As the railroad industry is going through its digital transformation—such as implementing broadband communications and applications that leverage Cloud technologies, including Artificial Intelligence (AI) and Industrial Internet of Things (IIoT) for operational and commercial purposes—we are finding there is a clear lag in the deployment of technologies vs. what technologies enable. We call this the cascading technology trap or “The Trap”: Technologies are evolving at a significantly faster pace than the ability of organizations to adapt.
This problem is not unique to the railroad industry. We’ve encountered this in other industries that are further into their digital transformations, such as telecommunications service providers and smart cities around the world. The cascading technology trap is more difficult to overcome than other challenges such as regulatory, financing, and ecosystem partnerships. Organizations and ecosystems get caught off-guard in vicious cycles of technical debt, while the demands on their capability maturity surge. The Trap is activated by at least six triggers that are unavoidable given the nature of the digital transformation and the traditional nature of the organizations undertaking the transformation.
How can railroads leverage the rapidly changing and competing offerings from Cloud providers, telecommunications giants, 5G equipment manufacturers, system integrators and legacy infrastructure vendors by using the lessons learned from other industries to successfully avoid The Trap?
A set of internal and external strategies can be deployed based on factors such as a railroad’s or transportation ecosystem player’s articulated strategy and business objectives, size, location, governance structure and economic conditions.
The case study of a broadband communications technology deployment illustrates both the triggers and the strategies to avoid The Trap.
Factors That Trigger The Trap
- Pace of innovation is faster than what industries can absorb: The velocity of technology evolution exceeds the ability of railroads (and others, such as system integrators and regulators) to assimilate knowledge, make decisions, plan, design and deploy at scale. By the time evaluations are done or investment commitments are made, there is already a next generation available. This can create strong competition between multiple technologies and draw into question lifecycles of investments.
- New technologies are forcing multiple paradigm shifts: A move toward virtualization and software defined networks, renders current processes, structures, solutions, business models and financial accounting no longer sufficient or applicable.
- Standards and regulations have not evolved at the same pace as the technological advances: For risk-averse organizations, it is difficult to bet on which technologies will win. Several technologies end up competing in similar applications, making it tougher to bet on standards and set regulations in the short- and near-term horizons.
- Disconnected handoffs between technology providers and adopters: The companies that are driving technology innovation, primarily the technology giants such as Amazon, Google and Microsoft, have fundamentally different models of developing and deploying software (such as DevOps) that make it difficult for others to absorb and adopt, with railroads seeing an even greater challenge in doing so.
- Dealing with the internal corporate chasm: Scaling-up, that is, moving from an explore (Research & Innovation) to an exploit (Develop/Integrate & Deploy) operating model, is a tricky endeavor. Each side of the chasm (explore, exploit) has differing strategic intents, competencies, structures, cultures, skills, risks, rewards, etc. Often, companies are missing the right processes, mechanisms, skills and experience for executing this transition.
- Increasing complexity of technology is fuelling high tech talent wars: Skillsets and experience required for implementing the digital transformations are sophisticated and come at a high cost. Technology giants, in particular the Cloud players, are more successful in attracting the top tech talent than railroads. The bulk of the technical knowledge and know-how rests with these giants, while others starve.
Strategies for Addressing The Trap’s Triggers
Approaches that enable railroads and the transportation ecosystem to avoid The Trap fall in two categories:
- Leveraging external players
- Developing internal capability maturity
Four strategies that leverage external players either directly or indirectly, are based on a railroad participating with external sources to help bring aboard the new technology:
- Start-ups as catalysts: Fast-moving innovation can come from start-ups, such as those developing AI solutions for rail infrastructure monitoring, or intermodal management; a fast-growing list of opportunities. They are probably the best at integrating rapidly evolving technologies and deploying them economically. The inherent risk of working with start-ups must be mitigated through a well-balanced model of ensuring that the selected ventures have a good likelihood of survival. This can include defining a start-up-friendly deal-flow and procurement process. Railroads need to ensure that they accommodate to the start-up’s cadence, which is fast and lean, so as not to stifle them.
