Changing Priorities
Safety
Developing External Partnerships

Changing Priorities

Hong Kong's empowered society increasingly raises the bar in quality of life expectations. Our performance directly reflects how we respond to and deliver on such expectations.

Established programmes that purposefully guide the revitalisation of the people, services, operations and asset dimensions of our business continue to serve us well in responding to expectations:

• "Service from the Heart", the ongoing campaign to hone staff skills at the rail customer interface, has improved staff capabilities in taking a proactive approach to their jobs. Performance feedback is measured through regular customer service engagement exercises and by a campaign for public nominations of the best service station team and individual station staff for annual awards. The frequent visits by senior management and company directors to individual stations to hold discussions with staff on service issues confirms this campaign as a front-line service training priority.
• The PAS55-1 specification sets out the requirements for a system to manage physical infrastructure assets. Based on this specification, MTR Corporation's rail operations utilise a framework taking a risk-based approach that links asset management to business objectives. The goal is to minimise life-cycle costs of assets while maximising their value to the business. Prior to the merger, both MTR Corporation and the KCRC achieved certification under PAS55-1, thus giving the merged company the distinction of being one of the few railway organisations globally to achieve certification under PAS55-1.
• Upgrading the existing network services is an ongoing programme that seeks to improve connectivity, enhance the community rail vision and deliver safe and reliable services. In 2007, a further two underground passage ways at high-traffic stations opened to facilitate convenient all-weather access to rail stations. In-station refurbishment accommodates the fast-developing consumer technology innovations and continues to modernise and reconfigure station retail space for better convenience and tenant retail mix.
• In managing our shopping centres and commercial and residential properties, a new chapter in customer services commenced with the opening of Elements, Hong Kong's largest premier shopping centre. In addition to providing spacious retail and entertainment facilities that strategically use skylights, the Union Square public park located above the mall brings a tranquil respite from city life with a green country park in the heart of Kowloon.
• Assets optimisation combined with staff capability development underpin successful delivery of the 13 Customer Service Pledges for rail management and services. These pledges, in conjunction with other major programmes such as occupational safety and health, set internal targets and the KPIs identified under our priority business risks. These pledges serve to support continued rail and retail patronage, passenger safety and commuter numbers.
• The 2020 Vision was tabled in 2007 for consideration by senior management. It outlines the scenario planning for managing our rail assets to anticipate customer-of-the-future expectations and the hard asset response to them. It examines three levels of response, with business-as-usual the mean scenario. The study addresses such issues as the need for capacity management, barrier-free access for the disabled, aging population expectations, improved train environment and the expansion of options within the network that capitalise on consumer technology innovations. This document serves as the starting point for collective thinking on the changing risks inherent to the long-term maintenance and growth of the rail network patronage.
  
  

Capturing New Customers

In planning and designing new rail lines, demand and destination play an increasingly pivotal role in network strategy and delivery. With the acquisition of light rail services under the merger and the proposed SIL, the network is better positioned to reach new catchment areas. The ability to build and manage light and medium rail lines justifies the investment to extend our network to these more suburban areas within the HKSAR, which would not normally meet our traditional heavy rail specifications. The SIL is configured as a medium capacity rail project supported by sustainable design innovation and advanced technologies to justify the future viability of the line. It is currently in the advanced stages of approval by Government.

Investing in Communities

Creating a railway is a people and community proposition. Under our long-term planning vision of "Rail to People People to Rail" , our stations are built and managed to be focal points for local community activities while serving as regional transport hubs.

Proactive stakeholder engagement has guided the successful community buy-in to the building of the WIL. Through early identification of the stakeholders and their interests, the Corporation proposed a community-oriented rail line, sensitive to local heritage and urban renewal opportunities. Frequent dialogue with and input from the local communities on design and access points for the rail line facilitated the planning and design championed by these future users. The influence of the community voice arising from this engagement exercise aided in the timely approval of an alternative rail development model which requires government financial support in lieu of property development rights allocated under the rail plus property business model.

Social risks affecting our property development strategy are now registered as critical enterprise risks. A general proliferation in community resistance to some property developments and infrastructure projects as a result of the desire for heritage conservation and healthier, greener living spaces gives rise to our active management in addressing these growing social influences. High-rise developments that create a "wall effect" within the densely populated districts adjacent to our network stations require a rethink in development scales, plot ratios and alternatives to wind-blocking high rises. Our Property and Projects Divisions' risk registers now include these and other anti-development sentiments as part of their assessment programmes along with the added impacts of heritage conservation. Although still in the active management stage, the results are promising. In the WIL project, multi-party negotiations agreed on a solution for a community heritage building use. For longer-term urban development, LOHAS Park will deliver a green built environment and captures our management approach to mitigating such risks posed by the increasingly stringent community expectations in living and lifestyle environments.

