Going beyond best the best — the CN story

An inside look at how CN Rail changed its culture

Change has many enemies. Prime among them probably is success, especially when it becomes paired with complacency. Why change, the standard thinking goes, when you’re successful? The problem is that success is often fleeting and tied to context. When that context shifts, continued success requires continued change.

In 2001, when I joined CN as the senior vice-president of HR, the company was a considerable success story. Lean and profitable, it had the best operating ratio in its industry. Our operating ratio was 72 compared with the industry average of 80 and the lower the operating ratio the better. (Like golf, shooting the lowest score is the goal.) Competitors copied its moves when they could, and savvy investors snapped up the stock.

On the face of it, there was little reason to undergo much further change. There had been plenty of dramatic change since CN’s IPO in 1995. Up until that point, the company had been a government agency, which lost a dismal amount of money. After the IPO, under the leadership of Paul Tellier, the mandate had to change. The goal became simple, clear and urgent: build value.

This new focus included aggressive attempts to capture a bigger market share. To attract and keep customers, operations had to become more efficient and streamlined. Managers had to manage the business actively, while the work force was shrunk by a third. The company shed assets which were not part of the core mission of the new CN. New acquisitions and mergers broadened the reach of the railroad.

After all that change and turmoil, it was a new world for CN. One in which it had gone from worst in its industry to being the best. It was not, however, a time for CN to rest on its laurels. The executive leadership was determined that “success” was not going to get in the way of progress.

This article gives an overview of how CN ignored complacency, and committed to continued improvement. It was not a small commitment. To accomplish further success required more change. It meant a search for new tools to make that change, and a focus on different leadership behaviours. The new goal was to achieve a profitable enterprise through building a culture that engaged every employee fully and encouraged them to give their best.

Opportunity beckons

What kept fuelling change at CN was a sentiment among senior leadership that there was still opportunity for the company. Opportunity for new markets, and even more efficiency and better service levels in operations. Deeper value could be reached through a mix of tactical and strategic moves. The drive for achievement remained strong.

There were still pockets in the organization which worked much the way that things had been done when CN was a government agency. Behaviours were the result of the long standing management behaviour of putting a higher premium on keeping the peace than enforcing the rules. Management had abdicated its authority for so many years that employees had developed a feeling of entitlement. Resistance to change was going to be rooted deeply.

The drive for achievement among the leadership team made a real difference for CN. Certainly there were opportunities to improve the business, but to capitalize on them to get future benefits, the nature of the company’s leadership had to change, too. The leadership wasn’t going to be just the sponsors of change — they were going to be part of it. Leaders had to see themselves differently, think in new ways and take the risk of acting in a radically changed way. It was a challenge that the team was ready to accept.

For whom the bell tolls

Another enemy of change is short term thinking. Customers, suppliers and technology change constantly, competitors reimagine themselves and markets shift. Social, economic and political trends take off in new directions. If no man is an island, then neither is any company.

Fortunately, in a company where most of the energy is expended on daily operations — the goal of a railroad, after all, is to keep the trains running - CN had some long term thinkers in the executive ranks and on the Board. They could see changes which were coming at the company. Just as important, they understood that change would take time.

For instance, there was a strong possibility in 2001 that changing demographics were going to be a nightmare for CN. With fewer people in the generations behind the baby boomers, a shortage of employees at all levels was predicted.

Predictions were that just about every company was going to have to deal with this trend, but there were some unique issues for CN. One was leadership turnover, which heightened the need for succession planning which hadn’t received much close attention during the upheaval of privatization. The other was how to replace skilled workers in the unionized ranks. Training at this level, when it had occurred, had been sporadic at best.

You can’t run a company without skilled, knowledgeable workers at all levels. Nor could the company advance without people who would be job ready when promoted into new roles. On-the-job learning is an expensive option, and there were going to be thousands of replacements across the management and unionized employee ranks.

The law of unintended consequences

The previous change at CN during privatization had produced some very good outcomes. The company led the industry in every major metric, had shed legacy assets no longer needed, and leaders were more focused on the business. On the other hand, the changes had created some less desirable outcomes. If the inadvertent outcomes were not to get in the way of further success, then the time had come to put them on the table and deal with them.

An employee survey done shortly before I arrived revealed that much of the unionized work force had low levels of job satisfaction. The trend was towards being disengaged. Rather than being engaged actively in the company’s success, employees felt that they were sitting on the sidelines.

Our objective was to have a committed, engaged workforce, and to achieve it management was going to have to change. There were very few managers in the company who thought coaching and shaping the behaviour of employees was part of their job. They had some vague idea that maybe Human Resources could do coaching, but they didn’t believe that managers had to coach. Management’s job was to get people jumping to their orders and bring in results.

