Off the rails

In the second of a series of in-depth reports on the key players in
different industry sectors, Murray Hughes looks at how the rail industry is
coping post-Hatfield and we examine what the train operating companies are
doing to restore confidence

By any standards, Britain’s railway industry has been through a tough time.
To misquote a past InterCity slogan – the going won’t be getting any easier,
let alone the coming back.

Today’s railway management faces a long haul to restore confidence shattered
after the Hatfield derailment on 17 October 2000. While the accident was less
serious than collisions at Southall in 1997 and Ladbroke Grove in 1999, its
consequences were devastating. Railtrack’s panic reaction of imposing speed
restrictions across the network caused the national timetable to collapse, and
turned the spotlight on the company’s ability to manage its own business. It
was found to be sadly wanting.

Last October Transport Secretary Stephen Byers placed Railtrack in
administration. Only on 25 March did the shape of its successor start to emerge
with the launch of Network Rail, a ‘not-for-dividend’ company, limited by
guarantee. Although Railtrack’s administrators may yet insist on a competitive
tendering process, Network Rail has government backing and a promise of £9bn in
bridging finance from a syndicate of banks.

Recognising a widespread concern within the industry, Network Rail’s MD Iain
Coucher confirmed at launch that it would give greater emphasis to engineering.

Hatfield happened because of Railtrack’s failure to manage track maintenance
satisfactorily. But the root cause lies in fragmentation of British Rail in the
mid-1990s when around 100 companies were set up for auction to the private
sector: train operating companies, train leasing companies, freight operators,
infrastructure maintenance companies, track renewal companies etc. In place of
the command structure of a single organisation came a legal cat’s cradle of
contracts, with each company pursuing its own objectives.

One consequence was that specialist operating and engineering expertise
vanished. Only since Hatfield has the urgent need to lure engineers back to the
industry been accepted. Some progress has been made. In a response issued on 19
March to a critical Transport sub-committee report, the Government noted that
Railtrack has recruited 69 qualified engineers since 8 October last year and is
"on course to achieve the target of 1,000 engineers in post within 18
months".

Train operators are also starting to recognise the lack of inherited skills.
Last year French-owned Govia introduced an apprenticeship scheme for rolling
stock engineers. Despite little publicity, the company attracted enough
applicants to fill the initial 15 places several times over.

The Strategic Rail Authority, set up in 1999 to introduce long-term
thinking, is now taking the lead in tackling the skills shortage across the
industry. In its strategic plan published on 14 January, SRA confirmed its
intention to establish a National Rail Academy. It has commissioned the Rail
Industry Training Council to consult on what form this should take.

Options include a single national facility, regional centres or
internet-based learning programmes. It will need to provide for training in
fields such as signalling and train operating. One problem will be how to give
recruits across-the-board knowledge. This is hard to acquire as a trainee needs
to gain experience from different companies to understand the sector’s complex
and inter-related needs.

As Lord Cullen highlighted in his report into Ladbroke Grove, serious
failings were found in Thames Trains’ driver training procedures. But he also
highlighted the difficulties of fragmentation. When problems with the sighting
of the notorious signal SN109 had been identified, "groups were formed to
consider the problemÉ [but] this activity was so disjointed and ineffective
that little was achieved".

Training managers responsible for ensuring staff are versed in safety rules
must also be aware of another trap. Much emphasis is placed on use of
documentation to ‘prove’ that track or operating staff are qualified in safety
procedures, but this is far from foolproof. ‘Instinctive safety’ – doing the
right thing every time, even in emergencies – depends on practical training, expertise
and, above all, experience.

A more immediate challenge is to restore calm to the heated area of
industrial relations. The train drivers’ union Aslef was quick to exploit
fragmentation as driver shortages forced companies to raise wages. Drivers switched
companies to secure higher pay, and now 19 of the 25 train operating companies
pay drivers at least £25,000. GNER leads the field at £33,000. Drivers’
salaries have outstripped those of guards and station staff, mainly RMT
members, who have made their feelings known in strike action. HR managers have
been hard pressed to meet the conflicting requirements of higher pay and lower
costs – in several cases SRA has had to agree to pay more subsidy.

There are huge challenges ahead. A glance at what railways in Continental
Europe or Japan have achieved in terms of new lines, modern trains and
showpiece stations suggests sustained investment over several decades is
needed. HR managers are still dealing with the consequences of the painful
transition from nationalised industry to a portfolio of commercial businesses,
and need to share responsibility for ensuring the right staff are recruited to
rebuild the industry over the long term.

