August 18, 2016

Overcoming barriers to innovation: what can rail learn from developers?

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While industry leaders talk of the need for innovation, start-ups keen to enter the rail market face a daunting array of obstacles when it comes to pushing their technologies through. Keith Barrow looks at the situation in Britain, where a new report highlights the barriers to technical innovation and how they might be overcome.

LAST year more than 120 software developers, designers, entrepreneurs, and rail professionals boarded three trains at London’s King’s Cross station for a 48-hour mission to build apps, websites and hardware which address big data, customer experience, and infrastructure challenges on the railway. The hackathon was organised by HackTrain, an initiative which seeks to unite developers and rail industry stakeholders to improve the efficiency of the network and bring customer service into line with the expectations of the modern consumer.

HackTrain held a second hackathon at the end of last year and in November there will be a third event which will seek to build on the success of the first two hackathons by expanding the concept internationally.

HacktrainThe hackathons are the first stage in a three-phase cycle. The second phase is the RailTech Acelerator, where Hacktrain finds early-stage technology companies solving challenges similar to those experienced in rail, but in other industries. HackTrain provides funding and connections between these developers and the rail industry, with accelerated opportunities to test their technologies in a rail environment. Successful accelerator trials then go through the third stage of the cycle, becoming digital transformation projects.

In June HackTrain held its first conference, which was attended by more than 300 rail and technology professionals. This was also the venue for the launch of the Barriers to Rail Innovation report, a comprehensive analysis of the obstacles facing technical innovation in the British railway industry and how they might be overcome. More than 60 interviews were conducted with entrepreneurs, government officials, procurement officers, and academics and from these discussions the report identifies five key barriers to innovation:

- the franchising system works against innovation
- the culture in rail is resistant to innovation
- procurement frameworks are unfit for entrepreneurs
- data is fragmented, kept in silos and unreliable, and
- the funding landscape is difficult to navigate and not output driven

The report argues that the franchising system consistently fails to incentivise innovation because all of the focus of competition is in the procurement process. Once the contract is signed, there is little pressure on operators to innovate. In many cases the market is captive and lack of infrastructure capacity makes direct on-rail competition an unlikely prospect on most inter-city routes. This means rail is not a real market, and market-lead innovation seen in industries such as the airlines, are not there or much-diminished and rail is insulated from the ‘innovate or die’ model that prevails elsewhere.

Investment in franchises is naturally front-loaded to maximise the potential return for the operator. The report notes that historically more than 50% of investments have been made by the end of the second year of a franchise and 90% by the fourth year, leading to a peak-and-trough cycle which has negative impacts on both the supply chain and the passenger. Indeed, the report notes that this can contribute to lower passenger satisfaction scores for more mature franchises.

Any investment in new technology is generally agreed at the procurement stage, but technology - and the franchises’ technology needs might change dramatically over the life of a franchise. The report notes that Stagecoach was awarded the current South Western franchise in 2007, the year the iPhone was launched. Nine years on the iPhone has gone through six generations, each bringing new features, while South West Trains is still delivering the technology it agreed to roll out in 2007.

Indeed, innovation seems to have been little more than a buzzword in many recent franchises. In the invitation to tender for Thameslink Southern Great Northern - Britain’s largest franchise by passenger volume - innovation was cited 36 times, yet the word did not appear once in the final franchise agreement.

Fortunately attitudes to the rigid approach of old are beginning to soften and the Department for Transport (DfT) has started to adopt a more flexible stance, specifying a desired outcome, rather than the precise solution needed to get there. The latest Essex Thameside, East Coast, Northern and TransPennine Express (TPE) franchises all include such provisions and the ITT for the new Greater Anglia franchise appears to be based primarily on outcome specifications.

“Is the franchising system as a whole the problem, or has it just not been tweaked in the right way?” asks Mr River Tamoor Baig, co-founder of HackTrain. “Clearly franchising is here to stay, but we can make changes in the short-term and adapt the system to address issues experienced by passengers.”

Leadership

Managing innovation on Britain’s railways is the remit of the Rail Safety and Standards Board (RSSB), which launched the Future Railway Programme to support innovation in line with the objectives of the Rail Technical Strategy (RTS). However, the principal purpose of the RSSB is to ensure improvement in the safety performance of Britain’s railways (a purpose in which it has been extremely successful), and the report argues that this is at odds with the organisation’s function as a champion of innovation. “The implicit founding principles of a safety standards board are risk averse, cautious, regulation-heavy, and restrictive,” the report states. “All of which are at odds with innovation, which needs to be risky, fast-moving, foot-loose, and adaptive. This raises an inherent contradiction in purpose. Should an organisation that is risk-averse also lead and administer innovation for an entire industry?”

The RSSB is administering an Innovation in Franchising Fund (IFF), which requires each operator to invest 1% of revenue each year in innovation. The purpose of this is to tackle the issue of front-loaded investment in franchises. IFF is currently in the pilot phase although it is a contractual requirement of recently-awarded franchises including Northern and TPE.

“The IFF is one of the best mechanisms the industry has for addressing the innovation funding gap and overcoming the front-loading of investment,” says Tamoor Baig. “It means franchises can employ innovation managers to engage directly with technology companies, but unfortunately only three franchises are in IFF and the DfT now wants to review the system, which will take 2-4 years. The benefits of IFF will be lost during this review period, which is a shame, because it needs to be used in all new franchises.”

