ACCOUNTING AND FINANCE
RESEARCH UNIT (AFRU)
The fragmentation of a railway:
A study of organisational change in British Rail
*David Tyrrall
**David Parker
November 2001
01/6
ISBN 0 7492 45484
© The Open University
© David Tyrrall, David Parker
© Aston Business School
*
The Open University Business School, Walton Hall, Milton Keynes MK7 6AA
Tel: (+44) 1908 659285
Fax: (+44) 1908 655898
Email: d.e.tyrrall@open.ac.uk
**
Aston Business School, Aston University, Birmingham B4 7ET
Tel: (+44) 121 359 3611
Fax: (+44) 121 333 3474
Email: d.parker1@aston.ac.uk
Abstract
Privatisation has received much attention from economists and political scientists, but
surprisingly little from management academics. This paper considers British Rail from
strategic and organisational perspectives, in the context of a long period of
commercialisation of the corporation leading up to privatisation. The changes involved
are analysed using the Laughlin (1991) and Parker (1995a) frameworks. The resulting
analytical framework is used reflexively and the model of organisational change is
augmented to include change pathways termed ‘fragmentation’ and ‘imposed evolution’.
It is intended that this model should be of wider applicability not only to the study of
public sector organisations that have undergone or are undergoing commercialisation
and privatisation, but to other forms of major organisational change.
1.
Introduction
Privatisation has received much attention from economists and political scientists, but
surprisingly little from management academics. The economic case for privatisation is
predicated on the belief that resources will be more efficiently deployed in the private
than in the public sector (Vickers & Yarrow, 1988; Bös, 1991; Boycko, Shleifer &
Vishny, 1996; Martin & Parker, 1997). If privatisation is to succeed, however, this
implies major changes in how organisations and activities are managed and structured,
including changing the ‘organisational culture’ (Parker, 1994, 1995a).
This paper considers the privatisation of British Rail (BR) from strategic and
organisational perspectives and in the context of a longer period of commercialisation of
railway management. BR was restructured from the late 1970s onwards and was
privatized between 1995 and 1997. In this paper, these changes are analysed using the
Laughlin (1991) and Parker (1995a) frameworks. Laughlin (1991, p. 223) emphasises
that in understanding organisational change there is 'still a need for further case studies,
and additional conceptualisation to clarify … why particular pathways (of change) are
followed'. Broadbent (1992, p. 365), in the context of the same analytical framework,
adds that ‘study of why organisations fragment ... would be a fruitful line of enquiry.’
Within the specific context of privatisation, Parker (1995a, p. 45) points out that
2
‘surprisingly little research has been undertaken into what happens within organisations
when they are (being) privatised’. The research reported below is intended to address
these issues by undertaking an analysis of the changes in BR leading up to privatisation.
The analytical framework is used reflexively to develop a revised approach to
organisational change. While change during privatisation can be more dramatic than
some other forms of organisational transformation, the model is not intended to be
exclusively applicable to privatisation but to have wider applicability. The paper is
timely in the context of current concern about mismanagement of the railways, the
financial collapse of Railtrack, and the Labour Party’s espousal of increased private
provision of public services.
The paper is structured as follows: section one develops the analytical framework in
which BR is assessed. Section two looks at the nature of change in BR from the late
1970s until privatisation. Finally, the change process in BR is assessed and the main
conclusions are presented in Section three.
2.
The Analytical Framework
Laughlin (1991) provides a tripartite framework for the analysis of organisational
change, by classifying organisational characteristics under three broad elements (Figure
1): namely, Interpretive Schemes (the underlying values of organisational members),
Design Archetypes (organisational structures and systems) and Sub-systems (tangible
elements of the organisation such as people or buildings). Importantly, the three
elements must be in balance with one another to ‘bind the organisation together and
make it a coherent whole’ (Laughlin, 1991, p. 213).
This form of tripartite analysis is not unique to Laughlin (1991) and other approaches
using different levels of abstraction can be found, for example, in Popper (1979, cited in
Willmott, 2000) and Schein (1984). In this study, the Laughlin (1991) model is preferred
because it was specifically framed for and has been extensively applied to the analysis of
organisational change. Changes in organisational balance are particularly likely if the
3
environment changes in ways hostile to the organisation, and delivers a disturbance to it.
Laughlin (1991) posits four pathways of organisational change:
Rebuttal: a morphostatic (first order) change, which leaves all aspects of the
organisation unchanged;
Reorientation: another essentially morphostatic change, which may alter the subsystems or even the design archetype, but leaves the interpretive scheme untouched;
Colonisation: a morphogenetic (second order) change, where environmental disturbance
initially leads to a change in design archetype. This is illustrated in Figure 1 by the
movement from DA1 to DA2, then to sub-systems, SS1 to SS2, and interpretive
schemes IS1 to IS2. The result is a new balance within the organisation around a ‘new
underlying ethos’ (Laughlin, 1991, p. 219);
Evolution: another morphogenetic change, where environmental disturbance leads to
rational internal discussion and agreed change to interpretive schemes over a period of
time, with resultant changes to design archetypes and sub-systems.
