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innovation technology management mobility card development of a mobilitycard by db ag risk chance for development of an innovative product in public transport 1 2 3 management summary 1 the public transport market 2 strategic product positioning 4 3.1 what wants the customer 4 3.2 perceived product features of public and private transport with a focus on db products 5 3.3 which position is still unoccupied in the market place 7 4 possibilities of innovative action ­ mobilitätskarte 8 4.1 the concept 8 4.2 barriers to implementation of a mobilitätskarte 8 4.2.1 technological barriers 8 4.2.2 organisational barriers 9 4.2.3 customer barriers 9 4.2.4 financial barriers 10 4.3 swot-analysis of direct implementation of a mobilitätskarte by db 10 5 recommend proceeding for deutsche bahn 12 5.1 strategical direction of future innovation 12 5.2 starting points for internal product improvement 13 5.3 need for external co-operation and alliances 13 5.4 state support for interfaces e-ticketing and bridges over last mile to the customer 13 5.5 occupy definition of mobilitätskarte and establish as the innovator 14 6 7 conclusion 14 list of literature 15 knut scherpe december 2004 page 0

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innovation technology management mobility card 1 management summary core theme of the analysis is the development and introduction of a mobilitätskarte in germany which would be a real innovation in passenger transport market1 out of a strategic situation analysis of public versus public transport the profile of a new product is sketched by which public transport would be a real competitive offer to the customer this mobilitätskarte is a transparent easy-to-use and price-competitive system which allows the customer to be mobile apart from and instead of an own car it is even a real alternative to an own car in the cities and to a second one in regional areas but it is a complex product in a simple shape 2 so in the background many players with different motivations have to interact and have to find agreements between each other also technical problems have to be solved at the interfaces between different transport modes and regarding to a fair distribution of the revenues between different companies financial risks are huge so conclusion is made that a step-by-step proceeding is the better way driver of this process is and should be the db ag german railways which has best premises for the gradual development and implementation of a mobilitätskarte because it is the biggest public transport service provider and has stakes in other complementary means of transportation as carsharing or call-a-bike yet3 last but not least it has a well-known product namely the bahncard which can be the base for the further development migration path to mobilitätskarte 4 relative price attractiveness eticket validity easy-to use mobilitätskarte i.e.s integrated travel chain in public transport one ticket no questions scope of benefits additional services service bonus discount nal itio add ps and rou ard et g hnc t targ ba an ent elev pm for r elo s dev eature f bahncard throughticketing alliances cooperation time 1 2 see for an overview over innovation management hauschildt 2004 about complexity of demand and production systems in local public transport see also klein 2004 3 it has to be marked that following analysis is handling a real complex subject as well on the side of customers who represent the whole possible spread in attitudes incomes habits sociodemographic attributes and transport decisions as on the focussed passenger transport market which is characterised by a whole bunch of companies interfaces prices and production structures on account of this argumentation is focused and concentrating on the crucial drivers attributes to strategically analyse this really complex field as well on the side of possible customers as on the side of developing an innovative and superior solution 4 own draft fully understandable after reading whole paper knut scherpe december 2004 page 1

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innovation technology management mobility card 2 the public transport market the following analysis concentrates on public transport market public transport is the alternative to the individual motorised traffic done with the own car or the own motorbike public transport offers different means of transportation which are open for the public like trams busses taxis trains etc market share of public transport has declined in the past decades stabilising in last years on a low level5 workloads are low as well further downsizing of capacities is not possible and not wanted because they are necessary to provide a competitive offer to the customer in terms of availability and frequency share of mean of transportation by share of public transport in pasways passenger kilometres 6 senger transport market7 1982 2002 in ways passenger kilometres increasing share of motorized private transport 12 sources kontiv2002.de wzb 2004 8 2002 1998 the combination of low workloads of transport vessels and high costs of purchase and maintenance of them leads to high costs per passenger trip these costs cannot be shifted in full to the customer since price would be not competitive in comparison to private transport by car moreover providing mobility to everyone in our society is a base target of our state prohibiting prices are not wanted out of social and economical reasons of our society one consequence is that parts of public transport especially the local public transport is heavily subsidised by the state nearly 15 billions of taxpayer s money lowers the price for customers of public local transport Öpnv and rail local transport spnv8 workloads are the most crucial point in this game since a train or bus costs more or less the same whether it is carrying one or two hundred passengers so increasing workload is the key to outcome a vicious circle in public transport by which decreasing workloads lead to higher costs and thereby to higher subsidies and mostly also to higher prices which again make the public transport less attractive there are two possibilities for basic strategies to easy up this situation by initialising a positive feedback loop and thereby increasing workloads on the one hand government can raise car costs by taxes economical justification for this is the internalisation of external costs and the adequate charging of individuals with the costs of infrastructure this would be a 5 see for a very detailed overview over development in public transport werkstattbericht nr 25 1999 6 for a detailed analysis of mobility behaviour in germany see verkehrsministerium 2002 7 source verkehr in zahlen 1998-2002 8 see for example rönnau 2004 knut scherpe december 2004 page 2

