Value Capture strategy by December We will undertake detailed feasibility analysis on alternative delivery and financing options for certain rail enhancements and the Digital Railway, as these requirements arise. We will work with the Hansford review team to share previous work on alternative delivery and financing of enhancements. 13

15 CASE STUDY SOLUM REGENERATION We established a joint venture with the construction and property group Kier and worked together to identify areas around stations that have regeneration potential. At Walthamstow Central, Christchurch and Epsom, new housing and retail units have now been built, with the funds generated by the schemes used to pay for enhancements to the stations a good example of how we can use the land that we own to help address local housing demand whilst also generating capital to invest in the railway. A further seven sites are in the process of being developed. The Haywards Heath Station Quarter development, for example, is a 35m regeneration project that will include: A new dedicated, 1,000 space car park, linked to the station platforms by an enclosed footbridge. A new public square outside the station, with improved pick up and drop off facilities and art works commissioned from local artists. A new Waitrose supermarket, bringing 200 jobs to the area.

16 CULTURE WE ARE COMMITTED TO NURTURING A CULTURE OF HIGH PERFORMANCE, ENCOURAGING EACH OTHER TO BE BETTER EVERY DAY, AND FOCUSING ON OUR HEALTH AND SAFETY VISION OF GETTING EVERYONE HOME SAFE EVERY DAY To achieve cultural transformation we remain focused on the following four key areas: improving safety, to deliver everyone home safe every day. being customer focused. being Better Every Day by applying structured continuous improvement, supported by a lean leadership culture. improving our diversity and inclusion. SAFETY In the last year we reduced train accident risk by 10 per cent through hard engineering work, good maintenance and good practices, despite some challenging climatic conditions that we have to deal with. We continue to be the safest railway in Europe. We are also working closely with our trade union safety representatives on joint initiatives such as national health and safety week. Working closely with our union safety representatives we are starting to see a change in our workforce safety culture, and in turn our business performance. In the past year there were no workforce fatalities for the first time in the history of the railways. At the same time our project safety performance has improved significantly and in turn so has our bank holiday handback performance, demonstrating how safety and performance do go hand in hand. There is still significant room for improvement. Other safety critical industries have a workforce safety record that is up to ten times better than ours. We have a long way to go, but we can improve our safety record, which in turn will deliver business performance improvements as well. Everyone home safe every day remains our key priority and driving is one of our biggest safety risks. More than 26,000 colleagues took part in safety stand down events in July, when everybody at Network Rail was asked to join in a 90 minute session on the subject of driving safety. Across the business 2,438 teams shared stories, discussed the risks involved with driving - both in and out of work - and together committed to changing behaviour to be safer, whether behind the wheel or as a passenger. We are now seeing a reduction in driving incidents and an improvement in road safety. Network Rail has received four British Safety Council Swords of Honour, which are awarded to companies that have demonstrated excellence in the management 15

17 of health and safety risks at work. This is a substantial achievement. The Swords of Honour were awarded to the Switches and Crossings (S&C) North alliance, S&C South alliance, plain line track renewals and the High Output track renewals teams. CUSTOMER FOCUSED We are building our leadership capability to improve our customer focus as described in the Customer Focused section on page 6. At our recent leadership conference, we brought together senior leaders from our organisation and from 17 train and freight operating customers, enabling us to hear directly from our customers and discuss their priorities. BETTER EVERY DAY Network Rail is developing a lean leadership culture where Better Every Day is part of our DNA and employees are motivated and engaged. We aim to have a sustainable lean organisational structure and capability throughout the business. We are assessing the maturity of the whole business to drive Better Every Day and are developing a common approach to our training and development in this area to respond to the results of that maturity assessment. Meanwhile we are continuing to put our people through Lean Academies and to focus on improving effectiveness and efficiency through lean Better Every Day initiatives, making progress towards our target to have trained 50 per cent of our employees in lean by We are now a diversity champion for Stonewall and gained a highly commended at Business in the Community s Race for Opportunity awards for our work with Employee Networks. We have delivered inclusive leadership training to 4,000 people. 15 per cent of our employees have received lean training, with nine per cent having taken part in lean academies, to enable them to lead lean initiatives. We have increased our levels of diversity amongst both graduate and apprenticeship recruitment. WHAT WE WILL DO Assess the lean maturity of Network Rail to deliver Better Every Day by the end of February 2017 and plan actions to respond to the results of that maturity assessment by the end of April By the end of April 2017, identify the optimal lean training approach for the organisation as a whole. We will build diversity impact assessments into our business as usual processes by autumn This will provide assurance that we have considered the effect of our work on diverse communities, and that we are being as inclusive as possible be it in recruitment, procurement, or our renewals programmes. 50 per cent of all Network Rail employees will be lean trained by DIVERSITY AND INCLUSION Our annual Everyone Week, which highlights and promotes our approach to diversity and inclusion throughout the business and the wider industry, included over 100 events and activities. The launch of the Everyone elearning programme - an interactive resource which promotes the culture and behaviours we want to see in the business- and a summit with our customers, attended by over 130 participants, exploring how we can build our industry-wide collaboration on diversity and inclusion, have both been highly successful. WHAT WE HAVE DONE We have developed an easily understood strategic narrative on our transformation plan, and communicated this widely. We enabled effective engagement with our train and freight operating companies at our leadership conference. 16