The community railway vision for our stations and network continues to grow with the further expansion of our established "art in mtr" programme, which stages cultural programmes and exhibitions by local artists within stations to enhance the customer experience. These activities and events augment the increasingly diverse range of retail outlets and infotainment programmes available to commuters, which add the essential convenience factor in travel.

Staff and Career Development

The 2007 year focused on close and comprehensive workforce engagement. With the merger in a fluid position due to protracted government and legislative negotiations, staff motivation and career development were some of the greatest challenges facing the organisation.

In communicating change for corporate life post merger, the Joint Consultative Committee (JCC), the Staff Consultative Council (SCC) and the two MTR Corporation unions provided responsible and effective staff support and representation in the transition planning and in structuring future job security status for most employees. The high degree of trust between these organisations and our management developed over time aided in the timely resolution of differences. Due consideration was given to and extensive consultation was undertaken with the three unions representing the KCRC staff. The issues were in essence the same, but required a more specific dialogue and agreement process to reassure the KCRC representatives of management's good faith.

Low morale and job insecurity amongst staff are major risks in merger and acquisition situations. Managing these requires the mobilisation of extensive resources to discuss and secure job status for employees, identify deployment opportunities and retraining and, for employees choosing to leave, structuring a voluntary separation scheme. The decisions and final programme for these issues were and continue to be undertaken with open dialogue and feedback with employees and their representatives prior to any decisions taken so as to arrive at mutually satisfactory terms.

Supplementing these formalised consultations is a broad communications campaign to keep staff informed as to merger progress and decisions. This campaign supplemented by CEO and director briefings, intranet and staff newsletter announcements, and divisional meetings address the questions and concerns of staff and will continue into 2008 as part of the integration progress.

Building Capability

Skills training forms a critical component of job competency. In addition to the diverse range of training opportunities related to specific processes or services sponsored by each division, each employee undergoes an annual review to assess and assist in individual career paths. This designates the roadmap for personal development and aids in the achievement of individual KPIs for advancement.

Despite the best efforts in nurturing staff towards realising individual career aspirations, the uncertainty of the merger process hindered a number of efforts to initiate sustainable best practices. This is reflected in the year's slow progress in fostering the culture of sustainable development and in implementing the tools and training to further workplace capabilities. For 2008, the focus will remain on building staff capabilities, with the added target of bringing overall cohesion to work activities.

Merger and Cultural Integration

The merger of the two rail operators has significant social impact on the organisation and for our stakeholders. Early recognition of these impacts gave rise to the formalised Joint Integration Committee formed in 2004, which drew up the blueprint for change management using the Sustainable Competitive Advantage model (page 13, Merger Case Study). Under this committee functions the Merger Communications Committee (MComC), which deals with external and internal communications; the HR Integration Management Committee (HRIMC), which manages staff and job migration; and the Merger Integration Management Committee (MIMC), which drives merger integration activities.

The Merger Integration Office (MIO), working full time and accountable to the MIMC, serves as the resource centre for action. Working against a tight schedule and with limited availability of resources, some 11 task forces and 37 sub-teams including subject-matter experts reviewed and assessed different functional areas of the organisation using the guideline of "preserve, adapt or change". The objective to find "best of both" in systems and processes was undertaken systematically through the bottom-up approach, with appropriate support from independent management consultants. Final choice of corporate practice was approved by the MIMC and adopted into the merged organisation. The smooth operations on "Appointed Day" and the early realisation of merger benefits have justified the extensive preparation to create the seamless network travel of MTR system today.

The task to integrate corporate cultures remains a priority issue and a merger risk. Buy-in at middle management and front-line service levels remains the pivotal challenge to integration, as some 12,500 employees have been affected by the change management process. To lower the risks of resistance and inertia, in addition to the broader restructuring in remuneration and alternative career choices, each division is undertaking from 2007 onwards a series of programmes that target skills development in conjunction with job placement.

Cultural integration is a complex issue, and we seek to maintain focus on achieving the set targets as we continue on the integration path. Regardless, our long-term objectives are clear:

• We maintain the high service standards expected by our rail and retail customers.
• We fulfil the five parameters under the merger framework agreement to retain our licence to operate.
• We grow our brand franchise.
• We are an employer of choice.
• We deliver new railway and extension projects on time and within budget.
  
  

Safety

Safety, a key risk that affects our licence to operate, spreads across a number of stakeholder groups to include staff, customers, contractors and suppliers. The Corporate Safety Management Committee, established in 2006 in response to growing business needs in and outside Hong Kong, supervises safety management. Under direct governance of the Board of Directors, the Committee, supported by divisional committees, oversees the implementation of the Safety Policy and guides the management of safety across operations and businesses.

