Rethinking the MTA Genius Challenge as a program for innovation-based economic development

MTA Genius Transit Challenge logoThe winners are announced and the reviews are in for the MTA Genius Transit Challenge, a state-funded prize intended to spur innovation in the increasingly troubled NYC subways. Even at the time of Gov. Andrew Cuomo’s initial announcement, the prize was mocked as trite symbolism not especially relevant to the system’s short-term needs. Once the winners were known, the judgment of non-government experts like Alon Levy and Benjamin Kabak was little kinder. I have no reason to quarrel with the judgment of the Internet’s top transit commentators, and yet I feel that the Governor’s initiative still contains the kernel of an idea worth pursuing as an economic-development initiative, if not the most-direct path to improvement of subway operations.

In my experience, the kind of direct-to-agency matchmaking promoted by the Genius Challenge rarely pays off. Public agencies are the very embodiment of Steve Jobs’s maxim that a customer often doesn’t really know what it wants or needs until shown what is possible. Agencies are risk averse, not terribly creative, and wary of being accused of bending procurement laws to bring along less-well-developed technology that’s not ready for a competitive bid and purchase order. Indeed, that is precisely why the Governor added his own new money, not coming from the MTA budget, to fund the ongoing explorations with the prize-winners. I know from some earlier interactions with MTA’s innovation unit — meetings brokered almost a decade ago by economic historian Jonathan M. Feldman ((Among his other work, Prof. Feldman has studied the way mass-transit procurements by Québec as an economic-development initiative transformed Bombardier from an insignificant snowmobile manufacturer into a global aerospace leader. See working paper “Investment in Decent Green Jobs: The Case of Rail-Based Mass Transit,” available online here or “Climate Change and Labor: The Need for a ‘just transition,” International Journal of Labor Research, Vol. 2 No. 2 (2010), available online here.
)) — that MTA would never have invested its own funds in speculative technologies that were not already procurement-ready.

In recent years, Gov. Cuomo has had decent luck at raising the profile of upstate cities as innovation centers through series of prize-driven venture accelerators in Buffalo, Rochester, Syracuse, and the Southern Tier ((Evaluating the performance of these accelerator/competitions as economic-development programs is a topic for a separate blog entry.)). However, in none of these cases was a public agency like the MTA the sole customer for innovation. Rather, entrepreneurs and early-stage companies seeking these prizes were put through a “lean startup” entrepreneurship curriculum pioneered by Steve Blank. Inventors were encouraged to use “customer discovery” techniques to identify fits between their new ideas and potential commercial markets, either B2C or B2B. But in the MTA Genius Challenge, we knew in advance that the only customer was a big bureaucracy, and the winning pitches — with one or two exceptions — came mainly from existing vendors seeking to win more business, and nothing really impressed the experts. Entrepreneurs can do better, and they can help the existing vendors with true innovation.

Whether or not any of the winning Genius technologies ever ends up installed in the NYC subways, it seems to me that more interesting results could have been obtained, with greater long-term benefit to the state’s innovation economy, by reconceiving the Genius award in a manner more analogous to the other state-supported venture accelerators. I recommend an approach that leverages the well developed system of state-supported business incubators to identify and cultivate transportation-technology innovators, either independent inventors or faculty-student teams at the major engineering schools. Through customer-discovery curricula of the kind taught in the I-Corps that Steve Blank designed for the National Science Foundation, our incubators can expose teams of young innovators to the industrial supply chain that feeds all rail-transportation and transit-buying agencies worldwide (let’s call this collectively the rail-transport sector), and not just the MTA as a single operator.

We can encourage a very broad range of startups to serve as the “vector” through which disruptive innovation enters commercial practice, by teaching these startups how to meet the needs of those large, sophisticated companies that compete with each other for public procurements and need innovation in order to beat their competitors and stay ahead of disruption. Such a strategy would imitate the same competitive dynamic that has allowed “tech” to thrive in New York City — that is, by leveraging proximity to established, well capitalized industry players that recognize they need innovation and innovative partners in order to survive and beat back new competition in the coming decades. If we apply the leverage that industrial competition affords us, we can achieve similar results on a statewide scale and position ourselves for a generation of innovation-based development in rail-transport-related technology, one with “export” potential for the state.

R179 on flatbed from Plattsburgh. MTA image via AMNY.

