CSXT tells managers: "Run to plan" - Rail Update

Railway Age, August, 2003

In a remarkably candid and stern memo to employees, CSX Chairman, President, and CEO Michael Ward announced the elimination of 143 supervisory positions, mostly in operations.

CSX Transportation "has not performed in the first half at the level we committed to," Ward said on July 17. "We have disappointed our customers and shareholders. Most of all, we have disappointed ourselves. You may recall that in the first quarter, our revenue gains were more than off-set by higher than budgeted costs. Our operating ratio--the amount of each dollar that it takes to run our railroad--remains the highest of all Class I railroads. The cold winter, followed by severe weather in the spring, certainly provided some difficult challenges as did higher fuel expenses, but none of these items excuses us from our commitments."

Ward's message was far from altogether bleak. "We have reached the mid-point of 2003 with a number of successes, particularly on the revenue front," he said. "Our commercial team continues to aggressively pursue new business, convert freight from the highways to our railroad, and price our service competitively and fairly." But he said that CSXT employees "have much to do to get back on track toward our year-end goals and long-term objectives. The challenge ahead is to fully leverage the revenue successes by running a safe, reliable, and efficient operation that meets and exceeds the demands of our customers."

"Too often," said Ward, "we have allowed ourselves to justify poor results. Too often we have blurred responsibilities between numerous groups or individuals. Ton often we have accepted mediocrity. Too often we have waited for others to act. This must change, and it must change now. Whether you are the head of a department, or a train crew delivering cars to a customer, each of us must step up and produce results on a daily basis."

Ward left the details of the "painful but necessary process" of making organizational changes that would make CSXT "more disciplined and customer responsive" to Executive Vice President and Chief Operating Officer Al Crown. In a letter to employees that closely followed Ward's, Crown described the various problems that prompted management to undertake "a serious re-examination of operations."

"Our key measurements, which started the year on a positive note, fell further and further short of our goals," said Crown. "We've seen our progress in safety stall. We've seen our trains departing late, terminal production falling, we the network congested. With all of these service shortfalls come extra costs for added crews, cars and locomotives, derailments, and fuel. The extra costs caused by our service failures have essentially erased the strong advances our commercial team has made this year in new business and converting truck traffic to rail. We aren't pleasing our customers, our shareholders, or ourselves."

"The recent declines in service performance and the resulting rise in costs are due to not adhering to our operating plan," said Crown. "We do nor believe we can achieve the continued improvement in service that our customers expect without improving consistency. Our operating plan is a solid foundation, but we've acquired some bad habits by veering away from it far too often."

Crown said a large part of CSXT's problems involves lingering effects from the difficult, time-consuming process of absorbing its share of Conrail's operations. Now that integration of Conrail is complete, CSXT needs to shed a significant portion of the extra managers it brought on to handle that situation.

"Too many layers of management built up after the Conrail integration have been 'calling audibles,' to use a football phrase," said Crown. "The habit of repeatedly making ad hoc changes to the plan stuck with us long after our Conrail service recovery. That process just isn't working in today's operating environment. It has kept our first-line managers too for away from their rightful decision-making and execution roles. We cannot continue our old ways."

The changes to CSXT's organizational structure "reflect cur rent demands and allow us to become a faster, more disciplined organization going forward," said Crown. "We've sized the organization to reflect our mission of executing the operating plan. We have re-empowered our first-line managers with the direct accountability and responsibility for operating their areas. We are focusing on two main issues: running to plan and holding people accountable. With the operating plan as our guide, we will evaluate our service by 10 key measures rather than the old 18--a more streamlined scorecard and one focused more on what's important to our customers. This will enable us to continue to deploy Shipment Management on schedule and get all of the benefits on the cost side as well as improve customer service and satisfaction. We'll reduce out" cost structure, delight customers, and get back to our 'Better is Cheaper' model."

Under the reorganization, CSXT's regional structure will remain, "but will be more streamlined," said Crown. "[The regions'] primary role will be coaching and supporting the divisions. They will also be responsible for budget oversight and continued implementation of Six Sigma. Division managers are now the top-level positions where the coordination of transportation, engineering, and mechanical operations come together. Within the divisions, a strong superintendent of operations will oversee operating plan compliance in the course of day-to-day operations, terminal operations, and Shipment Management. About 180 positions in operations will change. Some positions have been eliminated, including those of district supervisors and supervisors of train operations. Many in these positions have been re-deployed to areas that will benefit from their experience. Unfortunately, not all will find a new position."