Why Union Pacific Builds Its Own Tech

In an era when most IT organizations look to buy off-the-shelf software, avoid doing custom coding, and allow the use of more mass-market consumer technology than they ever thought possible, Union Pacific CIO Lynden Tennison is an unapologetic believer in building rather than always buying the hardware, software, and systems that underpin its $20 billion railroad shipping business. And while it's at it, UP generates $35 million to $40 million in revenue a year selling or licensing some of those technology innovations to other companies, including rivals, creating a small profit center within its $300 million-a-year IT cost center.

UP, the nation's largest railroad company, operating west of Chicago and New Orleans, develops and builds much of its own IT partly out of necessity. The railroad shipping industry's specialized and often complex technology needs don't add up to a lucrative enough market to attract the major tech vendors. And the boutique vendors that try to fill those specialized needs are often one bad quarter away from bankruptcy, Tennison says, or they charge exorbitant prices because they're not producing at large scale and lack adequate competition. So UP is always looking for in-house IT alternatives.

While Tennison jokes that UP isn't likely to get into the general ledger software business anytime soon, it did develop its own supply chain applications, as the likes of SAP and Oracle couldn't meet its stringent performance requirements (it will tolerate only 1.5 hours of downtime a month for system upgrades and changes). UP even develops its own firewalls; develops its own service-oriented architecture; builds its own locomotive radios, networking consoles, and antenna farms; owns its own radio spectrum and trackside optical fiber (34,000 miles of it); and builds its own microwave towers (700 of them).

More ambitiously, UP acquired a small Michigan-based gaming outfit several years ago to develop virtual reality programs--complete with avatars and precise 3-D renderings of actual rail yards and trains--for internal training of RCOs (remote control operators), conductors, car inspectors, and other personnel. The company is now looking to sell that software to other railroad companies, as well as to construction, mining, and energy companies, under its PS Technology unit.

The mother of all UP IT projects is NetControl, a Linux-based transportation management system to replace the mainframe-based system the company rolled out in the late 1960s. About 270 people worldwide are working on NetControl, which Tennison calls "our family jewels." The $200 million system, which is rolled out in increments, is about halfway done and due to be fully operational in 2017.

UP's current transportation management system is used mostly for taking customer orders, scheduling train operations, tracking what's going on in train cars, and monitoring railroad traffic. It's being updated to a Web platform, letting customers access it from mobile devices, place more accurate orders, and see the planned travel itinerary for their shipments. With NetControl, UC will be able to monitor terminal and network use over time and forecast imbalances in the supply and demand of crews or locomotive power. Automated action- or alert-driven workflows can recommend optimal solutions.

One internal benefit of moving to NetControl is that more technical expertise is available to support a Web versus a mainframe system, Tennison says. UP is also looking to sell NetControl to other railroad companies.

Tennison, the company's CIO since 2005, made his vendor bones running a for-profit UP service management application subsidiary called Nexterna from 1998 through 2001. Still, he says he sometimes wonders "whether we're dinosaurs" doing all of this custom work. "I second-guess myself a lot," he concedes, "but it doesn't feel like we're making bad decisions."

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InformationWeek: August 13, 2012 Issue

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