CSX ANNOUNCES STREAMLINING OF MANAGEMENT STRUCTURE
Changes Speed of Decision Making, Improves Productivity
[Jacksonville, Florida, November 10, 2003] CSX Corporation (NYSE: CSX) announced today that it will be streamlining the management structure at a number of its companies, eliminating organizational layers and realigning certain functions. This effort will allow CSX companies to more effectively serve customers, meet revenue growth goals and improve productivity.
"Our goal is to create smaller, more responsive and streamlined organizations focused on driving operating income up and better realizing our full potential. This effort will allow us to deliver stronger results more quickly," said Michael J. Ward, CSX's chairman, president and chief executive officer.
The process now underway is the result of an organizational assessment focused on management efficiency and processes, clarity of roles and responsibilities and departmental structure. The streamlining will reduce management layers from 11 to no more than eight and increase the number of direct reports for many managers.
This streamlining will also reduce the non-union workforce by 800 to 1,000 people. No positions were eliminated today. Those reductions will be made over the next six months through a structured process, one layer at a time, beginning at the top of each organization.
Outplacement services and benefits will be provided to those who do not have a place in the redesigned organization. The estimated cost of the program is expected to be in the range of $60-million to $80-million, most of which will be recognized over the next two quarters. The full effect of the savings will be realized mid next year.
"Despite tremendous successes in growing our revenue over the past three years, I am not satisfied with our efforts to control costs and improve productivity. The initiative announced today will result in broad changes in the way we do business," Ward said.
Ward continued, "We will put managers and decisions closer to our customers, increase accountability at every level and establish a far more competitive cost structure. Throughout this effort, we will use a thoughtful and disciplined approach that respects the dignity and contributions of all our employees."
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CSX ANNOUNCES ORGANIZATIONAL EFFECTIVENESS PROGRAM
[CSXT Midweek Report, 11-14-03]... On November 10, the Organizational Effectiveness initiative was announced by CSX CEO and Chairman Michael Ward. The initiative is intended to streamline the management structure throughout several CSX business units, including CSXT, CSXI, CSX Technology, CSX Real Property, TransFlo and TDSI. The new organization will reduce management layers from 11 at present to eight by the end of the planned six-month process, consolidating departments and realigning certain functions. It will increase responsibility for every manager and give each more autonomy in decision making. The consolidation and realignment is expected to eliminate from 800 to 1,000 positions. "The reasons for this streamlining are simple: CSXT has the highest operating ratio in the rail industry, and no CSX company is as productive as it needs to be," said Ward in an e-mail letter to employees. "The smaller, more incremental changes we have made over the past 12 months have not been enough to create the dynamic, entrepreneurial culture we need. The slow pace of our progress frustrates customers, investors and each of us. Our managers must have clear roles, improved accountability and increased responsibility. At the same time, we must increase our focus on the highest value work."
Frequently Asked Questions: The following are some of the most frequently asked questions posed by employees at Town Halls held throughout the company this week. Answers are provided by CSX subject matter experts from the appropriate departments.
Q - The responsibilities of my position are based on the organization of other departments. Will my group be organized after the groups we support (client groups) are designed or will all positions within a layer be announced at one time?
A - All layers at affected companies will be announced in accordance with the established schedule. As indicated, all layer 3 announcements will be made in early to mid-December, layer 4 announcements will be made in late January or early February and so on every four to six weeks until the process is complete.
Q - Will employees have to interview for jobs?
A - Employees will not be interviewing for positions. Once the manager responsible for filling a position has made his or her recommendation, a peer review process will be used to evaluate the decision, and the employee selected will be notified by that manager.
Q - What are the criteria that will be used in staffing the redesigned organizations?
A - The criteria will vary by layers. Some of the criteria can include necessary skill sets, experience, Performance Management scores, and leadership competencies.
Q - If I am told I do not have a place in the redesigned organizations, how long do I have to elect a benefits option?