The Integrated Management System (IMS) is the overarching framework that directs the key areas of system safety and occupational safety and health, aligning to external OHSAS 18001 certification. During 2007, the operating railway maintained its overall excellent track record in safety performance.

MTR Corporation participates in the annual CoMET benchmarking exercise, which invites 11 leading metros worldwide to undertake a series of benchmarking exercises to gauge best practices and identify new pportunities for improvement. Now in our 13th year of participation, we have maintained an average ranking amongst the top three operators in the safety category since joining. In 2007, we ranked as number one when comparing safety performance in respect of fatality per billion passenger journeys.

Safety was identified as a critical risk element in the merger transition process, with extensive risk analysis attached to its subsequent management from Board level downwards. Under the "best of both" working guidelines for the merger, MTR Corporation took the significant step of adopting for the new organisation the pre-merger KCRC's construction safety management system, considered more advanced than current internal systems and processes. From 2008, this new system will oversee the construction safety aspects in the several rail projects currently in varying stages of planning and approvals. In other areas of safety, risk management systems and processes follow the existing methodology, albeit, being realigned to address the additional operational risks and stakeholders' interests principally introduced by the merger.

 

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Developing External Partnerships

Developing working partnerships with our suppliers, contractors and business partners leverages our opportunity to influence sustainable best practice outside our immediate corporate footprint. Substantial advancement in managing both up- and downstream impacts was made during the year that affects our supply chain, property development strategy and international business ventures.

Procurement

The Procurement Department, which directs corporate-wide supply chain management, took a major step forward in 2007 with the completion of the CSR survey of human and labour rights issues. The survey, undertaken principally with our PRC contractors and suppliers, reviewed corporate governance on labour issues within our top 70 suppliers in order to identify areas where attention is needed and where improvement actions are to be undertaken. An underlying purpose of this exercise is to respond to membership criteria for the DJSI and FTSE4Good indices. Going forward, our agenda is to extend procurement practices to include environmental and labour issues as part of the tender pre-qualification processes. The strategy behind this is not to exclude or punish because of a lack of good management or prosecution history, but rather to work with suppliers to improve practices.

Our future plans include continued cooperation with other railways and corporations, mainly multinationals, using like methods to build a consensus on sharing information on suppliers. In 2008, the targets are to set up a code on information sharing and a liaison group to widen interest in this initiative.

In promoting better management of environmental issues in the general supply chain processes, we took a leadership role in becoming one of the 11 founding members of the Hong Kong Green Purchasing Charter. Initiated by the Green Council, the driving strategy is to consolidate the many scattered initiatives across Hong Kong in order to establish common goals and standards in managing our city's collective green future.

International Business

The Corporation secured during the year the seven-year concession to operate the London Overground in joint venture with Laing Rail. The concession covers five rail lines that serve 20 of London's 33 boroughs. Under the agreement, MTR Corporation will bring to the table its expertise and brand reputation to support upgrading of customer services, revitalising rail assets, improving train performance and reliability, achieving stringent environmental targets and promoting growth of the network in line with the overall city-wide rail strategy. Our sustainability drivers will play a significant role in the overhaul of these lines to deliver performance value in rail assets and enhance people skills. Plans are currently in the early stages, with the project driven by our Hong Kong team in conjunction with an expanded London office staff.

Changes in Partnering

Our partnering and subcontracting strategy was reviewed in depth in response to the temporary closure of Ngong Ping 360 Cable Car (NP360) during the year. An after-hours incident in June 2007 involving a gondola dislodged from the overhead cableway during a test run led to an official enquiry and the eventual taking over of the management from the subcontracted operator. As the owner of the cable car, ultimate responsibility lies with us to respond publicly to stakeholders and rectify the situation.

This incident was a turning point in our contractor relations. Having already discovered and taken on board the need to actively look for risks in the development of projects that lie outside our areas of rail expertise, we have now made the decision to employ the necessary expertise in house where we find a vacuum of professional capabilities in such projects. This assures us of the ability to build and manage diverse business projects supported by our own systems and processes that meet our stringent targets in performance.

Upon completion of the enquiry and the change in management, NP360 reopened for business on 31 December 2007 to capacity crowds.

Government Relations

The HKSAR Government ranks as a primary stakeholder to our business. They are our largest shareholder and, as official transport regulator, grant us the licence to operate. During the year, engagement and management of their interests in regard to the merger shaped the long-term structure and performance management of MTR Corporation.

The Rail Merger Ordinance and Transaction Agreements that bind the merger enshrine our responsibilities to Government and the community for services. They identify the parameters and objectives in performance delivery, including financial, customer services and broader community obligations. In the run-up to finalisation of these legally binding obligations, the Corporation negotiated directly through the Executive Directorate with Government on relevant issues.