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innovation technology management mobility card push-strategy people are pushed to public transport but here resistances of public in times of increasing petrol and stagnating incomes would be great and end in the statement we don t want escape from the street we want to be attracted by public transport with better products 9 so on the other hand public transport has to improve its products and overcome barriers of use on account of this an innovative new product which strengthen success factors and lower barriers is necessary and has to be developed this would be a pull strategy which ­if successful would prepare the ground for the push strategy the ideal case would be if push pull 10 would go hand in ha nd and with combined forces a better supply of public transport would generate lower necessary subventions aims of all-important stakeholders could be reached in this way positive feedback loops initialised by an combined push pull strategy11 companies/means of transportation government more equalised workload of infrastructure attractive public transport higher more evenly distributed workload infrastructure fees lower prices lower costs per traffic mile person internalisation of external costs initial point of this process has to be an innovative product improvement db has to think about how it can as the core player in the field of public transport support both strategies and thereby become the most important driver in establishing a sustainable public transport which increase its revenues and margins for this a new or upgraded product is needed whose comparative benefit attracts former private transport with a unique strategically positioning but how is the positioning of public transport right now 9 see also verkehrsministerium 2002 push and pull strategies are defined and described for example in pöschek 2000 s.8f 11 own draft knut scherpe december 2004 10 page 3

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innovation technology management mobility card 3 strategic product positioning12 for any innovation product positioning has to give an answer to the following questions 13 which product attributes are relevant for the customers how do customers perceive the own product in comparison to the competitors products which positions are still unoccupied in the market place these questions have to be answered to develop an adequate product that fits customer needs and to show the strategic direction for further innovation 3.1 what wants the customer initial and crucial point of every product development is the question what kind of product the customers want so every new feature of a new product has to be measured against additional benefits customer gets by a new or upgraded product the question what customer wants when he has or want to make a trip is quite easy to answer and empirically affirmed 14 he wants to come from a to b as comfortable as possible mostly as quick as possible for a reasonable and transparent price with the most adequate mean of transportation and last but not least without being forced to think to much about alternatives and next steps he has to do when changing means of transportation because of this wishes relevant product features can be figured out 15 these are speed how long is the trip availability when where does my trip begin comfort individuality how comfortable individual is my trip price :how high are subjective costs and willingness to pay decision costs :how complex is the decision and transaction in terms of mental pressure possible alternatives transparent ticketing etc suitability flexibility how does the transportation mean fits to the special transportation needs in a particularly situation image what image products you use have out of these seven relevant product features three of them can be seen as fixed since they can t be changed in the short run one is additionally at least partly dependent of the others namely image speed is fixed by the given infrastructure and the given frequency and availability of public transport comfort is fixed by given transport vessels and their comfort features individuality is a unchangeable feature of public transport since it is a mass transport mean by definition image can be seen as output of all features and represents the long-time overall benefit of all strengths of a product so four relevant and changeable product features remain where innovation can take place suitability flexibility availability decision costs and price 12 13 the whole method of strategic analysis for example in welge 2003 see l8 chart 15 in innovation technology management steinhoff salomo 2004 14 see for example bundesverkehrsministerium 2002 15 following factors represent most important empirically validated influence factores made out of different db intern and extern studies see for example bundesverkehrsministerium 2002 knut scherpe december 2004 page 4