Here’s some background: because of MTA’s buy-in-state mandates, NYS hosts three large subway car assembly plants that have held MTA contracts: Kawasaki in Yonkers (which just won the $1.4 billion award for the MTA’s new R211 subway car contract), Bombardier in Plattsburgh (which lost, never making it to the final round, after its poor performance with the R179), and Alstom (soon to be a Siemens-Alstom joint venture) in Hornell. You know that these upstate assembly plants exist if you have ever seen, as I have, while driving northbound on I-81, a subway car mounted on a flatbed truck coming in the opposite direction! (The accompanying image actually shows cars bound for NYC from Bombardier in Plattsburgh, via the Northway and Thruway, but it’s exactly the same concept.) There are similar assembly plants serving the markets for commuter-rail cars and buses.

Map of OEM and Tier 2 suppliers by Duke CGGC.

These assembly plants are analogous to those operated by the big car brands in the automotive sector, and in both sectors they are called the Original Equipment Manufacturers or OEMs. Each OEM in turn buys subsystems, components, and materials from firms populating a hierarchy of lower supply “tiers.” Many of these are based in NYS, in part for access to their customers, the OEMs.

As the MTA correctly argues, investing in in-state subway and railcar assembly has positioned the OEMs and Tier 2 suppliers to compete for other business. In fact, NYS is also strong in the broader rail-transport sector (including also commuter rail and long-distance passenger rail and even high-speed rail), as documented in a 2010 rail-transport supply-chain study done several years ago by researchers at Duke University. We have CAF in Elmira, New York Air Brake (NYAB) in Watertown, and many other players, some significant and many relatively small.

As a consequence, advanced transportation manufacturing is one of the sectors targeted in the regional economic development plans of both the North Country and Southern Tier regions, but mainly as a matter of industrial recruitment rather than one of new-business formation. My proposal is to leverage these assets in order to build an entrepreneurial rail-transport sector analogous to what has developed in automotive technology in the several southern states that try to get higher-value economic activity out of their foreign-owned auto plants, in old-line Detroit, and now — in the age of autonomous and electric vehicles — even in Silicon Valley itself. But before we can do so there are two wrinkles to be ironed.

First, as Prof. Feldman documented in 2009 in a fine article for The American Prospect, almost all the significant OEM assembly assets and even many of the Tier 2 suppliers are now foreign-owned, and the parent companies make sure that almost all high-value activities like design, engineering, and strategic new-product development stay back in the home country ((Alstom: France; Bombardier: Canada and Germany; Kawasaki: Japan; CAF: Spain; NYAB: Germany.)). The home office typically places here in the U.S. only those operations necessary to meet agencies’ domestic-assembly requirements, and these are the lowest-value functions, with the least potential for innovation and wealth creation in areas of the state that need those the most. As part of the project to assemble Amtrak’s next fleet of Acela trains, Alstom has agreed with the Southern Tier Economic Development Council to bring to Hornell certain new engineering resources, and that’s certainly a first, but it remains to be seen how much actual engineering design goes on there, and how much is purely workforce training.

Second, while Gov. Cuomo’s Regional Economic Development Council (REDC) process has effectively targeted the advanced transportation sector within two specific regions (the Southern Tier and the North Country), there has been no overarching coordination across regions that could afford state government leverage over the innovation appetite of the several vendors competing to fulfill the MTA’s needs. By playing the regions against each other in the annual REDC “Hunger Games” competition for state resources, and then insisting that the regions work independently of each other, each with its “own” respective assembly plant, we are forgoing the greater opportunity to put the dynamics of a competitive private sector to work at developing entrepreneurial clusters. If we learn to work across regions, and capture the benefits of that competitive dynamic, this could be our best chance a distinctive innovation cluster, one that would be based primarily upstate.

What I am suggesting is starting with incubation. While we now have several excellent business incubators in the Southern Tier ((Rev: Ithaca Startup Works; IncubatorWorks in Alfred and Corning; Binghamton University’s Koffman Southern Tier Incubator in Binghamton; and the planned Cornell Engineering and Physical Sciences Incubator.)), and one in the North Country ((Clarkson University’s Shipley Center and its several incubator spaces.)), none of them now focuses on connecting innovators – whether in university laboratories or from independent startups — with the rail-transport supply chain that is hungering for innovation and needs it in order to win bids (and losing bids is near-catastrophic, as the North Country found out when Bombardier lost the bid for the MTA’s latest subway car design).

