RE-INTEGRATING RAILWAY SILOS

Transcription

1 RE-INTEGRATING RAILWAY SILOS R.J.Clayton* * Loughborough University, UK. r.clayon@lboro.ac.uk Keywords: Capability, Capability Integrator, Railway Industry, Railway Silos, Thameslink. Abstract This paper discusses how the UK railway industry is increasingly moving towards a whole-life, whole-system approach for exploiting new opportunities. In order to achieve this, the current siloed mentality of the UK railway industry has to be overcome. This paper identifies that the current contractual approach within the industry pushes costs up and incentivises antagonistic behaviours. New rolling stock procurement programmes are requiring the industry to start thinking in terms of capability. An analysis of the Thameslink programme is conducted using the capabilitybased view. The analysis identifies that without a single authority responsible for capability integration it is unlikely that the Department for Transport s desired capability could be met at minimum whole-life, whole-system cost. This finding is not restricted to the Thameslink programme and is endemic across the UK railway industry. In order to better integrate railway silos, the creation of a single authoritative body acting as an unbiased rail capability integrator is recommended. 1 Introduction The 2007 Rail Technical Strategy (RTS) which accompanied the UK government s Delivering a Sustainable Railway white paper outlined the aim to have world-class reliability of both infrastructure and rolling stock [1, p.5]. In order to achieve this, the RTS highlighted the need for government and industry [to work] together taking a wholelife, whole-system cost approach in exploiting opportunities [1, p.6]. This whole-life, whole-system paradigm requires a break from the siloed mentality that has emerged since privatisation. Nowhere is this problem more acute than the rolling stock market where manufacturers have created separate, siloed service divisions to manage the maintenance of their assets. Recent tenders have attempted to promote a whole-life approach by contracting to create a joint venture with the capability to move people. This requires rolling stock manufacturers and maintainers to integrate better with each other and with the infrastructure provider and owners. provision. This requires a radical shift in the rolling stock manufacturer s mindset from being manufacturer-with-a-bitof-aftermarket-service to being a whole-life-service-partnerwith-enabling-manufacturing-capability. This paper reports on the initial investigation of an Engineering Doctorate being undertaken in conjunction with one rolling stock manufacturer. The remainder of this paper is structured as follows: section 2 gives a brief background discussing how silos have evolved and why there is a need for a new approach. Section 3 discusses a new capability-based view which has the potential to re-integrate some elements of the UK railways. 2 Background 2.1 The creation of railway silos Until the 1980s, British Railways (BR) had been a social railway, combining a public service focus with an engineering focus on running the railway. During the 1980s to 1990s there was an increasing emphasis on managing BR as a business railway. The success achieved by the BR Board in reducing operating costs within a verticallyintegrated structure demonstrated that the railways could become profitable [2]. In line with the transaction-cost principles [3, 4] that had been judged successful in replacing vertical integration with market- and contract-based relationships in other UK privatisations, the railway system was split into over 100 companies. There is a general perception that the current model of the UK railway industry (Figure 1) is more complex than preprivatisation i.e. where one line connecting one BR to one government. However, this ignores the internal BR structure and the matrix organisation which was far from simple [5, 6]. The complexity within the railway industry lies not in any technical aspect, although these are complicated, but in the interactions and relationships between the different stakeholders; aligning their often competing goals in order to safely transporting passengers and freight on-time. This becomes especially important with the whole-life approach and requires greater co-operation and communication between all stakeholders. When contracting for capability, the rolling stock manufacturer becomes responsible for whole-life asset

2 In addition, the introduction of management through contracts has introduced an antagonistic rather than co-operative approach to relationships, fostering short-term opportunistic behaviour [6]. The commitment in the RTS to taking a whole-life, wholesystem cost approach represents an attempt to lower wholelife costs. This commitment is reflected in recent trends by government departments, through Public Private Partnerships / Private Finance Initiatives, in which the public and private sectors join to design, build or refurbish, finance and operate new or improved facilities and services to the general public [8]. Figure 1: An overview of the structure of the UK rail industry [7] This problem is particularly acute in the rolling stock market where manufacturers have created separate, siloed service divisions to manage the maintenance of their installed base. In this environment, customers approach rolling stock manufacturers to produce vehicles and judge the quality of tenders based on first cost. Once the vehicle is introduced, the train operator (with influence from the lessor and external constraints) will decide whether to outsource maintenance for their franchise length. The relatively short nature of a train operator s franchise compared to the life of a vehicle creates an incentive to push expensive maintenance items outside the franchise term potentially harming long-term reliability. Lessors try to mitigate this by charging a maintenance reserve, however, when maintenance is being undertaken by train operators they have few guarantees. As a consequence of some train operators seeking to outsource maintenance, rolling stock manufacturers now offer services through dedicated service divisions. However, this has evolved within the dominant, siloed industry mindset. 