As Watson put it: ‘In mature countries like the UK, Italy, Spain, France and Germany we have people like me who are country presidents, so we look after all the interests of Alstom and have a chat with the governments and can compile reasonable, standard policies and approaches to how we govern our little empire. But we also try and have the guy that’s doing that also managing one of the biggest, or biggest, businesses, and in my case it’s transport.’
At that point I was mesmerised by Watson’s confident, relaxing energy that made it all sound so easy. He was in France with Alstom for 15 years, running the Transport division’s North Europe business for half of that time. And then, as he put it, ‘I went into corporate life and looked after North Europe for the whole of Alstom from Levallois-Perret,’ (Alstom’s head office).
Back in London for a year and a half now, Watson took over as MD of the UK Transport business with a remit to get it moving to a different scale and shape. ‘And of course, the country presidency was an easy transition for me because of the work I did at corporate.’
Clearly proud of Alstom, Watson gave a run-down of all the divisions and their business wins. And the company is after all, something to be proud of. The UK arm alone, which has operations in power, grid and transport, had sales of more than £1 billion in 2012/13 – the fourth year in a row that sales have topped that mark and representing a doubling of turnover since 2006.
Are we in the UK, or not?
One can only assume that the big, juicy rail developments in the UK are a Smörgåsbord of opportunity for Alstom therefore. ‘Er…let’s go backwards first,’ said Watson. ‘Alstom was probably the biggest supplier of rolling stock in the UK market through the boom years just pre- and post-privatisation. At the same time, the rest of Europe either didn’t privatise as quickly, or at all. The development of the Asian and Indian market was a distant dream, with no chance for Western organisations to go there. But moving forward, we reached a point where Alstom’s interests did move from the big old domestic markets to those developing markets, and one of the reasons I went to France was to look at how we could work with new partners in these new strange places. And it all started to boom. We then had a period of time where the UK procurement process had slowed down, and these other places were going crazy; and when Alstom returned its attention to the UK and looked at the demands here, we didn’t really have products to suit that second wave of market. They were substantially successful elsewhere, but not really ripe and ready for the UK market that existed then.
‘So we decided that rather than fight to win bids for rolling stock with the wrong products, we would focus on maintenance and rationalising our organisation in the UK. Our first principle was to make it profitable, second was to try to expand other product lines, and we let the market slowly come back, which is where it is today.’
The one exception is the highly successful WCML Pendolino fleet which according to Watson has helped the company think about where it sees itself in the future, which is very much more selective. ‘So to answer your question backwards, Alstom’s product range is now suited to the UK, we’ve got some new products coming and very good existing products. But what we wouldn’t want to do – and I don’t think the world is like this anymore – is spread ourselves across the market and claim to do everything – no big manufacturer can do that.’
Indeed, Watson thinks it’s a ‘real mistake that the rail industry makes – that you get all of the competitors bidding for everything all of the time. We’re just not interested in that. We’re also very selective in strange new places you would never dream of, so now, if we win one in four contracts in the UK and not two out of four, we’re winning one in Russia, which just wasn’t a market five to ten years ago.
‘So we’re back in the market but will only bid where we think we have a real advantage, either strategically or technologically. That confuses some people – politicians especially. They still ask the question: ‘Are you here?’And in line with our approach we decided we wouldn’t bid for Crossrail rolling stock. Instead we bid for the infrastructure, and with our partners we’ve won the largest single contract that Crossrail has placed. It’s puzzling for government and some of our clients but we don’t think we could have won the rolling stock contract in the prevailing conditions.’
Great new rolling stock – but what about the infrastructure?
Rolling stock for HS2 though, is surely something the newly selective Alstom is interested in? ‘Yes absolutely…’ And again, Watson wanted to give a contextual answer. ‘I do plead with you to take just one reflection about rolling stock and that is if you don’t get infrastructure right you can forget new rolling stock and new types of rolling stock. Only half of the UK is electrified and the capacity on a lot of electrified lines is reaching its peaks. So where does the industry go? It needs some sort of new levers and drivers for growth. Electrification is one. Power supply is another, for example north of the river Thames is 25,000 volts overhead line or diesel, south is a very limited 750 volt floor collector. A power upgrade allows you to put more trains on the line but then you need a signalling upgrade to allow more trains to travel closely and efficiently together. Then you have to open out the station to get more tracks in, then you need new trains.