Interpretive Scheme
Interpretive Scheme
(IS) 1
(IS) 2
Balance
Change
new
Process
balance
Disturbance /
Design Archetype
Change
Design Archetype
Jolt / Kick
(DA) 1
Process
(DA) 2
Balance
Change
New
Process
balance
Sub-systems
Sub-systems
(SS) 1
(SS) 2
Figure 1: Morphogenesis (second order change): colonisation (after Laughlin, 1991)
4
The model has an intentionally recursive or reflexive nature, in that new studies
analysed based on the model are used to further modify and develop it. Broadbent
(1992), Laughlin, Broadbent, Shearn, Willig-Atherton (1994a), Laughlin, Broadbent and
Willig-Atherton (1994b), and Broadbent and Laughlin (1998) examine morphostatic
(essentially reorientation) pathways within smaller public organisations, as does
Richardson, Cullen and Richardson (1996) within a small company context. There have
been fewer such studies involving the context of large organisations. Laughlin (1991)
finds reorientation in the Church of England and draws on Dent (1991) to illustrate the
process of colonisation within British Rail. In each of the aforementioned studies, the
analysis of changes in design archetypes is largely restricted to changes to accounting
and financial systems. Clark and Soulsby (1995) introduce issues of structure and
strategy to their analysis, but in a relatively informal manner to demonstrate how major
Czech engineering enterprises followed a reorientation pathway. Other studies of
smaller organisations, such as those by Slack and Hinings (1994) and Kikulis, Slack and
Hinings (1995) on Canadian sports organisations and Cooper, Hinings, Greenwood and
Brown (1996) on Canadian law firms, using a similar but not identical framework, with
more emphasis on structural phenomena, find evidence for both colonisation and the
persistence of previous interpretive schemes. In all of these cases, the organisations
survived the environmental disturbance in question, with much or at least some of their
interpretive schemes intact, thus confirming Laughlin’s (1991, p. 217) suggestion that
‘any interpretive scheme … [may accept] a number of different design archetypes
without the coherence of organisational life being substantially challenged.’
The present study adds to this literature by:
•
augmenting the Laughlin (1991) schema with a more formal application of
categories drawn from structural analysis in order to
•
investigate a pathway of colonisation, and
•
posit pathways of ‘fragmentation’ and ‘imposed evolution’1
•
within a large organisation,
1
Related, although not identical ideas are raised in the theoretical literature (Dunphy & Stace, 1988;
Laughlin, 1991; Broadbent, 1992), and are less explored empirically.
5
•
which did not survive.
The structural approach to organisational analysis is in the classical tradition (Pennings,
1992). Within this tradition, contingency theory holds that an organisation’s structure
and control systems are contingent upon various aspects of its goals and environment
(Dent, 1996), including ownership. Appropriate choices of organisational structure and
management objectives enhance organisational effectiveness and promote organisational
survival. Thus a contingency framework seems to provide an appropriate means of
analysing organisational characteristics (Lawrence & Lorsch, 1967; Pugh & Hickson,
1976).
Parker (1995a) provides a contingency framework to analyse contrasting or stereotypical
organisational characteristics appropriate to public and privatized organisations, under
six headings: goals, nature and location of the business, structure, management,
reporting systems, and labour. The framework is not intended to specify any one
pathway between organisational states. Nor does it place any weighting of importance
on the six categories. In this sense the approach is quite limited. Nevertheless, it
provides a starting point for our analysis, where the intent is to investigate pathways of
change.
In this paper, Parker’s framework is augmented by a number of additional organisational
characteristics that may be important in determining successful organisational change;
namely, cultural paradigm, boundary systems, strategic style, and quantity of
information processed. Moreover, this framework is combined with Laughlin’s model.
Therefore, this study describes:
Interpretive Schemes: as including the ownership, goals, cultural paradigm and
boundary systems of the organisation;
Design Archetypes: as including the organisational structure, strategic style,
management style and management control systems, and;
Sub-systems: as including the quantity of information processed and human resources.
6
Table 1 summarises the issues relevant to the analysis of BR under the above headings.
These issues are discussed below.
Table 1: Organisational change in British Rail before/during privatisation: a summary
Period
Interpretive Schemes
Goals, Mission, Beliefs,
Values and Norms (Dent,
1991: Laughlin, 1991;
Parker, 1995a)
BR in the 1970’s
BR in the 1980’s
BR in the 1990’s
Multiple, sometimes vague
and conflicting (‘public
interest’)
Social Railway
Public interest but with
increased business
revenues
Business Railway
Entrepreneurial, unidimensional (profit)
Ownership
Cultural Paradigm (Siehl &
Martin, 1990)
Public
Integration
Public
Differentiation
Profitable Business
Public to private
Ambiguity
Boundary Systems (Simons,
1995)
Nature and location of
business politically
constrained
Equity, accountability and
probity
More freedom for
management with reduced
government intervention
Nature and location of
business commercially
determined
Centralised, hierarchical
functional structure
Cost centres
Mechanistic
Matrix to divisional
Separate businesses
Strategic Planning
Strategic control
Design Archetypes
Structure
(Parker, 1995a; Galbraith,
1972; Burns & Stalker,
1961)
Strategic Style (Goold &
Campbell, 1987)
Management style
(Parker, 1995a)
Interactive Control Systems
(Simons, 1987)
Accounting Systems
(Parker, 1995a)
Sub-systems
Quantity of information
processed
(Galbraith, 1972)
Human resources
(Parker, 1995a)
Profit centres
Principal-agent relationship
blurred
Orientation: inward to
production/professional
interests
Focus on inputs & reliance on
state subsidies
Style: reactive
Organic
Financial control
Clear
More commercial
orientation with emphasis
on revenue surpluses and
reduced government
subsidies
Marketing focus
Focus on outputs
Proactive
Several
Intelligence Systems
Profit planning systems
Accounting - a diagnostic
system
AXIS – centralised
Limited cost allocation
Stronger accounting – an
interactive system
AXIS – devolved
Extensive cost allocation
Independent reporting
systems for each entity
Microcontrol and CRAMS
introduced
Negotiated transfer prices
Reduced due to
standardisation of timetable
Increased due to customer
and profit considerations
Further increased due to
addition of internal
contracting
High unionisation and
centralised bargaining
Salary gradings
Decentralisation of
bargaining
High security of employment
Voluntary redundancy
programmes
Lower unionisation and
decentralised bargaining
Performance-based
reward
Less security of
employment
7
2.1. Interpretive schemes
2.1.1
Ownership
The relationship between ownership and strategic choice is not entirely clear, although it
is to be expected that different ownership forms may be associated with different
managerial behaviour (Thomsen & Pedersen, 2000). The distinction between public and
private ownership is a continuum of organisational types rather than a clear-cut binary
division (Dunsire, Hartley, Parker & Dimitriou, 1988). Nevertheless the Railways Act,
1993, which privatised the railways, was clearly intended to ‘make new provision with
respect to ... the persons by whom (railway services) are to be provided ... (and) ... to
amend the functions of the British Railways Board’ (p.1).