2.2 The need for a new approach In the current model (Figure 1) for each interaction there is a contract and as transaction-cost economics advocates, there is a flow of money in either direction. s try to maximise value generation for themselves by managing these interactions. However, the incentives within the contracts set up since privatisation have tended to push costs upwards [2]. For example, the fixed access costs paid to Network Rail and the train leasing charges paid to the lessor represent approximately 60% of a train operators costs, limiting opportunities for cost reduction. Since marginal costs of running additional services are small, train operators are incentivised to run additional services and hence increase their use of the infrastructure s capacity. This increased usage of the available capacity comes at an additional cost e.g. an increased rate of degradation resulting in higher longterm maintenance costs for Network Rail. Over the last few years, this whole-life approach has recently manifested itself into two tender requests made by the Department for Transport (DfT) to the rolling stock industry the Intercity Express Programme (IEP) and the Thameslink programme. For the IEP, the DfT were seeking the minimum whole-life, whole-system cost for IE Services (the financing, procurement and delivery of the new trains and all other related services in connection with the provision of the required availability for the IEP) [9, p.6]. For the Thameslink programme, the DfT is seeking to procure a fully financed package for the manufacture, entry into service and maintenance support of a new fleet of rolling stock at minimum whole-life cost [10, p.18]. Although the IEP has been postponed pending the results of the Foster value-for-money review and the Thameslink decision of preferred bidder delayed, it is likely that the whole-life, whole-system approach will continue for future high capital investment railway projects. The whole-life, whole-system paradigm has the potential to completely change the dynamics of UK railways; provided that the industry can transform itself to deliver whole-life service offerings, maximised to deliver benefit throughout the value chain. To achieve this, the railway industry has to move away from the siloed mentality in order to better integrate the products, services and information provided by often competing firms for the benefit of passengers and freight users. 3 A New Approach: A Capability-Based View 3.1 What is a capability-based view? The new whole-life, whole-system approach to new procurement is arguably different from the traditional procurement approach. For example, the DfT describes the Thameslink programmes as, a major element in the development and improvement of the London commuter network which will allow the operation of longer trains at a frequency of up to 24 trains per hour (tph) in each direction through the Performance Core [10, p.18]. By stipulating a frequency, the DfT are making it clear to the rolling stock industry that they are no longer interested in procuring X number of trains but would like to procure Y number of trains

3 per hour. The difference is subtle but it has profound implications - the DfT is asking industry to provide a capability to move people at a specified level of performance. Competition But what does capability mean and what are the implications of this approach on the UK railway industry? Physical Environment Railway Capability Partner contribution Perhaps the industry that is most mature in its understanding of capability is the defence industry. The UK Ministry of Defence (MOD) Acquisition Operating Framework (AOF) defines capability as, the continuing ability to generate a desired operational outcome or effect which is relative to the threat, physical environment and the contributions of coalition partners. It goes on to say that capability is not a particular system or equipment [and] is delivered by Force Elements combined into packages by Joint Force Commanders and tailored for particular operations or missions Each Force Element is delivered by either a single service, or by a joint organisation and requires the integration of the eight Defence Lines of Development [11]. Rail Capability Integrator Product-Service Systems Although defence oriented, the MOD AOF view of capability provides a strong foundation on which to build a railway view of capability. Thus railway capability is: The continuing ability to move people and freight at a desired level of performance which is relative to competing modes, the physical network and contribution from partners whilst achieving value for money Railway capability is delivered through Product-Service Systems which are integrated into the railway network. Each Product-Service System can be delivered by a single service provider or by a joint organisation and are made up from combinations of the Railway Lines of Development (Figure 2). The UK railway industry is a very cost conscious industry. Thus the definition of railway capability extends the MOD AOF s view by making it explicit that capability must deliver value for money. The railway lines of development have been modified from the MOD AOF view [12] and are defined in Table 1. The lines of development are the mechanism through which capability is delivered and any solution(s) designed to provide the desired capability must consider all railway lines of development. 