Hardy Giesler, co-founder of CFPro Ventures, is no stranger to rail infrastructure – you just need to read the case study we’ve published on Transport for London to figure that out. We interviewed Hardy about the growth of the SME community within the rail and infrastructure sector, the challenges they’re up against, the opportunity that awaits, and why corporate venture investment is the answer to exponential growth – on both sides of the negotiation table. These are his thoughts:
Q: What state is the UK rail industry in – in terms of growth? Where is it doing well and where could it improve?
“There’s a lot happening in this sector and rightly so – it is one that is widely accepted as critical to our economic growth. But the trends are not all positive. The Guardian reported in June 2018 that rail passenger numbers in the UK fell last year to 1.7 billion – the biggest decrease since privatisation. In particular, the demand for season tickets dropped by 9.2%, a substantial change.
Freight has a similar story, with the total volume of rail freight moved falling to 17 billion net tonne kilometres in 2017-18, a 1.7% reduction on 2016-17. This is the lowest total since the late 1990s.”
Q: Change is inevitable – and it’s all around us. So, what do businesses do who are wanting to break into this space, to grow?
“While some of this can be attributed to changes in lifestyle and working practices, performance in the rail industry has also contributed to this change. There are things we can do to make a difference, for example to find a structure that works:
There are many numbers to play with when trying to understand performance of our railways, but ultimately the trend is deteriorating, as this graph from Network Rail shows:
PPM = Public Performance Measure
MAA = Moving Annual Average
The industry needs a structure where accountability is clear – ultimately there should be one team, with one ultimate leader who is responsible for performance. The public will also benefit since lack of accountability is a major source of frustration.”
Q: And what about the transition towards new technology?
“Absolutely. Digital, and Tech are key. Most of our railway lines are controlled by the railway version of traffic lights, with some still using semaphore signals based on Victorian technology. On average, 50 significant signal failures are experienced each day on the network. New digital technology will improve reliability. Not only this, it will also increase capacity. This is critical – since the mid-1990s the number of passengers using Britain’s railway has doubled. By the mid- 2030, an additional one billion extra journeys are expected.
The downside is that switching to digital takes time and money – the current aim is for 70% of journeys to benefit from digital technology by the time HS2 reaches Manchester in 2033.
However, there are many cheaper technologies that take much less time to deliver benefits. At the recent NCE TechFest 2018 in London, I was a judge on a category called ‘Best Use of Technology: Productivity in Delivery’. The quality of shortlisted entries was high, and I will briefly refer to only two SME’s that impressed:
- Managing construction or upgrade projects can be complex. With multiple teams, large equipment and supplies occupying sites that are often space-constrained, managing logistics can take significant amounts of much time. Datascope Systems Limited, a family-owned SME with 60 employees, has designed a simple tool called DataTouch. Now in use across more than 50 of the UK’s larger construction projects, this tool reduces the daily planning meetings from around two hours to 30 minutes. A simple tool that can save substantial amounts of time and costs;
- IAND is a cloud-based platform that introduces a new way to control projects and manage suppliers. All contracts, invoices and project documents are held in one central place, so that teams can access project data at any time, whether they are client or supply chain team members. Real-time insights reporting, and full compliance are built-in, providing much better performance transparency across the whole project. This information can also be used to assess supply chain performance when bidding for new work, potentially reducing the cost of bidding – a major expenditure for SME’s.
Q: So, what role does a high-growth SME play in the bigger, Rail, picture?
According to the Federation of Small Businesses, Small or Medium-sized Enterprises (SME’s) account for 99.9% of private sector businesses in the UK at the start of 2017. They employ 16.1 million people, 60% of all private sector employment in the UK. The combined annual turnover of SMEs was £1.9 trillion, 51% of all private sector turnover in the UK.
In spite of this, many SME’s struggle to participate in larger contracts with major companies in the rail sector. Network Rail should be commended for taking a lead in changing this. During recent Control Periods (CP’s) such as CP4 and CP5, the role of SME’s has been recognised and terms have been improved to help them. In CP6, which starts in April 2019, they have gone one step further. The most substantial changes to contract terms will commit suppliers to pay their subcontractors within 28 days and remove the use of retentions on those payments. According to an article in Construction News of 31st July 2018, average payment days for the Top 20 contractors in the UK ranged from 33 to 61 days, while the average was 47 days.
The rail industry will be the first sector within the wider UK construction industry to enforce these payment measures, overhauling the way large contractors do business with their supply chain.