A - To receive an enhanced pension benefit, an employee will be required to sign a general release and to relinquish seniority rights. An employee will have 45 days to consider the agreement. If the employee signs the agreement, he/she will have an additional seven days to revoke his/her acceptance of the agreement.
Q - Will there be opportunities for a person to volunteer to leave?
A - This is not a voluntary program; however, we recognize that some employees will want to be considered for separation during this process. Those who are interested should talk with their manager, HR generalist, call the HR Hotline or use the feedback tool on the Employee Gateway's Organizational Effectiveness site. Ultimately, whether such a request can be honored will be based on factors such as (1) the purpose of the redesign efforts, (2) the best interests of the companies, and (3) when the employee's separation results in the net reduction of positions.
Q - As the layers are rolled out, how will changes be communicated?
A - We are committed to communicating on this effort every four to six weeks. Communications will be sent via e-mail, posted on the Employee Gateway and in Town Hall meetings.
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CSX SEEKS SMOOTHER FINANCIAL RIDE
By Gregory Richards
[Florida Times Union, November 12, 2003, from CSX Newswire]
CSX Corporation's announcement Monday [November 10] that it will slash 16 to 20 percent of its managerial workforce comes as the company tries to streamline a bloated management structure and lower its expenses, which are among the highest in the industry.
"Running a railroad is something we've proven we can do; we're faltering a little bit now," CSX Chief Financial Officer Oscar Munoz told analysts at a Wall Street conference yesterday [November 11]. "But running a railroad business is, I think, the issue that we're trying to make sure that we understand and move forward."
The reorganization marks the first major move for Michael Ward, who, in January, was named chairman and CEO of CSX, which runs the nation's third-largest railroad. Ever since his appointment, he's been battling lower-than-expected earnings and flagging railroad performance.
On Monday he announced job cuts that will impact 800 to 1,000 of CSX's 5,000 non-union employees, as the company embarks on a top-to-bottom reorganization of its management structure. It's expected to save roughly $80-million to $100-million annually, as well as shrink management layers from 11 to eight or less.
Analysts said the move was needed, and expected.
"Any action is better than no action at this point," said Jim Corridore, a transportation analyst with Standard & Poor's. "We'll wait to see how it goes."
"What we have here is not a disaster by any stretch; what you have here is a problem that needs to be addressed," said Tony Hatch, an independent railroad analyst based in New York.
Part of CSX's excess managerial capacity can be traced to its acquisition, along with Norfolk Southern, of the Conrail railroad in the late 1990s. Acquiring Conrail added 8,577 jobs to CSX's payroll, and 10,021 jobs to Norfolk Southern's payroll, according to a report released Tuesday by investment bank Bear Stearns.
Since the purchase, Norfolk Southern has shed 5,692 jobs, according to Bear Sterns, while CSX has reduced its workforce 3,304.
Even counting CSX's job cuts announced Monday, "CSX still appears to be behind Norfolk Southern in terms of headcount reduction post Conrail," the report says.
That additional payroll has helped lead to added costs. CSX acknowledges it has the highest cost-to-revenue ratio, a term called operating ratio, of any large U.S. railroad. In the third-quarter, its operating ratio, a key financial measure used by railroads, was 88 percent. The industry average is about 80 percent, Hatch said.
CSX reported reduced earnings in the first and second quarters of 2003 and a net loss of $103-million in the third quarter, due to special charges. But along with the cutting costs, it also needs to focus on the railroad's performance, Corridore said. And by cutting now, the railroad might not have the workers it needs when volume increases.
"A lot of this is going to fix itself as volume increases," Corridore said. An official from one of CSX's unions says previous cuts have already been too deep.
"There's not enough people out there right now to do the job and take care of business," said John Hancock, chairman of the United Transportation Union, which represents such CSX employees as conductors and yard workers.