Under the circumstances, it was hardly surprising that relations with the unions were strained. A lack of trust had been the outcome of all the rapid change in the previous years. Productivity gains would prove elusive if the relationships were not repaired. While this objective is likely on the agenda of any company with a large union presence, it was imperative at CN. The company has 12 unions, and more than 100 collective agreements. Managing the union portfolio at CN is complicated, but it would be a necessary ingredient in achieving change that would keep the company at the top of its industry.

Culture change

In taking a close look at what needed to be done, it was obvious that just tackling issues on a piecemeal basis was not the best method. As the past showed, as one issue was fixed, another would pop up, which would create an endless to-do list. At that point, we didn’t need a list, we needed a plan.

The start was making sure that everyone understood the vision for the company. When Hunter Harrison succeeded Paul Tellier in the role of CEO in January 2003, he introduced his Five Guiding Principles. His message was simple and direct: focus on Service, Cost Control, Asset Utilization, Safety and People, and CN would not only continue to outpace other railroads, it would lap the competition. The guiding principles gave all employees a shared focus, a way of thinking and talking about the business, and a common reference point in making decisions. Tremendous effort went into communicating the principles, all the way down to the front-line.

With the goal of changing the culture to one of a committed, engaged workforce, it was necessary to identify the right issues to tackle. Any change initiatives undertaken had to have a business case to support them, but beyond that need, they would have to contribute to broad organizational culture change. Only by changing the culture was CN going to achieve the greater success that was desired.

We needed the right tools to make change happen, and make it happen faster and better. We found those tools in applied behavioural science — the science of why people do what they do and how to motivate them to higher levels of sustained performance through proper reinforcement. The idea could not have been simpler: If you’re going to make change, the best way is to work with human nature, not against it.

On a practical basis, we had to apply the right mechanics of change. We needed managers and employees who would serve as sponsors for change. The reasons for change had to be articulated clearly and strike a compelling chord with people. A way to measure outcomes from change was critical, as was communicating the results. If people were going to change, they had to see that there was a tangible pay off for their efforts.

We also had to understand that the journey to a future state was not going to be easy. People were comfortable with what they knew. Getting them to listen to change messages at odds with that comfort level would be difficult. Fear, apathy, indolence and political self-interest, as well as other enemies of change, were all going to be in play.

Nor was culture change going to happen quickly. In a company as big as CN, it would be a mammoth undertaking. While we needed quick hits to sustain it along the way, it was going to take years to insure that a new way of doing things got embedded in the culture. And, by the way, while corporate would seed the beginning of the change initiative, the divisions were going to have to pay for most of it. For them to open their wallets, they had to see results. What we did had to work, or change efforts would die quickly.

Case study: ‘Dressed and Ready’

“Dressed and Ready” is a good example of a change initiative that touched on most of our areas of concern in changing the culture.

Selecting the target: The initiative was in response to a visible loss of productivity in one aspect of operations. While the official start of the work day was 7:30 a.m., the unofficial start was later. In many areas, employees would wander in about the right time, get a coffee, chat with colleagues, then find out what were the priorities for the day and meander off to get the equipment. These delays added up to eight to 15 hours of lost productivity at the start of the day for each 20 person crew — and there were hundreds of crews. Multiplied across the company, the cost and the opportunity, was enormous.

There were urgent reasons to change this behaviour. On a business basis, lost productivity was an unnecessary cost, and would make it harder to continue to grow the business in the right direction. It was counter-productive to broad organization culture change, as it was an example of management by abdication. It didn’t support the efforts of the many employees who worked hard and put in a full day, but it did reward ones who were disengaged.

A program was designed to change the behaviour, and the first-line supervisors were given the responsibility of making it work. Their job was to post assignments the previous evening. Employees were told to check the priorities list upon arrival at work, and then be in the common room at 7:30 a.m., dressed and ready to go to their assignments with the appropriate equipment.

When described on paper, the program sounds simple, almost as though it was applied common sense. When behaviour is long standing, however, a sharp eye is needed to see where change is needed. It takes even stronger analysis, as well as disciplined execution, to make that change happen.

Making change: First, we had to determine what was keeping the undesirable behaviour in place, in obvious conflict with the company’s best interests. Everyone knew the start time and people arrived before it. So that part of their behaviour fitted the new norm we wanted to establish. The time spent getting coffee and chatting was the problem. It was rewarding for the participants, and reinforced their behaviour. Yet, it wreaked havoc with productivity.

To change their behaviour, we had to create an environment where everyone knew how, and wanted, to make the change.

