Strategic Analysis of a Network Rail - Case Study Example

Network Rail Introduction The researcher in this essay has selected Network Rail as the sample organization in order to understand how the company has performed different strategic initiatives in the past five years for the purpose of addressing pertinent strategic issues. From academic perspective, this essay will be written in response to a Business Strategy coursework requirement as part of Robert Gordon University’s BA Business Management program, but from business knowledge perspective; this essay will help the researcher to validate Exploring Strategy Model of Johnson, Whittington and Scholes (2011) in real world business scenario. Here, the researcher will conduct PESTLE analysis in order to understand how external factors are shaping Network Rail’s strategic initiatives. Based upon pertinent internal and external pressures on Network Rail, the paper has selected corporate social responsibility (CSR) as key strategic issue to be discussed. In the main discussion, the paper will review strategic initiatives being taken by Network Rail in order to address corporate social responsibility issue. In context to corporate social responsibility, the paper will analyze issues regarding nature of the emerging stakeholder, tensions and challenges within Network Rail and pertinent industry. Strategies of Network Rail to address corporate social responsibility issue will be addressed from leadership or change perspective will be analyzed to understand effectiveness of strategy of Network Rail. Before going into main discussion, the essay will shed light on business matrix of Network Rail in order to create background for further discussion. Business Overview Network Rail Network Rail Ltd uses the trade name of Network Rail and the company has multiple subsidiary companies. The company is headquartered at London, United Kingdom and was established in the year 2002 (Network Rail, 2014). Network Rail Infrastructure Ltd works as subsidiary of Network Rail and the subsidiary operates and owns rail infrastructure across different cities in UK. However, Network Rail does not operate underground railway track or railway infrastructure in Northern Ireland (Network Rail, 2014). From structural perspective, Network Rail Ltd works as a statutory corporation, which can be classified as "not for dividend" private company (Network Rail, 2014). As a result, Network Rail Ltd neither has shareholders nor is it controlled by any particular owner. The company is vulnerable to government ownership as well as intervention, due to absence of legal owners. During 2012, Network Rail announced that it was “a time for change and real opportunity for the rail industry” (Network Rail, 2012). As part of the announcement, the company highlighted its achievement, in terms of improving passenger safety, decreasing cost of operation, improving safety measures and meeting stakeholder requirements. UK government is the key stakeholder for Network Rail and train passengers in the country are other major stakeholders. UK government provides funding to the company in order to help it achieve its strategic goals by taking required actions. For example, till now, Network Rail has received funding of £30 billion from the government, which helped the company to take planned strategic initiatives. Network Rail Infrastructure Finance Plc (NRIF) is used as a special instrument through which Debt Issuance Programme (DIP) is utilized to gather debt capital by the company. Secretary of State for Transport is acting as a mediator, on behalf of the company, in order to help them collect debt capital (Network Rail, 2013a). Recently, the rail infrastructure operator implemented route utilization strategies (RUSs) and started taking help of Planning Oversight Group (POG) in order to increase safety and width of railway connection across different cities in UK. In 2011, UK government has developed High Level Output Specifications (HLOS) in order to increase efficiency of railway infrastructure across the country and Network Rail has incorporated such strategic recommendations into action in order to enhance its operating efficiency. Vision and mission of Figure 1: Business Idea of Network Rail (Source: Network Rail, 2013b) It is evident from the mission and vision statement that profit earning is not the business objective of the company, rather delivering value to customer is core focus. According to above template, business strategy of the company depends on partner selection and working close to partners on issues like, improving safety, reliability and capacity, which are performance indicators for value delivery process. The company takes the responsibility to improve railway infrastructure in Britain by using resource capabilities and implementing strategic initiatives. Network Rail is already being regarded as a leader in railway infrastructure support services in the country and also, enjoys good word of mouth about their services in Britain. Internal and External Pressures External Pressure Johnson, Whittington and Scholes (2011) defined strategy as scope and direction for an organization which helps it to address issues pertinent to changing environment. According to Johnson, Whittington and Scholes (2011), organizations use strategic initiatives to configure its resources and balance competencies in order to satisfy stakeholder expectations. In such context, the study will use PESTLE model as part of “Exploring Strategy