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innovation technology management mobility card 3.2 perceived product features of public and private transport with a focus on db products product features are seldom completely unique mostly there are substitutes and in the passenger transport sector there is one big and very competitive substitute to all kinds of public transport the motorised individual transport mostly done by car advantages and strengths of car have to be seen in many crucial aspects a car is easy-to-use 16 door ride door mobility in target location availability normally directly in front of the door available if you have a driver license and a car speed on short or middle distances there are advantages in speed if there are now barriers flexibility complex chains of ways are possible mobility in target location is guaranteed decision costs easiness to use standardised handling of car and infrastructure comfort and individuality package transport possible short footways and privacy subjective costs and willingness to pay subjective image advantages of private car in comparison to that to go by public transport is a really complicate matter mostly the travel chain contains a number of different transportation means and according to this mostly many decisions have to be done which often implies mental pressure travelling with public transport 17 door station train trip station change train trip station change depart mean o f transport door mobility in target location entrance mean o f wait transport before the trip n information gathering n buying of ticket =db-stakes zu abgangsverkehrsmittel n db carsharing db call-a-bike n other public transport taxi during the trip n trip information n ticket buying not optimised and not all embracing networked 16 17 own draft own draft knut scherpe december 2004 page 5

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innovation technology management mobility card restraints to use of public train transport in multiple nomination 18 pricing not transparent ticket prices to high sticked to timetable no mobility a target location use of car either information gathering to complicated bad adjustment of long localtransport package transport is complicate ticket buying is complicate bad accessability of target location trains are crowded dirty train and stations delays train is too slow travel is uncomfortable 0,00 14,20 13,30 12,00 9,00 5,90 10,00 20,00 30,00 40,00 50,00 60,00 70,00 40,50 40 35,90 32,40 28,40 25,20 24,90 23,90 67 59,70 comparing characteristics of private and public transport substantial strength and weaknesses are apparent perceived characteristics of public transport 19 availability high perceived characteristics of private transport car 20 availability high decision costs low suitability high decision costs low suitability high low low price price sketched here is only an average estimation of the whole group volume of the diamond is corresponding with the overall benefit for the customer 21 to visualising the variety of subjective estimations arrows are pinned in the positioning chart 22 18 19 db internal report kontinuierliches berichtssystem 2003 confidential own draft based on internal and external studies 20 own draft based on internal and external studies 21 analysing of customers perceiving of product features and quality of the offers will concentrate on people who have the choice to choose between public and private transport this means they have an own car or a car is provided to them by a friend a related21 this group of people which represent most of the population in germany the subjective perceived positioning of public transport especially of local public transport Öpnv spnv can be sketched on a positioning scheme the individual perceived estimation can differ from this considerably for example in dependence of which kind of car is possessed in a household price when this car is available for a specific person respectively how far away entrant points to the public transport system in terms of bus stations railway stations etc are availability how often means of transportation have to be changed and how good experience with common interfaces like ticket automates are decision costs which kind of transportation mean is in a particularly situation optimal a trip to ikea makes a transported or van the ideal choice meanwhile a party is best departed by taxi and to reach a football game the bus or underground is the best choice 22 availability is a unique killing feature of a car as it is mostly not far away another comparative advantage of a car are very low decision costs when planning a trip you don t have to think about a chain of transportation means with different price systems and interfaces at the changing points knut scherpe december 2004 page 6