To start, we changed the antecedents to the behaviour. “Antecedents” is a fancy word for something straightforward: namely conditions or actions that trigger behaviours, such as detailed direction, training or instructions. New instructions were given in employee meetings that explained the change and the reasons for it, reinforced by continual reminders from supervisors. A new goal was set and communicated: “One hundred per cent of us will be Dressed and Ready by 7.30.” More senior levels of management backed the supervisors by letting people know that policy would be enforced.

Then we had to change the consequences. Supervisors were coached on how to support and reinforce the new behaviour. They gave quiet approval to people who were ready on time, choosing the right method to fit the individual. As more individuals followed the new direction, the supervisors started to give positive reinforcement to their teams as a whole. When teams had achieved four or five consecutive days of appropriate behaviour, supervisors provided a special reward.

Building momentum: Successful change has a momentum of its own. As more teams met the new norm and received positive consequences, the more other teams wanted to participate in the good outcomes. Supervisors, who had learned that ignoring bad behaviour actually reinforces it, began to give negative consequences to people who did not meet the goal. Senior management played a role, too, offering approval for good results and supporting supervisors in disciplinary actions.

In the overall scheme of things in an organization, Dressed and Ready was just a small change, but one with significant results. It proved to managers that applied behavioural science worked. Employees learned that there were positive consequences for changing their behaviour. By internal estimates, Dressed and Ready saved the company millions of dollars a year in costs over the life of the program. For a small change, it had a huge ROI.

Cascading change

Within CN, a whole series of changes occurred over time, all with the goal of shifting the culture in a new direction. Each small success reinforced the organization in preparation for the next. By moving ahead incrementally, change efforts were revised and refined to take advantage of new learning acquired along the way. This approach opened the door also to unanticipated opportunities for improvement that an all-at-once approach might have masked.

For example, what had enabled Dressed and Ready to work was the basic training that all management levels had received in the science of human behaviour — that antecedents and consequences drive what people do. It’s where managers learned how to target key behaviours to change, and how to put the right antecedents and consequences against them. From this basic training, more advanced learning about how to coach and how to manage was offered. By taking this staged approach, people had a chance to absorb and practice new management behaviours at a pace that was demanding but not overwhelming.

A further initiative to improve management practices came through the Hunter Camps. Unique to CN, these sessions had Hunter Harrison teaching managers and supervisors directly how to think about and run a railroad. The camps were a great conduit for the transfer of knowledge, which in itself helped to change the culture.

Executive assessments centres helped CN to identify high potential future leaders and to help current ones develop. The outcomes included tailored development programs and the assistance of a coach over time. The performance evaluation system was revamped and tightened, which gave people the advantage of much more feedback to help them steer their efforts.

Further knowledge transfer took place through CN’s Railroad MBA program. Done internally, it took high potential senior managers and gave them a thorough grounding in every aspect of the economics and operation of a railroad. Specific learning programs were designed for all levels of management, and the gaps in skilled trades’ education began to be filled.

Eventually, as supervisors gained confidence in practicing behavioural methods of leading people, their new skills were leveraged through the Employee Performance Scorecard (EPS) process. EPS took performance evaluation to over 18,000 unionized employees. It helped to connect them to the business, and offered recognition directly to our many good employees. Earning a top rating of Outstanding Railroader became a badge of merit for people and brought a new energy to their performance.

These initiatives and others were planned and implemented in stages. Too often, a culture change initiative seeks to achieve transformation in one giant step. When such great leaps forward prove to be a bridge too far for the organization, the result is frequently failure, disillusionment and abandonment. CN’s approach, based on a series of smaller, achievement steps, avoided that trap.

Managing the culture

Companies have to manage their culture, not let the culture lead them, as had been happening in CN for so many years. Managing the culture means thinking about it, recognizing where it can be improved and implementing the right change at the right time and place. It also means that leadership teams have to be engaged in change and ready to sponsor it.

Making change in a culture happens every day, although many people do not see it this way. Active leadership on change isn’t just on the special occasions of major initiatives. If a company is serious about a higher level of performance, new behaviours have to be practiced, repeated and reinforced on a consistent basis.

In essence, culture is the “way we do things.” Performance in any culture is a direct outcome of how people are managed. It is management who set standards, give direction, coach, measure outcomes and provide consequences. Those consequences in turn create the culture in the workplace.

To get a company where it wants to go, leaders have to set clear priorities, and articulate what good, better and best results in performance will look like. In many ways, it boils down to measuring performance against these priorities and providing the right consequences. Include your team by listening to them, and providing a forum for dissenting opinions and different ideas. No one has a monopoly on good ideas, and some of the best ones can come from unexpected sources. What’s important is that everyone moves in the same direction in the end — maybe not in lockstep, maybe not at the same speed, maybe with different degrees of success, but always toward the same goal.