18 CASE STUDY SAFETY AND PERFORMANCE GO HAND IN HAND The two graphs below illustrate that the LNW route have improved performance at the same time as reducing workforce injuries, reinforcing the principle that safety and performance go hand in hand. Lost Time Injury Frequency Rate (LTIFR) LTIFR /2017 LNW LTIFR (Net Ops) MAA LTIFR Target Virgin Trains PPM MAA results - Periods 1 to 10 (16/17) 89.0% Virgin Trains PPM MAA results - Periods 1 to 10 (16/17) 88.5% 88.0% 87.5% PPM MAA % 87.0% 86.5% 86.0% 85.5% 85.0% 84.5% PPM MAA Target PPM MAA Result 84.0% P1 P2 P3 P4 P5 P6 P7 P8 P9 P10 Periods in 2016/17 LTIFR the number of injuries leading to absence from work amongst staff and contractors per 100,000 hours worked MAA moving annual average PPM Public Performance Measure - the percentage of trains which arrive at their terminating station within five minutes (for commuter services)/ 10 minutes (for long distance services) 17

19 CASE STUDY LEAN IN ACTION Once work at a track renewal site has been completed, the contractor must issue a construction completion certificate. This is a contractually binding document, in which Network Rail agrees that a job has been delivered to the specification required and the contractor can therefore be paid for the job. This process was taking an average of 59 days to complete, which was creating significant delays in the renewals process. By applying lean principles, one of our project managers was able to simplify the process from nearly 50 steps to just seven. This included replacing the lengthy back and forth of letters between the parties with a weekly meeting to approve the certificate. As a result, the average time taken to get the certificate approved has fallen to just four days allowing renewals to complete more quickly and saving significant staff time.

20 CAPACITY THE BIGGEST CHALLENGE TO OUR RAILWAYS IS ITS SUCCESS AND THE CAPACITY CHALLENGE THIS BRINGS Following a doubling of passenger numbers in twenty years, we forecast that the number of people that will want to travel on our railways will double again in the next 25. However capacity is now severely constrained in some areas beyond a level that is sustainable, leading to poor performance and passenger overcrowding on some trains and at key stations. To date, growth has been largely provided for within the existing rail network by running more and longer trains, enabled by investment to incrementally remove capacity constraints and bottlenecks on the rail network. These will continue to be vital and the industry is committed to delivering the enhancements to the network set out in the Hendy Review and key strategic interventions such as HS2, Crossrail 2 and Northern Powerhouse Rail. However these alone will not be sufficient to meet growing demand. Through its long-term planning activity, the rail industry has identified and developed a suite of interventions to resolve its capacity constraints. Funding will be required to address the most pressing challenges, on the Brighton and Wessex Main Lines and at Liverpool Street and Clapham Junction stations. In support of this conventional investment, it is also vital that we use digital technology to help improve capacity by getting more from the current rail infrastructure. Other industries, from aviation, to roads, and the London Underground, have already unlocked significant additional capacity through digital control systems. For example, current investment in the Thameslink programme, introducing digital technology in combination with conventional work, will significantly increase capacity and improve our ability to recover from disruption. On parts of the Thameslink core route 24 trains per hour are expected by It is now vital the industry s Digital Railway programme focuses on deploying digital 19