2.1.2
Mission, goals, beliefs, values and norms
One expectation of a privatised organisation is that its mission and goals will switch
from a political or public interest emphasis to a commercial one (Parker, 1995a). Goals
of public sector organisations are often multi-dimensional and even confused or vague;
they are also externally imposed (usually by Parliament and government department)
and open to repeated variation, according to political whim (Murthy, 1987). By contrast,
goals in the private sector are usually based around maximising shareholder value and
are largely internally set. Here the changing goals of BR, as also reflected in beliefs,
values and norms (Laughlin, 1991), are characterised under the labels ‘social railway’,
‘business railway’ and ‘profitable business’.
2.1.3
Cultural paradigm
Changes in organisational culture are held to be critical to the success of any
privatisation venture (Dunsire et al., 1988; Parker, 1994, 1995b). Organisational culture
has been the subject of an extensive literature (Pugh & Tyrrall, 2000). Siehl and Martin
(1990) categorise this literature into the Integration, Differentiation and Ambiguity
paradigms. In the Integration paradigm, culture is seen as an organisation-wide
phenomenon, so that the organisation displays a unified purpose and set of values. In the
Differentiation paradigm, researchers seek a unified purpose within each sub-unit of the
organisation but not across the entire organisation. In the Ambiguity paradigm,
8
researchers do not seek consistency within the organisation, except that which emerges
in response to specific issues. In this study these paradigms are used as descriptors of
differing stages of cultural integration within BR.
2.1.4
Boundary systems
Simons (1995) holds that these are used to indicate specific types of actions that are
unacceptable within an organisation. This is of particular relevance to public sector
organisations with politically driven concerns regarding equity, probity, accountability
and control of public funds (Parker, 1995a).
2.2. Design archetypes
2.2.1
Organisation structure
A continuum of organisational structures exist (Galbraith, 1972) ranging from
functional, through matrix to divisional structures; while Burns and Stalker (1961)
classify firms as mechanistic or organic. Although there is no necessary identification of
the public sector with the mechanistic form (Parker, 1995a), as discussed below in the
case of the railways a change from mechanistic to organic forms began. In addition,
privatisation may be associated with other changes in organisational structure, including
the introduction of new profit centers and a flattening of the hierarchical pyramid
(Parker, 1995a).
2.2.2
Strategic style
Goold and Campbell (1987) identify three major strategic styles in larger organisations.
The strategic planning style emphasises centralised, long-term planning for an
organisation where the portfolio of activities is very interdependent. In the financial
control style, HQ allows divisions to follow independent commercial strategies, as long
as they conform to budget targets. In the strategic control style, HQ attempts to strike a
balance between these two courses, allowing divisions independence to pursue
profitability by their own routes, while harnessing them to overall organisational
objectives.
9
2.2.3
Management style
In the public sector, the principal-agent relationship is potentially blurred by the
intervention of tiers of state agencies (e.g. legislature, government department and
corporation board) between the public, as owners/principals, and management, as
agents. This, it has been suggested, is associated with an inward, production or
professional focus, a reactive style (Burton & ul-Haq, 2001, p. 10), an emphasis on
controlling inputs and following established procedures (the rulebook), and a processual
approach to strategy (Whittington, 2001, p. 121) – all of which may reinforce a
mechanistic style of organisation. By contrast, private ownership tends to be associated
with a clearer principal-agent model with management incentives achieved through
capital and managerial labour markets, resulting in an emphasis on outputs and a more
proactive style of management. Although this summary may provide a caricature of both
public and private sectors; nonetheless, it is to be expected that government policy
aimed at greater commercialisation of the public sector, perhaps with a view to eventual
privatisation, will lead to a different management style and possibly even new
management (Parker, 1995a; Andrews & Dowling, 1998; Whittington, 2001, pp. 108-9).
2.2.4
Management control systems
Simons (1987) identifies five main information-based systems in widespread use for the
strategic direction of companies: profit planning, brand revenue, intelligence,
programme management and human resource systems. Senior management tend use
most of them diagnostically (on a management by exception basis), while using only
one system on an interactive basis, taking a regular and direct interest in the information
provided regardless of whether or not there is perceived to be an immediate problem or
exception. The system selected for interactive use is determined by the major strategic
uncertainty faced by the company or by the activity that is most critical to success.
Building on Kikulis et al. (1995) emphasis on decision making as a key feature of
elements of the design archetype, we argue that it is appropriate to distinguish between
interactive and diagnostic systems among the design archetypes, thus allowing for both
the predominance of certain systems and the possibility that control systems may change
in status over time.
10
2.2.5
Accounting systems
Privatisation is associated with new forms and an increased prominence of financial
reporting and control to reflect the new strategic orientation and organisational
structures (Andrews & Dowling, 1998). In BR AXIS was the acronym for the internal
BR accounting system introduced in the 1970s, and at the commencement of this study
we classify it as a diagnostic system.
