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Rail News Home CSX Transportation

September 2012



Rail News: CSX Transportation

Top executives at CSX rely on teamwork to spur business growth, enhance service performance



— by Jeff Stagl, managing editor

According to one definition of the word "team," a group of people must "operate with a high degree of interdependence, share authority and responsibility, and work toward a common goal." That's what the six members of CSX Corp.'s senior team are striving to do despite a slightly different dynamic.

In early 2012, several personnel changes altered the team's roster to:

  • Chairman, President and Chief Executive Officer Michael Ward, the team's leader since 2003 who, prior to assuming the top post, held key executive positions in sales and marketing, operations and finance;
  • Executive Vice President and Chief Operating Officer Oscar Munoz, who became COO in January after serving as chief financial officer for nine years;
  • EVP and CFO Fredrik Eliasson, who joined the team in January to succeed Munoz as top financial officer after serving stints as VP of sales and marketing for the chemicals and fertilizer business, VP of emerging markets, VP of financial planning and analysis, and VP of commercial finance;
  • EVP of Sales and Marketing and Chief Commercial Officer Clarence Gooden, who's headed the sales department since 2004, and previously served as VP of network operations and senior VP of the merchandise service group;
  • EVP of Law and Public Affairs, General Counsel and Corporate Secretary Ellen Fitzsimmons, who's been the top legal officer since 2003 and previously filled key roles in major risk and corporate governance areas; and
  • SVP and Chief Administrative Officer Lisa Mancini, who previous to assuming a SVP post in 2009 was VP of strategic infrastructure initiatives and VP of labor relations.

With Munoz in a new role and Eliasson as a new member, the team has been working its way through a minor regrouping phase. The senior execs are trying to decipher the team's strengths and weaknesses, gauge their individual contributions to the collective and determine ways to gel as a unit.

"We have a different composition. The shuffling has changed perspectives," says Ward. "We will adjust and rebuild the dynamic."

One advantage of the roster change is that the team retained its nucleus and gained a "nice blend" of CSX experience, he says. Munoz and Mancini have nine years of service; Eliasson, 16 years; Fitzsimmons, 19 years; Ward, 33 years; and Gooden, 40 years.

"Each one has a different style," says Ward. "We get infusions of different thinking."

But differences notwithstanding, the team's major objective remains the same: to keep guiding CSX toward its short- and long-term goals, including the quest for a 65 operating ratio by 2015 per an ongoing "Grow to 65" initiative.

Team members are working on a number of fronts to meet a variety of growth-inducing and performance-enhancing goals — among them, traffic generation, more fluid operations, increased productivity, cost controls and a better developed workforce. If the team pours its energy into more of a collective effort, CSX will be able to increase its customer accounts and boost its financial fortunes over the long haul, says Ward.

"We need to stay focused on the short term so we can play in the long-term game," he says. "We need to work in unison."

As leader, Ward envisions his role as ensuring each member has a voice in and contributes to the cause.

"I'm like the orchestra leader: I don't play all the instruments, but I make sure it all sounds good together," he says.

Munoz has been immersing himself in the operating side of CSX this year so he can learn more about that aspect of the company, and better orchestrate and harmonize service performance. His COO learning curve includes field operations.

Fielding Questions

Munoz — who held various senior leadership positions at PepsiCo, Coca-Cola and AT&T prior to his stint as CFO — is trying to gain more field knowledge by conducting dozens of face-to-face meetings with personnel in the transportation, engineering and mechanical departments, including field supervisors.

Since late January, he has held personal sessions with more than 100 workers; toured various functional departments, including network operations and dispatching, and customer and locomotive operations; and held town hall meetings.

It's vital to share information from top to bottom and to encourage employees to "say what's really on their minds," Munoz believes.

"My first several months were spent heavily in the field to listen and learn," he says. "I'm learning a lot, and at the same time, asking a lot of questions."

The efforts to increase his "steel-toe boot" field experience will help Munoz maintain and build on the operational performance momentum generated by Tony Ingram, says Donald Broughton, Avondale Partners L.L.C.'s managing director, chief market strategist and senior transportation analyst, who follows CSX.

EVP and COO at CSX from 2004 to 2009, Ingram changed the Class I's operating culture, drastically improving service metrics and closing the performance gap with peers, says Broughton.

Prior to Ingram's arrival, the COO position had been a "revolving door," he says. If Munoz adheres to what's become a solid operating strategy "gospel" at CSX, he'll be fine, Broughton says.