‘This fits in with our strategy which is: let’s get the infrastructure right and then look for the appropriate types of trains. Will they be faster? We think so. Will they be longer and more intensively serviced? Yes. Should they be more energy efficient, right sized and appropriate for the future? Absolutely. Not many people are taking leadership in that area and we’d like to be involved in that.’
Procure in the right way
But the most important point for Watson is procurement, ‘Because if the government or train operators procure in the right way, you get the greatest attraction of the largest number of manufacturers and you get clever new trains. Procure in the wrong way and you end up with same old same old, and half the world doesn’t bother bidding.’
Asked if he feels this is in danger of happening, Watson is emphatic. ‘Yes. I’ve spelt this out on a few occasions but if it’s not common knowledge it’s common sense. For example, if you would like an ultra-light train, that should come out in the evaluation of the bid. If you want a train that is low-cost to maintain but maybe dearer as a capital cost, again it should come out in the evaluation. That’s really important – if energy efficiency is one of the primary requirements, it should come out in the bid. Very often it doesn’t happen that way. What tends to be looked at is a reasonably unsophisticated format which ends up with manufacturers realising that the product they’ve got, if it was adapted, is probably the best one to bid on. And by the way, if you weren’t already supplying one in the UK then you’re outside this strange casino and you can’t get in because your capital costs to start up and supply your first train would put you out of the competitive market. And that’s what we see – quite a lot of ‘flip flop’ between the big makers, that somebody wins one big contract and dominates the horizon for that type of train for a while, until there’s a tipping point and a new technology or type of train is needed. Then it flips to somebody else and the others are disadvantaged at that point. So you have four or five manufacturers with some sort of interest and equity, but probably only enough procurement in the UK for two or three of them at any one point in time, and that disturbs the industrial footprint, the manufacturing footprint, and supply chain. Because they can’t maintain factories that just don’t recover.’
Working like hell on HS2
Moving back to HS2, Watson feels it’s important to ‘bring in the best’ of Europe and match it to what’s needed in the UK. ‘Maximise, maximise, maximise for goodness sake. Let’s make sure we get the latest technologies because the HS2 trains are going to be procured years away from now. I was at an industry event recently and somebody made a comment that was plain silly – they said: ‘What we want is proven and tested product available now’. And I had to react. I said, ‘In the period from 1962 to 1966, that would have meant offering steam trains as opposed to diesel. And in 1972 to 1976 diesel trains instead of electric trains.’ It was such a stupid comment you could even cry that I heard it said by a rail professional.
‘If you look at the evolution of high speed, you absolutely wouldn’t want an ICE 1 or a first or second generation TGV or a second or third generation Pendolino. You’d want the latest wouldn’t you? So we think HS2 is an opportunity we’re going to chase and we’re working like hell on it. We’ve supplied quite a lot of supporting material to HS2 Ltd and we’re involved in that dialogue.’
In fact Alstom’s AGV is the train that HS2 Ltd is using to model with at the moment. Asked if he hopes that’s a good sign, Watson is ebullient. ‘Hah…well at one level it’s meaningless, but at another level it shows that we’re…first of all we offered it as a free service if you like and they chose us. But it means something about the product because they probably see it as one of the latest generations of trains, and we think it’s the best. If you take energy or weight for example, the energy consumption of an AGV is probably not much more than a Pendolino but it’s running at a far higher speed. The other reference we use is weight: if you take an AGV full of passengers it’s the same weight as a latest generation ICE empty, which should leave a profound set of questions being asked that we would love to be engaged in the discussion of. Although energy consumption and weight are issues that are claimed to be top of the page, we want to make sure that debate is sticking, because if it ends up being all about price then these environmental questions become superfluous, which we think is wrong.’
Lessons from Europe, or not?
Fifteen years is a long time to experience the European rail market. And I wondered if Watson feels we have lessons to learn. ‘Yes and no. First of all it’s a private railway here and most of the others are either partially privatised or not. In countries such as Germany and Italy, you have one major interface with an opinion and a structural approach to strategy relating to technology, and we interface with those organisations very well. In Britain it’s not broken but it’s harder to find who owns that.
‘A state organisation can have longer-term strategies and can optimise procurement. For example the way it sequences orders isn’t based around short-term franchises which end up looking like zig-zags, but they smooth it generally around what’s good for a region. So they say, ‘In this region we need 1000 trains’ – that’s a programme then and manufacturers can invent or re-create products around that programme. You can introduce technology faster when you’ve got a more secure and better view of the future.