Model” in order to justify specific strategic issue (corporate social responsibility) that has been affecting business dimensions of Network Rail. Political Operation of Network Rail is being partly controlled by UK government; hence the organization had to take certain corporate social responsibility activities in order to satisfy government sustainability criteria. For example, certain portion of funds for Sustainable Rail Safety and Rail Program is being funded by government hence CSR initiatives of the company are being reviewed by government (Network Rail, 2011). In UK, The minister for CSR works in line with Department of Trade and Industry (DTI) in order to create stringent mandate for companies to perform certain level of CSR activities (Bertelsmann-Stiftung, 2006). Government has ordered companies and statutory corporations like Network Rail to follow CSR mandates prescribed by Association of Chartered Certified Accountants (ACCA) and following such mandates would help corporate to get government supports during contingent periods. UK government has also ordered UK companies to publish annual sustainability report and due to government intervention, statutory corporations like Network Rail needs to follow Extractive Industries Transparency Initiative (EITI) norms in order to conduct business in sustainable manner (Bertelsmann-Stiftung, 2006). Economic From external environmental perspective, constant growth and evolution of Great Britain railway has helped Network Rail to get favourable business environment to expand its operation. For example, in the last 10 years, due to government intervention, 10% rise in train numbers has been achieved, punctuality (PPM) has increased to 91.6 per cent and almost 5% rise in freight movement has achieved. Due to laggard effect of economic crisis and sovereign debt crisis, economic growth of the country (GDP growth) was less than 2% and government is struggling with rising inflationary pressure (Allen, 2013). In such context, government supports sustainability effort of companies such as reducing fuel usage, providing employment to society members, providing educational supports etc that can alternatively support economic policy of the country. Therefore, from economic perspective, deploying resources on CSR initiatives would help Network Rail to contribute economic growth of the country. Social Network Rail (2011) conducted survey on rail passengers in London and found that more than 80% believe that incorporating social responsibilities would help the rail infrastructure support provider to gain more customer support. In UK, social awareness regarding benefits CSR initiatives is increasing among passengers and they are even ready to bear the extra cost for CSR initiatives. Due to growing unemployment and lack of educational exposure among certain section of community, anti-social activities surrounding rail network has been increased manifold in recent times and in such context, Network Rail is feeling the social pressure to reduce criminal activities and anti social behaviour by deploying community safety program as part of CSR initiatives (Network Rail, 2011). Technology Although, UK government’s investment to improve technology and infrastructure has not been increased has been stagnant for last few years but Network Rail got additional fund from government in order to deploy latest technology that can increase safety and comfort for passengers. For example, in UK, technological evolutions like automated signalling, ERP implementation, OLAP for data analysis, RFID etc have increased infrastructure and capabilities of Network Rail deploy CSR initiatives in more sustainable manner. UK government also supports arrival of new technology when it comes to deploying it to improve public safety (Network Rail, 2011). Such supportive technological environment has created scope for Network Rail to implement CSR initiatives. Environment UK government has implemented stringent environment laws and regulatory control policies in order to reduce air pollution, greenhouse gas emission, water population and reduction of production of hazardous wastes. Government in the country has advised companies to follow European air pollution limits and decrease green house gas emission from operation by 50% within 2020 (Vidal, 2013). It has been found by government that air pollution and environmental hazards in cities like Manchester, London, Glasgow, and Birmingham etc are beyond acceptable level. In such context, it was both corporate and social responsibility for Network Rail to reduce environment pollution through their operation. Legal In UK, operation of statutory organizations is being controlled through Public Contracts Regulations 2006 and Public Procurement 2011 acts and these legal norms are in line with European Union guidelines (Network Rail, 2011). As part of these legislative norms, Network Rail is obliged to work on behalf of the society. International labour laws are also applicable to companies and semi-public organizations or statutory organizations. Legal environment in the country is also supportive to CSR initiatives of Network Rail. Internal Pressure According internal benchmarking study, cost structure of Network Rail allows it to finance different strategic initiatives (L.E.K Consulting, 2007). For example, asset renewals programs are being incorporated by this statutory organization due to internal pressures are being created internal stakeholders such as trustee board, government and non-profit