Keith Creel: Lessons from Life on the Railroad
Keith Creel, CEO of Canadian Pacific Railway, shares his leadership strategies and how he transformed CP into a top-performing rail. He discusses the intricacies of the rail industry, future changes, and the $27 billion acquisition of Kansas City Southern.
Deep Dive Analysis
17 Topic Outline
Introduction to Canadian Pacific Railway and Keith Creel
Common Misunderstandings About the Rail Industry
Efficiency of Rails vs. Trucks in Freight Movement
Future of Driverless Trucks and Trains
Challenges of High-Speed Rail and Freight Train Speed
Understanding Precision Scheduled Railroading (PSR)
Continuous Improvement and Asset Optimization in Rail
Balancing Efficiency with Resiliency in Network Capacity
Strategic Customer Relationships and Valuing Service
Managing Volume Variance and Surge Capacity
Rail Network Evolution with Reshoring and Ally-Shoring
CP's Internal System for Business Execution and Capacity
Leadership Lessons from Hunter Harrison
The Importance of Doing the Right Thing as a Leader
Business Insights from Investor Bill Ackman
Behind the Scenes of the Kansas City Southern Acquisition
Long-Term Vision and Societal Impact of the KCS Merger
5 Key Concepts
Precision Scheduled Railroading (PSR)
An operating model pioneered by Hunter Harrison that defines a process for every aspect of freight movement, akin to lean manufacturing. It focuses on process refinement, managing to outcomes, and optimizing assets to create reliable, scheduled service at a lower cost.
Freight vs. Passenger Rail Conflict
Mixing heavy, slower freight trains with lighter, faster passenger trains on the same track infrastructure creates safety and capacity issues. Freight trains require different track geometry for curves than passenger trains, making it difficult to optimize for both simultaneously without compromising safety or efficiency.
Common Carrier Obligation
A legal understanding in the rail industry that requires railroads to provide service to any customer that comes to them. While terms and service expectations are negotiable, the core obligation to provide rail service remains.
Building a Church for Easter Sunday
A mental model suggesting that a business should not over-engineer or overspend on capacity to meet only peak demand. Over-investing for rare maximums can make the business unsustainable during the much longer periods of lower demand, leading to financial failure.
Ally-Shoring
A trend related to nearshoring and reshoring, where companies move their supply chains and production to allied nations. This strategy aims to enhance supply chain resilience and security by fostering stronger economic ties with geopolitically aligned countries.
8 Questions Answered
People often lack the understanding that if the rails don't run, the products and goods essential for daily life and the economy simply don't move. The rail industry is the backbone of the economy, especially evident during supply chain challenges.
Rails are more efficient due to their size and scale; they operate on dedicated assets and can haul significantly more weight with many more cars, leveraging technology and efficiency, unlike trucks that have weight limitations and share public infrastructure.
High-speed passenger trains often run on shared freight rails in North America, creating conflicts due to different infrastructure needs. Heavy freight trains require slower speeds around curves, while passenger trains need super-elevated curves for high-speed turns, leading to safety and capacity issues when mixed.
CP seeks a balance, avoiding over-engineering for rare peak demands (like 'building a church for Easter Sunday') to maintain financial viability. They incorporate some surge capacity, particularly for seasonal demands like grain harvests and winter operations, while continuously refining processes for efficiency.
CP employs a 'triangle' approach where a dedicated asset utilization group works with marketing and operations. This group assesses track, yard, people, locomotive, and car capacity, signing off on new business only when sufficient capacity is confirmed, preventing over-commitment and maintaining service quality.
Creel learned that a leader's primary job is to produce results by selecting the right people, fostering the right culture, providing motivation, and holding individuals accountable. Leaders must also be willing to 'do the right things, even when they're not the comfortable thing to do' to drive necessary change.
Creel learned that Bill Ackman focuses on the long-term sustainability and profitability of a company, even advocating for significant capital investments in infrastructure. Ackman's approach prioritized long-term value creation over short-term gains, challenging common perceptions of activist investors.