- Joint ventures or links with leading technology players: Traditionally railroads source their solutions from specialized vendors, often locking themselves into those solutions. Modern technology is complex, with paradigm shifts in hardware and software. System integration becomes an even more critical activity. So now one also needs to bridge into globally leading technology players that have a fair control over technologies central to railroading and transportation. These players are leaders in their technologies who aim at disrupting the status quo in adjacent markets. Primary approaches include providing incentives to these players to dedicate resources to railroads and enacting favorable regulations for them, for example, related to wireless frequencies, data privacy, drones, etc. The advantage of this model is that it ensures that the latest technologies are deployed. On the other hand, the high rivalry between the Cloud players and other players in the ecosystem shifts the challenges to regulatory and politically sensitive ones.
- Consortiums: The strategy relies on building an ecosystem that includes entities such as railroads, transportation partners, technology players and system integrators, R&D labs, telecom and satellite operators, start-ups, and universities. Solutions are chosen based on a cooperative model among all parties to share experiences and minimize risks. This model has the advantage of creating additional synergies between the various players in the railroad / transportation value chain. On the other hand, decision-making tends to be complex and proper governance must be in place.
- Fast-follower: This approach is used as a mechanism to accelerate the path and reduce costs to the end goal and not a delay tactic. This model has the advantage of optimizing the deployment cost structure, based on the lessons learned from the first-mover. On the other hand, being a fast-follower risks making the technology decision too late, where the technology may have already moved into its next cycle.
With each wave of Digital Transformation, the baseline for capability maturity level of the organization re-sets per the new transformation requirements. An organization has the following four levers to improve internally to face the disruption necessary to successfully navigate the transformation and avoid The Trap:
- Contemporary operating models: Many of the traditional operating models require re-design or re-alignment for operating in a digitally transformed world. For example, network function virtualization (NFV), which replaces hardware functions with software, moves the accounting model from CAPEX to OPEX. Service planning lifecycles are now shorter, resulting in a paradigm shift from the traditionally long ones. At this time, one strategy does not fit all; hybrids will emerge. One needs to examine on a function-by-function basis to determine the best approach, based on requirements for business objectives, security, performance, reliability, regulatory and cost, to name a few; and to set them in the context of measurable business goals.
- Aligned and adaptable processes: Processes (such as operating, management, support, enabling) define, capture, and support the new value chain brought forth by the Digital Transformation. Processes for operational and informational technology (OT-IT) convergence must be defined. Processes for evaluating, developing, integrating, testing, and deploying software must evolve to align and adapt to technology industry best practices. The same applies to processes for scaling-up from explore to exploit operational models, integrating start-ups or acquisitions, and so forth.
- Futureproof Technology Solutions: It is important to have well-defined architectures and interfaces that are well-amenable to evolution and change. For example, 5G comes with many interfaces and APIs built-in for future evolution, so one needs to understand these interfaces to avoid vendor lock-in.
- High-end talent and innovation culture: Bringing in top-tier experts and tiger teams to bridge the divide between new technologies and their implementation timelines is key. Not only will they deliver faster with higher quality, they can also help develop the in-house talent and build capable technology teams.
As with any transformational endeavor, consistent and accountable involvement of the full leadership team, including C-suite, senior executives and executive sponsorship, are essential. They manage and hold accountability for the explicit links to strategy, business objectives and risk appetite. They are integral in driving the evolution of the culture for the next generation of railroading.
To inoculate an organization against the most likely Trap triggers, we suggest considering the following strategies “good-better-best” roadmaps for action. A “good” roadmap would enact at least one strategy for a perceived trigger, and a “best” roadmap would use all applicable best-in-class strategies. (See Table 1.) In addition, consider a railroad’s articulated strategy and business objectives, size, location, governance structure and economic conditions.
Let’s look at a transformation example for deploying a next generation communication system at a railroad.
Deploying Next-Generation Rail Communication Systems
The deployment of Future Rail Mobile Communication System (FRMCS) is a good example to highlight The Trap. The International Union of Railways (UIC) is coordinating activities among primarily European railway associations and the ETSI and 3GPP standard bodies to develop standards for FRMCS which is based on 5G technology. This makes for a major step function in technology from GSM-R, which is based on 2G technology. Europe mandates GSM-R while North America uses a number of systems depending on application, including VHF and UHF narrow-band voice solutions. China, Australia and Korea have implemented LTE-based solutions. (See Figure 1.)
Vendors are planning on obsoleting GSM-R by 2030, a technology that was developed in the mid-1990s. In the intervening period of 35 years, 3 generations of wireless technologies came to market at a rate of 1 every 10 years.
