A decade of change in the Rail European Market; Influence on R

1
A decade of change in the Rail European Market
Influence on RD and Innovation.Toward a new
equilibrium in the Rail sector
Conference on Railroad Industry Structure,
Competition Investments Toulouse, 8 Nov. 2003
Dr Guillaume de Tilière (ALSTOM Transport), Dr
Staffan Hulten (ECPI)
ECP
2
Plan of the presentation I.
Introduction objective methodology
II. Change of Institutional
Models III. Impact on Innovation
(patterns of rail innovations) IV. Impact
on Rail Innovation Diffusion Models V.
Impact on Rail Innovation Models VI.
Conclusion
2
EPRC 2003 / G. de Tilière S. Hulten
3
I. Introduction Background Since a
decade the EU transportation market has
drastically changed - Harmonisation of the
European transport market gt Increase
interoperability in the EU rail transportation
network gt Increase the competitiveness of the
rail sector (industries) - Globalisation of the
transportation industry (merges,
standardisation) gt Operators / Industry gt
more pressure for competitiveness, especially for
rail (national barriers) Focus EU rail market
change and impact on innovation processes,
looking at systemic innovations (technological
trajectories) which aim at increasing
interoperability, safety and capacity of the rail
system.
3
EPRC 2003 / G. de Tilière S. Hulten
4
Objective 1. look at the main changes of the
EU rail market and their impacts on innovation
Case studies approach / empirical research
1.1 Case of national innovation systems
(before the 90s) - development of HSR
technologies (TGV, ICE, X2 case, ) -
development of Signaling technologies (ATP
systems) 1.2 Case of the new European
innovation system (after the 90s) -
development of new HSR generations (AGV, ICE3,
Regina case) - development of Signaling
technologies (ERTMS technology) 2. Working out
Innovation Models for the Rail Sector 2.1 The
National Rail Innovation Model (before the
90s) 2.1 The European Rail Innovation Model
(after the 90s) 3. Define challenges related to
the transition phase between these two
equilibrium.
4
EPRC 2003 / G. de Tilière S. Hulten
5
II. Changes of Institutional models
A. Former National Institutional systems
ACADEMIC RESEARCH
Management
Fundamental
Technology
INSTITUTIONS
INDUSTRY
OPERATORS
Technical specifications
Transportation ministry
RD ministry
Production
Development
Operations
Development
Support
Support
Finance ministry
FINANCING INSTITUTIONS
FINAL USERS
INSURANCE COMPANIES
5
EPRC 2003 / G. de Tilière S. Hulten
6
B. New Institutional systems since the European
harmonisation
ACADEMIC RESEARCH
Management
Fundamental
Technology
Technical specifications
Functional specifications
INSTITUTIONS
INDUSTRY
OPERATORS
Transportation ministry
RD ministry
Production
Development
Operations
Development
Support
Support
Finance ministry
Infrastructure owner
FINANCING INSTITUTIONS
INSTITUTIONS EU Level
FINAL USERS
INSURANCE COMPANIES
6
EPRC 2003 / G. de Tilière S. Hulten
7
III. Impact on Innovation
- Systemic innovation requires close cohesion
of partners but - Operators are no more
codevelopers and wants proven technologies gt
Transfer of the risks to manufacturers Effects
of a continuing improvement of a technology
Market requirements
Performance min required at the exit of the market
Product performance (system)
Progress due to the Improvement of the technology
Progress due to the Improvement of the technology
Rupture of a technological innovation
Performance min required at the entrance of the
market
Time
Performances include many factors as
reliability, speed, comfort, investments
operating costs
7
EPRC 2003 / G. de Tilière S. Hulten
8
S-curve and the notion of critical
mass Higher opportunities / higher market
risks for manufacturers
Units of item produced Or lenght of the new
network fitted
N4 Saturation of the market, competition with
other new technologies
N4
N3
N3 Mastered technology (in terms of technics and
costs)
N2 Level of adoption Operator 1 sufficient,
Other operator interested
N2
L1 Level of adoption Operator 1
Critical Mass of adoption (controlled by
operators)
N1
LF First adoption Operator 1
Time
t0
t1
t2
LF represents the level of prototype maturity
required for first adoption L1 represents the
level of first adoption required to pursue any
further extention of the network
8
EPRC 2003 / G. de Tilière S. Hulten
9
RD Programs, public private partnership
Will vertical disintegration lead toward Less
radical innovations (technological wonder),
but more efficient use of RD funding?
Scale of Investment values
Emerging technologies
Key technologies
basic technologies
Value of the competing technology
Risk taking, Systemic innovations
Resource level attributed to RD
Logical level of resources attributed to RD
Risk aversion Conservative strategy
Time
9
EPRC 2003 / G. de Tilière S. Hulten
10
IV. Impact on the Innovation Diffusion System
A. The former National Innovation Diffusion System
National Rail innovation system centralized
ascendant
RD System, Systemic innovations

• The change agents for the system architecture are
  the duo operator-manufacturer (but leads to
  captive markets).
• Integration of component innovations leading to
  a systemic innovation.
• Concept of incremental innovations characterized
  by an ascendant diffusion system.
• Concerning innovations on components, change
  actors are usually small and medium enterprises
  (SME), who leads RD more aggressively than big
  manufacturers (integrators).