‘In the UK, it’s more opportunistic: find the right partner who happens to win the franchise and they happen to have bid with your technology. The original projections for East Coast in ridership were bigger than West Coast, so did the West Coast growth occur just because we had a brilliant franchise? No. Was it because track was upgraded? No. Was it the technology as well? No. But taken altogether, yes. So we’d like to see that replicated, but you can’t do that unless you get big enough procurements.’
Franchising system hindering new technology
Given Alstom’s history in the UK and its selectiveness, I wondered about its relationship with the ROSCO’s. ‘It’s fine,’ said Watson. ‘It’s an enabler, but nowadays there’s quite a dissonance between the timing of new franchises, re-franchises, the progress of technology and the need for new trains. They’re not the same things at all, and the dissonance is quite severe now, so Alstom and the other manufacturers are in dialogue with all the stakeholders about how we square this circle. In fact we’re at the peak of dissonance at the moment I think – manufacturers may or may not be able to enter the market, and certainly can’t sell equipment to new train operating franchises based on all the technology. The good news is that the government, the RDG (Rail Delivery Group) and RIA (Railway Industries Association) and all the other stakeholders have ‘got it’ and they’re all looking at the problem together, which is good.
‘I was at a DfT round table recently and we decided to focus more on the supply chain and technology, which Alstom really commends. Because if you look at where the railway discusses these things, apart from those types of venues it’s a second or third-level discussion. The first level is always about the Toc, customer service (quite rightly by the way), and daily operating issues. But where do you end up talking about new stuff?
What do passengers want from trains?
Watson laughed heartily at this point. ‘The surveys we know about suggest they don’t actually want anything of a train in itself. They want to get to places on time and really easily. On the train itself, it’s very easy stuff – lightness, airiness, leg space. And we’re finding much more demand for on-board information and internet and Wi-Fi facilities. With the vestibule areas, which railway people look at as just being inconveniences, passengers are starting to say, ‘This is awful. What are you doing about this area? And that’s a valid point. It seems we’re just useless in this industry in creating a space that’s attractive and really useable. Ride comfort is something that’s less well appreciated. The trains in our market are obviously tested for that but don’t all have the same level. Passengers don’t know which ones are which and they don’t have any option anyway. But the faster you go the more that difference is recognised, which was one of the reasons we developed the Pendolino. Passengers also want a really quiet environment, and there seem to be a lot of arguments about fast on load and off load and very wide access doors.’
What Watson has observed as interesting is that the opinions of younger passengers are more ‘radically critical. And I like that.’ Referring to an event he had attended the previous evening held by Prince Charles at Clarence House for leading businesses to discuss their environmental responsibilities, he said: ‘Somebody said last night that the difference isn’t between men and women or races and so on, the real dramatic change in behaviour seems to take place at the age of 26 – because if you’re younger than that, you’ve pretty much grown up with the internet and a style of networking and social media relationships that people over that age don’t get so much.
‘What young people are saying is: ‘We’re sick to death of companies pretending they’re protecting the environment. We’re sick to death of companies doing the minimum and pretending it’s the maximum, and we’d really like to wake up in the morning and make a choice to use the train that’s greenest and the services of a company that’s environmentally responsible.’ And as an industry we haven’t really understood that. We’re working on it but we’re all over 26 I’m afraid.’
Thinking about Watson’s comment on ‘surveys that we know of’ I wondered if Alstom speaks directly to these ‘radical youth’ or through ROSCO’s? ‘That’s a very good question. Our customers are our Toc’s and ROSCO’s so we have their feedback and feed into them. We do carry out surveys if we have new things to test and go directly to passengers, but we have to be cautious about that because we’re doing it over the head of our customers if you like. But on matters such as ergonomics for example, or a prototype train, we absolutely don’t want the industry to go wandering around the train, we want to see how citizens feel. That happened with great success in Sweden, on the X40 trains. We created a mock-up as good as the final train and the feedback we got changed the interior design. Now it’s one of the most beautiful trains in Europe and Scandinavia, and one of the few that has a high level of appreciation by the operator, the driver and passengers.’
More involvement in alliancing
The industry is going through change according to Watson. ‘The status quo is definitely not there anymore; the direction is now towards cleverer solutions that join up the railway as a system. There’s no doubt that we have managed to join back the bits and pieces of the legacy which was the whole British railway, however we’re finding gaps every day, and having to either back-fill them or re-consider our reaction to them by taking positions concerning the interfaces. The railway has to come back to a holistic view of the system and I think we all know that. What isn’t in place yet is some sort of enabling mechanism to make that efficient, but we’re getting there.’
