By Pat Foran, Editor
In 1999, my first full year as editor of Progressive Railroading, I traveled to interview six of the seven Class I CEOs in their respective railroads' headquarters. Paul Tellier, CN's president and CEO from 1992 through 2002, was the first to let me stop by.
Our March 1999 conversation was fast-paced. Tellier was quick, clear and concise. His message: Change is good, quick change is even better.
He'd continue to practice what he preached until he surprised the rail industry (and the Canadian capital markets) by leaving CN in 2002 to become president and CEO of Bombardier Inc., the manufacturing and services conglomerate whose holdings include rail transportation equipment. As his successor — the late Hunter Harrison, then CN's COO — put it in a Dec. 13, 2002, press conference: "I'm still a little bit in shock, to be honest with you."
CN would continue to shock (in good, and sometimes great, ways) the industry in the years that followed, thanks in part to its treasure trove of leadership talent, post-Tellier — from Harrison to Claude Mongeau to J.J. Ruest to current president and CEO Tracy Robinson.
I've been thinking about CN, its evolution, that 1999 trip to Montreal, that conversation with Tellier and the story I wrote as a result of it. The story ("Pushing Change for CN's Sake") appeared in our April 1999 issue. We didn't put print stories online in those days, so I thought it share it with RailPrime readers:
How do you push your company to excel without pushing your employees over the edge? And how do you know you’re pushing with the right amount of force?
These are questions that dog CEOs with even a hint of self-reflection in their souls. And they are questions Paul Tellier, Canadian National Railway Co.’s president and chief executive officer, is asking himself on this snowy, early-March afternoon at CN headquarters in Montreal.
Tellier won’t reflect for long. Not that he isn’t into soul-searching; Tellier just doesn’t need that much time to complete his searches. Besides, Tellier trusts his — and his employees’ — instincts. But nothing will keep him from pushing the pedal to the metal.
“This business of ‘Go slow, people need time to adapt’ — this is not good,” Tellier says. “The faster you change, the more successful you are.”
In his six-plus years at CN, Tellier’s been a quick-change artist. From the get-go, the longtime bureaucrat — he headed Canada’s Privy Council before taking CN’s reins — pushed hard to privatize the lumbering Crown corporation. The result: a wildly successful public stock offering in 1995. Tellier promised CN would be profitable; a year after the stock offering, it was.
And Tellier has insisted that CN push south and west. With last year’s marketing alliance with Kansas City Southern Railway and last month’s Surface Transportation Board approval of the CN-Illinois Central Corp. merger, CN accomplished just that.
Tellier’s next challenges — fostering a single culture at CN-lC and boosting service reliability/customer confidence — won’t be met as quickly. They’re longer-term propositions that require relationship building. For Tellier, hardly a paragon of patience, that could make for some anxious moments during the next couple of years — crucial ones for CN as it competes for rail market share.
But Tellier has learned to shift gears as he maneuvers CN at high speeds. He vows to keep pushing, but he’ll also push the ”pause” button now and again — if only to ensure that CN managers and staffers are along for the ride. And that they’re comfortable.
“I’ve been thinking about ways that we can be a better employer,” Tellier says. “What can we do to drive the company, but show [employees] that we care?”
Management by Q&A
Working to ensure that a company is viable over the long haul is a good first step. That was Tellier’s mission when he took CN’s reins in October 1992. At that time, the railroad, renowned for inefficiency, was barely breaking even.
Getting CN’s house in order didn’t come without considerable pain: By 1995, 11,000 jobs were eliminated.
But downsizing quickly produced dividends — and not just on the cost side of the ledger. Meeting job-cut goals forced CN managers to come up with new — and often better — ways to get work done.
“We’re still in a state of culture change, but we went from a randomly run railroad to a fairly scheduled railway,” says Jack McBain, executive vice president of operations, a 34-year CN veteran who has thrived under Tellier.
It takes a thick skin to succeed as a manager for Tellier You also must be able to withstand his rapid-fire inquiries.
“I manage a lot by asking questions,” he says. “At the senior management meeting, I’ll ask [for example], ‘What’s the impact of the Euro Dollar? Is there one?’ I keep asking questions. I’m very, very impatient.”
CN senior managers also must be ready, willing and able to make decisions.
“You always want more information, to sleep on it, to analyze the pros and cons,” Tellier says. “But most of the time, your first instinct, your first decision, is the right one. So move quickly.”
It’s hard to argue with the results. Revenues were a bit soft last year, primarily due to lower grain volumes. But CN’s 1998 accident ratio and injury frequency rate improved considerably. And last year, Norfolk Southern Railway, one of North America’s best-run railroads, had only a slightly better operating ratio.
“They beat us by 0.4 — 75.1 to 75.5 [percent],” Tellier says. “So we’ve become a much more efficient railroad.”
And by joining with IC — in recent years, the operating-ratio leader among Class Is — CN can’t help but learn to be even more efficient, Tellier figures.
“All along, I have said it is very important for CN to grow as far south as possible,” Tellier says. “With IC, we take it further south.”
Major labor unions and the National Industrial Transportation League also have blessed the merger. But Union Pacific Railroad continued last month to question the marketing alliance among CN, IC and KCS.
Inked in April I 998, the 15-year agreement between CN-IC and KCS allows the railroads to target new automotive and intermodal markets in key north-south corridors.
