When done well, collaboration between SMEs and corporates is delivering fast track rail innovation. DAVID REWCASTLE of law firm Bond Dickinson considers how this meeting of different cultures can be achieved successfully
As a sector, rail is challenged by tough regulations and demands by customers for flexible and cost-effective services. Moreover, it has to deliver this in an increasingly challenging and uncertain political environment.
Given the crucial role rail plays in our lives, how can these demands be met effectively in such circumstances, while maintaining reliability, positive passenger experience and of course safety?
Recognising that for industry giants, a fast way to provide new and improved services can be to team-up with other organisations, often highly specialised SMEs, we conducted an economic study, Close Encounters: The power of collaborative innovation. The study explores how collaboration can be used as a key strategy for growth and innovation. It observed mergers and acquisitions, minority stake purchases and joint ventures from April 2013 to April 2017.
Rail sector activities
The study found that the transport sector, while the least collaborative in terms of volume (95 deals) and value (worth a total of £1.8 billion) compared to other sectors, is still an active and highly acquisitive industry, with ten times more M&As than minority stake purchases.
The majority of these deals (60 per cent) involved two companies that both operate in the transport industry, rather than with a company engaged in a different sector. Most of the deals (89 per cent) were a merger or acquisition rather than a minority stake – possibly fuelled by the conservative nature of some of the major rail corporates.
Traditionally a sector that does not cross-pollinate, the rail sector is, however, showing some highly successful signs of collaboration. Leading the way is London Midland, a train operating company owned by Govia (a joint venture between the Go Ahead Group and Keolis). The organisation has identified the need to become more innovative and find new ways to improve its customer experience.
Rail innovation accelerators
London Midland has created the LM Labs Accelerator, the first of its kind in the rail sector. The accelerator works with a number of tech start-ups in the mobility space over a 12-week period to identify and act on issues within journey experiences. Following the initial 12 weeks a further three months of incubation and operational environmental support is given, to progress their business and achieve the joint aim of ‘Simply Better Journeys’.
Such collaborations offer London Midland a direct route to fast-acting SMEs. For the SMEs involved, London Midland can provide the infrastructure, expertise and direct access to key stakeholders in the rail industry. This is groundbreaking for the rail industry. Opening doors in this way breaks down barriers and provides product validation to get new ideas off the ground that may not otherwise see the light of day.
Similarly, Transport for London has established an Innovation Portal where any organisation can submit innovative technological ideas that meet TfL’s key challenges. In particular the proposed ideas must be ‘relevant’, ‘novel’ and ‘sound’ – ie feasible. Some of the projects that have been submitted and completed include drones that facilitate easier access to safety checks and a permissioning app that provides access to track workers ensuring safe and timely maintenance work.
A union of chalk and cheese!
As these examples highlight, it can be a powerful combination to bring together the structure and experience of a major corporate with the ideas and agility of a SME.
However, both parties should go into any deal with their eyes open – and to succeed there are a number of factors that should be considered. One of the most frequent issues that can cause problems in collaborations is the merging of cultures created by the union. Will it be a meeting of minds or a culture shock? To remain innovative and agile, the SME may need to retain some sort of autonomy and elements of its former culture.
Motivation for the deal needs to be agreed from the start too: is this a long-term brand-building exercise or something to generate a quick turnaround? If it is a quick turnaround the two parties should think carefully about the end point. Is this an earn-out situation or should the SME management team be incentivised to remain in the organisation? Such considerations and questions need to be addressed from the very beginning.
Ultimately, a successful union will make the most of the individual strengths of both parties and create value within both organisations – with the end result being improved outcomes for customers.