The rise of Cloud technologies and business models made a defining impact on 5G technology. Let’s illustrate the impact on the operator by using network virtualization as an example. Even though all the triggers apply, we’ll focus on a subset here and on the proof-of-concept phase.
New technologies are forcing multiple paradigm shifts. Railroad communication systems are monolithic in nature where dedicated hardware solutions perform specific functions. In contrast, virtualization allows software-based network functions to run on standardized hardware. This fundamentally changes the paradigm for the planning, deploying, operating and maintaining communications network.
For example, virtualization changes the network architecture allowing for scalability and elasticity in resource provisioning. The result is a different equation between performance and cost economics. In practical means, the operator needs to decide where and how to run the various communication network elements, on private, public and hybrid Clouds.
Managing a host of software functions requires a new approach to operational and business support systems to manage the virtual network infrastructure and orchestrate the software functions that comprise and end-to-end service. Automation is core to such activities.
Virtualization changes the nature of the relationship between the vendor and the operator such as those related to the division of responsibilities and business models which can shift from CAPEX to OPEX-based models.
Virtualization enables faster roll out of services as it reduces the entire planning and deployment cycle.
Virtualization requires a cultural shift by the operator from a hardware-centric to a software-centric mentality. Operations of the network will change in terms of organizational design and skills, methods and procedures and associated training and technologies underpinning the transformation.
Dealing with the internal corporate chasm. Moving from a proof of concept of network virtualization in a given market vs. retooling all regions from a people, process, and technology standpoint is a chasm of scale that few can accomplish in required timeframes, per requirements, and on budget.
How can the railroads resolve these key issues in our case study? For the proof-of-concept phase, here is how we connect the dots in our case study, because of this railroad’s particular characteristics (strategy, objectives, size, geography etc.):
Looking at internal strategies to deal with virtualization, the railroad needs to recruit engineers with software expertise to interact with vendors and system integrators and plan new processes for network deployment, maintenance and optimization. Network applications require new processes that span the entire chain from procurement through test and verification to deployment. This also leads to new operating models that impact the organization along both internal and external dimensions. Moreover, proper application programming interfaces need to enable the integration of future applications (futureproofing).
As for external strategies, the railroad will have to look at new models and partners, for instance, related to hosting and data center services. Moreover, for certain advanced applications, rail companies may have to work with start-ups developing advanced technology such as computer vision technology.
We’ve encountered these triggers and applied these strategies in other industries that are further into their digital transformations, such as telecommunications service providers and smart cities around the world. One word of caution, though, is that playbooks from one industry or organization may not effectively fit another one. This is where some playbooks must be tailored, while others require validation for re-use.
Become a Proactive Organization
New-entrant competitors add to the urgency as they are further ahead in digitalization capabilities, and often, don’t have to undertake a large-scale transformation. They started life as a butterfly, so they don’t have to evolve, from egg to larva to pupa, to beautiful Monarch.
Sonia Bot, chief executive of The BOT Consulting Group Inc., has played key roles in the inception and delivery of several strategic businesses and transformations in technology, media, and telecommunications companies worldwide. By utilizing methodologies in entrepreneurship, business precision, Lean Six Sigma, systems and process engineering, and organizational behavior she’s enabled organizations to deliver breakthrough results along with providing them a foundation to continue to excel. She was instrumental in PTC implementation on CN’s U.S. lines. Her approaches on the evolution of railroading and transportation are game changers that drive innovation and competitive advantage for adopters in a changing industry. She holds engineering degrees from the University of Waterloo (BMath) and the University of Toronto (MASc) and is a certified Lean Six Sigma Master Black Belt. Sonia can be reached at [email protected].
Frank Rayal is founding partner at Xona Partners, a boutique management and technology advisory firm with a global footprint closely tied to leading innovations hubs. He helps companies generate new revenues by developing new technologies, markets and strategic partnerships. Frank advises private equity investors on technology M&As including those for telecom and Cloud infrastructure assets. He was a co-founder of BLiNQ Networks, and had held senior management roles at technology vendors Redline, Metawave, and Ericsson. Frank has a MASc in Electrical Engineering and MBA from the University of Toronto. He is a senior member of IEEE, and a member of Professional Engineers Ontario. Frank can be reached at [email protected].