Tamoor Baig concedes that IFF is far from perfect. The report argues the approval process for innovation funding is too convoluted and RSSB has not allocated enough staff to liaise effectively with operators. In one case, a proposal costing just £25,000 took four months to approve, by which time the author of the proposal had left the operator. While some steps have been taken more recently to streamline the process, the report says there is a feeling in the industry that the IFF is generating few tangible results.

Lack of industry awareness of the scheme may stem from the fact that there has been virtually no promotion - over the last two years; RSSB has not issued a single press release or announcement on IFF and there is no mention of it on other key rail industry websites such as the Rail Supply Group. “If we are to attract the brightest and best talent with truly innovative solutions, it is critical that we advertise other funding mechanisms such as the IFF effectively,” the report states.

The report recommends that the DfT needs to consider whether RSSB should retain its responsibility for innovation and warns that funds intended to stimulate innovation must be administered more efficiently and advertised effectively, with clear guidelines on how to apply for funding.

Procurement

The report highlights procurement practices as another key barrier to innovation in the rail sector and there are two primary reasons for this. Firstly, the structure of the franchising system means investment is cyclical and often results in slim windows of opportunity for suppliers, interspersed with periods of inactivity. Secondly, procurement procedures are long and complicated.

Initiatives such as the Rail Alliance are applauded for making access to Britain’s fragmented rail industry easier for new entrants, but the report stresses that there needs to be wider support to make procurement more accessible for smaller technology companies. Other issues include procurements being channelled through the Official Journal of the European Union - even when this is not necessary - which deters smaller companies from bidding for contracts, and procurement teams often fail to grasp the requirements of delivery teams.

“Procurement teams consistently seem to be restricted in potential by two elements,” the report states. “Firstly, they often consist primarily of lawyers and second they are incredibly inward-looking. This results in a very risk-adverse, box-ticking approach to procurement which often makes SMEs appear ‘inappropriate’. Lawyers are not trained to be innovators and as a consequence, procurement contracts and tenders can be overly prescriptive and specified, working against rather than for facilitating innovation.”

Another issue for technology companies is the ownership of intellectual property (IP). According to the report there has been a prevailing belief that owning IP will prevent the buyer being locked into a specific supplier - a view which is considered flawed because it is unlikely operators acquiring IP will know how to get the best out of a system’s components.

Innovative technology companies are also up against “arduous and complicated” acceptance processes, with a lack of clarity on who will pay for their solution. When procurement of non-safety critical systems can take up to 18 months, developers can certainly be forgiven for turning their attention to more fast-moving industries.

Recently Hacktrain has been working with London-based law firm Osborne Clarke to develop a procurement framework for train operators and small technology companies.

“Many of these processes can be streamlined,” the report says. “Why does low-risk technology (e.g. a new feature on the website, or new technology in the station) have to go through the same procurement process as safety-critical (e.g. track or signalling) technology? If we draw a line between safety-critical and low-risk technology, we can empower staff to run trials in-house on low-risk technology.”

The report recommends that each train operating company should make it possible for small technology companies to trial new, non-safety critical innovations on trains and stations, as well as through a beta section on their website. There should also be an established process and a directory of key stakeholders within an organisation for trialling new technologies.

There are also significant barriers for innovation in safety-critical systems. Infrastructure manager Network Rail has only two test facilities, compared with 18 for German Rail (DB), and only companies with an existing contract can gain access to test tracks. DB has trains dedicated to testing new products, enabling software companies to trial and refine their products in a real railway environment, and also allows ‘piggy-backing’ of products from small companies on their testing network.

Data

The report is particularly critical of data management on Britain’s railways. “The world is now so connected that failing to take advantage of data means someone else will, and in doing so will have a better understanding of your customers,” it says. “The more we fail to take hold of our data, the more we will lose out on understanding of what our customers want and fail to implement change. This encourages others to step in and start manipulating data to provide a service customers want.”

This has already happened with online ticket sales. Even though the operators have native ticket providers linked from National Rail Enquiries - the most commonly-used journey planner - most online ticket sales are processed through ticketing retailer Trainline. The report argues that because Trainline has invested in improving the customer experience, it wins more business because users believe it is more adaptive to their personal needs.

If customers choose Trainline, then Trainline owns their data and this gives the company opportunities for upselling, to understanding behaviours, habits and preferences - opportunities the train operators have lost.

The report also criticises rail’s poor performance on open data and its processes for evaluating customer satisfaction. Data feeds use different representations of station codes, service identifiers, and train reporting numbers and while private companies such as Silverrail are looking for ways to overcome this, the lack of standardisation means new standards will continue to be generated. This is in contrast with the situation in commercial aviation, where airlines have created and agreed a global system for airport codes.

A “massive web of monopolistic contractual agreements, strict non-disclosure agreements, broad intellectual property agreements, and unreasonable data ownership constraints” is cited by the report as the source of fundamental problems in the provision of rail operating data in Britain. Furthermore, operators remain technically wedded to legacy systems and significant sums have been spent in recent years maintaining and developing data systems which are obsolete.

The report calls on the DfT to carry out a review of how data is used in the British rail industry, focussing on the issues with open data, legacy systems, and data ownership by operators. It also urges the DfT to ensure open rail data sets and to improve data feeds, as well as continuously making new data sets available to developers.

In conclusion, the report’s authors stress that there is a strong appetite for innovation among industry professionals, but those pushing for change often come up against a structure which frequently works against the implementation of new technologies. “Balancing the day-to-day operations of the railway with an innovation imperative is no easy task. And we have at times lost our way, letting the former supersede the latter. There is a treasure chest of technological solutions out there. All we have to do now, is find out what’s stopping us from unlocking it.”

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