Murray Hughes is editor of Railway Gazette International

Industry audit

Train operating companies expect to
receive £3.5bn in fares revenue this year. To this must be added government
grants, which totalled £910m for 2002-03 under the original subsidy profile
agreed in 1997. In the year to 31 March, the train operating companies carried
nearly 40 billion passenger-kilometres. About 2 per cent up on 2001, this is
likely to be a post-1946 record. Freight operators carried an estimated 19.4
billion tonne-kilometres to 31 March; the govern-ment target for rail freight
is to carry 32.6 billion tonne-kilometres in 2010-11.

Train operating companies are increasingly dominated by large
groups, with National Express running nine franchises and First Group three.
Virgin has two large inter-city franchises and Go-Ahead has stakes in the
Thames Trains, Thameslink and South Central commuter businesses. Franchises
operating without subsidy are Gatwick Express, Thameslink and GNER. Major
structural change is in prospect with refranchising and amalgamation under the
SRA’s Strategic Plan.

Railtrack employs 10,000 staff,
and the train operating companies around 40,000. Staff turnover at Railtrack is
a steady 10 per cent, with engineers lower at 6 per cent.

Search is on to grow market

ScotRail is caught between two
stools. On one side it must satisfy its customer service-based remit, seeking
to redress the damage of industrial action and post-Hatfield restrictions, on
the other it needs to recruit and retain more staff to grow passenger numbers.
By Nic Paton

The past few weeks have been torrid
for Scottish railway company ScotRail. A series of damaging and acrimonious
one-day strikes by drivers during March left commuters fuming and have cost it
an estimated £250,000. The strikes were only called off after management put
forward a 14 per cent pay offer.

ScotRail is one of nine train operating companies (TOCs) owned
by National Express and provides about 95 per cent of passenger train services
in Scotland, including the flagship Anglo-Scottish Caledonian Sleepers linking
Edinburgh, Glasgow, Aberdeen, Inverness and Fort William with London.

The company was the last of the 25 TOCs to be privatised, on 1
April 1997, and is the biggest in terms of route-miles – 1,885 miles – and
number of trains run, at 647,613 a year. Its franchise runs until 31 March 2004.

It employs 3,039 staff and operates about 2,000 services a day
on suburban routes around Glasgow and Edinburgh, inter-urban routes linking
Glasgow, Edinburgh, Aberdeen and Inverness and rural routes in south west
Scotland, the west and north Highlands. It runs 333 stations.

A total of 63.2 million passengers used its services in 2000 to
2001 – up from 53.4 million between 1996 and 1997.

Between 1999 and the end of 2001, the company took delivery of
66 new trains worth a total of nearly £200m, enabling it to get rid of its
40-year-old stock. The company’s annual turnover since privatisation has been
in the region of £370m.

Like most of the privatised rail companies, ScotRail saw its
reliability and punctuality plummet during the network disruption that followed
the Hatfield rail crash. Before the crash, it had reported that 92.1 per cent
of its daily trains were arriving within five minutes of the designated time
and 86 per cent of its passengers were satisfied.

But at National Express’ annual results briefing in March,
chief executive Phil White revealed that speed restrictions had risen to 535
compared with only 450 in October. And while passenger numbers had recovered to
pre-Hatfield levels, there was little sign of growth beyond that.

Recruitment

ScotRail recruited about 150 people last year, mainly
non-graduates. Its aim is to increase this to 350 this year, with a current
emphasis on hiring more drivers along with other support staff.

While ScotRail itself does not run a management training
scheme, National Express does. Most recruitment is carried out conventionally,
using press and media advertising. It is an equal opportunities employer and
pledges to retain staff disabled during their employment "whenever
possible".

Retention

Donald Macpherson, head of personnel says staff turnover is
currently running at about 5.5 per cent – around the norm for the industry as a
whole. The company offers a final salary pension scheme. As is inevitable in a
24-hours a day, seven-day-a-week operation, workers generally work to shift
patterns.

While there is no formal policy on flexible working, the
company aims to be as flexible as it can, within reason.

"Wherever possible, we try to accommodate people if they
want to swap or change their shifts to suit themselves, but we are a customer
service organisation," says Macpherson.

Female employees are offered standard, state maternity benefit,
he adds. Other perks include holiday entitlement and reduced or free train
travel. National Express also runs a profit sharing and share incentive scheme.