Parker (1995a, pp. 55-56) points out that ‘the subject of communication and reporting
systems could be one of the most fruitful, but ... also one of the most problematic ...
(areas) ... of research into internal change’. Such research requires access to detailed
internal knowledge of the organisation and its reporting systems, something frequently
denied to researchers.
2.3. Sub-systems
2.3.1
Quantity of information processed
Galbraith (1972) holds that organisational design is dependent upon the amount of
information the organisation has to handle, which in turn, is a function of the amount of
uncertainty in the environment, the number of different elements (e.g. departments,
products, etc) the organisation has to combine, and how inter-connected are the
elements. Privatisation when coupled with a more market-focused approach to business,
is expected to be associated with a greater need for information processing capability.
2.3.2
Human resources
Commercialisation and privatisation are likely to have a significant effect on the way
that human resources are managed and, in particular, on the way in which industrial
relations are conducted (Pendleton & Winterton, 1993). BR was traditionally associated
with high unionisation and centralised collective bargaining, but there was some erosion
of this over time. Security of employment also declined in the face of organisational
rationalisation.
11
3.
An application to British Rail
This analytical framework based on interpretive schemes, design archetypes and subsystems, is now used to assess the major changes that occurred in BR from the late
1970s until privatisation in the mid-1990s.
BR was taken into state ownership immediately after the Second World War. As a
‘public corporation’ it underwent a number of changes from the 1950s to the 1970s, but
remained, essentially, a highly hierarchical organisation with regional operations. From
the late 1970s onwards BR’s structure changed several times. The earlier part of this
period, especially the early 1980s, has been examined in Dent (1991), Gourvish (1990)
and Laughlin (1991). The present paper re-examines these studies and then investigates
subsequent events leading up to privatisation, drawing upon the experience of one of the
authors who worked within BR during the period 1993-97, first as Finance Manager in
Procurement and Materials Management (P&MM), a major division of BR, and then as
a Business Performance Analyst in Group HQ. In the study, participant observation is
triangulated using published studies of BR, official reports and annual accounts. The
study might be regarded as a form of organisational post mortem (Orton, 1997) and as
‘an attempt to reflect upon and exercise the experiences of this author’ (Power, 1988, p.
3), whose stance was situated between that of participant observer and ‘researcherinsider and theory builder’ (Felix, 2000, p. 1). Richardson et al. (1996) also use the
Laughlin (1991) framework to reflect upon a participant-observer study (also supported
by documentary data), but in a smaller organisation, and with different concerns.
3.1. BR in the 1970s
In BR in the 1970s the interpretive scheme can be characterised as that of ‘the social
railway’ (Dent, 1991), combining:
•
public ownership, and hence a social or public service interest;
•
with an orientation towards production or professional interests; in this case
‘running a railway’ (an orientation found in other railways; Salsbury, 1994).
12
The ‘culture of the railroad’ (Gourvish, 1986, p. 577) was an integrated one (Siehl &
Martin 1990) based on ‘good old soldiers falling into line’; the military metaphor dating
back to the founding of the railways (Savage, 1998). The interpretive scheme was
reflected in a design archetype featuring a functionally organised, mechanistic (Dent,
1991) and hierarchical organisation. Prior to 1982 the management of BR was based
entirely on functional responsibilities, supported by functional directors at HQ
(Managing the Railways, 1989). All significant cross-functional decisions tended to be
taken at the top of the organisation by the Regional Managers, who were career
‘railwaymen’. The BR style of control was the strategic planning style (Goold &
Campbell, 1987). The vehicle for this centralised, long-term but apparently somewhat
unsatisfactorily executed planning (Gourvish, 1986, pp. 379-81, 503, 519) was the fiveyear corporate plan (or ‘Rail Plan’), the product of a lengthy (11-month) and complex (8
stage) annual planning process (Managing the Railways, 1989).
Fundamental to BR was ‘the timetable’, a complex, highly inter-connected product. The
BR approach to solving the information management problem (Galbraith, 1972) was to
reduce its size and the resultant complexity through standardisation, with the result that
the timetable changed very little through the years. Indeed the statutory requirement
throughout this period was for ‘a public service which is comparable generally with that
provided ... at present’ (Railways Act 1974; Directions by the Secretary of State
19.12.74 and 30.3.88). Little regard was given to customer type information in BR
(Gourvish, 1986, p. 580). This solution to potential complexity, ie to codify it, is
consistent with a mechanistic approach to managing the organisation. Such an approach
can be very successful in stable markets, which feature large-scale outputs of predictable
tasks in a stable environment (Burns & Stalker, 1961) and this reflected the state of
affairs in BR during these years.
Hence, the organisation tended to be task-oriented (Parker, 1995a; Dent, 1996) and the
design archetypes, including the accounting system, reflected this. The BR accounting
system, called AXIS2, treated all organisational sub-units as cost centres and only at the
2
It is revealing that the acronym connotes centralisation.
13
apex of the organisation were P&L and Balance Sheet statements derived (Dent, 1991;
Gourvish, 1986, pp. 394-6, 464). BR’s Annual Reports and Accounts in the late 1970s
and early 1980s provide information only on the contribution (revenue minus direct
expenses) of different sectors of the business, with no attempt to allocate indirect or
infrastructure costs. Accounting existed essentially for score-keeping purposes and to
ensure adherence to the External Financing Limit (EFL) placed upon BR, like other
nationalised industries, by Government. Hence, the accounting system was used
diagnostically, rather than interactively. The organisation did not derive its purpose, its
raison d’être, from the facts supplied by the accounting system (Dent, 1991) and it is for
this reason that we designate the accounting system as a diagnostic rather than an
interactive control system. The main interactive control systems (Simons, 1987) at HQ
level in BR in this period were intelligence systems based on sustaining government and
public support for BR (Gourvish, 1986, p. 575ff) as a social railway.
