Mobility at the crossroad of integration: the FS Group case

In a world marked by fluidity and uncertainty at the acute levels we’re seeing today, companies have to diversify their business sectors or risk finding themselves unprepared to face emerging scenarios. But it’s not just about extending the range of action to new products, services and markets. Thanks to digital technologies, today it’s possible to go even farther, configuring new offering synergies and ultimately constructing an integrated system that responds with flexibility to the new needs of users.

Managing changes of these dimensions is as urgent as it is challenging for organizations coming from the world of public utilities. These big companies are traditionally accustomed to providing a specific service while operating in monopolistic or quasi monopolistic market conditions. What’s more, their strategic direction is often guided by broader public governance decisions.

These are the dynamics that the new management team had to deal with in 2015 when they took the helm at the Gruppo Ferrovie dello Stato (FS Group), the publicly-controlled holding company that provides commercial and passenger transportation services and runs the Italian railway network. The new CEO, Renato Mazzoncini, was appointed to administer a company that held a sizeable majority share of the Italian rail transportation market (both for freight and passengers). Yet the FS Group played a marginal role, if any at all, in road and maritime transport.

In 2015, the mobility sector in Italy was undergoing a rapid transformation. Following the 2008 crisis, the overall number of trips and passengers was seeing a downturn, while the mobility rate was moving up. In other words, a higher percentage of Italians were moving, but they were going shorter distances than before (three trips out of four covered a distance of less than 10 kilometers). In this context, the biggest growth was in intermodal transportation, while new players entering the market were able to offer innovative mobility services based on digital technologies (from sharing mobility to intelligent transportation systems).

Faced with this quickly-evolving scenario, the new management team made a strategic choice centering on a paradigm shift: the FS Group had to transition from the traditional core business based on rail transportation to offering a transportation system prioritizing modal integration and sustainability. This would include, for example, short-range services with train stations serving as mobility hubs (with buses, parking, car and bike sharing) and expanding Group activity into long-distance road transportation.

To guarantee optimal intermodal mobility and synergy, the Group had to exploit the new digital potential to counteract the fragmentation among various sector players. To do so, an idea was floated to integrate services: creating a platform and presenting it to end users as a single app they could use as a trip planner via road, rail or air. Third-party players were also assured a spot on the platform at competitive prices, with the eventual aim of establishing a digital ecosystem that would serve as a point of reference for all Italian travelers.

Other strategic guidelines, always in the pursuit of integration, included growing a direct presence in road and highway infrastructures through the planned merger with ANAS (a company that designed, built, and managed highways in Italy, translator’s note) on one hand; and on the other the establishment of a single company, Polo Meritalia, covering logistics and freight transportation both via road and rail. Lastly the new FS Group leadership intended to move ahead with the internationalization process that had already been initiated by previous management team through a series of strategic acquisitions abroad.

To contend with a strategic evolution of this scope in a mature company, a critical step in the process was to promote a cultural change in the Group. Beyond appointing new managers to head up some of the subsidiaries and to take up executive positions, a series of initiatives were promoted to get middle management on board in the transformation process, to encourage the recruitment of talented young people and to properly communicate the new corporate mission to the public. To oversee the delicate institutional relationships both in Italy and in Europe, the Group set up a new Institutional and Regulatory Affairs Department.

Finally, after years of fragmentation, the strategic management of digitalization and innovation processes was centralized in an Information Systems and Innovation Department. The approach here was transversal, combining stimulus mechanisms and innovation inside the Group, and scouting ideas and specialized skills outside the Group.

Despite inevitable internal resistance, in two years’ time the changes set in motion by the new management team showed promising results. At the end of 2017, the merger with ANAS was finalized, the biggest M&A planned by the Group. But after a new Italian government came to power in Spring 2018, the Group’s CEO was replaced, on the initiative of the Ministry of Infrastructure, and the merger with ANAS once again became a topic of public debate.

• In the contemporary context characterized by high volatility and changing consumer preferences, mature companies cannot be boxed in by traditional strategies: they must diversify their product/service portfolio to follow (and if possible anticipate) trends in demand. Through external acquisitions, organizations can quickly identify and internalize the competencies they need.
• For big companies that operate in the sector of public utilities, current scenarios call for a paradigm shift. Leveraging in part on the potential of digital, they must to transition from offering a specific service to providing integrated systems that are extended through ‘coopetition’ mechanisms to bring third party players on board. Along with the consequent strategic initiatives and corporate reorganization, change management measures are needed to relieve the natural internal resistance and encourage people to embrace the incoming innovations.
• One of the main strategic obstacles for public utility companies is the relationship with regulators/shareholders. Initiatives by management must be coordinated with institutional stakeholders by means of dedicated structures and mechanisms. Alterations in the orientation of public governance can have profound impacts on corporate strategies, even as implementation is underway, leading to a change in direction or going so far as a total reversal.