Training and development

The training department consists of nine people, with the
majority of training carried out in a classroom setting. Training is largely of
a vocational nature, with trainers working across the company with drivers,
conductors, ticket examiners and other support staff.

"Most of our driver training and vocational training has
been restructured," adds Macpherson.

New recruits spend the first few weeks predominantly in the
classroom learning the theory of their job before being sent out under
supervision to the depots. Ticket examiners, for instance, have a two to
three-week induction followed by on-the-job training under supervision.

Performance management

ScotRail used to operate an appraisal system before
privatisation. Now there is no such formal system in operation. In general
managers carry out staff appraisals on an informal basis. More structured
objective setting is soon to be put in place and senior managers’ salaries are
already linked to performance.

Until recently, the company did not have a formal system in
place for communicating its company values. But there is a comprehensive
noticeboard and an e-mail briefing system in place.

Within National Express as a whole, a group-wide magazine has
been introduced to keep employees in touch with activities worldwide. And a
senior management forum is held annually at which developments within the group
and matters of concern are reviewed. Otherwise, employees are encouraged to
raise concerns and issues with their line managers on a day-to-day basis.

Management seminars have been introduced to inform and discuss
key issues within the company, under the leadership of acting managing director
Nick Brown who has steered the company through the industrial dispute with the
Aslef and RMT unions.

However, due to the recent industrial problems, recruitment and
retention has moved up the HR agenda. Last September ScotRail kicked off a
recruitment programme for drivers, and is also looking at hiring other grades
of staff in the process.

In the past, HR has been largely about ‘firefighting’, coping
with issues as they arise in an industry hugely in the public and political
spotlight. In such an industry, costs are inevitably a central issue, and the
HR strategy is intrinsically linked to the bottom line.

But, says Macpherson, the firefighting mentality is beginning
to change, particularly over issues such as budgets.

 "There is more
flexibility and progressive thinking starting to come through at the moment. We
are now developing the next phase of our strategy as the group prepares to bid
for the next two years of the franchise," he says.

Scotrail HR factfile

HR director: Donald Macpherson

Salary: Not specified

Whether on board: Macpherson
reports to the managing director of ScotRail and sits on the Scotrail Executive
Group

Size of HR team: The ScotRail team has 18
staff

How the HR department is
structured:
Three directors report to Macpherson: a personnel services
manager, employee relations officer and training and development manager. Staff
then report to each director

Ratio of HR to employees: One
to every 169 employees

Starting salary: £20,000

HR priorities for the next year: National
Express has a seven-year franchise with ScotRail. A priority for the
forthcoming year is to begin a closer focus on customer service and staff
development addressing some of the skills issues affecting the company and
industry as a whole

Rolling towards success

After securing an extension to its
franchise and ordering a multi-million pound fleet of new trains, GNER looks
set to secure its place as a major player within the rail industry. Paul Nelson
reports

Following a two-year extension to its
original seven-year franchise, east coast mainline train operating company GNER
has ordered a multi-million pound fleet of new trains. The company, owned by
leisure firm the Sea Containers Group, which also runs the Orient Express, is
seeking to be one of the major players left in the sector following an
anticipated restructure which will see the 25 train operating franchises reduce
by around one fifth.

GNER employs 3,300 staff and runs 120 trains daily, carrying
more than 15 million people a year on the east-coast line from London, Kings
Cross to Waverley Station in Edinburgh, with an annual turnover of £400m.

It has nine core values including ‘valuing our people’, which
underpins the company’s mission statement: "We will create a golden era of
rail travel by setting the highest standards of service, speed and quality in
the UK".

Recruitment

Last year, GNER recruited 750 staff – 600 were replacements and
the remainder new positions. The company relies largely on recruiting
experienced managers, often from outside the sector, but does run a biannual
management graduate trainee scheme that takes on four people.

GNER HR director Mike Gooddie says that it relies on hiring
experienced managers with the relevant skills because the company is still
young. New managers have to undertake training in all departments prior to
taking up their chosen position. The company will then determine the
individual’s next two job moves.

GNER uses a mixture of recruitment methods including national
and regional advertising and recruitment fairs. And every three months the
company embarks on a campaign to boost staffing numbers in a targeted region.
It has added an online recruitment module this month to its website.
Prospective employees can search for jobs via region and then apply using an
online form.

There is also a referral bonus for employees who introduce
someone to the company who is then recruited.

