Tuesday, October 1, 2019

Railroader

Hunter Harrison turned around four different railroads. Railroader: The Unfiltered Genius and Controversy of Four-Time CEO Hunter Harrison is the story of Harrison's career right up until his death less than two years ago.

The feat is unimaginable. One would think that after one or two turnarounds, competitor railroads would try to copy the methods Harrison instituted. The fact that they didn't suggests an agency problem; entrenched boards and managers are looking after themselves at the expense of shareholders. Harrison had to team up with activists in order to become CEO and effect changes, as reluctant companies were happy with the status quo.

The book didn't go into a ton of detail on Precision Scheduled Railroading, which is what Harrison called this new method of railroading which he used to turn around every railroad he touched, but I read enough about it online to get a decent grasp of how it works. The basic principle behind it is that for a railroad, return on anything (whether its return on assets, return on employees, return on SG&A etc.) is higher when a railcar is moving towards its intended destination. Cars waiting for deliveries or waiting to be switched to other trains or in the shop are causing losses.

The implications of this key insight are many. The business model where a train doesn't leave until its full, and uses a hub and spoke model to gradually switch cars towards its real destination is antiquated. Instead, trains should depart at a fixed time, travel point-to-point, and the cars should be technologically advanced enough to allow the train to travel fast.

In general, customers end up with their products moved faster as a result, and the railroad is able to do this at a lower cost, so everyone is happy. There are some downsides, however. Destinations that aren't profitable get exposed, and cancelled. Irate customers have to switch to trucking, likely at higher rates. Fewer employees are needed as well, improving productivity but upending some lives in the short-term.

While I did enjoy the book, I find the topic of Precision Scheduled Railroading far more interesting. I'd love to read a book on this topic that is similar to The Goal: A Process of Ongoing Improvement, one of my favourite books of all time.

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