The acquisition aimed to expand CP's network reach into Mexico and the U.S. markets south of Kansas City, creating a seamless, end-to-end network with minimal overlap. This combination was intended to unlock significant value by eliminating handoffs, increasing efficiency, and enhancing supply chain resilience across North America.
61 Actionable Insights
1. Leaders: Results via People & Culture
As a leader, prioritize producing results by ensuring you have the right people on your team, fostering a supportive culture, and providing the necessary motivation for them to succeed.
2. Lead Uncomfortably, Do Right
As a leader, consistently choose to do what is right, even when it is uncomfortable, as this defines true leadership and leads to success.
3. Leadership: Vision, Purpose, Accountability
Effective leaders must create a clear vision, articulate what is important and why, hold people accountable, and consistently motivate their team to achieve shared goals.
4. Define & Manage Processes (PSR)
Implement Precision Scheduled Railroading (PSR) by defining a clear process for every step of your operation, then apply the right people and measures to consistently deliver the service your customers desire.
5. Apply Lean Manufacturing Principles
Adopt lean manufacturing principles by clearly defining each process, establishing what ‘good’ looks like for that process, and then actively managing towards that desired outcome.
6. Fix Engine Before Growth
Before pivoting to aggressive growth, prioritize ‘fixing the engine’ by implementing core operational models like PSR, fine-tuning assets, establishing the right culture, and optimizing all internal processes to ensure a strong foundation.
7. Don’t Oversubscribe Capacity
Avoid oversubscribing your network or capacity, as exceeding your ability to produce a product destroys customer trust and can lead to the collapse of your entire business model.
8. Measure, Tweak, Refine Continuously
Consistently measure what matters to understand performance against desired outcomes, then continuously tweak and refine processes and people to improve the product or service.
9. Balance Short & Long-Term
In a publicly traded company, balance the need to show short-term momentum with long-term sustainability, but never compromise safety and operational integrity for short-term gains.
10. Focus on Long-Term Sustainability
Adopt a long-term perspective on business success, prioritizing sustainability and enduring profitability over short-term gains.
11. Set Ambitious, Stretching Goals
As a leader, set the bar exceptionally high to encourage people to stretch and achieve significantly more, even if they don’t reach the absolute peak of the goal.
12. Deeply Understand Business Details
Develop a profound understanding of every detail of your business, drilling down to the root cause of issues and defining what ‘good’ looks like, even for things you initially believe are impossible.
13. Consider Unintended Consequences
When making decisions or assessing issues, look beyond the immediate problem to consider all potential unintended consequences that could arise later in the process.
14. Cultivate Deep Operational Knowledge
To effectively manage and optimize processes, cultivate a deep, detailed understanding of all operational aspects, similar to an expert who knows every ’nut and bolt’.
15. Prioritize Continuous Training
Recognize that perfection is unattainable and people naturally cycle out; therefore, continuously retrain and develop your team to sustain success and ensure processes are executed effectively.
16. Deliver on Promises Reliably
Prioritize reliability by consistently doing what you say you will do, as this builds trust and defines true service for your customers.
17. Offer Premium, Reliable Service
Aim to provide a premium, reliable service that customers are willing to pay more for, similar to UPS, rather than a basic, less dependable option.
18. Enforce All Rules for Safety
Do not apologize for prioritizing safety; enforce all rules consistently without picking and choosing, as every rule contributes to a safe operating environment.
19. Every Rule Matters for Safety
Understand that every single rule is important for safety, as failing to follow even one could lead to severe harm or loss of life.
20. Lead by Example
As a leader, always lead by example and never ask your team members to do anything that you are not willing to do yourself.
21. Correct Unsafe Behavior Immediately
When you observe unsafe or rule-breaking behavior, immediately stop and address it directly with the individual to correct the behavior and reinforce expectations for the future.
22. Address Observed Rule Violations
As a senior officer, if you observe a rule violation, you must address it; failing to do so validates bad behavior for the employee and sets a negative precedent for other officers.