Retention

GNER’s employee turnover stands at 14 per cent, nearly three
times above the industry average. Gooddie says that the company’s biggest
retention tool is its pension scheme. Employees can still join the old British
Rail final salary pension scheme, where the company will match employee
contributions.

GNER offers 19 weeks paid maternity leave, with the first six
weeks on full pay, regardless of length of service. It offers two weeks
paternity leave and four weeks unpaid compassionate leave and the standard
holiday is an annual five weeks.

A performance-related pay scheme is in operation for the 400
managers and supervisors, based on targets including: punctuality of trains,
dwell time (the unnecessary time trains spend at stations), cleanliness, staff
turnover and absenteeism rates. Stress counselling and legal advice is also
available to all employees and their immediate families.

Travel to and from work is free to encourage staff to work
along the company’s whole route and staff discounts exist on the parent
company’s other operations plus arrangements negotiated with other leisure
companies.

The company wants to introduce a formal flexible working policy
in its offices: currently operated on an informal basis at local level. GNER is
also investigating child-friendly arrangements.

Training and development

GNER has a training department of eight and spends an annual
£4m on employee development. The budget is split equally between induction and
customer service training and technical training, which includes driver and
engineering training. On average, staff receive one week of training annually.

All new staff get three days corporate training on joining
although customer service employees receive three weeks with a strong emphasis
on serving the customer.

Employee training is central to the annual appraisal system and
delivered through four learning and resource centres situated all along the
company’s network. Each centre has access to online learning, CD-Roms, training
videos and books as well as running classroom-based learning courses.

A partnership with the Open University Business School and York
University allows middle managers to study for business diplomas. Currently 100
managers – around 25 per cent – are being sponsored by the company to study for
business degrees. The company also sponsors individual staff to undertake
external qualifications including MBAs.

Performance management

The HR strategy is linked to the company’s bottom line.
"We believe in the service profit chain," says Gooddie. "The
performance and quality of staff is vital to the bottom line of the company."

GNER appraises staff once a quarter to assess performance and
any specific training and development that may be required.

As part of extending the skills of its workforce, the company
is set to extend its management development studies by piloting a scheme for
aspiring managers to study for business degrees.

GNER also runs annual conferences informing staff of the
company’s aims and objectives as well as giving employees the chance to mingle
with senior managers and give feedback.

As the company grows, it also intends to expand its management
graduate scheme.

GNER HR factfile

HR director: Mike Gooddie

Salary: A six-figure package

Size of HR team: GNER
has a team of 50, including 20 administration staff

Structure of HR team:
The company has a central HR operations based in York and an employee relations
team. Along the train routes, the company has a small support HR team which
delivers the day-to-day HR operation to staff

Ratio of HR to employees:
The ratio of HR staff to employees at the train operator is 1:100, without
payroll

HR starting salary: £18,000

HR priorities for the year:
Increasing and improving work-life balance practice and policies and
continue to improve partnerships with trade unions

Forward planning the key

One of the largest transport
organisations in Europe, Arriva has undergone massive change, transforming two
franchises. The HR team led the push to recruit and develop a huge workforce
and has faced a series of strikes by the RMT union over pay. Nic Paton reports

Arriva has found itself splashed
across the papers for all the wrong reasons of late. A series of strikes by the
RMT union over pay have crippled the service, and left thousands of commuters
enraged and stranded.

The company is one of the largest transport organisations in
Europe. It operates two rail franchises in the UK, Arriva Trains Northern and
Arriva Trains Merseyside, which it has held since February 2000.

The Northern franchise – scene of the latest disputes – employs
around 2,800 staff and provides urban and inter-city services across the north
of England, running 1,600 services a day for an annual 40 million passengers.

In total, it covers 80,000 miles and its network stretches from
the east to west coasts and from the North East to the North Midlands.

The Merseyside franchise employs around 1,000 staff and
operates about 800 services a day, serving 67 stations in and around
Merseyside.

Arriva plans to introduce a completely new fleet of trains by
May 2006, bringing into service 55 high speed trains, comprising 176 vehicles.
Over the next eight years of its franchise it has pledged to spend £275m on new
trains

Recruitment

When Arriva took over the two franchises, it was faced with the
"massive challenge" of turning around two businesses that had been
severely run down in the lead up to privatisation. Julie Allan, HR director,
says there was no forward planning when it came to recruitment. In particular,
the company was extremely short of drivers, a situation compounded by the fact that
local rivals paid better.

