Tuesday, January 5, 2016
My view from the cheap seats....
I started working at Conrail in 1978. I'm retiring from Norfolk Southern this year. I've basically been a staff grunt the whole time working in Mechanical, Intermodal and Transportation Planning, in that order.
It was a time of great change in the industry. Here's my view from the trenches - and a bit about where things stand right now.
In the beginning, there was tyranny. And they liked it that way.
On the first day, railroads were dominated by operating men. The top guy could keep whole operating plan in his head and he ruled with that knowledge and an iron fist. Conrail was ruled by the SVP of Operations and his henchmen. They kept things moving by cracking the whip at the slightest transgression. It wasn't abnormal to get scolded over this or that. Even staff guys like me felt the whip from time to time... Everybody knew their place and their part. Woe to those who deviated! The railroad ran because the top guys knew what to do and held tight reins. It was the only lever railroads could pull on during the days of regulation - and they got good at it!
On the second day, there was a new law and a new tyrant. Deregulation occurred and Stanley Crane arrived at Conrail. He was a benevolent tyrant, but for Conrail, this meant a crash diet. The whip cracking continued, but the big fear was getting laid off. Employment went from over 100,000 to roughly 20,000. Finally, things levelled off and a half-decent steady state was reached. The railroad was fit and trim. The operating men knew how to make things go. The government sold their stock. Fighting off purchase by NS to remain independent made a closer-knit, proud organization. Peace and relative prosperity ensued. Crane retired. The tyrants were now dinosaurs. The game had changed. Growing the revenue and service were becoming more important than cost control. There was no future without this change. Only slow decline. Railroad's networks and operating plans were getting too large for the top operating guy to keep in his head. More change was ahead.
One the third day, there was light. The age of the tyrant was over. A marketing guy took over. Jim Hagen. What was next? Faster, better cheaper! In order to do this, you have to engage everyone's brain and everyone has to row the boat in the same direction. How? Culture change! At Conrail, this took the form of "Conrail Quality". Conrail purchased a continuous quality program from Corning and then everyone got training on everything. Well, just about everything. Everything from how to hold a meeting to how to write, to how to problem solve, to how to understand personality styles, to how to work in teams. It worked, at least at the staff level. What made it stick? Hagen reorganized the company along product lines which took nearly all the execs out of their comfort zones and caused them to form new working relationships. Nearly all of them bought in to this new way of working. It really was different and it worked. Consolidating into one, new building in Philadelphia sealed the deal. Were things perfect? Of course not. But, we generally worked in teams, collaboratively, and incentive was no longer punished. David Levan replaced Hagen and things were good, mostly, until...
On the fourth day, there was war and betrayal and then chaotic tyranny. Conrail was chopped in half like a giant pinata cleaved with a sword. It rained money on us for a while. Call it "Levan's revenge". Chronicled here by another: The Book of Acquisitions. Some of us ex-Cons went to work for NS, some for CSX, but many took the money and ran. Culturally, NS was about a decade behind Conrail. No teams. Not much collaborative work outside your immediate work group. Suits and ties! Tyranny again, except in a more genteel, southern style. And, it didn't work. The Conrail folk were not in a mood to managed by tyrants. The NS culture of "just keep pounding away" worked poorly. The railroad crashed and burned. Even when it started running reasonably well, it wasn't making much money.
Desperate times often lead to change and it did on NS. The push to redesign the merchandise operations around scheduled train service took hold. It was a big change from the local control - tonnage based operations NS was built upon. For example, NS only cared and measured the performance of a handful of their merchandise trains. The rest were run "as needed" and not measured against the clock.
The redesign, known as TOP (Thoroughbred Operating Plan), worked. The train service was optimized and scheduled. Service soared. Costs dropped. The top operating men - the last of the dinosaurs - retired and were replaced seemingly more enlightened folk. A problem remained. TOP wasn't well suited for local control. It really needed some central authority. But, even without it, the railroad ran well, most of the time, and the good service made increasing amounts of profit possible.