23. Admit Mistakes, Address Issues
Be willing to admit when you are wrong and commit the necessary time and effort to go back and directly address issues that need correction, even if it’s uncomfortable.
24. Avoid Permissive Management
In high-consequence environments, avoid permissive management where individuals create their own work practices, as this leaves little room for error and can lead to severe consequences.
25. Address Conflict Directly
As a leader, avoid ’looking the other way’ when rules are violated or conflict arises; instead, step into uncomfortable discussions to address issues fairly and impartially.
26. Invest in Safety & Efficiency
Prioritize and commit to investing whatever is necessary in infrastructure to ensure operations are both safe and efficient, even if it means unplanned capital expenditure.
27. Align End-to-End Capacity
When planning capacity, ensure that investments in the core of your operation are matched by corresponding capacity at the ‘bookends’ (e.g., ports, loading facilities) to avoid bottlenecks.
28. Foster Multi-Stakeholder Partnerships
Actively seek partnerships between government, customers, and industry peers to coordinate investment and develop best practices, especially when addressing complex supply chain challenges.
29. Coordinate All Stakeholders
For large-scale projects or national infrastructure, ensure close coordination and combination of efforts between all relevant parties, including industry, customers, and government, to achieve success.
30. Centralize Capacity Matching
Establish a dedicated team or individual to methodically match all forms of capacity (track, yard, people, locomotives, cars) with marketing opportunities before selling a product, preventing overcommitment.
31. Integrate Key Business Functions
Break down silos by creating a triangular decision-making structure where marketing, capacity/asset utilization, and operations collectively make decisions to ensure alignment and prevent over-commitment.
32. Focus on Core Competencies
Instead of trying to do everything, identify your core strengths and focus on excelling at those few things, becoming exceptionally good at them.
33. Connect Work to Bigger Cause
Empower people by allowing them to contribute to something larger than themselves, fostering a sense of accomplishment, pride, and satisfaction that naturally breeds further success.
34. Plan for Expansion, Stay Stable
Continuously plan for future expansion opportunities by maintaining financial stability, ensuring that when the right moment arises, you have the resources to invest and capitalize on it.
35. Recognize Power of Expanded Reach
Understand and actively seek opportunities to expand your reach, as it can unlock significant new customer solutions and market opportunities.
36. Match Sales with Infrastructure
When expanding into new markets or selling new products, ensure that sales efforts are immediately matched with necessary infrastructure investment to guarantee safe and efficient delivery.
37. Evaluate Deals: Certainty & Value
When evaluating business deals, especially large acquisitions, prioritize certainty and value as the two fundamental criteria for decision-making.
38. Win with Facts & Regulatory Feasibility
In competitive battles where you lack superior financial power, focus your strategy on leveraging facts and demonstrating superior regulatory feasibility to win.
39. Fight with Truth
When facing a competitive challenge, adopt a strategy of fighting with the truth, presenting undeniable facts and realities.
40. Articulate Clear ‘Truths’
When presenting your case, clearly articulate the ’truths’ that highlight the strengths of your position and the weaknesses or risks of alternatives.
41. Know When to Stop Bidding
Understand your financial and strategic limits in a bidding war; know when to draw a line in the sand and refuse to overpay, even if it means not winning the bid, to avoid destroying the company.
42. Attack Regulatory Feasibility
In a competitive acquisition, if you cannot win on price, focus your strategy on challenging your competitor’s ability to secure regulatory approval.
43. Understand Regulator’s Public Interest
Deeply understand the regulator’s definition of ‘public interest’ (e.g., creating more competition) and align your strategy accordingly, recognizing that deals not serving this interest are unlikely to be approved.
44. Engage Key Stakeholders Directly
In critical situations, personally engage with a significant portion of key stakeholders (e.g., shareholders) through direct, one-on-one meetings to advocate for your position.
45. Highlight Unique Value, Reduce Uncertainty
When persuading stakeholders, emphasize your unique, irreplaceable value proposition and highlight how your approach reduces uncertainty, encouraging them to wait for a clearer outcome.