Thus, the interpretive schemes, design archetypes and sub-systems came to form within
BR a balanced or coherent whole, in an integrated culture based on providing a public
railway. Peters and Waterman (1982 & 1984) and Ouchi (1981) have advocated the
value of a strong culture in building employee morale and commitment; thus increasing
staff potential and productivity, and in turn increasing the financial performance of the
company. Despite its strong culture based on the concept of a social railway, however,
BR was not renowned for its organisational excellence. The BR logo, based on arrows
pointing in opposite directions, was ridiculed internally as appropriate for an
organisation that did not know whether it was coming or going! Within the organisation,
a judgement of one non-executive director, that BR was the ‘most deeply unimpressive
organisation he had ever seen’, was widely recounted.
3.2. BR in the 1980s
Environments change, delivering a disturbance to the organisation (Laughlin, 1991) so
that existing policies, structures, and controls are no longer adequate and performance
deviates from expectation (Hedberg & Jonsson, 1978). In the 1980s in the UK, a new
interpretive scheme based on ‘privatisation’, ‘reinventing government’ and the ‘new
14
public management’ (Osborne & Gaebler, 1992; Dunleavy & Hood, 1994; Hood, 1995)
was in the air. A business, profit oriented or managerial approach to public enterprises
became dominant (Rose & Miller, 1992). The government began an assault upon public
sector organisations, exerting pressure upon them to adopt commercial practices to
increase their efficiency.
The report that the Prime Minister, Margaret Thatcher, had declared at a lunch for BR
executives in 1980 that ‘any manager worth their salt would be in the private sector’
(Marston, 1997, p. 4) was widely recounted within BR. More formally, as a nationalised
industry, BR had not been subject to the reporting requirements of the Companies Act;
but in 1981 the Secretary of State for Transport began to require the annual accounts in
Companies Act format (BR, Annual Report and Accounts, 1981, p. 36). Also, BR began
to experience reductions in government subsidies as part of the Government’s policy of
cutting public expenditure. It was both encouraged and forced to make up for this
shortfall in revenue from passenger income and cost savings.
Hedberg and Jonsson (1978) suggest that organisations in a changing environment need
‘semi-confusing’ information systems that may provide contradictory information, in
order to avoid being locked into outmoded beliefs and responses. However, considerable
evidence of poor performance may be required before an organisation will question or
change its policies, organisation and routines in a major way. Initially, BR’s Board
introduced a minor change (Dent, 1991) which was to have far-reaching consequences.
Since BR visibly lacked marketing and business expertise, in 1982 the Board appointed
Business Directors (BR, Annual Report and Accounts, 1982; Managing the Railways,
1989; Dent, 1991) to add an air of managerial modernity, and, more prosaically, to find
a further means of extracting cash from railway customers, through a more commercial
approach to operations.
The Business Directors reported directly to the Board, like planning staff on an
additional leg of the functional structure. The Regional Managers, however, appear to
have believed that this morphostatic (Laughlin, 1991) change would make little
15
difference to their own power, position or activities (Dent, 1991). The railway would
carry on essentially as before, while the marketing skills of the Business Directors
would generate additional finance from the existing activities. Thus, the immediate
response to the changed environment came at Board level rather than lower down the
organisation, as one might expect in a hierarchical structure. In terms of its design
archetype, the organisation simply enabled itself to handle more information, and hence
more complexity, by increasing the volume of vertical information flows, in a slightly
modified organisational structure.
In time, however, the power of the Regional Managers was affected by the appointment
of the Business Directors and a new emphasis on commercial goals (Dent, 1991).
Business Directors discovered that the existing accounting methods provided
information on their business sector revenues, but not on the associated costs. In
response, an accountant was detailed to develop methods of identifying and calculating
business sector costs and profits. The developing management accounting system
supported a new interpretive scheme, which might be characterised as ‘the politics of
profit’. Business Directors were able to use the reported figures to change the terms of
reference in organisational debates. Short-term profit considerations began to displace
traditional operating norms as the rationale for decision making. Rolling stock was
reallocated between routes on the basis of where it could earn the most profit. Timetable
alterations were introduced on the basis of the passengers the new services would
attract, rather than simply the operating convenience of the timetable. Extensive track
maintenance, which would normally have been done in conjunction with the associated
signalling maintenance, was postponed to reduce short-term expenditure. In 1983 the
Business Directors were nominated as Principal Officers on BR’s Board, signalling the
displacement of the Regional Managers as the controlling force within the corporation
(BR, Annual Report and Accounts, 1983). Gradually changes to the design archetypes
seeped upwards through the organisation, consistent with the process illustrated in
Figure 1 above.
16
In terms of Galbraith’s (1972) ‘organisation as information processor’ model, there was
now more information to consider, and it flowed through two channels rather than one.
For every decision, BR managers now had to consider business accounting profit
information as well as the operating information they had always used. The operational
information could not be ignored and consequently BR had potentially developed semiconfusing information systems (Hedberg & Jonsson, 1978). Somehow, the two sets of
information had to be combined, but the existing vertical and functional structure was
unequal to the task of reconciling the two different flows. BR responded by altering its
organisational structure.