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innovation technology management mobility card 3.3 which position is still unoccupied in the market place after this disillusioned analysis of comparative strengths and weaknesses question arises what can be done to support a pull-strategy and to offer a new attractive product to raise workloads and to prosper how to take a unique position in market with which you often thrill the customer more than his own car does the nearly perfect solution would be a product by which one you could shift comparative weaknesses of public transport to comparative strengths respectively to comparative innovation advantages cia core of this product would be an integrated all-in-one offer to the customer which would vanish public s transport weakness for the biggest part it s an ambitious but not unrealistic vision an integrated mobilitätskarte enables cus for a competitive price tomers to easy use the most convenient mean of and thereby they have a transportation in every particular situation 23 real alternative to the car 24 taxi Öpnv availability high car car-sharing m db stakes existent fernverkehr decision costs low suitability m high low call-a-bike flug public transport price summarised the mobilitätskarte would have the effect that a productbundle visualised and operationalised in the mobilitätskarte would give the customer a mobility advantage in many specific situations by offering the respectively best benefit for money so he would buy it and often buy it even instead of a second car in the household to generate this overall benefit key features of the mobilitätskarte have to be you get a substantial discount on all public means of transportation taxis and car rentals included price the overall price is cheaper and the mobility benefit is higher than a second car for most households price there is a through-ticketing one card -respectively a ticket based on that card fits all and at least there is no time to spend to handle login processes at interfaces like ticketing-machines decision costs you can always choose the best mean of transportation you need in a particular situation -a van for ikea a taxi for a party to reasonable costs suitability flexibility taxis bikes car rentals are integrated in the concept and bridge the last mile to the customer availability you just go to your car start it drive sometimes with a navigation system to your target location and stop it so it is really easy-to-use last but not least perceived costs of car use are lower then the real costs are this is due to the fact that most people only see the direct variable costs of trip for them namely the petrol costs cost of purchasing and maintaining a car are not taken into consideration since they bought it either way these costs are sunk costs purchase was caused by unique features of a car like image status symbol and availability unfortunately prices of public transport seem subjectively quite high due to this fact 23 own draft 24 own draft knut scherpe december 2004 page 7

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innovation technology management mobility card 4 possibilities of innovative action ­ mobilitätskarte 4.1 the concept from the view of db mobilitätskarte or mobilitycard is a quite ambitious term interpreted differently by different people in its most ambitious specification it describes a solution or more enthusiastic worded an innovation which offers at least in parts a superior mobility to the customer apart from the use of the own car in a more down-to-earth version a practical product is meant by which perceived mobility of the customers is increased by adding extra features to a transport product 25 crucial to this product is the optimisation of interfaces in public transport to lower the critical barrier of high decision costs integrated solution ­ interfaces are conquered easily ­ mobilitätskarte e-ticketing as solution home eve ryw her e station carsharing taxi station station station basic success factor of intermodal offers is the optimisation of interfaces i.e a cutback of barriers between different means of transportation an yw her e station station bahn/flug-kooperationen train/air-kooperation 4.2 barriers to implementation of a mobilitätskarte a development and implementation of an overall solution is facing many barriers as well regarding to the development as regarding to implementation26 since the product is a complex solution for a complex problem and has to be sold to a complex variety of people following barriers have to be overcome 4.2.1 technological barriers before your trip starts you have to get information about best alternatives you have to go by public transport for this smart solutions have to be given to ease up the way for the customer to be conveniently informed since possible customers are different in their affinity to techniques different possibilities have to be offered based on an overall database which has to be maintained and administered during the trip most customers have to change means of transportation when changing a mean of transportation during a trip they need information at the interfaces about next steps to do where to go and where to rest this information has to be provided in an easy understandable way which technological solution has to be chosen?27 25 26 many servicecards connected to the purchase of a new car call themselves mobilitycard external and internal barriers to innovation are quite important for all innovations and innovation processes see also arthur de little 2004 or kocemir s 1996 s 47ff 27 should it be an electronic one like pda and or handy or a more traditional one likes a printedpaper with all information on it or both for future development of mobile data services see also arthur de little 2004c knut scherpe december 2004 page 8