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UPDATE 12-12-03 - EXCERPTS OF LETTER TO CSX EMPLOYEES FROM COMPANY CHAIRMAN:
Dear Fellow Employee:
As we discussed last month, we have undertaken an initiative designed to fundamentally change the management structure at CSX Corporation and its affiliated companies. The goal is to create more streamlined, responsive organizations to achieve critical financial, commercial and operating goals. Yesterday [December 11], we announced decisions regarding Layer 3 staffing and alignment. I believe these announcements will show a new CSX emerging and the commitment we have to transforming our approach to the business.
Throughout the Organizational Effectiveness initiative, a number of our colleagues and friends who have contributed years of dedicated service will be leaving CSX. Making these decisions about who will be leaving has been very difficult, as you can imagine. I assure you that it was done after careful consideration and a thorough examination of all aspects. This required weeks of challenging and painful review. I know you share my respect for those who will no longer be working with us, and I appreciate the professionalism and support you continue to show for each other. The announcement creates a number of new or realigned organizations, so I hope you will help me by finding ways to ensure a smooth transition, while actively contributing to the companies' short and long term goals.
Achieving Organizational Effectiveness Objectives:
- As you review the changes, it is important to remember the objectives of this important effort. First, as a result of the restructuring, there will be a better alignment between our organization and the needs of the business and our customers. To the extent possible, we have organized to allow the responsible organization to have accountability for entire processes from end to end. Managers in the new organizations will have increased spans of control, added responsibility and fewer layers to work through to drive decisions and make good things happen for CSX. With fewer layers will come improved communication, more structured and disciplined processes and greater productivity, all delivering stronger results.
That means ensuring:
- Clear accountability and ownership - for example, within the Human Resources organization, we have created a new Talent Management organization, which will provide an end-to-end process - from recruiting and identifying candidates to professional development and training - so that we not only attract the best talent, but continue to support and develop them throughout their careers. Prior to the redesign, while these functions were in Human Resources, they were spread across multiple areas, and no one had true accountability for this critical mission.
- Faster, more reliable communication - for example, the Engineering and Mechanical departments will be consolidated under a single organization. That will let Transportation focus on running trains. Even more important is the fact that a layer of management has been removed to speed decision-making, execution and implementation of departmental initiatives. Last summer, we moved field engineering and mechanical responsibilities to the division managers. However, through better definition of the roles and missions within the engineering and mechanical departments, it is clear that unified management of the resources is the best way to meet CSXT's needs and provide an end-to-end process focus to facilitate continuous improvement.
- Increased focus and prioritization - for example, the Transportation organization will become laser-focused on execution - driving velocity up, dwell time down, and ultimately delivering shipments to our customers on time. The Service Design organization will have expanded responsibilities, dedicating itself not only to developing and maintaining the operating plan, but also managing the major resources necessary to meet our commitment to customers, like locomotive power, cars and crews.
These changes and the changes in other key functions will be discussed in greater detail in Town Hall meetings and conference calls that started yesterday [December 11] and are going on today.
MICHAEL WARD
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RELATED STORIES:
TWO SENIOR CSX EXECUTIVES ANNOUNCE THEIR RETIREMENT: Two senior CSX executives have announced they will retire: Frank E. Pursley, CSXT's senior vice president Service Design, will retire December 31, 2003. He will be succeeded by Alan P. Blumenfeld, currently president of CSX Intermodal. Michael Giftos, CSX's executive vice president and chief commercial officer, has announced that he is retiring effective March 31, 2004. He will be succeeded by Clarence Gooden, currently CSXT's senior vice president Merchandise Service Group.