A forward planning resource programme was put into place and
now, says Allan, the company is at a point where it can anticipate wastage and
recruit accordingly. "By the end of this summer, we shall have enough
drivers coming through," she says. "We have recruited more train
drivers in the past two years than any other train operating company (TOC) in
the industry," she claims.

Arriva Trains Northern, for instance, has hired 600 staff in
the past two years – 120 of whom were drivers. It plans to recruit a further
170 drivers by the end of this year.

The company does recruit graduates, but does not have a
specific graduate training scheme in place. Similarly, it does not run a
labelled management training scheme, but it has started a talent identification
process.

This scheme, piloted by the TOCs, is being rolled out across
the business and entails identifying 12 managers who are sent back to college
and have a career and development plan mapped out for them.

The majority of recruitment advertisements are placed through
newspapers but the company does use executive search resources on occasion and
used online ads for the first time this year.

Retention

Staff turnover within Arriva Trains is generally lower than the
5.5 per cent industry norm. At Arriva Trains Merseyside, for instance, turnover
is around 1.2 per cent and has been as low as 0.3 per cent on occasions.

The main issue for both companies has been recruiting and
retaining drivers, but particularly within Arriva Trains Northern. Like all
TOCs, employees can opt to become part of the railways pension scheme, a
generous final salary scheme inherited from British Rail.

With 13 different grades of staff, holiday entitlement varies,
but averages between 25 and 27 days a year.

In an industry traditionally male-dominated, flexible working
and making the company more attractive to women and people from ethnic
minorities is a key goal, even if the hurdles are often ones of perception more
than reality, says Allan. "It is one of my big agenda items, formulating a
strategy to aid diversity."

The company meets all the current requirements on standard,
state maternity and paternity leave, she adds.

Training and development

The training team consists of some 30 people, split evenly between
Arriva Trains Northern and Arriva Trains Merseyside. All training is done
in-house, and new key performance indicators (see HR factfile, right) are
starting to focus on training and how many days the TOCs provide and should be
providing in the future.

Train crew training, inevitably, has to meet stringent health
and safety requirements. New drivers spend their first 12 to 15 months on
nothing but training, depending on the complexity and location of their routes.
Time is spent learning the basics in the classroom, then learning the routes
and driving under supervision.

A conductor will spend an average eight weeks in the classroom
before facing the travelling public.

The company also runs NVQs for some customer-facing staff and
is introducing an element of e-learning for its top two tiers of management.

There is an Arriva executive development programme that offers
managers a three-day course in which to learn about the company’s strengths and
weaknesses.

Performance management

Arriva has been testing a new performance management programme
called ‘Working With Others’, designed to draw greater consistency of
performance out of managers across the operation.

Objectives are set and agreed with line managers at the
beginning of each year, reviewed twice a year, then, at the end of the year, a
skills audit is carried out and a personal development plan drawn up.

A pilot was put in place last year and a second tier was
launched in January. Managing directors and executive groups are all using the
programme and cascading it down to their staff, creating a third tier, says
Allan. Lower down the scale the company has a standard annual appraisal
programme in place.

Managers are also given an induction pack when they are
recruited. "People are absolutely passionate about working for the
railways. We need to make people passionate about working for Arriva and
working for the customer," she says.

When it comes to succession planning, the organisation’s talent
identification programme is the big change, adds Allan. The company also runs
exercises outlining what would happen if a certain person left, or even a whole
tranche of staff. It details who would be moved where place to keep things
running smoothly.

Arriva HR factfile

HR director: Julie Allan

Salary: not specified

Whether on board: Arriva
Trains does not have a board but the HR director of Arriva plc is on the group
board. The train operating company conducts a review on a monthly basis, which
is reported to the board. The two senior HR people within the TOCs also hold monthly
one-to-one meetings

Size of HR team: Three with
the central Arriva Trains team, about 20 within Arriva Trains Northern and six
at Arriva Trains Merseyside

HR department structure: There
is an HR team for each TOC. Northern is led by an HR general manager and
Merseyside by a personnel director. These feed into a central team, which deals
solely with strategy

Ratio of HR to employees: About
1:135

HR priorities for the year: Over
the past 12 months, key performance indicators for HR have been put into the
business, covering areas such as turnover, wastage, absence, training days per
full-time staff. The priority for the year will be to bed these down and extend
them to other parts of the Arriva business

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