Analysis of, “Continuous Quality Improvement as a Survival
Strategy:
The Southern Pacific Experience”
by Jimmy Alyea
When the Southern Pacific Railroad (SP) was purchased for $1
billion by businessman Philip Anschutz in 1988, the company was in a period of
decline and struggling to survive. For
every dollar collected from shippers, it was costing SP $1.03 to haul their
freight. Southern Pacific had been
without leadership for almost two decades and had been held in trust the
preceding five years following a failed 1983 merger. Anschutz found himself with a 150-year-old railroad
with low morale, hostile customers, thin management, and not enough investment
in plant and equipment and training. In
addition, the new company was not a single entity, but rather a collection of
divisions and subsidiary railroads, each fiercely independent. He knew he had to fix the company quickly,
but also sensibly: his solution, a total
re-focus on customers and a Deming strategy
of continuous quality improvement (CQI).
In 1989, Anschutz made top management changes by bringing in
an expensive, but highly experienced team of all-stars who had held senior
positions in companies with successful CQI programs. Kent
Sterett, a long-time proponent of Juran’s strategic-planning processes and a
former judge for the Baldrige Award competition, brought a fresh perspective on
quality. He had set up Union Pacific’s
pace-setting Quality Management System, and he did the same for SP in 1990
(Welty, 1992). The new executive team
made a series of benchmarking trips to such quality leaders as Xerox and
Milliken where it was impressed by the first-line employees’ involvement in
quality. After a pilot program tested in
SP’s Eastern region showed that quality could make a difference, Anschutz began
implementing a three-phase quality improvement turnaround strategy in 1990.
Because of the company’s rapidly deteriorating situation,
Anschutz was operating on a tighter time schedule than was traditionally
thought to be wise for implementing CQI.
Using Juran’s planning-based
approach to improvements, a strategy was developed based on Malcolm Baldrige Award
criteria to help top management lead the quality-improvement process.
The CIO, COO, and the Vice Presidents became the Quality Council. The
design phase began with one-on-one leadership training for upper management. Based on information gained from the previous
benchmarking trips, management group sessions were used to identify techniques
that would be most beneficial to SP and its unique needs and to determine
key-performance indicators. A mission
statement was developed, objectives for 1991 were set, and a five-year strategy
was designed.
With an action plan and a framework in place, management
began to introduce its quality improvement strategy to employees in November,
1990. In a geographically dispersed
company with multiple cultures operating in a turf-protecting mode, changing
the behavior of the entire workforce was a monumental task. Not only was the company operating with a
workforce that was older in age than is typical in U.S. industry (some were
third generation SP workers), but it was
one that was more than 90 percent unionized by 14 different craft unions. If all employees had been confronted
instantly with QI, anarchy would have probably resulted from trying to tackle too much at once.
Instead, role modeling by top management and a series of 125
“town hall” meetings led by corporate officers, not first-line supervisors,
were held to tell more than 13,000 workers about the quality-driven approach to
doing business. Executive work days were
initiated during which corporate officers were out on the track and yards
working side-by-side with employees.
Their presence demonstrated the importance of “team play” and helped
dissolve distrust that existed between labor and management. Fifty union leaders were brought to San
Francisco and shown the dismal operating performance data, after which they
were asked to participate in critiquing the new CSI strategy. All but 2 of the 14 unions participated. In addition, forums were set up with union representatives
and employees to open communication lines and to identify the common grounds of
quality for both groups. Involving union
leaders in management meetings was a first for the industry, but it
worked!
SP’s formal quality program began in May, 1991. Almost immediately, a blind survey was sent
to 600 customers to monitor customer satisfaction (Delsanter, 1992). Because current customers were never certain
if their shipments would arrive on time, initial findings showed customers
wanted consistent, quick, on-time service, every day. These
survey results were used as a baseline from which subsequent surveys were
analyzed for progress, and improving service reliability became the cornerstone
of SP’s quality efforts. As SP’s chairman Philip Anschutz stated, the
old way of doing business—“you need us more than we need you”—was out (Lustig,
1992). He wanted to show customers that
the new way—with buzzwords such as “quality” and “customer driven”—was in. To communicate its commitment to customers,
management created “the New SP” train that began a 45-day, 20-city, 11-state
tour in March, 1992. At the train’s last
stop, SP President Mike Mohan re-emphasized the train’s message to customers: “SP’s goal is to meet or exceed your needs!”
To this end, SP invested significantly in quality education,
with a strong focus on the team approach.
All courses were rolled out in 1991.
Railway-specific training courses included team leadership training,
facilitators training, and team members training. Also included were courses for statistical
process control and management quality improvement training. By November, 1991, more than 600 team leaders
had completed training, and 400 quality improvement teams had been formed, with
approximately 12 percent of employees working on problem solving (Delsanter, 2009). By mid-1992, 900 teams were operating, with
20 percent of SP’s workforce participating in one or more teams, 25 percent of
which were cross-functional. Newly
formed Regional steering committees included a “quality facilitator” to support
team activities when a line supervisor was unsupportive. These teams were dedicated to building
customer satisfaction through a continuous quality improvement process.
Launching a quality improvement process in record time takes
total top management commitment and a clear understanding of the quality
process. SP has done this, with some of
the most experienced “quality” people in the industry managing the CQI program. Hallmarks of the program include strong leadership,
role modeling and other involvement by top management; benchmarking; developing
action plans; involving unions; involving managers in process improvement; and providing quality education and team
training for all employees. Normally,
these activities would have been done one at a time. In SP’s case, they were done in parallel or
almost simultaneously, but they were done correctly by knowledgeable leaders
employing a combination of Juran, Deming, and Japanese quality concepts that
best fit SP’s unique circumstances.
As of this writing (Spring, 1993), SP owner Anshutz appears
to have been correct in his conviction that CQI was the correct survival
strategy to bring about a successful turnaround. While not yet getting SP to the break-even
point, there was a $43 million improvement in the bottom line during 1991-1992,
the first year of the CQI program. It
will not take nearly that much improvement in 1993 to make the company
profitable. By closely listening to what
its customers want and by applying the quality process, SP is transforming
itself into a customer-driven, cost-effective transportation provider. If it continues at its present pace, it will
be successful.
In 1996, Southern Pacific was the sixth-largest railroad in
the U.S. with over $3 billion in revenues and over 15,000 miles of track. At the end of 1995, an agreement was made
with Union Pacific Corp. to purchase Southern Pacific Rail Corp. for $3.9
billion (Ortega, 1995).
Copyright 2012 James L. Alyea. All Rights Reserved.
For more information,
please contact Jimmy Alyea:
Carman, J. (1993,
Spring). Continuous quality improvement
as a survival strategy: the
Southern Pacific experience.
California Management Review
35.3. Retrieved from
http://search.proquest.com.ezproxy.uhd.edu/docview/2161493050034158
Delsanter, J. (1992,
February). On the right track. TQM
Magazine 4.1. Retrieved from
http:/dx.doi.org/10.1108/09544789210034158
Lustig, D. (1992,
October). The “new” Southern
Pacific. Trains 51.10. Retrieved from
ABI/INFORM complete, Trains.com
Ortega, F. (1995,
August 4). SP’s chairman turns attention
to oil and gas and new areas. Wall
Street Journal. Retrieved from
http://search.proquest.com.ezproxy.uhd.edu/docprintview/39862909
Welty, G. (1992,
November). SP’s quality comeback. Railway
Age 193.11. Retrieved from
http://search.proquest.com.ezproxy.uhd.edu/docview/203752918
.