ORGANIZATIONAL EFFECTIVENESS INITIATIVE - TOPIC OF THE WEEK: Performance Management and Goals will be one of a number of tools used to make staffing decisions during this process. Additional criteria used in the staffing process will vary by layer and can include necessary skill sets, experience, and leadership competencies. As far as setting Performance Management goals for 2004 is concerned, employees should establish their 2004 goals based on the assumption that their role will not change. After the organizational structures are announced, there may be a need to adjust departmental and individual goals for the remainder of the year. [CSXT Midweek Report, 11-26-03]
CSXT TERMINATION PROCEDURE EXPLAINED: Within the next six months, up to 20 percent of CSXT's non-union workforce may be expected to be terminated as a result of the management streamlining initiative announced by the company on November 10. An item in the company's Midweek Report, distributed to employees on December 4, explains how the process will work for those selected for termination: "The employee meets privately with a supervisor and Human Resources representative as the termination announcement is made. Necessary paperwork is reviewed and explained, and the employee is given the opportunity to ask questions. Affected employees are then able to return to their work station, speak to colleagues, pack belongings and perform other measures they feel necessary before departure that day." The explanation continues: "It has not been the company's policy in recent history to provide guards to escort departing employees from the building, and the current termination process will remain consistent with that policy."
CSX ANNOUNCES EXECUTIVE CHANGE AT CSX WORLD TERMINALS: Robert J. (Bob) Grassi, president and chief executive officer of CSX World Terminals (CSXWT), will retire effective Dec. 31, 2003, and will be succeeded by Andrew B. Fogarty. Fogarty is currently senior vice president-Corporate Services for CSX Corp. Fogarty joined CSX in 1989, following a distinguished career in government service, including serving as Secretary of Transportation and later as chief of staff for the Governor of Virginia. He has held a series of senior positions at CSX, including president of CSX/Sea-Land Logistics and chief financial officer and senior vice president-Finance and Planning at Sea-Land Service, CSX's former container shipping unit. He currently serves as the board chairman of the National Defense Transportation Association. CSX World Terminals LLC is a wholly owned subsidiary of CSX Corporation. [CSX, 12-12-03]
CSX BEGINS LAYOFF PROCESS: CSX Corp. confirmed that it laid off about 20 of its top-level managers December 11 as the Jacksonville company began a restructuring process expected to eliminate up to 1,000 non-union jobs, according to this report by Christopher Calnan that appeared in the Times-Union. The layoffs came one month after CSX announced a restructuring plan designed to streamline management. CSX spokesman Adam Hollingsworth said Friday the company started eliminating management positions at the top of its 10 management levels. The restructuring will continue with each level below until the process is complete, which should be during the second quarter of 2004, Hollingsworth said. "This process is a layer-by-layer review of our management structure," he said. "We will be making the next set of internal announcements in four to six weeks." Hollingsworth declined to provide the names of laid-off executives. Meanwhile, Michael Ward, CSX chairman, president and chief executive officer, announced Friday [December 12] the retirement of the third CSX executive in the last three months. In a news release, Ward said 26-year CSX employee Bob Grassi, president and chief executive officer of marine terminal operator CSX World Terminals, is retiring effective December 31. In September, Chief Operating Officer Alan Crown, a 37-year company employee, abruptly retired. Last month, another 37-year company employee, Mike Giftos, executive vice president and chief commercial officer, announced that he plans to retire in March. The layoffs and sudden retirements come as CSX, operator of the nation's third largest railroad, has reported decreased earnings (compared with the previous year) for three consecutive quarters. In November, CSX announced the restructuring process could take up to six months and eliminate at least 800 jobs. Most of the cuts will happen in Jacksonville, where 60 percent of CSX's 5,000 managerial, or non-union, employees are based. But all company locations could be affected, the company said. Since 1999, CSX has cut its workforce by about 3,000 jobs. About 2,000 of those came from not filling vacated positions; the remainder have been from cuts, Hollingsworth said. Systemwide, CSX employs 34,000 workers in 23 states. [United Transportation Union, 12-13-03, from report by Christopher Calnan in Times-Union]