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innovation technology management mobility card you nowadays have mostly to buy a new ticket at interfaces of your trip at a counter or you have to deal with a ­sometimes unknown ticketing automate here a through-ticketing would be the most convenient solution one ticket fits all and legitimates the whole trip but this implies further problems what kind of ticket should it be which technological solution fits best and after all this implementing a through-ticketing implies that the money customers have paid for the trip has to be gathered at one institution or company and has to be distributed between the suppliers which technological solution has to be chosen to handle this problem 28 4.2.2 organisational barriers public transport in germany is handled by thousands of different companies these are private and public ones a couple of them are both furthermore some of them get subsidies by the state others don t some of them are combined in regional alliances for local public transport others are completely standing on their own like taxi drivers you are confronted with different pricing-systems production-systems organisations motivations and so on thereby you have to deal with thousands of sub-contractors and find a fair agreement with each one of them complex interaction at interfaces is evident 29 public passenger transport other local public transport companies taxis car rentals airplanes creditcard functions parking other dbowned db regio db fernverkehr core business carsharing call-a-bike parking at stations complements add-on s there has to be one leading company or institution which is administrator of the whole process and product deutsche bahn as the main actor in public transport would be the best candidate out of obvious reasons know-how market-awareness market presence available accounting systems and many more but acceptance of this would be quite low among other reasons this is because it would maybe add monopolistic power to a company whose long-lasting monopolistic power has been just smoothed out in the last years by deregulation and liberalization of course monopolistic power could be controlled but the fear is there 4.2.3 customer barriers customer would be confronted with a really new product since stickiness to this product would be raised enormously by buying the mobilitätskarte for a year or another defined time range he would have to pay a reasonable but high price for mobility for strongly discounted rates in return as long as he still has a second car in the household 28 delayed introduction and initial chaos of the maut implementation is a warning not only to the state 29 own draft arrows should just give an impression of possible interactions of course there are more knut scherpe december 2004 page 9

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innovation technology management mobility card which has to be used as well threshold for buying an additionally m obilitätskarte would be quite high emotionally thresholds have to be taken in consideration as well new kind of mobility needs changes in behaviour technology handling barriers are in action as well30 especially if the mobilitätskarte is based on handling new or upgraded technologies adoption processes take time 4.2.4 financial barriers last but not least there are financial barriers in many ways which cluster to a huge financial risk as a huge amount of money has to be invested in interfaces and oneface-to the customer technologies question arises where this money could come from it s not alone the pure amount of money which has to be raised much more it s the risk this money is faced with nobody knows whether the bunch of barriers -analysed above can be conquered in a planed matter there are thousand s of problems to be solved and much more many solutions are dependent from each other last but not least the cost risk is added by a substantial income risk does the customer accept the product and switch to it in a sufficient amount to refinance all investments at least in the long run since there are no really transferable benchmarks in the world it s a risky undertaking and nowadays neither the deutsche bahn nor the state or financing companies really like risky investments 4.3 swot-analysis of direct implementation of a mobilitätskarte by db summarizing analysis of developing and implementing an innovative mobilitätskarte which as an almost perfect solution pull an remarkable share of people from the private to the public transport we can draft following swot 30 for future development of mobile data services see also arthur de little 2004c knut scherpe december 2004 page 10

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innovation technology management mobility card small swot-analysis of complete development and direct implementation of an mobilitätskarte by db strengths Ü an all-embracing product to the customer Ü a superior product to an second car in household Ü additional state support probable weaknesses Ü high financial barriers Ü high technological barriers Ü high organisational barriers Ü radical change in customer behaviour necessary opportunities Ü better mobility for the public possible Ü all products become more competitive Ü raising workloads Ü leader in mobility services threads Ü big financial risks Ü customers change behaviour to slowly Ü big deficits in first years Ü technological implementation in time not possible knut scherpe december 2004 page 11

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innovation technology management mobility card it s obvious that for a private company like deutsche bahn this is not really an option because of to much and to big technological organisational and last but not least financial risks deutsche bahn has to think about a smart step-by-step migration path towards mobilitätskarte whereby every step has to be based on a dedicated set of requirements classification of r&d type ideal case probability of technical success duration until readiness for market potential contribution to competitive advantage permanence of competitive advantage r&d-type technology stage bahncard step by step high short limited long applic development basic technology mobilitätskarte all-in-one medium long high very long key r&d key technology 5 recommend proceeding for deutsche bahn deutsche bahn would have many advantages of the pull effect a real mobilitätskarte has to the customer 31 and moreover it still has got a product which is an ideal base for a successive proceeding the bahncard the bahncard should be the initial point of development of a mobilitätskarte 32 5.1 strategical direction of future innovation but risks and chances have to be balanced in every step db does towards new features of bahncard restricted financial resources define conditions for new additional features a focussed direction of product innovations is necessary33 when the db earns money with it it can gradually develop a moand surely create additional mobil bilitätskarte based on the recent ity value to customers 34 bahncard 35 basic parameter simplification easement of access throughticketing e-ticket cooperations mobilitäts -karte bonusfunction cheap mobility easyto-use economic efficiency premises for db intermodality interoperability use of shure technology bahncard overall validity 31 32 see how to handle the expansion to a new market space in cahn kim 2001 but it is also important to push marketing activities meanwhile to early reach critical mass of buyers of bahncard to have scale effects and finally self-enforcing powers in adoption how to push marketing activities can be seen for example in bolze 2002 33 how innovation processes are in service companies and how to improve can be seen in arthur de little 2004b another good source for structured innovation processes is pleschak 1996 34 intern db chart 35 own draft knut scherpe december 2004 page 12

