Integrated Product Service Offerings for Rail Infrastructure : Potential Benefits and Challenges

Abstract: Large amounts of different materials are used when building and maintaining railway infrastructure, and the environmental impacts from the upstream production stages are significant. Industry’s motivation to innovate is low, new products or methods are rarely used, and the lowest price is the main driver for selecting a tender.Integrated Product Service Offerings, or IPSO, has been put forward in the research literature as a potential concept to, from a life-cycle perspective, reduce the environmental impact of products and services, increase cost efficiency and quality, and act as a driver for change. Therefore, this thesis attempts to answer to the aim: “Can the concept of Integrated Product Service Offerings improve the management of rail infrastructure and if so, what would such an implementation induce in terms of risk factors?” The Swedish rail infrastructure is used as a case to discuss the considerations and feasibility of such an implementation. Theories such as product development, information asymmetry and innovation are used to complement the literature focusing on IPSO. The empirical part of the thesis has been collected using individual interviews, group interviews and a survey approach.The contracts currently used in the railway industry have several advantages, such as being a familiar business model that is straightforward to calculate for the contractors. However, they are not optimal for innovation due to e.g. detailed specifications, standards and technological and market lock-in effects. Technological and market lock-in, in combination with a lack of information transfer between different contracts and actors, are major disadvantages with the current practice. Furthermore, the buyer’s conservative business culture makes it difficult to implement new types of contracts since it is difficult to break old habits. Even though the providers are part of the same mature market, the organizational changes needed for them to fulfill IPSO contracts are not seen as a barrier.A benefit with IPSO is the holistic life-cycle perspective that provides incentives for dematerialization, resulting in a more resource-efficient and durable infrastructure. IPSO requires improved information transfer, something which stimulates innovation as well as processes for evaluation of the contracts. Further benefits are potential incentives to get contractors involved in the design phase, where the major decisions about the life-cycle are made, in order to reduce the infrastructure's environmental impact and total life-cycle cost. The contractors hope that IPSO contracts will make the buyer focus less on e.g. the initial purchasing price and more on the total life-cycle cost in relation to quality in order to get the best solution.The actors see themselves as parties with opposing interests. At the same time, IPSO will most likely imply more long-term cooperation, something that calls for common interests, shared risks and flexibility. The innovation possibilities with IPSO could benefit from loosening up the material handling monopoly that the buyer currently holds. Since the buyer is a dominant actor within the industry, this organization has major possibilities to introduce changes that the other actors would have to conform to.Several challenges with IPSO are discussed, and most of them are derived from the risk and uncertainty aspects that come with long-term contracts and inexperience with a new business model. On one hand, the contractors request more flexibility; on the other hand, they are reluctant to take on more responsibility that could lead to increased risk. However, risk does not have to be seen as something completely negative, as it depends on how the contractors choose to deal with it. They can either develop the necessary skills and competence needed to identify and handle the risk in a strategic manner, foster a competitive advantage, or take the problems as they come in a more ad hoc way. A way to reduce risk and uncertainty seems to be to focus on transparency and information sharing between the actors and the contracts. This would also open up IPSO contracts for reinvestments, where the current lack of information concerning the condition of the facilities results in reluctance for IPSO contracts.This research has focused on IPSO for rail infrastructure management, using the Swedish rail infrastructure as a case to discuss the considerations and feasibility of such an implementation. The conclusions, therefore, are valid for rail infrastructure in other geographical locations as well.