3.2 A capability view of Thameslink This section takes a unique perspective of the on-going Thameslink programme. By using publicly available documents and press release a capability-based view of Thameslink is presented and discussed. As already discussed, the primary aim of the Thameslink programme is to deliver a capability, namely the ability to move people at a frequency of 24 trains per hour. Examples Figure 2: The components of railway capability modified from [11] Line of Development Definition The provision of the means to practise, develop and validate, within constraints, the practical application of the activities required to deliver a railway capability The provision of fixed and moving assets, systems and sub-systems (including updates to legacy systems) needed to deliver a railway capability The timely provision of sufficient, capable and motivated personnel to deliver performance, now and in the future The provision of a coherent development of data, information and knowledge requirements for capabilities and all processes designed to gather and handle data, information and knowledge. Data is defined as raw facts, without inherent meaning, used by humans and systems. is defined as data placed in context. Knowledge is applied to a particular situation is an expression of the values and principles which guide actions and is codified in processes which dictate how activities are conducted today Relates to the operational and non-operational organisational relationships of people The acquisition, development, management and disposal of all fixed, permanent buildings and structures, land, utilities and facility management services in support of railway capability The science of planning and carrying out the operational movement and maintenance of assets, systems and sub-systems Table 1: Definition of the railway lines of development modified from the defence lines of development

4 of the various components that are required to deliver this capability are described in Table 2. Components of Capability Physical Environment Competition Partner contribution Product-Service Systems Examples from Thameslink All bridges, tunnels, stations, crossing points, etc on the Thameslink diagrams Other modes of transport including cars, buses, etc and other train operators on competing routes Other actors that, for example, facilitate passengers getting to and from stations e.g. the bus, road and cycle network, taxi services, local councils maintaining footpaths, etc Examples include: rolling stock design and production system, the rolling stock, rolling stock maintenance system, the infrastructure system, the signalling system, the passenger information system, etc Table 2: A railway capability perspective of Thameslink Individual product-service systems will potentially interface with a number of other product-service system e.g. the rolling stock will interface with the infrastructure system and the infrastructure maintenance system. All of the productservice systems and their interfaces must be integrated into a whole in order successfully deliver the railway capability. Table 3 provides examples from the Thameslink rolling stock maintenance system and some of the considerations when designing this product-service system. Line of Development Examples from the Thameslink rolling stock maintenance system maintainers in processes and procedures, health and safety training and training in new technology, etc Spare parts, maintenance equipment such as wheel lathes and IT equipment such as computers. etc Maintainers, maintenance planners, material managers, shift leaders, line of route support and drivers, etc Operations manuals, maintenance processes and procedures and condition monitoring data, etc Emphasis on service quality, customer support and reliability growth, etc The organisation structure of the maintenance provider, its interactions with the lessor and train operator Depots, sidings, road links and an IT network, etc Maintenance planning, material management and spare parts ordering, etc Table 3: The lines of development from the Thameslink rolling stock maintenance system The author understands that currently on the Thameslink programme there is no single authority tasked with performing the role of a rail capability integrator. The clear lack of a single integrating authority for the Thameslink programme introduces significant risk that the DfT s desired capability will not be met in a way that best minimises wholelife, whole-system costs. 3.3 Re-integrating railway silos Historically, due to their vertical integration, BR were able to, and were expected to, act as a capability integrator. Since privatisation it has not been clear who holds this responsibility. In fact, given the industry structure identified in Figure 1 and the siloed and antagonistic relationships that this structure incentivises, it is not surprising that no single authoritative body exists to act as a rail capability integrator. Indeed, since privatisation, it is this author s opinion no such body does or has existed. For example: Network Rail is responsible for the network and is biased Train operators do not have the long-term planning horizon required and are biased The Office of Rail Regulation s main aim is to oversee the contracts for the use of the rail network It is outside the core competence of a lessor The Office of Passenger Rail Franchising and it successor the Strategic Rail Authority s were primarily responsible for administering franchises The primary purpose of the DfT is to specify its current and future capability