It is critical to deal with the real behaviour you see, hear and observe in the workplace, and keep the focus on what is most likely driving that behaviour. Pick the right antecedents in managing performance, but don’t depend on them. They are only about 20 per cent of the impact on performance. Consequences provide the other 80 per cent. To get the right performance, the right consequences are critical.

By providing feedback, leaders can motivate performance and shape it in the desired direction. When behaviour is desirable, and contributes to the achievement of goals, positive feedback lets people know that they are performing successfully. The feedback becomes a consequence that will reinforce and sustain the desired behaviour. If the behaviour is not the right one, constructive feedback needs to be applied. When employees know immediately what they are doing wrong, and how to get it right, they have a fair chance to redirect their efforts. Without effective, regular feedback, people are left to decide what the standard is, which is usually a direct route to mediocre performance.

It is imperative to deal with poor performance in a timely way. All too often, leaders let it go, as a way to avoid conflict and with the vain hope that it will improve if left alone. The real probability is that it will get worse. If you want to influence performance change, you have to talk to people directly, explain what you are seeing using specific behavioural examples and hear their side. Work out a solution and lead the way to it.

Changing the culture is supported by the development of people, and a primary focus during change initiatives was to help them to manage their learning curves. Make sure that individuals are ready for new demands or new roles. It’s all right to stretch individuals, but not to break them. Once people have the fundamentals mastered in their roles, it’s time to switch to being a coach.

Lessons from culture change

There were many “aha” moments along the way with CN’s culture change. Looking back, some things stand out more than others.

Lesson 1: Clarity of vision starts the change process. With CN, the vision was clear right from the start — remain the leading railroad in North America. Every change initiative had to align with and support that vision.

Lesson 2: Change happens only with the commitment of the CEO and the leadership team. CN’s leadership team was committed to change, engaged in making it work and willing to sponsor it actively within the organization. They had to show that they were willing to change to inspire others to make the same difficult commitment.

Lesson 3: Keep the focus on business results. There is a discipline to effective change efforts, and they must be tied to business needs. Most changes have a cost, either obvious or indirect, and like any business initiative, there must be a return on investment.

Lesson 4: Use a proven leadership methodology. CN chose to anchor its leadership methods on behavioural science, which has a good track record of results behind it. By using the same behaviour-based concepts and tools across the organization, leadership spoke with one voice. Using a common methodology also made it much easier to determine why change moved ahead quickly or stalled in certain places.

Lesson 5: Change has to be supported through development and new learning. If you want people to let go of what they know and do something new, they have to learn how to do it. A core curriculum was developed centrally to support change, and then implemented regionally. This step encouraged consistency, but allowed the flexibility needed to meet to each region’s needs and issues. As gaps were identified, they were filled with new programs.

Lesson 6: Change is reinforced through communication. Several vehicles were developed to communicate the vision behind change, as well as success stories as they unfolded and progress made against stated goals. As the culture began to shift in the desired direction, even more information became available to be shared.

Lesson 7: Select the right place to start change. The operating groups within CN are its heartbeat. Starting the change process with them made sense. The leadership in these groups is pragmatic and tough-minded. If the value of change could be proven to line people, staff groups would follow.

Lesson 8: Stagger the roll out of change over time. The roll out of the changes in CN was planned carefully. The biggest opportunities got the first attention, such as the largest rail yards. As change proved its worth, and was met with support and approval, initiatives were taken organization-wide.

A moment in time

For the last three decades, we seem to have been in an era of swift, continuous change. Organizations that thrive are the ones that can respond proactively and quickly to new challenges. Unfortunately, more than a few “successful” companies have disappeared by clinging to what worked at a given point in time, rather than seeing how their world was about to be transformed.

Most people want to know if change will last. What they really want to know, of course, is whether or not the pain and hard work of change will be worth it. The real answer is that any specific change in how an organization does business most likely has a limited time span. Context and market conditions shift constantly, which means companies have to keep responding. What is important is whether an organization develops a resilient culture, which enables it to make change to protect and grow its business.

By changing its culture, CN became a much more resilient organization. As new challenges appear, and appear they will, it has the capacity to respond through the enhanced leadership behaviours it has developed. It is those behaviours that can be used to steer the company where it needs to go in the future, not specific change that is made at a moment in time.

The story of CN has been captured in “Switchpoints: Culture Change on the Fast Track to Business Success.” The book, published in January 2009 by John E. Wiley & Sons, was written by Judy Johnson, Les Dakens, Peter Edwards and Ned Morse. Les Dakens can be reached for comment or questions at [email protected]

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