A matrix structure was introduced from the mid-1980s, initially for financial reporting
and information purposes but later extended to transform BR from a hierarchical,
functionally-based organisation to a matrix form, with businesses, functions and regions
forming the three axes of the matrix (BR, Annual Report and Accounts, 1987/88, p.6;
Managing the Railways, 1989). The full organisation chart became known within BR as
the ‘Rubik's cube’, reflecting the complex diagram circulated within the organisation to
illustrate it.
The organisation moved from a strategic planning to a strategic control style (Goold &
Campbell, 1987) with Group HQ attempting to strike a balance between allowing
business sectors independence to pursue their own goals, while harnessing them to
overall organisational objectives. The Corporate Plan diminished in significance, while
the accounting system, AXIS, became the main interactive control system for the
running of the railway, and hence became a more prominent design archetype. AXIS
was reconfigured to provide separate financial statements in Companies Act format,
announcing the profitability, or otherwise, of each business sector. This even occurred
within the central services, whose customers were almost entirely internal to BR.
Effectiveness was no longer defined in terms of the task of train operation. It became
redefined, instead, as the output of information systems focusing on commercial
accounting profit. The interpretive scheme shifted to that of the ‘business railway’.
17
In terms of the public’s perception of BR’s performance, there was still evidence of a
negative linkage between the new interpretive scheme and effectiveness. If operational
cost is taken as the measure of effectiveness, however, the opposite conclusion may be
drawn. During this period BR ran the most cost-effective railway in Europe on many
measures (Shaw, 2000, p. 1), including the level of public subsidy. The level of public
funding fell steadily from between 0.3% and 0.35% of GDP in 1978-85, to between
0.21% and 0.26% in 1986-88, and to between 0.12% and 0.16% in 1989-92 (BR,
Annual Reports and Accounts, various dates). In 1987/88, BR reported ‘record-breaking’
results, which it attributed to cultural change and the new matrix organisation (BR,
Annual Report and Accounts, 1987/88, pp. 4-6). Whether success was caused by
organisational change, or simply by continued budget pressure from government, is
difficult to determine. Nevertheless, these organisational and performance outcomes
could be and indeed were deployed to support both the privatisation of BR (BR, Annual
Report and Accounts, 1987/88, p. 7) and the retention of a nationalised railway (Modern
Railways, 1988).
The interpretation provided so far of BR’s development from the late 1970s could be
viewed as consistent with a uni-directional approach (or drift) towards a new
organisational state at all three levels of interpretive schemes, design archetypes and
sub-systems. However, the morphogenetic model specifically allows for the
simultaneous presence of schizophrenic elements, representing both the past and future
states of the organisation at all three levels of the organisation during the change process
(Broadbent, 1992). Both Dent (1991) and Laughlin (1991) acknowledge this possibility,
but the weight of their evidence suggests a victory of the business railway by the
mid/late-1980s. However, change within BR was not seamless. Aspects of the older
interpretive schemes, design archetypes, and sub-systems survived until the public
corporation’s death knell in the mid-1990s; while other parts of the organisation
succumbed to the values associated with private ownership much earlier than the rest, as
we indicate below.
18
Although the major privatisation of BR took place in 1995-97, creeping privatisation of
parts of the railway occurred over a much longer period (Shaw, 2000, p. 46), with the
result that as early as 1992 approximately one-third of the annual operating cost of BR
was procured from the private sector. BR’s hotel and shipping businesses and rolling
stock maintenance were privatised in the 1980s. At the level of the interpretive scheme,
however, public sector boundary systems (Simons, 1995), concerning accountability and
probity, endured well after the drive towards privatisation had commenced. In the
Procurement and Materials Management (P&MM) division, for example, acceptance of
all but minor gifts of a seasonal nature (e.g. calendars and diaries) continued to be
forbidden on probity grounds. In human resources, the employee grading system and
grading procedures survived, as did the role of trade unions in negotiations over wages
and conditions; although there were steadily increasing redundancies throughout BR,
and some shift to merit-based pay in the management grades. In the accounting system,
vestiges of detailed central control survived until the demise of BR. The final set of
annual accounts instructions, for 1995/96, issued by Group HQ Finance, still ran to
some 161 pages.
The morphogenetic model allows for such schizophrenic phenomena; but the destination
is presented as an organisation with a new balance or coherence throughout its
interpretive schemes, design archetypes and sub-systems (that is to say, the balance
shown by IS2, DA2 and SS2 in Figure 1). The shift in interpretive scheme from social
railway to business railway within BR, however, did not prove to be a force for
integration either among businesses or between businesses and HQ. Rather it caused
conflict. For example, a struggle over track access between the Freight and Intercity
divisions was taken to Group HQ level (Dent, 1991). In Network SouthEast, the
Business Manager had stations and rolling stock refurbished in a new livery (BR,
Annual Report and Accounts 1986/7, p. 20), in defiance of both traditional railwaymen
and cost conscious HQ accountants, who tended to view such activities as an
unnecessary extravagance. Thus, insofar as colonisation did result in a new
organisational coherence, it was not exhibited at Board level but at divisional level, with
a differentiation paradigm prevailing among the businesses.
19
The matrix organisation can simply become a staging post during change in either
direction between functional and business organisations (Galbraith, 1972), and indeed in
BR the matrix organisation proved to be an unstable state. The quantity of information
to be handled exceeded the matrix structure's capacity. Liaison meetings proliferated and
continued to do so even as internal contracts, which theoretically should have reduced
the need for liaison meetings, became widespread (MMC, 1987). The question, of
course, was how the potential instability in the organisation would be resolved.