institutions. For example, during 2007, normalized unit costs saving were nearly 13% for the company and internal stakeholders gave pressure to the company to incorporate CSR initiatives. Figure 2: Breakdown of Benchmarked Costs (Source: L.E.K Consulting, 2007) According to above diagram, 20% £686m cost structure is used by Network Rail to increase internal efficiency by taking sustainability initiatives while remaining 80% of cost structure is being used for meeting operational overheads. Employees and social community members act as internal stakeholders for the company they can also put pressure on the company to deploy CSR initiatives that can infuse diversity in workplace, provide better employee benefits, increase health safety for employees etc. Government is an important stakeholder for Network Rail and company gets internal pressure from government to increase sustainability measure or provide social benefits (Network Rail, 2011). Due to presence of both internal and external environmental pressure, taking strategic corporate social responsibility (CSR) initiatives was one of the most probable options for the company and in such context, Network Rail used CSR initiatives not only to fulfil business growth but also provide sustainable benefit to society. Emerging Stakeholder Issues Numbers of accidents and broken rail incidents have decreased by 50% in the last 10 years in UK and Great Britain railway has been awarded as 2nd safest railway transportation in Europe. In such context, UK government has also increased pressure on rail infrastructure and support service providers to increase safety, quality and sustainability of operation (Network Rail, 2013b). In such backdrop, stakeholder analysis for Network Rail can be analyzed by using Mandelow’s Matrix. Figure 3: Mandelow’s Matrix (Source: Pro Active Mgt & Training Ltd, 2013) For Network Rail, Stakeholder A- employees like train operators (both passenger and freight) in the organization are those stakeholders who have very little capability to exercise power individually that can alter strategic direction of the company and these stakeholders can be satisfied by rewards and monetary benefits. Non-profit organizations who are partner of Network Rail can also be classified as these types of stakeholders whose need can be fulfilled by timely information exchange (Network Rail, 2011). Stakeholder B- local authority, administrative body and project members (who help the company to implement a new railway project) who do not have much power in directing operational activities of Network Rail but in many occasions they try to intervene in project initiated by the company. For example, during railway line expansion in Manchester, tension was created between the company and project management team but within few days, government intervention sorted out the problem (Network Rail, 2011). Stakeholder C- common people and regular passengers and funding bodies are those stakeholders who have the power to influence strategic direction of Network Rail but chance of such power execution is pretty less. However, tension is increasing among railway passengers with increase in railway track suicide events and rising frequency of anti-social activities surrounding railway station (Network Rail, 2011). In such context, Network Rail initiated community safety development initiatives as part of CSR activity in order to reduce tension of these stakeholders. Stakeholder D- UK government, Passenger Transport Executives, department of transport, Welsh Assembly Government and Transport Scotland are the most powerful stakeholders who have the power to influence course of action for Network Rail. There is high probability that these stakeholders would execute their power during contingent period. For example, Welsh Assembly Government and Transport Scotland decides the transportation rote and intra-city rail line expansion within their respective territory. In order to improve quality of railway transportation, Government is putting pressure on players in railway industry to improve quality measures and take necessary steps to increase passenger’s train travelling frequency. It is evident from the above discussion that stakeholders put significant pressure on Network Rail in terms of intervening in operational activities, funding the project or providing regulatory interventions. In such context, Network Rail implemented CSR initiatives to satisfy requirements of stakeholders in comprehensive manner and drive sustainable growth. CSR (Corporate Social Responsibility) Strategy of Network Rail Pedersen (2010) stated that popularity of CSR has been increased recently but the literature still lacks standardized definition of the topic. According to Fifka (2009), it is difficult to establish a standardized definition of CSR due to confusion regarding significance of activities regarding the topic. Fifka (2009) used the term “corporate citizenship” in order to define characteristics of CSR and its significance on business operation of companies. Ogrizek (2002, p. 216) stated that aim of CSR is ‘‘much broader than charitable activities, philanthropy and community involvement.’’ In broader term, companies can perform CSR initiatives by taking different operational activities such as, 1- decreasing carbon footprint from operation, 2- increasing use of renewable energies in business operation and alternative course of operations, 3- providing support to community development, increasing educational awareness or helping the society to overcome curses like child labour, poverty, malnutrition and 4- providing financial and resource support to value chain partners in order to help them to prosper both in business and social aspect. Pedersen (2010) rightly argued that CSR initiatives of companies have to be comprehensive and supportive government specifications in order to drive growth in sustainable manner. In such context, Network Rail has also developed CSR program that can not only develop society but comply with government specifications. It is evident from the discussion that CSR is a broad topic which has multitude of allocations. However, Ogrizek (2002) pointed out that CSR as strategic should be incorporated with the help of suitable leadership model intervention or implementation of organizational change initiatives. In this section, the researcher will analyze the potential effectiveness of Network Rail’s strategy regarding CSR from leadership perspective. During the past 5 years, David Higgins took the post Chief Executive during 2011 and performed the leadership role strengthen CSR agenda. CSR initiatives of Network Rail rely on three verticals such as economic development, social and environmental sustainability. These Figure 4: CSR Principles of Network Rail (Source: Network Rail, 2011) Social & Economic Network Rail (2011) incorporated Sustainable Rail Program (SRP) into their operation in order to ensure fulfilment of sustainability issue. The organization tries to follow sustainability codes mentioned by Rail Safety and Standards Board (RSSB) in order to increase safety in rail transport and decrease in accidents. At the first stage, Network Rail initiated the CSR initiatives by diversifying its workforce and providing social good to existing 35,000 employees in order to increase their engagement level. In 2008, the company organized cultural diversity program in order to recruit employees from different social cohort irrespective of their gender, nationality and ethnicity. In 2011, Network Rail introduced online training module for managers in order to teach them importance workplace diversity. On the other hand, the railway infrastructure service provider has introduced performance incentives and unbiased reward programs in order to enhance engagement level of employees. From 2010, Network Rail started sending ‘Safety 365’ communications trucks to workplace in order to check health and safety issues for employees. In such context, top level management has used transformational leadership style in order to develop team culture and environment or trust and knowledge sharing within organization. As part of transformational leadership, top level management conducted frequent knowledge sessions, meetings with employees in order to incorporate opinion of internal stakeholders during strategic decision making process (Network Rail, 2011). For example, during 2011, David Higgins (CEO of the corporation) supervised the employee diversity program and took suggestion of team members for incorporating strategic changes. Network Rail also employed significant numbers of youth in the country either in core operational services or in voluntary departments and such initiatives are being taken to help government to address the problem regarding rising unemployment rate. From social development perspective, for last 5 years, the company started working with local communities in order to provide three types of benefits. 1- Recruiting community safety managers who will ensure safety of local people by working with local police, sports clubs, and local councils in order to prevent anti social activities. Community safety managers and their team arrange sports and fun activities for local youth in order to keep them distracted from anti-social activities. 2- In 2010, the railway authority established five-year partnership with Samaritans in order to order to different initiatives that can prevent people from committing suicide (Network Rail, 2011). 3- During 2010/11, Network Rail donated £884,613 to cancer research institute in the country and the railway authority also funded local schools in order to create educational awareness in the country. During 2009, the company took help of British Transport Police in order to achieve more than 90 level crossing safety days and educate local people how to avoid level crossing accidents. In 2012, Network Rail funded £25,000 to establish community rail routes across the country. These examples are stating the width of CSR initiatives took by Network Rail in order to provide social good to society members (Network Rail, 2011). From leadership perspective, Network Rail used its resource capabilities to incorporate social initiatives and they also used market leadership position to access support from partners to boost CSR initiative. In context to economic perspective, Network Rail helped the UK economy by taking three actions, 1- increasing tax deposit to government, 2- providing financial support to small scale partners to scale up their business that alternatively benefits UK economy and 3- employing local community members and young people which alternatively helps government to get rid of problems regarding rising unemployment rate (Network Rail, 2011). Environment Network Rail (2011) reported several initiatives that were being taken in last 5 years in order to decrease greenhouse gas emission, carbon footprint and wastes from operational activities. In 2009, the organization started rolling out smart