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A Kansas City Southern train near a grain silo

130-Year-Old Railroad Company Rides Rails to Innovation with Startup Partnerships

The invention of the locomotive changed the course of history. In America, railroads powered westward expansion and settlement. They fueled the growth of cities and towns as they moved people, delivered consumer goods and manufacturing materials, and transported natural resources such as coal.

For many years, little changed in an industry that had once been a disrupter. That is, until the passage of the 315-page Rail Safety Improvement Act, which George W. Bush signed into law October 16, 2008. With a focus on safety and security, the legislation sent the railroads on a journey to find technology solutions.

The answer for one rail company, Kansas City Southern, tracked directly to startups.

Wayne Godlewski, vice president and chief technology officer at Kansas City Southern, said the legislation required the railroads to think about how to “deploy technology to our right of way and to our locomotives” to stop trains automatically, helping to protect against train collisions and overspeed derailments.

The result: “As we started to invest, it broke down silos within the railroad community. As we started putting technology out there, people started questioning: ‘Well, what else could we do to improve safety and service?’ And it really kind of changed the culture a little bit,” said Godlewski.

Kansas City Southern executives and its board agreed the company should be investing in research and development to help it solve the questions associated with the future of the industry. As the discussions continued, a couple of different think tanks were suggested. One of those was the Plug and Play Tech Center in Sunnyvale, California. It sources and connects technology startups with the world’s largest corporations.

The alternative, Godlewski said, “is to grow that type of competency within the company itself. And that can be a lot more tedious, a lot more expensive. And it's a different type of skill set than we've typically had. So, we really liked the idea of working with tech centers for startups rather than trying to hire or grow that competency within our own company.”

Working with Plug and Play

Plug and Play sources entrepreneurs from 14 industry verticals to pitch to its member companies on what they call “Selection Day” several times a year. One of those verticals, Supply Chain and Logistics, was a compelling reason Kansas City Southern chose Plug and Play over other accelerators.

“We want to look at our own industry and the way entrepreneurs can help us in two different ways,” said Godlewski. “One is efficiency—doing what we do in a safer, cheaper, faster way that doesn't involve as much manual intervention. The second point is that within the next seven years, we want a lot of what we do to just happen automatically. That doesn't necessarily mean that we won't have people in the cab running the trains, but the nature of the job for cab-based employees could change dramatically as operations become more automated. If entrepreneurs can help us become more efficient on one hand, but then also get more automated, on the other hand, then that is what we're looking for.”

Kansas City Southern sends two employees to Selection Day twice a year and invests financially in the form of a membership fee.

Every six months, Plug and Play sources 1,000 entrepreneurs from all over the world. Using a standardized review and feedback process, Plug and Play works with its partner companies to narrow down the group of entrepreneurs in stages.

Michael Schuler, director of application development, is one of the Kansas City Southern associates who travels to Sunnyvale for Selection Day. He said that when the pool gets to be about 100, “they give us the list. We can go through, we can look at it, we can start talking to those startups if we want at that time.”

The pool of 100 is culled to 40 and then to the final 20 who do the pitches on Selection Day. Each entrepreneur has five minutes to pitch, with a couple of minutes for questions at the end of each pitch.

From there, it's up to the corporations and the entrepreneur to decide whether they want to work together. Kansas City Southern has committed to engage with four entrepreneurs a year to work on a prototype—generally a proof of concept rather than a production application—that is relevant to the rail industry.

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But, Godlewski noted, some of the entrepreneurs aren’t necessarily thinking about the railroad space themselves, so Kansas City Southern must point out the match for them.

“Maybe somebody has a brand-new drone technology that they've been working on. They’re prototyping drones. This is one that would pique our interest,” Godlewski said. “And they think these drones can be used for X, Y and Z applications. But we come in as a railroad and go, ‘Well, actually, we're thinking of another application. Would you mind engaging with us to do bridge inspections using your drones and the cameras, so that we don't have to have our own resources climbing bridges to do bridge inspections?’”

Wearable devices are another example of a technology that has multiple applications in the rail industry, but entrepreneurs may not recognize the relevance initially.

“They [wearable devices] can be applicable to anything from mines to caves,” Godlewski said. “For us, we can think of a wearable device to be out in one of our rail yards or in more remote locations. We can track those employees and make sure that they don't enter unsafe work zones as far as the trains are concerned.”

Unexpected ROI

Godlewski is clear that Kansas City Southern’s engagement with entrepreneurs is focused on research and development, not capital investment. Still, he said, the decision to join Plug and Play has delivered an unexpected intangible ROI:

“When you've worked in an industry like the railroad for years, the idea that somebody can come in and show you something that can make you really think outside the box of what else is possible, it's pretty disruptive to your culture for everybody to go, ‘Well, you know, we could also do that,’ or ‘I wonder if this is also possible.’ It just completely changes everything. That's very intangible, and also a little surprising. We didn't really expect that. We thought we might be able to find some tech and engage with it. But how it affects the rest of the organization in terms of understanding what's possible is pretty cool.”

Looking Down the Line

What is needed to support corporate engagement with entrepreneurs and ensure that efforts aren’t derailed?

For starters, the irony is not lost on Godlewski that a corporation like Kansas City Southern, which is in the logistics industry, has a logistics challenge engaging with an accelerator located halfway across the country.

“It has to be very easy to engage. Technology is moving much, much faster than it did two or three decades ago. To facilitate better engagement, the communication and ease of access of information has got to be high,” he said. “If you have to travel great distances to meet with these entrepreneurs, that's a hindrance. So, if it's more readily available across the country and where corporations are, like in Kansas City, that would definitely be more attractive than regularly traveling two time zones away.”

Schuler said the biggest obstacle he’s heard as he’s talked to his counterparts in other corporations is the reluctance to change. He noted that Plug and Play has even devoted keynotes to the topic.

Schuler also cautioned that corporations must take the long view, rather than expect immediate returns.

“When you start looking at innovation and these emerging technologies, it’s really R&D that you're doing. And I think the biggest thing is that companies are going to have to get to the point that they realize that the returns today for working with startups won’t always be there. It may be there three, four, five years down the line, because you're learning, helping these companies. The startups that are working with the railroads, they may have a great product in two or three years that we can all use as an industry.”

Schuler said there's a lot of opportunity for corporations to tap into and work with startups, even if doing so requires patience and a willingness to change.

Earlier in history, the railroads slowly and steadily chugged innovation across America. Now entrepreneurs working with corporations are powering a new era of innovation.

Image courtesy of Kansas City Southern


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