UP contends the CN-IC merger should reflect the KCS connection.
“My answer to UP [is), ‘No, we are not controlling KCS. They want to remain independent,’” Tellier says.
Meanwhile, CN rival Canadian Pacific Railway also had yet to sign off on the deal as of late March. But, like UP’s objection, it isn’t worrying Tellier.
“The amount of opposition is very, very small — in fact, it is nil,” he says, adding that he expects to combine the companies by July 1.
Culture considerations
But it never has been the external issues that have concerned Tellier about the IC deal. It’s the internal ones — namely, the need to develop a single corporate culture.
“It’s the most Important element of any merger,” he says. “This is why I wanted [former IC CEO] Hunter Harrison to come here as early as he did. He knows IC’s culture, and he’s learning ours.”
Tellier is counting on Harrison, who moved to Montreal as CN’s executive vice president and chief operating officer about a year ago, and other CN managers to do what they can to accelerate the learning curve, particularly for IC employees. They need to know they can speak their minds, “whether the story is a good story or a bad story,” Tellier says. “We’ll take the best practices from CN, and vice versa.”
The best-practice sharing’s already under way. Before Harrison Joined CN, the railway’s Toronto hump yard humped 1,000 cars a week. By late February, the yard was humping 2,800 cars per week.
“Harrison has an amazing capacity to identify a flaw in operations,” Tellier says.
Tellier believes CN also has done a good job studying recent mega-mergers and that the railroad has learned from U.S. Class ls’ mistakes.
“People are critical, so don’t change people immediately,” Tellier says. “If CN-IC merge on July 1, every dispatcher will do exactly what they did the day before.”
With information systems, CN-IC won’t “create the big [cutover] event — do it incrementally,” Tellier says. And CN-IC will strive to make the merger transparent to customers.
“If you’re calling on a customer, you’ll be calling them the next day,” Tellier says. “If it isn’t broke, don’t fix it.”
Ensuring that the merger implementation is a success isn’t Tellier’s only near-term challenge. Despite the efficiency improvements, I 999 isn’t shaking out to be one to write home about.
“It’ll be a tough year,” Tellier says.
The industrial products, forest products, intermodal and automotive business units are “doing quite well,” he says. But bulk commodities aren’t. Canadian wheat and barley prices are depressed.
Markets for both grains have fallen off. And 50 percent of the coal CN ships goes to recession-riddled Japan.
The result: CN will “grow along with GDP growth, which is 3 percent,” Tellier says. “Our business plan is based on 2 percent on both sides of the border.”
CN will have to do better than that in the years ahead if it is going to take a bigger share of the transport market, which is the goal. The marketing pact with KCS will help build share, Tellier believes.
“It’s meeting my expectations so far," he says. “There’s tremendous growth between the U.S. and Mexico.”
But CN will tap that market only if it can improve its service. The Class I has made strides. It just needs to make bigger ones.
“With ‘CN-dash-IC,’ I think we can grow it — we have no arrogance whatsoever,” he says. “We describe ourselves as the largest of the small guys. We should be more nimble, more responsive.”
And CN has been — in part because employees are getting better at seeing that customer service and operational efficiency go hand in hand. For example, a service plan redesign implemented last September reduced the average train dwell time from 36 hours to 18 hours.
“The overall net effect was to cut 24 hours off transit times,” McBain says. “We improved customer service, but if we execute the plan properly, we’re also much better at asset utilization.”
How much better? CN last year took 520 locomotives out of its fleet. But there’s plenty of room for improvement.
“We’re a work in progress,” Tellier says. “Do we have more work to do? You better believe it.”
Quarterly customer surveys have helped Tellier & Co. gauge their progress. Reliability, they’re told time and again, Is more important than anything else. The worst thing CN can do? Overpromise.
Tellier also knows CN must continue working closely with its short-line partners, which often interface with customers more. CN will have 57 short-line partners, post-IC merger.
CN also would be wise to keep the lines of communication open among its fellow Class Is — including CPR. But as CN gets more competitive, doing so won’t be easy, particularly with CPR.
“There is baggage there,” Tellier says. “Should we collaborate? Yes. But it will be difficult to achieve this.”
Partnering with CPR certainly would be an achievement. But finding a way to push people to push themselves without driving them into the ground would be a legacy-framing accomplishment.
“This is very difficult to achieve ... [but] when you achieve this, people come filled with ideas,” Tellier says. “They develop pride.”
It’s reflected in the efficiency improvements CN’s made to date, he says. But the evidence Tellier points to is of the anecdotal variety.
“Five years ago, if [an employee] went to a family gathering, or a party, they’d have their head down and say, ‘I work for Canadian National.’ Now, it’s ‘I work for CN!”’ Tellier says, fist raised.
Tellier: The message is sinking in
He’ll work to nurture more fist-raising — in part, by convincing employees that he’s listening, that CN cares.
Implementing incentive programs such as gain sharing should help. CN also will continue to provide training, from rail-specific programs to, perhaps, literacy initiatives.
Tellier thinks the message is beginning to sink in.
“The number of people we have on the payroll who would believe that it is enough to come in and provide minimum effort is very small now,” he says. “Are people being challenged? Yes.”
But ls Tellier pushing too hard? Is he pushing for too much change too quickly? No, Tellier says, he isn’t.
“If anything, I would do it faster,” Tellier says.
Source: Progressive Railroading, April 1999
