For leaders of construction firms, we outline three foundations for successful cost transformation programmes that could help achieve double-digital margins.
Phil Bulman is a Partner and transport and infrastructure sector specialist at Vendigital. He recently shared his insights with Rail Professional.
Given the scale of the financial challenge following the pandemic and the need to transition to a more sustainable future, it’s essential that the sector looks outside itself in order to bring in fresh knowledge and innovate. So, how can the industry accelerate renewal and what challenges does it need to overcome first?
Between April and June 2020, passenger journeys on Britain’s railways fell to their lowest level since the mid-19th century. A recent survey from Systra also highlights the impact of the pandemic on rail use, with 20 per cent of people now expecting to make fewer trips by public transport.
Despite the significant financial strain that this drop in passenger numbers is placing on the industry, it also presents an opportunity to make improvements and drive transformation. For example, the industry should focus on the delivery of its decarbonisation objectives and kickstart its financial recovery. However, the fact that the sector is still watching and waiting for guidance in the form of the Williams Review and transport decarbonisation plan is threatening to hold back progress at a critical time.
Until these reports are published, with committed funding to support them, the industry will remain in the dark about the Government’s enhancement pipeline – an important part of its decarbonisation investment plan. This will provide much-needed clarity to Network Rail and its wider supply chain, informing decision-making across the sector. For example, while positive steps have been taken in recent years to improve the cost-efficiency of electrification works, as many have said, the greatest value for money would be achieved by implementing a rolling programme of such projects.
Once electrification plans and budgets are clear, plans for use of other technologies can be developed to complete the plan.
A lack of steer around the industry’s transformation is having implications across the supply chain. Without greater certainty about what the future holds in terms of Government investment, manufacturers of sustainable technologies for the rail industry will be less likely to establish supply chains in the UK. Insufficient information about the scale of commercial opportunities for different types of sustainable technology, for example, the market for batteries designed for electrified rolling stock, is also making it more difficult for manufacturers to bring solutions to market quickly. The lack of direction is forcing them to make investments on a shoestring.
With other areas of transportation, such as aerospace, taking strides when it comes to developing low-carbon technologies, cross-industry cooperation will also enable the rail sector to learn lessons and innovate.
Considering the significant lead times and costs involved in transforming Britain’s rail network, a more collaborative approach could help to reduce the expense and time investment required for further innovation programmes. Improved collaboration between sectors will also help to ensure that investment in supporting infrastructure is cost-effective and could provide insights into how to generate revenue beyond ticket sales – an area where the rail sector lags behind other areas of transportation.
Following the pandemic, the sector will also need to make better use of data to inform management decisions across its networks, for example, highlighting required changes to routes and staff working patterns. In this sense, there may be an opportunity to apply learnings from the bus sector, which already uses software to support staff management and rostering, based on current levels of passenger demand.
Despite the urgent nature of the sustainability challenge facing the industry, pandemic-related financial strain has effectively stalled progress in recent months. With the likes of Network Rail, Transport for London and TOCs facing significantly reduced budgets, there is a need to rapidly remove costs from the industry and ensure that services deliver value for money.
Addressing industry fragmentation would allow operators to address some of the structures that currently lock in cost. For example, the current rate of pandemic-related changes to rail services warrants monthly timetable changes, which previously have taken a year or more to put in place. There is also a need to reduce fixed and real costs by leveraging scale, as well as realising efficiencies with regards to worker pay. The role of other sector organisations such as RDG could be key to driving these kinds of sector wide systems and solutions, if their role in the future structure of the industry was clear. This would bring Britain’s rail industry into line with other areas of the transportation industry.
To draw an analogy with football, the industry could currently be compared to a group of very capable footballers on the pitch, waiting to be told who’s playing on what team in what position and for the new captain to arrive!
As well as the need for greater certainty about the future structure of the industry and how the expected new ‘arms-length body’ and ‘guiding mind’ is to be achieved, Government-led consultation with industry stakeholders could also prove invaluable as a means of gathering insights about what changes should be implemented first. This would enable the industry to come together to develop innovative solutions for achieving a more sustainable cost base.
In a sector that has become used to short-term planning, there is also an urgent need for cultural change, to bring the UK’s rail industry in line with other areas of transportation. Adopting a more commercially-focused mindset will help to ensure that services meet demand, by providing a more sustainable transport solution that represents value for money.
Whatever recommendations the long-awaited Williams Review provides, a collaborative, cross-industry approach will be vital for achieving this goal.
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