OPERATIONAL EFFECTIVENESS INITIATIVE - TOPIC OF THE WEEK: What can employees expect for the Layer 4 announcements? How can they prepare? How will they learn who is named to the Layer 4 positions?.. Currently, Layer 3 managers are planning their department structure and staffing needs. As we have learned from the Layer 2 planning, this is a difficult decision-making process that needs to be done with great care. That process is being repeated for the Layer 4 decisions. Announcements about structure and personnel will be made probably in early February.. Understandably, non-contract employees are concerned about their positions and possible career alternatives. Questions continue to arise about volunteering to terminate, although the Organizational Effectiveness Initiative is not a voluntary program. Requests for consideration should be submitted as soon as possible. It is necessary to make these requests soon, because supervisors may change as the layers roll out. It is always possible to retract the request if circumstances change prior to reaching the employee's layer in the organization.. Employees will be notified of the Layer 4 appointments in a similar manner to that for Layer 3. Involved employees will be notified in individual meetings with their supervisors and Human Resources representative, then meetings will be conducted to inform employees about changes in their own departments and in the company as a whole. New organization charts will be made available after all notifications are complete. [CSXT Midweek Report, 1-8-04]
CSX IS IN MIDST OF THIRD WAVE OF LAYOFFS: CSX Corp.'s third wave of layoffs began Tuesday [March 23] and continues today [March 24], part of a management restructuring plan announced in November to slash 800-1,000 non-union jobs. The intent is to make CSX, which operates the country's third largest railroad, a more nimble and efficient competitor. The company would not reveal how many or what type of jobs will be lost this round. However, only about 140 positions have been eliminated since last fall. The process is expected to end by April, suggesting this stage of cuts will be sizeable as the reorganization hits the wider swath of employees in middle management. CSX spokesman Adam Hollingsworth confirmed that while a small number of positions were eliminated Tuesday, the "majority of conversations" with employees regarding their future employment with CSX will happen today. He would not give additional details. Workers were informed by e-mail Tuesday that the third phase of cuts had begun. Affected employees will have one-on-one meetings with their supervisors. The restructuring began in December when 20 senior vice presidents and vice presidents were let go. Last month, 120 positions - largely assistant vice presidents and directors - were eliminated. The streamlined workforce is expected to save CSX $80-million to $100-million annually. Management layers are being reduced from 11 to eight. Last year, CSX had the worst operating ratio, an industry measure of profitability, of any of the country's four largest freight railroads, according to financial documents. Beginning at the top of the 24-year-old company's management, the transformation requires each management layer to redesign the layer underneath. The process both eliminates and creates positions, the company has said. [Brotherhood of Locomotive Engineers & Trainmen, 3-24-04, from article by Gregory Richards on Florida Times-Union website]
OEI LAYER 5 ANNOUNCEMENTS COMPLETED: This week, another round of announcements was made related to the Organizational Effectiveness Initiative. In this round, many organizations have completed the OEI process. However, there are still some remaining layers to be designed and staffed in CSX Technology and CSXT Field Transportation, Field Engineering, Train Control, Mechanical-Locomotive, and Police. Those announcements will likely take place within the next four to six weeks. During the OEI decision-making process, the opportunity was taken to review the banding and titling of all non-contract jobs. In the new organizations, Band 3 positions will have the title of Analyst, Specialist, or Supervisor (for those people who supervise contract employees); Bands 4 and 5 - Manager; Bands 6 and 7 - Director; Bands 8 and 9 - AVP; and Bands 10 and above - VP and above titles. For all of these, the title should read "Manager" first, followed by a more specific description of the area of responsibility. For example, in the Process Improvement groups, a title might now by "Manager Process Improvement." Titling exceptions will be found in Transportation and Engineering & Mechanical at CSXT and a few other areas where there are some traditional railroad positions whose titles will be different from the ones just listed. "While this process has been a challenge to everyone, I know that, as a result of the structure and staffing decisions made by Layer 3 and Layer 4 leaders across our organization, we have a very talented team that will bring new and diverse perspectives to our work," said Bob Haulter, senior vice president human resources. "I am confident that, once the final round of decisions is complete by late April, we will have engaged a team of people who have the talent and drive to help CSX achieve its 2004 goals." [CSXT Midweek Report, 3-25-04]
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TIMELINE OF NOTEWORTHY DEVELOPMENTS & MANAGEMENT CHANGES AT CSX FOLLOWING SPLIT DATE:
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