46. Advise Patience for Clarity
When facing a premature decision, advise stakeholders to wait for critical information or regulatory rulings, assuring them that the alternative option will still be available if your prediction is incorrect.
47. Seek Win-Win Stakeholder Value
In major transactions, aim to create significant, long-term value for all stakeholders—employees, shareholders, communities, and even nations—ensuring it’s a necessary combination for broader good.
48. Serve Cause Greater Than Self
Find motivation and drive by serving a cause greater than yourself, as this commitment can sustain efforts and exceed purely financial benefits over the long term.
49. Master & Apply Insights
Actively seek to master the proven insights and wisdom of others and then apply these learnings directly to your own life to improve outcomes.
50. Articulate & Commit to Change
When implementing change, clearly articulate both the ‘why’ and ‘how’ of the change, and then commit to sticking with it, even when it feels uncomfortable, to achieve greatness.
51. Innovate for Efficiency Safely
Continuously seek ways to innovate and become more efficient in your industry, always ensuring that safety remains the top priority in all advancements.
52. Avoid Over-Engineering for Peaks
Do not over-engineer or over-invest in capacity solely for peak demand, as this can create unsustainable costs and lead to business failure during normal operating periods.
53. Maintain Constructive Tension
While pursuing efficiency, ensure you maintain ‘guardrails’ and constructive tension, avoiding cuts that go ’to the bone’ and damage your ability to produce the product.
54. Customize Customer Solutions Selectively
Instead of taking all business, meticulously analyze specific needs (e.g., origin-destination pairs) and selectively customize solutions with customers to ensure you can meet commitments and build long-term trust.
55. Build Trust for Co-Investment
Establish strong trust with customers, then leverage that trust to negotiate mutual commitments for asset investment, allowing you to uniquely grow your network and services in partnership.
56. Encourage Accurate Forecasting
Encourage customers to provide the most accurate forecasting possible, as more information enables better planning and optimization of your operational models.
57. Lengthen Your Success Timeline
Gain a significant advantage by adopting a longer timeline for success, especially in environments focused on short-term quarterly or weekly results.
58. Treat People with Respect
Maintain a foundational belief in treating all individuals with respect in your interactions and leadership.
59. Ensure Job Accountability
Hold individuals accountable for their job performance, understanding that if they do not fulfill their responsibilities, someone else will need to step in.
60. Follow Checklists Diligently
Adopt the habit of diligently following every step of a checklist, like a pilot, to ensure safety and successful outcomes, especially in critical operations.
61. Know Limits, Plan Counter-Strategy
In competitive situations, clearly define your financial and strategic limits, and simultaneously develop a precise plan for how you would counter a competitor’s move.
5 Key Quotes
In your career, you're going to work with a lot of managers that want to do things right, but very few that want to lead, and leaders do the right things, even when they're not the comfortable thing to do.
Keith Creel (attributing Hunter Harrison)
You can't build a church for Easter Sunday. If you do, you go out of business the other 51 weeks out of the year, because you can't pay to sustain it.
Keith Creel (attributing Hunter Harrison)
I don't care how much I like you. If you don't do your job, there's somebody else that's going to come in to do it for you. I've got that responsibility.
Keith Creel (attributing Hunter Harrison)
Any deal, it depends on certainty and value. Those are the two key fundamentals that a board of directors have to take into account.
Keith Creel (attributing Bill Ackman)
You don't ask your people to do anything you're not willing to do yourselves.
Keith Creel
1 Protocols
CP's Capacity Management and Business Pursuit System
Keith Creel- Create a unique position/team that acts as an intermediary between the CEO and marketing.
- This team assesses all new marketing opportunities and potential business demands.
- Verify that sufficient track capacity, yard capacity, people capacity, locomotive capacity, and car capacity exist to meet the demand.
- Only after the capacity is confirmed and signed off by this team, can the product or service be sold to the customer.
- Ensure collective decision-making among marketing, asset utilization, and operations to eliminate silos and prevent over-commitment.