electricity meters as replacement of carbon fuelled energy and by using the device; the rail authority gets access to automatic half-hourly energy data and access to such data gives opportunity to railway authority plan energy usage. For last 5 years, Network Rail decreased water usage by more than 20% and at present the company is using less than 1.9 million m3 of water in its operation. In 2011, the company started initiatives to use alternate energy sources and reduce dependency on carbon sources in order to reduce carbon footprint from environment. In last 5 years, Network Rail already brought more than 10 sites to Special Scientific Interest (SSSIs) in order to ensure fulfilment of bio diversity and ecological requirements in the environment. For example, Network Rail funded (£2,500 for each program) 5 local Wildlife Trusts in order to manage wild like and bio diversity across Britain (Network Rail, 2011). As part of waste management, the company has appointed waste contractors to minimize landfill amount, increase recycling rate and eliminate redundant operational steps. The carbon accounting for the company can be described in the following manner. Figure 5: Environmental Accounting by Network Rail (Source: Network Rail, 2011) It is evident from the above diagram that the company is trying to reduce carbon emission by using activity based accounting for all of its activities and decreasing green house gas emission from all plausible sources. Apart from using transformational leadership style, top level management of Network Rail has empowered employees and key internal stakeholders to make decisions during contingent period. Therefore, mix of transformational and participative leadership style is being used organizational leader in Network Rail to incorporate all the pertinent CSR initiatives. From strategic perspective, incorporation of mix of transformational and participative leadership style has helped the company to achieve strategic flexibility to respond to changes and address macro environmental challenges in efficient manner. Conclusion According to Johnson, Whittington and Scholes (2011), strategic decisions are being taken in order to fulfil a particular strategic objectives and such strategic decision is being taken after analyzing dynamics of both internal and external environment. This essay has also conducted strategic analysis of Network Rail on the basis of macro environmental and stakeholder analysis. Seminal research work of Porter (1991) also revealed the fact that strategic decision needs to be dynamic in order to incorporate changes in environment such as intervention of government, rise of competitors, social responsibility of business, and change in customer behaviour etc. In such context, the paper has selected CSR as the key strategic issue for the chosen organization. While discussing CSR initiatives of Network Rail, the study used Exploring Strategy Model of Johnson, Whittington and Scholes (2011) in order to how the strategic initiative is addressing macro-environmental choice indices. The study has found that the company is quite successful in implementing strategic initiatives in terms of fulfilling stakeholder requirements and addressing macro-environmental challenges. In conclusion, it can be said that Network Rail took strategic initiatives to address pertinent macro and micro environmental challenges but these initiatives also helped them to achieve sustainable business growth. Reference List Allen, K., 2013. Autumn statement 2013: UK economic growth upgraded. [online] Available at: [Accessed 25th January 2014]. Bertelsmann-Stiftung, 2006. Government as Partner? CSR Policy in Europe. [pdf] Bertelsmann-Stiftung. Available at [Accessed 25th January 2014]. Fifka, M., 2009. Towards a more business-oriented definition of corporate social responsibility: Discussing the core controversies of a well established concept. Journal of Science & Management, 2, pp. 312-21. Johnson, G., Whittington, R. and Scholes, K., 2011. Exploring strategy. 9th ed. Harlow: Pearson Education Limited. L.E.K Consulting, 2007. Network Rail: Internal Benchmarking: Summary of Findings. [pdf] L.E.K Consulting. Available at [Accessed 25th January 2014]. Network Rail, 2011. Network Rail: Corporate Responsibility Report 2011. [pdf] Network Rail. Available at [Accessed 25th January 2014]. Network Rail, 2012. Control Period Delivery Plan update 2012. [online] Available at: [Accessed 25th January 2014]. Network Rail, 2013a. A better railway for a better Britain – January 2013. [online] Available at: [Accessed 25th January 2014]. Network Rail, 2013b. Strategic Business Plan for England & Wales. [pdf] Network Rail. Available at [Accessed 25th January 2014]. Network Rail, 2014. About us. [online] Available at: [Accessed 25th January 2014]. Ogrizek, M., 2002. The effect of corporate social responsibility on the branding of financial services. Journal of Financial Services Marketing, 6(3), pp. 215-27. Pedersen, E., 2010. Modelling CSR: How managers understand the responsibilities of business towards society. Journal of Business Ethics, 91, pp. 155-66. Porter, M. E., 1991. Towards a dynamic theory of strategy. Strategic Management Journal, 12, pp. 95-118. Pro Active Mgt & Training Ltd., 2013. Business Tool: Stakeholder Mapping. [pdf] Cultivate-em. Available at: [Accessed 25th January 2014]. Vidal, J., 2013. UK government failing legal duty on air pollution, supreme court rules. [online] Available at: [Accessed 25th January 2014]. Read More