"Oscar is one of the smartest guys in the C-suite. He wasn't just a CFO when he was CFO, he has a keen understanding of the operating side of business," says Broughton. "If operating metrics are any proof, he already is a fine COO."

Personal Touch

Munoz has taken other steps to gain a better understanding of the intricacies of running the railroad. Within his first three months as COO, he met one-on-one with all 10 division leads.

"No one had done that before," Munoz says.

No high-ranking executive had asked field workers about their personal life during one-on-one meetings, either, he adds.

"I meet 36 Georges and 17 Johns. Personal facts help me remember them more than their names," says Munoz. "I will remember where they went to school."

During the meetings, he also emphasized continuity and execution of existing safety, service and productivity initiatives, as well as workers' roles in growing the company.

"We need to strengthen our long-term focus. Being more agile is critical," Munoz says. "My message is: Keep doing what you're doing and add a few things, but don't complicate matters."

Find It, Then Fix It

One way to ensure things are uncomplicated yet meaningful is to focus on "triangulation," which calls for sifting through many interpretations of facts provided by employees, union representatives, government officials and/or others before homing in on the best course of action.

"Get all the different data points and bring them to the leadership team, and then make a joint decision," says Munoz. "It's all about continuity and adding a collaborative angle."

But identifying a problem without offering a solution isn't very beneficial.

"There are finders and fixers. Bring me some options on how to fix something and create solutions as opposed to only finding a problem," says Munoz.

For example, the find-and-fix exercise led to the development of a solution that could simplify and hasten the process of approving purchase cards and reallocating costs. It was determined that someone other than the department manager could review purchase statements.

"It took a manager a day and a half to pour over records to see if there were any suspicious purchases. But the manager doesn't have to be the one who does that," says Munoz.

While changes continue to be made to boost productivity and increase collaboration, it will become increasingly important to keep all 29,000 employees informed about what's happening in the company and why, he says.

CSX needs to provide "TV-like knowledge" throughout its far-flung organization to share all the goings-on, says Munoz.

One way to do that is to enhance newsletters produced in each division by adding a page that describes "what Oscar is doing," he says.

In addition to better informing workers, CSX needs to better develop them. To nurture who Munoz characterizes as the company's "greatest asset," the Class I is developing a mini-capital committee to engage more field workers in investment decisions and foster more cross-department teams that can help solve difficult problems.

In addition, the Class I is piloting a leadership training program for field contract employees that would expand a program that's been leveraged at CSX's Jacksonville, Fla., headquarters for several years.

Working On The Workforce

Workforce development also is a primary focus for CAO Lisa Mancini. So is recruitment.

CSX has lost about half its workforce during the past 10 years due to attrition. And within a few years, more workers will average less than 10 years of experience.

"The average used to be 25 to 30 years," says Mancini. "And most new workers used to be 18 to 21 years old, but now we have new people who are 30 in some cases."

The attrition rate, driven by a "retirement bubble," will be high for the next three to five years, but then will even out, she says. In the meantime, CSX hired 4,000 new workers last year and plans to hire 3,000 this year.

In 2011, the railroad received 500,000 applications, providing a large number of candidates to choose from for most jobs, many of which are high-paying positions, says Mancini.

But to fill some technical jobs and attract more female candidates — in an effort to increase diversity — CSX needs to do more than conduct the typical job fairs and college campus recruitments that generate many applications, she says.

The company contracts recruiting firms and advertises online for technical positions, and posts jobs with labor groups and uses Facebook to help recruit women. In addition, CSX recruiters use videos to show potential female candidates the requirements of a railroad job, says Mancini.

The Class I's recruiters have a method to show potential management trainees exactly what the position entails, too, as well as to determine the best candidates.

CSX sends 30 to 40 trainees to an assessment center, where they undergo all-day interviews and participate in role-playing sessions. The railroad covers the cost of their travel, housing and food.

"We find out who are the natural leaders, who the troublemakers are and who does nothing," says Mancini.

After CSX recruits workers, the biggest challenge is retaining them after their first year of employment, she says.

To that end, recruiters try to provide candidates a "more realistic job preview," in part by having workers with a year or two under their belts talk about their experiences, says Mancini.

"If they're here for a few years, they tend to have a long tenure," she says. "We sometimes lose some workers who didn't fully understand what they were getting into."

A New Perspective

CFO Fredrik Eliasson understands the sentiment of trying to comprehend a brand-new job. He previously served in a finance role and spent a few years in investor relations, but had never been a CFO. He knows he has big shoes to fill.

