Henning Schierholz
Partner & Managing Director
Hamburg
Digital Transformation in the Rail Industry
The rail industry faces numerous emerging challenges that are disrupting existing business models, changing cost and pricing structures, and opening up the playing field to hypercompetitive newcomers.
The core value proposition for rail around convenience and active time is rapidly shrinking. Alongside ongoing competitive pressures from the airline industry, low-cost and long-distance bus offerings are now putting heavy pricing pressure on rail operations. Bus operators offer fast and cheap alternatives to train travel, especially for long distances, and boast first- and last-mile advantages over rail as well.
As passengers are demanding door-to-door multimode travel solutions as compared to traditional modality products, competition from the likes of ride- and car-sharing entities offer ultrafast and inexpensive demand response compared to rail options. Electric vehicles, too, hold the promise of more environmentally friendly alternatives, while self-driving autonomous vehicles (robo taxis and “swarm cars”) with dynamic routing capabilities based on commuter destinations are serving to reduce the costs of road travel when compared to those of rail.
Internet giants, OEMs, and digitally savvy startups are all pushing multimode transportation platforms, and offer easy-to-use digital customer interface options that cater to customer demands for seamless integrated planning, booking, payment, and onboard conveniences.
Further, the industry is seeing new collaboration models emerge, with partnerships being forged between new and traditional transportation providers throughout the value chain in both offensive and defensive plays.
Shortened innovation cycles also are adding to the complex mass of pressures facing the rail industry. Here, cross-modal and functional innovation is taking place in a matter of months, not years.
To compete, rail operations need to transform and acquire new digital competencies and talent, as market liberalization has broadly opened the competitive playing field to formidable, digitally savvy incumbents that are foundationally quicker to react and adapt.
Rail’s Digital Solution
The blueprint for transformation draws upon three key digital actions: develop new business models and offerings, digitalize core operations, and build a robust internal digital foundation. For rail organizations, the success model requires the following:
1. Develop New Business Models and Offerings
- Multimodality Platforms. Building multimodality platforms provide flexibility, and need to be broad in scope and not limited to captive-produced offerings. Smart cities are expected to be a key application area for multimodality platforms, and mayors are looking for partners.
- Easy-to-Use Customer Interfaces. Robust and easy-to-use customer interfaces need to be as seamless as those used in Uber-like ride-sharing platforms, as well as those offered by tech-smart OEMs and internet-based concerns.
- Platform, Data, and Fleet Management. All three are required to succeed in the rail space.
2. Digitalize Core Operations
- Automated Train Operations. Communications standards beyond that of 4G LTE will be required to enable fully autonomous train operations. Note that only a small portion of cost savings from automated train operations is derived from driverless trains.
- Advanced Analytics. Sensor-based maintenance and pattern analytics offer significant operational value and efficiency for rail operations, and can be implemented quickly to achieve measureable results in the short term.
- Partnerships. Building an ecosystem of partners with various background and competencies limits rail organizations’ dependencies on traditional suppliers when looking to capitalize on growth and expansion opportunities.
3. Build a Robust Internal Digital Foundation
- Talent. Rail organizations need to actively target and attract strong digital and engineering talent in order to develop digital prowess.
- Organization. One size does not fit all when it comes to building out digitally based operating models that are meant to address specific elements within a rail enterprise. Care should be taken to address each one uniquely.
- Agility. Rail entities need to shift to a fast-paced agile process for solution development in order to stay aligned to a digital philosophy.