Let’s redesign a prize aimed at surfacing innovators across the entire system of rail transport. Incubators can use the funds to put these potential entrepreneurs through a customer discovery program that sends I-Corps-like teams — inventor, entrepreneurial lead, and industry mentor — all the way to the European or Asian home-offices of the competing OEMs, and also to the owners of the Tier 2 suppliers that feed the OEMs. The goal is to enable these teams to negotiate advanced-technology development partnerships that let them compete for business up the supply chain: Tier 2s selling to OEMs, and OEMs selling to public agencies. In this way we can leverage the fierce competition among established companies to build and support smaller and newer ones. There’s no reason to believe these competitive forces are any less important in the upstate industrial sector than they were in media/tech in New York City.

My recommendation is that we start with innovations targeting the manufacturing process itself, because this leverages our potential to use in-state OEM assembly plants and Tier 2 factories as testbeds for innovations that drive manufacturing costs lower. However, there will also be new products and services on the minds of transport entrepreneurs that are not directly related to the manufacturing process, and need to be tested and partnered with an entirely different kind of company.

How MTA sources subway cars vs. the station system. Source: “Built in New York.”

Any rail-transport agency manages a complex set of systems embracing not just rolling stock, but also some of these key functions: routing and scheduling; station construction and maintenance; right-of-way construction and maintenance; fare-collection and enforcement; electrical and signaling systems; energy efficiency and environmental controls, and so on. Innovation that affects these other components of the rail-transport system can come from any discipline — from computer science, applied math, or nearly any science & engineering discipline. Oftentimes, these services or products are sold to the MTA and other agencies around the world by a completely different types of contractor, for example, by architecture & engineering firms, or big construction companies, or even telecommunications carriers. To see the difference, take a look at the accompanying image of how the MTA sources subway cars vs. how its sources station design, construction, and maintenance. So beyond making subway cars smarter and cheaper, we need to leverage that set of competitive dynamics in those other sectors to help address those cost structures that make the U.S. one of the most expensive places to build and operate rail-transport.

We don’t know exactly what innovations will emerge from a rail-transport accelerator, and we should not restrict ourselves to the three domains of the MTA Genius Transit Challenge. What we do know is that entrepreneurs with fresh ideas thrive whenever we can connect them through well managed programs to customers with buying power and who need innovation in order to compete effectively in the markets they serve — in this case, the public-agency rail-transport agencies and their multi-tiered supply chains. Judging by the record of the other incubator-based venture accelerators statewide, there is reason to be optimistic that we can generate value, wealth, and jobs in several regions going well beyond what is attainable through attraction of assembly plants alone.

There’s one final benefit to an approach like this. Right now, there is no university graduate education and research program anywhere in the country that specializes in rail-transport engineering from the whole systems perspective, no analogue to what Clemson University did a generation ago with its I-CAR campus to position itself as a national center of expertise in automotive systems engineering, viewing the automobile as platform for computing. SUNY’s Binghamton University has declared an interest in advanced transportation to match the Southern Tier regional plan, but capacity is underdeveloped. Cornell University has a systems engineering program (now well complemented by sensing, robotics, and data-analytics platforms at Cornell NYC Tech), but its program is broad, not focused at all on rail-transport systems. If we approach the challenge correctly, I believe we have the opportunity to build an academic capacity that matches the economic potential of innovation in the field.

Public procurements are a huge driver of demand for innovation, but we are almost entirely unleveraged to the presence in-state of various multinational enterprises and their supply chains. That is because we focus only on recruitment and we lack any mechanism to bring innovators in direct contact with the large system integrators or OEMs that sell to public agencies. Incubators and accelerator-like competitions can broker that connection in a way that solo entrepreneurs (and even established Tier 2 suppliers) can never do by themselves, and produce better results than simply allowing vendors to pitch the MTA directly. The Genius Challenge was a decent start, but not the most promising or cost-effective approach. Let’s do better with what we have to work with.

(David Hochman is a consultant specializing in technology-based economic development. He served for a decade as the founding executive director of the Business Incubator Association of New York State. However, this blog entry represents his opinion alone, and not necessarily that of any other entity.)