Referring to Network Rail’s Alliances with operators, Watson mentioned this as something that Alstom would like get more involved in. ‘For example Pendolino’s have the ability to measure track and catenary but we give that information to Network Rail. Wouldn’t it be great if Alstom was able to maintain or even replace that tracking and catenary on the basis of the information it gets, and therefore look after the interest of both the operator and Network Rail. That’s a good alliance. You’ve got the full and powered engagement of a company like ours working on a very discreet basis, and we could be paid on a maximising of performance basis for the whole railway. It’s how we’d like to see the market go.’
The market by 2026
What Watson would like to see in the future includes the government engaging in the way it does in the power sector, in piloting and developing technology, and the railway benchmarking itself against industries such as aircraft and automotive.
Taking the proposed start date of HS2, I asked Watson to gaze into a crystal ball at what he actually does see for the industry by then. ‘Economically, and assuming we’re out of the worst of the period of recovery, I think ridership, although it will level off more, will have continued to rise. More intensity of demand will put pressure on all aspects of the system – signalling, controls, the 24/7 railway. Trains will generally be faster – people are really fed up with slow timetables and trains doing 30 miles an hour and taking one and a quarter hours to do a short commute, so there will be pressure to intensify that. And I see more alliances and joint-venture ways of working in order to share the risk. I see very large organisations using all their balance sheets to bring the answers. Apart from HS2 I don’t see any other lines in construction but I do see that we’ll be at the peak of electrification, so the railway will be cleaner and the industry will be more sophisticated about how it measures and manages energy, which Alstom wants to be involved in.
‘I think the Toc and franchise principles will stay although they will be fine-tuned. Trains will have ERTMS on board which will mean reflecting on how we operate the railway, because safety rules based on 1995 models will become obsolete.
‘Statistics from the Long Term Passenger Rolling Stock for the Rail Industry report (February 2013) show large future procurement. We trust those figures and are going to think about them in our strategic planning. In fact, the report’s statistics are quite revealing because they show there will be a far larger fleet in operation. Then we believe conditions are appropriate to re-industrialisation in the UK. Whether around integrated train sites or assembly, I don’t know, whether specialised components like bogeys and traction, I don’t know. Whether technology around traction and control systems and communications systems – more likely. So what you get is a supply chain that’s re-energised and then you get exports.’
Mentoring SME’s in rail
A recent feature in Rail Professional by Achilles discussed what a hard time SME’s are having in placing their innovative rail products and services in the hands of buyers. It’s an issue that Watson mentioned without prompting. ‘There are SME’s in Britain that can’t export and don’t have a great chance of doing so, and yet we have massive international companies here that are probably not doing their bit to get those SME’s working outside of Britain. Some of them aren’t ready for it – I seem to recall a statistic of 1,500 companies with below 50 employees trying to sell to the railway. So it’s a very hard thing to say that Alstom would want to use them to supply its supply chain for China for example, you couldn’t do it. But what’s probably fair is that we come up with some sort of ideas for mentoring like other countries. We can give these companies a little bit of non-executive help and TLC in even telling them where the markets are and providing direction to help them develop. I think that approach is missing in the UK and it’s a terrible pity.’
A virtuous circle
All in all then, Watson is very positive about the company’s position and activity in the market at the moment. ‘The contracts we have and joint ventures with our consortiums for infrastructure business are brilliant and definitely proved to be the right way to go because Network Rail is definitely looking for cleverer solutions and bigger boys to play in the market.
‘We re-shaped earlier than our competitors regarding old industrial manufacturing and that broke a very difficult cycle and turned it into a virtuous circle. One of the nice things we’ve done recently is taken back the class 180 fleet which is split around three operators and come up with a sophisticated solution for ‘virtually’ managing the technical services around the maintenance contract, which I don’t think has been done before. We’ve just completed a massive overhaul in Manchester of the Pendolino fleet. Trains on the WCML have got longer because we’ve brought in new intermediate cars and we’re fitting them in Britain in our depots. And we’ve got a €1 million contract for a trial of inverting substation technology with London Underground – the first one ever –and we will industrialise those pieces of equipment in Britain in the long-term.’
Speaking about virtuous circles reminded me of my time as an editor at French business school, INSEAD, which was incredibly fond of the term. Watson did an executive MBA there and we reminisced about Fontainebleau and then talked about Prince Charles’s event again. ‘He likes to be stroked,’ he said, and I felt that’s something Watson is very good at.