On the fifth day, there was peace. David Goode retired and Wick Moorman took the throttle. On the horizon, the average age of employees was creeping up and going to cause a tidal wave of retirements. There needed to be lots of hiring just to keep the status quo. But, who wants to work for a railroad these days? And, how do you keep all the institutional knowledge from leaking out the door? There needed to be a way to navigate through the change. Step one: Culture change. Again, for me....
Lots of time and effort devoted to values, how to communicate, how to manage, how have a meaningful conversation. All good stuff. The problem was, the organizational structure remained the same. Nobody could really tell if this was for real and was going to stick or if it was just a wolf in sheep's clothing. It didn't help that the senior execs still wore suits and ties to work. But, all in all, new blood, new attitudes, changing culture was taking hold.
On the sixth day, rapture. The rate of retirements accelerated. People were leaving at a great rate leaving vacancies all over the place. Nearly all management jobs at all levels became a game of musical chairs. The level of specific institutional knowledge for specific locations crashed. Toss in some operating challenges and the stage was set for disaster. By the fall of 2014, the network was on it's knees and nobody really knew what was wrong or what to do about it.
The new breed of managers had been well trained on HOW to manage, but they didn't know WHAT to manage, nor did they have the experience to know what was important and what was not. The railroad had lost it's focus on railroading.
Now we are
in the seventh day - end times. Can NS regain it's focus on railroading? I think so. The right questions are being asked, and answered. People are gaining experience. Increasing focus and guidance is coming down from the higher levels of management. There are enough "old heads" still around to help shape the new managers. The "musical chairs" game is slowing down. The metrics are headed the right way.
But, just as this is starting to take shape, a corporate raider appears. Pershing Square, part of owner of Canadian Pacific wants to buy NS and install preeminent railroad fix-it man, E Hunter Harrison, as CEO. Hunter Harrison is an old school operating man who knows how to handle a whip, but also completely understands the modern notion that service and asset utilization are the key to "winning the game". He has successfully taken three broken-down railroads, Illinois Central, Canadian National and Canadian Pacific, and transformed them into solid - in fact - world class performers.
Can he, as CEO, work his transformational magic on NS?
First, Hunter Harrison is an old school guy who knows who to whip because he keeps the whole operating plan in his head. The railroads he has run are all much smaller than NS and have simple, linear networks. No amount of simplification on NS would yield an efficient plan that on brain could hold at any level of detail.
The CEO job at larger railroads require much attention to things other than operating details. There is no time to pick up the phone and ask why "the block swap to 211 at Atlanta was missed today". That's not the CEO's job. That's the VP Operation's responsibility. Hunter Harrison might be a good fit in this role at NS. He could really help whip the focus around to the things that matter. But, he's not asking for that job. He wants the CEO job. A bad fit, in my opinion.
Second, NS is not a fixer-upper. It's not a shabby property like IC, CN and CP were when he arrived. There was a lot of upside on those properties. NS doesn't have much upside but it is just a bit raggedy around the edges. It has embraced many of the basic tenets of Harrison's "Precision Scheduled Railroading". There is a fixed operating plan that schedules all the assets and NS values velocity to gain asset productivity. It was the focus of TOP, way back in 2002. It has been studied and validated in parts and as a whole. NS doesn't need a make-over. It just needs a coat of paint and some new shutters.
All of the claims of benefits Pershing's Ackman makes are based on NS achieving national averages for productivity and the level of change that occurs when Harrison takes over a broken-down railroad. It sounds compelling, but it lacks perspective and detail. The productivity potential of every railroad is different because of routes, length of haul and traffic mix. The comparisons are interesting but tell more about the different nature of each road rather than the potential for change.
Ackman's claims are not backed up with any detail nor even meaningful anecdotes. Harrison is neither magic or superhuman. The six large North American railroads are all now operating well in the post-deregulation, enlightened era. Harrison did well with his three fixer-uppers, but there are no more shabby houses on North American Railroad street that need his skill set - at least not for the position he seeks.