21 technology on key pinch points on the network to release capacity and performance benefits where it is most needed. This will still require conventional investment alongside it, but digital transformation must be a core part of the solution. And we believe that this incremental capacity can be unlocked at significantly lower cost, and with much less disruption, than building new railways in dense urban centres. That is why this year we have significantly strengthened our Digital Railway leadership team, including appointing David Waboso CBE as the new managing director. He has refocused the programme, undertaking a review which resulted in decisions to: Re-set the deployment of Digital Railway on the Anglia Route, with renewed focus on Traffic Management at Romford to be delivered in this control period. Establish an Early Contractor Involvement (ECI) programme to increase collaboration with the global rail supply chain. Engage with train and freight operators to build a more integrated, industry wide portfolio plan with key work streams being led by partners across industry. Delivering Digital Railway will require a whole industry approach, as it requires changes not only to infrastructure but also to train fitments, driver specification and timing, for example. WHAT WE WILL DO By spring 2017, we will have completed strategic outline business cases for five targeted areas of deployment, alongside supporting three other business cases led by DfT and Transport for London during During 2017 and 2018, we expect key digital schemes to be deployed on the network: Traffic Management at Romford and Cardiff, and deployment of digital train control on the core part of the Thameslink network that will deliver 24 trains per hour, supported by Traffic Management at Three Bridges Rail Operating Centre. We are also working with train operators to provide input on how digital specifications can be introduced to existing franchises, as well as working with the Department for Transport to incorporate these digital specifications into forthcoming franchise awards in 2017 and Both of these are critical to create a digital ready rail network. In November 2016, the Government announced an investment of 450 million for a trial of digital signalling on the railway. Along with the rest of the industry, we look forward to working with them to take this programme forward. WHAT WE HAVE DONE Completed three Digital Railway case studies, which reinforced the case for targeted deployment of digital technologies. Identified priority geographical areas for the Digital Railway programme. In December 2016, the Early Contractor Investment report was published, demonstrating that the costs of digital technology could be significantly reduced if reforms were made to the way the programme works with the supply chain. These recommendations are being taken forward and embedded in the targeted business cases. In November 2016, the Thameslink programme commenced testing of the Automatic Train Operator system on the Class 700 train in the core London area (Blackfriars to St Pancras). 20

22 CASE STUDY DIGITAL SIGNALLING In his 2016 Autumn Statement, the Chancellor announced that 450m would be allocated to trial the deployment of digital signalling which, when combined with conventional infrastructure upgrades like longer platforms, can expand capacity and improve reliability. We are currently quantifying the relative benefits of a number of digital technology interventions, to help the Government determine the most effective ways to utilise the funding. These options include: Areas where the European Train Control System (ETCS) could be introduced to allow more trains to run closer together safely. Busy parts of the network where digital Traffic Management systems could improve reliability by automating the flow of trains in the most efficient way. The fitment of trains with in-cab signalling to take advantage of the ETCS and Traffic Management systems, as part of the build process, as opposed to expensive retrofitting.

23 NETWORK RAIL TRANSFORMATIONAL ROUTE MAP DELIVERING FOR OUR CUSTOMERS PR 18 Initiated Welsh Metro tender awarded Autumn/Winter 2017 Reclassification of Network Rail 2014 Devolved operating model introduced System Operator formed Technical Authority formed Digital Railway directorate formed Bowe Review and Hendy Review published 2015 Route based scorecards introduced Lean transformation Better Every Day begun Diversity and inclusion Everyone strategy published Enhancements Improvement Plan published ScotRail alliance formed Shaw Report published Spring/Summer 2016 Route Services directorate formed Customer-led performance targets Property portfolio sale announced to fund railway innovations MOU with Welsh Government Freight and national passenger operators route formed Autumn/Winter 2016 Increased delegated authority to routes Jobs devolved from centre to route Hansford review into competition established 15 per cent employees lean trained Priority areas for Digital Railway identified Spring/Summer 2017 New managing director to oversee investment in the north of England Route Supervisory Board pilot established Strengthened route leadership teams 70 per cent of route services activity market tested Outline business cases for Digital Railway completed Diversity impact assessments part of BAU Joint working group on Land Value Capture established, and strategy developed CP6 determination 2018 Supervisory boards in place across all routes Start of CP6 April 2019 Hendy plan delivered Route regulatory settlements in place 50 per cent employees lean trained

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