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innovation technology management mobility card 5.2 starting points for internal product improvement there are many possibilities to do next steps to improve the product public transport provided by deutsche bahn many of them are developed some are partly implemented and some are in the developing pipeline yet see chart above possible starting points for product improvements 36 door station train trip station change train trip station change depart mean of transport door mobility in target location entrance mean of wait transport 1 2 3 1 2 4 5 6 7 8 9 10 11 12 starting points for db enclosing pre-trip-information next train or bus station is easy to find starting points for db 7 real time-information on travel connections 8 tacted traffic provides short waiting times 9 information is available comfortable waiting zones where all travel 3 additional train stations shorten journey time 4 5 6 db stadtverkehr db carsharing call-a-bike call-a-car 10 pick-up-points at the stations regionalstadtbahn one ticket accounting system for all means high punctuality and high frequency provide quality 11 of transportation and availibility to the customer intelligent pathfinding system especially for 12 pedestrians comfortable but affordable vessels mobilitätskarte as integrated ticket and accounting base for alle means of transportation during the travel 5.3 need for external co-operation and alliances as shown above validity of a bahncard is a crucial feature as well it is the possibility of getting a discount on as many transport means of transport of an individual travel as possible nowadays complete stages of travel chain don t co-operate with deutsche bahn as for example taxi companies37 here co-operation has to be sought by db since products of these companies are typically complements to db products a fair deal should be possible agreements with them are the key to make public transport more attractive to the customers and with it market potential will rise state support for interfaces e-ticketing and bridges over last mile to the customer government is interested in shifting demand from private to public transport as shown above optimisation of interfaces e-ticketing and overcoming of last mile to the customer are crucial for success central success factor is the optimising of interfaces 38 crucial success factor of intermodal offers is the optimising of interfaces i.e lowering barriers between different means of transportation e-ticket mobilitätskarte germanwide uniform technical standards to n 5.4 assure all over the country validity low barriers lower investion costs by scale effects n subsidising of local public transport and of rail infrastructure is not sufficient state has to think about subsidizing of -for example taxis as well and it has to support investments in interfaces at least in regional areas 36 37 own draft logic refers in a weakened way also to other passenger transport companies like car rentals other public local transport companies and even airlines 38 db internal draft knut scherpe december 2004 page 13

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innovation technology management mobility card 5.5 occupy definition of mobilitätskarte and establish as the innovator there is no clear definition of mobilitätskarte yet39 a definition of constitutional elements and design of the offer has to be made along travel chains of customers db can occupy this innovation area as the innovator 40 6 conclusion a step-by-step proceeding is proposed with db as pacemaker based on the well-known bahncard an evolutionary sustainable process has to be enforced by which relevant product features will be gradually added to the bahncard 41 relative price attractiveness eticket additional services service bonus discount validity easy-to use mobilitätskarte i.e.s integrated travel chain in public transport one ticket no questions scope of benefits al tion ddi a s and roup ard get g nc tar bah ant ent r relev pm elo s fo dev ature fe bahncard throughticketing alliances cooperation time driver of this development are co-operations and alliances and based on these through ticketing easiness-to-use and a comparative advantage is possible since resources are very restricted a dedicated path in terms of features and investments has to be found out finally product is the mobilitätskarte which offers a superior mobility to the customer in sense of one ticket no questions 39 in common understanding it s a mobility ticket valid for all means of public transport of an individual travel chain but interpretations differ 40 see also cahn kim 2001 41 for market oriented innovation see also clayton 2004 knut scherpe december 2004 page 14

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