20 January 2006
CPR Signals a Switch in Strategy to Narrow Competitive Gap with CN
Canadian Pacific Railway Ltd. is giving greater clout to senior branch managers in a decentralization
strategy designed to boost employee productivity and streamline its network.
The moves come nearly a decade after the company centralized most of its key decision-making powers by shifting its head
office to Calgary from Montreal. Some managers located in the Toronto region and other centres also transferred to the Alberta
headquarters in 1996.
However, the railway can't afford the status quo, said Fred Green, CPR's president and chief operating officer.
He unveiled plans for a sweeping "corporate realignment" in an internal memo titled "Organizational change for greater
success." Mr. Green said he wants to improve CPR's so-called fluidity, the industry term for keeping the trains
running smoothly.
"The intent is to build fluidity into all aspects of our business and, by doing so, to improve our operating and financial
performance and narrow the operating ratio gap with our direct competitor," Mr. Green wrote, referring to rival Canadian National
Railway Co.
CPR has been criticized by analysts for lagging CN, Canada's largest railway, in operating ratio - a key measure of productivity arrived
at by dividing operating expenses by operating revenue.
CPR had an operating ratio of 77.4 percent in the third quarter. A lower operating ratio is better, and CPR is trying to catch up with
CN, which came in at 63.3 percent.
"We have an obligation to position our company to remain competitive no matter where we are in the economic cycle," said Mr.
Green, who is seen by analysts as the leading candidate to replace chief executive officer Robert Ritchie when he retires, possibly
within two years.
"Fred knows that a big part of the problem is nobody is really watching the shop close enough at the field operations level,"
said an industry source familiar with the decentralization plans. "If they pull up their socks, they can equal CN's
performance."
Montreal-based CN already has a decentralized decision-making system, including regional operations in
Toronto, Edmonton, Winnipeg, Vancouver, Chicago, Detroit, New Orleans, and Memphis.
Industry and labour officials say that CPR, as part of its productivity drive, also plans to cut nearly 400 staff, or 15 percent of its
non-unionized work force in office jobs in North America. David Newman, an analyst with National Bank Financial Inc., said
he expects the job cuts to come mostly through attrition with buyouts and early retirement packages, but there could be some
"involuntary moves."
CPR has named company executive Brock Winter to the new position of vice-president of operations. He will have three
assistant vice-presidents reporting to him - one each in Calgary, Toronto, and Minneapolis, according to an internal memo
from Neal Foot, senior vice-president of operations. CPR also has key rail operations in Vancouver, Winnipeg, and Montreal.
Company executives are scheduled to discuss details of their 2006 project to bolster the railway's productivity during a conference
call 31 Jan 2006, when fourth-quarter and 2005 financial results will be released. But Mr. Foot gave a sneak
peek to employees of what to expect, saying CPR is "permanently locating increased senior presence in the field, reducing our
response time for decision making and for process improvement."
CPR shares rose $2.25 to close at $50.75 yesterday on the Toronto Stock Exchange.
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