"I've come in for Oscar, who did a tremendous job," says Eliasson.

But he believes he brings a different perspective to the post: sales and marketing. Eliasson spent 18 months heading CSX's emerging markets business — including chemicals, phosphates and fertilizers — and a number of months as VP of sales and marketing for the chemicals and fertilizer business unit.

"I gained perspectives on service and putting the customer first, so it's not just lip service," says Eliasson. "I got a feel for customers and how our service affects them."

Now that he has more than half a year under his belt as CFO, Eliasson is trying to tackle his No. 1 goal, which by extension is a top corporate objective: take out more costs without impacting service.

One way to do that is by working with Munoz to balance resources, Eliasson says. But the benefits and risks need to be analyzed thoroughly before any moves are made, he adds.

"What is the value if we store 50 more locomotives? What are the risks?" Eliasson asks. "We need to dissect the decision."

Another way to control costs is to pursue more business that requires less infrastructure commitments, such as crude oil-related traffic. CSX doesn't need to build terminals to accommodate that business, which can be handled by unit trains, Eliasson says.

"I think crude-by-rail is a great opportunity with little capital investment," he says.

Although 90 percent of CSX's business is stable or growing, the economy's health could be a detriment to the Class I's short-term financial-growth goals.

"There's so much angst out there. Overall, I think the U.S. economy is doing well, but I'd like to see an increase in domestic manufacturing versus imports," Eliasson says. "That way, we can get inbound and outbound traffic."

Another Take On Traffic

Traffic generation — specifically of the intermodal kind — is on the minds of other senior execs, as well, including CMO Clarence Gooden.

So, CSX continues to pursue and promote a highway-to-rail (H2R) initiative. Now in its second year, H2R calls for diverting a larger chunk of the 9 million loads in the East that move by truck more than 500 miles.

Through the initiative, sales and marketing personnel aim to understand a shipper's unique supply-chain needs and facilitate a more seamless intermodal integration. The railroad offers the shippers a computerized H2R Optimizer to provide a complimentary analysis of their freight and identify optimal highway-to-rail conversion opportunities for both domestic moves and the U.S. portion of international moves.

"We are sitting down with beneficial cargo owners and we're reviewing their portfolio of business and looking at what is adaptable to intermodal and what is adaptable specifically to CSX Intermodal," said Gooden during the Class I's second-quarter earnings conference on July 18. "We've done that already with 56 different customers, and we have had a very high degree of success in converting both current users of intermodal and people who are first-time users."

Valuing The Core Values

As they continue to peck away at corporate objectives, Ward believes it's vital that senior team members pursue and institute changes that "live up to" CSX's core values, which stipulate that:

  • reliable service, understanding and meeting customers' needs, and "owning" customers' problems are key to growth, and that the railroad needs to become easier to do business with;
  • each employee needs to be engaged and add value to the company, professional and personal growth should be emphasized, and each worker should be treated with respect and dignity;
  • workers need to take time to be safe and look out for one another, and that safety affects customers;
  • customer-based performance metrics should be used, performance should be improved via facts, and a problem should be fixed instead of its symptoms via validation versus speculation; and
  • CSX should reward shareholders, ensure the company is a positive influence on communities and the environment, and, overall, comply with the axiom, "How you get there matters."

During senior team meetings held every Monday from 9 a.m. to 1 p.m. and off-site meetings conducted four times per year, members try to keep "getting there" top of mind while discussing what's happening in each area of the company, reviewing concerns and identifying solutions.

"We have an open dialogue and each one provides a point of view, and then a decision is made," says Ward. "After it's made, there's no second-guessing outside the room."

Decisions, Decisions

Because CSX's six-member team is smaller than a more typical seven- or eight-member senior team at a Fortune 500 company, decision-making is faster, says Eliasson.

Whether team members are making the right calls, only time will tell, says Avondale Partners' Broughton.

"They have the momentum and the results," he says, referring to the Class I's solid second-quarter financial performance, which included a 7 percent gain in income, 1 percent drop in expenses and stellar 68.7 operating ratio. "Can they take it to higher levels or will it stagnate?"

Senior team members are hoping for much more of the former. Since several members are slightly outside their comfort zones, their focus is sharpened, says Eliasson.

And a touch of anxiety isn't necessarily a bad thing when it comes to pursuing goals, he believes.

"There's a little edge, which is good, so we're on our best game," says Eliasson.



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