For BR, the fate of the structure was sealed by the Clapham Junction rail accident in
December 1988. The subsequent Hidden Report (November, 1989) attributed blame to
problems ‘historic to the railway culture and method of organisation’ (cited in Brown,
1989, p. 26). Arguably this undermined one of the core claims of the ‘social railway’,
namely its ability to ‘run a safe railway’, and highlighted a need for large-scale spending
on rail safety, including the expensive Advanced Train Protection system (both of which
were to encourage a cost-conscious government to lean towards privatisation). BR’s
Board accepted the Hidden Report’s findings and recommendations in full (Brown,
1989; BR, Annual Report and Accounts 1988/89, p. 3; BR, Annual Report and Accounts
1989/90, p. 4): ‘(L)ying behind the accident ... was a whole chain of circumstances that
has everything to do with management responsibility’ (Sir Bob Reid, Chairman of BR,
1993, quoted in Hurst, 1998, p. 7). The organisational design archetype emerging from
the morphogenetic colonisation had become unwieldy and decentralisation seemed to be
the solution (BR, Annual Report and Accounts, 1988/89, p. 7).
3.3. BR in the 1990s
The 1990s were characterised by a quite different morphogenetic process with a quite
different outcome. At first this was not apparent. In 1990 the BR design archetype was
transformed during the ‘Organisation for Quality’ initiative (BR, Annual Report and
Accounts, 1990/91, p. 11) into a divisional structure involving the following separate
business divisions: Intercity, Network SouthEast, Regional Railways, Parcels,
RailFreight Distribution, Central Services, with each sub-divided into different
20
businesses. This restructuring marked the end of the line for the six railway regions that
had prevailed in BR since nationalisation. The aim was to simplify the organisational
structure, enhance effectiveness and hence improve the organisation’s self-image. The
campaign met with a cynical response from the lower ranks within BR, however.
‘Organisation for Quality’ was shortened to ‘O for Q’ (Shaw, 2000) for presentation
purposes, but was widely mispronounced (to sound like ‘oh, f--- you’), as an indication
of what many felt was the Board’s attitude to the work force. This episode demonstrates
that interpretive schemes may spring to life regardless of management intentions,
illustrating that ‘no one has a monopoly on meanings’ (Dent, 1991, p. 709)!
The divisional structure was able to handle greater amounts of information than the
functional structure, and most cross-functional decisions did not rise above divisional
level. In a divisional structure, HQ assesses the effectiveness of its divisions on the
outputs they achieve, rather than attempting to regulate task details (Dent, 1996). BR
followed this pattern closely, giving ‘managers ownership and bottom-line responsibility
for the assets they use and mov(ing) responsibility for decision-making as close as
possible to the customer’ (BR, Annual Report and Accounts, 1990/91, p. 11). BR’s
strategic style moved to one of financial control (Goold & Campbell, 1987). Group HQ
used profit-planning systems as the interactive system to enforce conformity to
divisional budget targets. A PC based management accounting reporting package, called
Microcontrol3, was installed to enable Group HQ to collate actual versus budget data for
the new entities created. Internal contracts between business divisions replaced
administrative decisions as a means of co-ordination. An internal Contract Recording
and Monitoring System (CRAMS) was set up, specifically incorporating a contract
dispute and arbitration procedure. The effect was to reinforce the differentiation
paradigm within BR, such that, at least in the management ranks, identification was with
the division as much as with BR.
Many of the businesses, and even sub-units, developed individual and profit-related
missions, along with vision, value and strategy statements. The introduction of a
3
Again the connotations of the system name are revealing.
21
differentiation culture also caused differences in the interactive control systems used at
divisional level. For example, the passenger businesses used brand revenue systems as
their interactive systems; while P&MM, as an internal service division, used a customer
contracts/receivables system interactively. Thus, any new organisational balance or
coherence was achieved at divisional rather than organisational level – a change
pathway that can be termed ‘fragmentation’.
The Thatcher governments of the 1980s had rejected railway privatisation as being both
too difficult and politically unacceptable (Shaw, 2000, p. 47 and 56). But, in effect, the
apparent success of the new interpretive scheme within BR enabled the Major
government, after 1990, to contemplate the privatisation of BR. Following the passage
of the Railways Act (1993), the organisational form selected for BR’s privatisation
accelerated fragmentation and accentuated differentiation within BR. The major
businesses were divided into over 80 smaller businesses (partially based on O for Q
divisions; Shaw, 2000) in preparation for sale. BR’s Board now had several inter-linked
objectives, including preparing businesses for privatisation, reducing staffing,
maintaining revenues, and managing government relations, while continuing to meet the
EFL. Organisations in crisis may need to use several systems interactively when there is
more than one critical success factor to be monitored (Simons, 1987). Each week the
Board received a ‘flash report’ on passenger revenues, employee numbers, and progress
towards EFL targets, while a newspaper cuttings service circulated press reports daily.
Following this major restructuring, the Board were unable to contain BR’s centrifugal
tendencies. The same held at divisional levels. The Director of Central Services held a
two-day conference in an attempt to interest his divisional managing directors and
finance directors in a central services plc; while the MD of P&MM division developed a
scheme to preserve P&MM as an entity. The tide was against such centralising
initiatives. The new infrastructure business, Railtrack, embarked on a year-end spending
spree just before its separation from BR, and after separation attempted to increase its
share of the industry EFL at the expense of the remainder of BR. Rolling Stock Leasing
Companies and the Infrastructure and Signalling Maintenance Units were reluctant to
22
abide by EFL targets and reporting deadlines. Disputes over unpaid internal invoices
climbed swiftly to over £100m and were only resolved by central diktat. Eventually even
the Train Operating Units proved recalcitrant. The MD of Scotrail had his budgetary
disagreements with BR’s Board published in the Glasgow Herald (17 February, 1995, p.