Change Agent (System Components)
System Specificator
Operator
System Innovator
Manufacturer
Component Innovators
S
M
E
Change Agents (Components)
RD on Components, Component innovations
10
EPRC 2003 / G. de Tilière S. Hulten
11
B. The new Innovation Diffusion Systems (new
European environment)

The new European Rail innovation system
RD System, Systemic architectural innovations

• A new paradigm Interoperability gt harmonisation
• The EU harmonization process put more pressure on
  standardization of both operation and
  manufacturing market.
• Open competition in principle of the rail
  manufacturing market (limitation current
  specific national technologies).
• The purpose is to put into competition for the
  long term the maximum of manufacturers to
  increase cost efficiency

Change Agent (System Components)
functional Specificators
Operator A
Operator B
Operator C
System Innovators
Manufacturer A
Manufacturer B
Manufacturer B
Component Innovators
S
M
E
Change Agents (Components)
RD on Components, Component innovations
11
EPRC 2003 / G. de Tilière S. Hulten
12
V. Impact on the Rail Innovation Model
A. National Innovation Model for Rail
technologies (up to the 1990s)
Knowledge
Persuasion
Decision
Adoption
Diffusion
Need recognition
Diffusion of the technology National market
(protected by standards close relation
Operator- Industry
Diffusion of the technology International market
National Transportation Industrial Policy
0perators from other countries interested in the
new technology
National operator
Definition of operator needs Functional
technical specifications
Preselection
Sale contract / Commercial operation (national
market)
Sale contract / Commercial operation (Export
market)
RD contract Study contract
Prototype Validation / Test track
National Industrial Consortium (preselected)
Pricing of the technology doesnt include full
RD costs as strongly supported by national
operator and by state
Limitation of technical risks complete
validation process before implementation
Close relation Operator-Industry (National level)
Limitation of financial risks linked to RD
investments. Strongly supported by operator and
state
Limitation of commercial risks as operator has a
leading role and interest for implementation
Proven technology National market Show case for
international sales
Leading countries in the Rail Innovative
technologies National Market a platform to reach
the critical adoption threshold
Following countries Buying proven technologies
12
EPRC 2003 / G. de Tilière S. Hulten
13
B. New European Innovation Model for Rail
technologies (since the 1990s)
Knowledge
Persuasion
Decision
Adoption
Diffusion
Need recognition
European Transportation Industrial Policy
First adoption of the technology EU market
Additional development for final Validation
needed
Diffusion of the technology International market
Infrastructure Owner
0perators from other countries interested in the
new technology
Operator
Definition of needs Functional specifications
European RD Programs (Def of standards)
Sale contract / Commercial operation (European
market)
Sale contract / Commercial operation (Export
market)
Industrial Consortium
Prototype Validation / Test track
Internal RD Program
Limitation of technical risks by a first
validation process. But uncomplete Validation
process
Operators Group Industrial Group (ERRI,
UNISIG, etc)
Pricing of the technology should now include full
Industrial RD costs
Proven technology European market Show case for
international sales
RD investments independently of the national
operators gt higher financial risks for Industry
Higher commercial risks as no more duo
operator/industry leading together the whole
innovation process. But new market opportunities
as less national barriers
Leading countries in the Rail Innovative
technologies No more National platform to
guarantee a national industrial that the critical
adoption threshold will be reached but the
globally the EU standard will lead to a more
risks/more opportunities type of market
Following countries Buying proven and more
standardised technologies,
13
EPRC 2003 / G. de Tilière S. Hulten
14
VI. Conclusion Future achievements - This
new model will increase cost efficiency through
standardisation and through the end of captive
markets - The standardisation will allow strong
improvement of interoperability. Current
Challenges - Operators have to shift from
technical to functional specificators. - RD
tasks are fully transferred to manufacturers.
They will have to define carefully their RD
strategy (before directions were given by
operators). - Increase of market opportunities
but also of commercial risks. - Manufacturers
must now include all RD costs in their price,
which is not yet in their habits (as strongly
funded before by operators). - No more
co-development, leading to no more complete
validation phase with the operator higher
technical risks on first product generations. -
The role of operators infra owners in system
integration is getting more complex.
14
15

• For information and comments, thanks to contact
• Dr Guillaume de Tilière
• ALSTOM TRANSPORT
• 33 rue des Batelliers, F-93400 St-Ouen
• guillaume.de-tiliere_at_transport.alstom.com
• ECP
• Dr Staffan Hulten
• Ecole Centrale de Paris
• hultens_at_cti.ecp.fr