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the technical standards and dominates acceptance onto the railway of new infrastructure and, sometimes, rolling stock innovations. It could be argued that regulation has not dealt adequately with its monopoly position. In overcoming these barriers to

innovation, both policymakers and companies have a role to play. A prerequisite for innovation in complex

systems is that there is a suitable mechanism for overall technical leadership at a system- wide level. This is necessary to establish long- term technology strategy, to enable system- wide innovation benefits to be identified and incentivised, and to resolve constraints and barriers at interfaces. Governments and policymakers can

Accelerating innovation

Rick Eagar and Charles Boulton look at the way that the franchising system stifles innovation in the rail industry and suggest ways that this can be overcome


he UK rail industry is believed, by most observers, to be generally poor at innovation. Many in the UK industry will attest to endemic problems, citing a variety of causal

factors ranging from the lack of the right culture, to red tape in testing and approvals. The value for money studies under Sir Roy McNulty looked at, among other things, ways to improve innovation performance. Understanding the ‘big picture’ is key to

identifying sustainable improvements. This is where a ‘systems approach’ to accelerating innovation is essential. In the UK rail context, this means looking at the railways as a single system, in which constituent parts of the industry value chain each have a role to play. This may be contrasted with the traditional approach, in which each constituent part of the industry acts in isolation and blames the system when things fail to change for the better.

Three building blocks need to be in place

for a system to be innovative. Firstly, there need to be sound commercial incentives to motivate players to innovate, with rewards sufficient to balance the risks involved. The UK rail sector lacks these incentives, due to an absence of overall system leadership, fragmented contractual structures and a risk-averse culture driven by history and precedent. The rewards of innovation may not be enjoyed by the originators due to, among other things, short franchises. Secondly, the sector as a whole needs

to have the necessary capability to develop innovations, especially to scale-up product concepts to de-risked demonstration stage. The UK rail sector does not currently have a mechanism for this. Thirdly, there needs to be an effective

means of implementing innovations and bringing them into use. This is complicated if the sector is tightly coupled. In the UK, Network Rail also owns a major part of

do much to ensure that regulation acts as a driver for innovation, rather than a barrier preventing it. Policymakers need to recognise and address the way in which commercial regulation may be acting as a block to innovation. This means addressing the issue of monopsony purchasing, finding ways to overcome the negative impact of short planning periods, and even taking certain key system functions back into government. By developing a deeper system

understanding, including the drivers and constraints affecting their customers, companies can articulate the benefits of innovation much more clearly, while building in appropriate contractual provisions to capture their share of them. An example in the rail industry is driver advisory systems. At its simplest, this technology can help to optimise fuel efficiency. However, there are much broader benefits through linkage with traffic management systems, such as real-time flexing of timetables, network capacity optimisation and reduced cautionary signal running. Companies that tend to have the most

innovation success in regulated systems are those that have early and close engagement with their customers on innovation development. Developing strategic partnerships, either with other parts of the supply chain or even direct competitors, is an effective way for companies to increase influence. As globalisation progresses further in industries such as rail, global alliances and partnerships will be even more essential.

RICK EAGAR is the director and CHARLES BOULTON the senior associate of UK technology and innovation management practice at consultancy Arthur D Little

JUNE 2011 PAGE 29


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