1) and then tendered his resignation. Chiltern Railways were accused of attempting to
defraud London Underground of passenger revenues on a shared route. Within the
accounting system, AXIS, business sector reporting in the annual accounts became
impossible (BR, Annual Report and Accounts, 1994/95, p. 51). New and separate
accounting systems had to be purchased for all the various parts of BR, in order to
prepare them for privatisation.
Privatisation split the railway into numerous companies, many of which have since been
subsumed into other organisations. The railway became a disparate group of businesses,
with only a common railway pension scheme and a common trade association linking
them. The cultural paradigm became that of ambiguity with scope for internal agreement
only on specific issues. Market prices for track access, rolling stock leasing, etc
provided the decision criteria. This reduced the amount of information to be handled by
any individual operation. Furthermore, an element of slack was introduced into the
system. For a period, the new interpretive scheme, ‘profitable business’, seemed more
acceptable for attracting subsidy from government than the old interpretive scheme,
‘social railway’. Today the privatised railway receives significantly higher government
subsidies than the public railway did (Modern Railways, 2001a & b) although recent
government intervention in Railtrack, following government dissatisfaction with that
company’s management, means that the interpretive scheme underscored by
privatisation may in turn be under threat.
4.
Discussion and conclusions
This study uses the BR case to illustrate how structural contingency modes of analysis
may be used to provide additional conceptualisation called for by Laughlin (1991) for
the modeling of organisational change. The contingency models do seem to add
explanatory power to the model, especially in its application to a large organisation.
23
Within BR, discernible relationships were displayed between certain interpretive
schemes, design archetypes and subsystems. These outcomes seem to be those which
might be expected or predicted by the adapted Laughlin models, as set out in the earlier
part of the paper. However, the relationship between these organisational features and
the degree of integration, differentiation or ambiguity within the organisational culture,
while perhaps not unexpected, does illustrate two additional pathways of change, which
we term a ‘fragmentation’ pathway and an ‘imposed evolution’ or ‘revolution’ pathway.
The evocation of the ‘business railway’ by the Board of BR made it possible to attribute
organisational successes (such as increasing financial self-sufficiency) to permeation by
the new interpretive scheme, and failures (e.g. the Clapham Junction accident) to the
lingering effects of the old interpretive scheme (social railway). However, the resulting
balance or coherence was not achieved at organisational level (an integration culture),
but at lower levels of the organisation. The creation of business units introduced a
differentiation culture, in which identification tended to be with the division rather than
BR. These schizophrenic elements were not resolved (pace Dent and Laughlin), but
created continuing divisive tensions, and ultimately fragmentation.
Explaining the enactment of privatisation of BR during the 1990s appears to require a
top-down and externally imposed pathway, which is clearly a possibility in any event
that changes ownership. We term this imposed evolution or perhaps revolution.4 The
structure of the privatised railway was not one envisaged or welcomed by BR’s board.
New design archetypes corresponding to the interpretive scheme of a profitable business
were imposed upon the railway. This heightened the degree of internal differentiation,
since organisational units were judged on their individual performance, thus increasing
organisational rivalry and problems of central control while they remained under the
aegis of BR.
4
Internal discussions of organisational change during the period 1993-6 tended to emphasize the need for
‘evolution rather than revolution’, when in fact, of course, the organisational changes were major ones.
24
From the BR evidence, neither functional nor divisional structures (design archetypes)
have any necessary identification with ownership (public or private sector) or
organisational performance. Organisational change and performance improvement
preceded the transfer from the public to private ownership (something found for some
other privatisated enterprises in the UK; Martin & Parker, 1997), but in reforming the
organisation, BR’s Board prepared an organisation amenable at all three levels
(Laughlin, 1991) to the divisive form which privatisation took.
This raises the issue of why rebuttal, or even reorientation, may not work as an
organisational response to an environmental disturbance. Within any organisation, it
may be easier and more effective for management to change lower levels of
organisational phenomena (whether sub-systems or design archetypes), and hence
change the interpretive schemes indirectly, than to attempt directly to change the
interpretive schemes (Pettigrew, 1990)5. One implication of this argument is that an
attempt to change the lower levels alone may not be so limited in its effect, especially
when the changes are laden with a new interpretive scheme. This tends to confirm
Parker’s (1995a) speculation on the importance of reporting and control systems in
internal change, but specifically directs attention to the interconnectedness of subsystems, design archetypes and interpretive schemes. It also implies that some design
archetypes may be incompatible with some interpretive schemes.
At a policy level, on the basis of BR's experience such concerns may be especially
relevant during organisational changes pursuant of privatisation. Changes to the
interpretive scheme are to be expected, but the nature of the prevailing interpretive
scheme may be critical to organisational success. This problem is exacerbated by the
difficulty of measuring the impact of interpretive schemes upon organisational
effectiveness. It also highlights the risks involved in imposing evolution (revolution)
upon an organisation for exactly the same reasons.
5
Pettigrew (1990: 266) expresses this using different terminology: it is ‘easier to adjust the manifestations
of culture than it is to change the core beliefs and assumptions’ directly.
25
A number of the changes reported in this study possibly have parallels in other public
sector organisations in Britain during the 1980s and 1990s, including some that
remained in the public sector, such as government departments and the Post Office.
Therefore, the relationship between the organisational and strategic changes discussed
and privatisation is not necessarily clear-cut. Further research based on such
organisations could usefully extend both the conceptualisation and the application of the
morphogenetic model. Nevertheless, it seems clear that in BR, without the earlier
change to a more commercial culture and supporting organisation and control systems,
privatisation would have been both less tempting and less feasible for government.
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