requirements That said, different parts of the railway industry are starting to behave like capability integrators e.g. some elements of Network Rail and some service departments in rolling stock manufacturers. The case of some rolling stock manufacturers service divisions behaving more like capability integrators is an interesting development. They have clearly seen a business opportunity in this space and believe that they can offer significant added value. In addition, moving into this space allows the manufacturer to gain greater control in specifying how their products will be used and helps mitigate some of risks that rolling stock maintenance providers face. However, the capability integrator role adds significant risk to the rolling stock manufacturer s business and requires a new type of organisation. The long lifecycles of these capability contracts should encourage manufacturers to think of themselves as whole-life-service-partners-with-enablingmanufacturing-capability rather than manufacturers-with-abit-of-aftermarket-service. This requires a completely different set of skills and type of organisation that has helped them succeed in their manufacturing businesses. Although some elements of the railway industry are moving into the capability integration space, this is on a specific project basis. It is unlikely that any of the current industry stakeholders could behave as a capability integrator across the whole industry, for all projects. The move by some rolling stock manufacturers is a promising first step. However, until

5 they are willing to behave more like business consultants and systems integrators, potentially recommending competitors equipment and services, the author believes an unbiased single authoritative body acting needs to be created to act as a rail capability integrator. Only then will the potential exist to demolish cross-industry railway silos. 4 Conclusion This paper has discussed how the 2007 RTS highlighted the need for government and industry [to work] together taking a whole-life, whole-system cost approach in exploiting opportunities [1]. In order to achieve this, the current siloed mentality of the UK railway industry has to be overcome. The paper has identified that the current contractual approach within the industry has pushed costs up and incentivised antagonistic behaviours. New rolling stock procurement programmes require the industry to start thinking in terms of capability. A definition and model of capability have been created, modified from current thinking in the UK defence industry. This railway capability is delivered through Product-Service Systems which are integrated into the railway network by a Railway Capability Integrator. Each Product-Service System can be delivered by a single service provider or by a joint organisation and are made up from combinations of the Railway Lines of Development. An analysis of the Thameslink programme was conducted using the capability-based view. The analysis identified that without a single authority responsible for capability integration it is unlikely that the DfT s desire capability could be met at minimum whole-life, whole-system cost. This finding is not restricted to the Thameslink programme and is endemic across the UK railway industry. The paper highlights that some rolling stock manufacturers are moving into this space, however, they are not yet behaving as wholelife service partners. Without one single authoritative body acting as an unbiased rail capability integrator then there is significant risk that the current and future capability desired by the DfT will not be met in a way that best minimises whole-life, whole-system cost. Acknowledgements This paper would not have been possible without the financial support given by the UK government via EPSRC and the industrial sponsor. Neither would it have been possible without the support of the industrialist interviewed as part of the research. The views expressed in this paper are those of the author, but were derived from collaboration and discussion with these people. I thank them for their time, knowledge and invaluable insights. References [1] Department for Transport, "Rail technical strategy," TSO, London, Tech. Rep. N c13 07/07, [2] D. Tyrrall, "The UK railway privatisation: failing to succeed?" Economic Affairs, vol. 24, pp , [3] O. E. Williamson, "The economics of organization: the transaction cost approach, American Journal of Sociology., vol. 87, pp. 548, [4] O. E. Williamson, "Strategizing, economizing, and economic organization, Strategic Management Journal, vol. 12, pp , [5] C. Foster, "The economics of rail privatisation, Centre for the study of regulated industries. Chartered Institute of Public Finances and Accountancy, London and Bath, Tech. Rep. 7, [6] D. Tyrrall and D. Parker, "The fragmentation of a railway: a study of organizational change, Journal of Management Studies, vol. 42, pp , [7] Competition Commission. (2007). Rolling stock leasing market investigation: Industry background working paper. Competition Commission. [Online]. Available: er_industry_background.pdf. [8] John Laing plc. (2008), PFI/PPP explained. [Online]. 2008(22/12/2008), Available: [9] Department for Transport. (2007, 17/11/2007). Intercity Express Programme: Invitation to tender. Department for Transport. [Online]. Available: invitationtotender.pdf. [10] Department for Transport. (2008, 02/12/2008). Thameslink Rolling Stock Programme: Invitation to tender. Department for Transport. [Online]. Available: vitation.pdf. [11] MOD AOF. (2010, May 2010). What is Through Life Capability Management? [Online]. Available: ilitymanagement/capabilitymanagement_whatis.htm. [12] MOD AOF. (2010, May 2010). Defence Lines of Development. [Online]. Available: m.