PSR, The Next Generation, Part 2: Implementing and Scaling PSR 2.0 for 20% to 80% Process Waste Reduction

Union Pacific photo.

RAILWAY AGE, JULY 2020 ISSUE: Precision Scheduled Railroading (PSR), as we know it today, is rapidly reaching an inflection point. Escalating trade disruptions, rail strikes, blockades, weather events and the COVID-19 pandemic have highlighted the urgency to make supply chains more resilient. Weaknesses in international supply chains have been exposed, and escalating domestic transportation turmoil demonstrates the need for end-to-end approaches, standards, solutions, and greater service level accountability and safety. PSR has been applied to some Class I’s and has yet to be applied widely to Class II, Class III, tenant and passenger railroads in North America. This gap represents 40% of North American route-miles.

The current version of PSR, which we refer to as “1.0,” has produced measurable financial, operational and service improvements. Yet, some internal growing pains continue, accompanied by shock waves absorbed by shippers, non-PSR railroads, industry partners, advocates and policymakers.

This three-part Railway Age series introduces PSR 2.0, which will take PSR to the next level, within individual railroads and across railroad and transportation “ecosystems.” It demands an entrepreneurial culture, and is geared toward increasing relevancy in a world rife with existential economic threats, increased competition and urgency to embrace the tail end of the digital age while preparing the foundation of the new era of breakthrough innovation.

In Part 1, we presented the case for mainstream adoption of PSR 2.0. It is a reliable, scalable, and high- gain approach for delivering sustainable financial results safely and securely, while building reputational equity. PSR 2.0 calls for people and the organization to make changes in how they think and operate. It differs from 1.0 by embracing entrepreneurship and partnerships across an integrated transportation ecosystem. It provides for a shared platform (voice at the table) for the parties, ensuring integrity for delivering service propositions; where shock absorbing assets and disproportionate cost are replaced by aligned service, balanced asset costs and smoothed operational flows. PSR 2.0 allows for responsiveness and resiliency to competitor moves.

In Part 2 we discuss key considerations that accelerate the realization of business and customer value, with lowered PSR 2.0 implementation cost and effort. We do this by embracing the ecosystem view of the transportation supply chain where benefits are realized for all the participants. We have provided a toolkit for leaders to succeed in the marketplace, by enabling them to invest to responsively support the needs of customers. We recommend certain cultural and capability considerations, provide tools for assessment of current state, and supply recommendations for implementing and scaling PSR implementation. With a focus on effectiveness, organizational process waste is reduced by 20% to 80%. Listen to the Rail Group On Air podcast for Part 2.

With process and technology advancements, companies either have a culture that can embrace change and pivot, or reject the change and fail. A change culture is enabled through an understanding of their capabilities. Railways must embrace external industry forces such as the Digital Business Transformation and combine them with organizational and capability maturity models. An Entrepreneurial Time-to-Market approach supports PSR implementation to leverage the potential of opportunity within the nonlinear and growing complexity of the railway industry and ecosystem partnerships.

Digital Business Transformation revolutionizes business and organizational activities, processes, competencies and models while leveraging the impacts that digital technologies bring. The current Digital Business Transformation wave is a catalyst for PSR 2.0 implementation. It raises the bar for PSR above process and technology implementation. It requires digital technology consolidation with robust business processes and productive partnerships, and navigating non-linear ecosystems and disruptive business models. It requires a framework, where elements must be top-down-driven so that the organizations, processes, digital initiatives and platforms align with business needs.

CULTURAL CONSIDERATIONS

For PSR 2.0, cultural considerations around safety and leadership are required for a successful transformation.

It is important to understand the level of cultural maturity within an organization before introducing changes. Where an organization starts is as important as to how an organization nurtures and develops its culture. The pace of effectively moving through the stages of cultural development is strongly dependent on the leadership team’s expertise.

Cultural development stages are not confined to internal “walls.” In PSR 2.0, cultural development at partnering enterprises (other railroads, industry partners, public, or enterprise advocacy/policy partners) must also be addressed.

SAFETY CULTURE

Safety is a fundamental value cultural pillar that drives all business decisions on a railway. Improved safety, security, and operational effectiveness work hand in glove. Together they lead to reliability and growth, which fully aligns with the PSR philosophy. Why do some stakeholders assert that safety is compromised with PSR? The answer depends on their stage of organizational maturity, one dimension of which is cultural maturity.

We recommend the DuPont Bradley Curve to benchmark culture and performance in relationship to safety. It classifies four stages:

• Reactive: Individuals don’t take responsibility and believe accidents will happen; safety is delegated to a lone safety manager.
• Dependent: Individuals view safety as following rules and procedures; accident rates start to decrease.
• Independent: Individuals take responsibility and believe they can make a difference with actions; accidents reduce further.
• Interdependent: The shift moves from individuals to teams that own the safety culture; “zero accidents” is an achievable goal.

As the culture matures through the progression from the reactive stage through to the interdependent stage, operational effectiveness improves, so that it gives more room for profitability while safely operating and growing the enterprise.

The organizational and ecosystem pain points experienced by PSR 1.0 early adopters (for example, where some claim that operational safety and workplace quality have decreased), indicate that those organizations may need to spend more time investing in their cultural elements. Based on cultural maturity, the development of a safety culture would come through a series of leadership and change management initiatives that may require organizational design and engineering as cultural gaps in an organization may require the infusion of people who have the cultural aptitude that were previously missing, as developing those aptitudes may require more time than what is available to achieve the transformation.

TRANSFORMATIONAL, DISCIPLINED LEADERSHIP CULTURE

The operational capabilities required to run a railroad are not necessarily the same capabilities for implementing PSR 2.0, or any other transformation. In a current state analysis, you must take stock of what types of leaders you have. Leadership teams can underestimate the complexity and capabilities required for transformational programs such as PSR. They believe they can do this on their own, with existing talent. The staff may be world-class performers in their operational day-to-day work or may deliver well on more linear, less complex mandates; however, they may not be equipped with the skills, capabilities, tools, methodologies and experience to handle a complex transformation mandate.

All rail transportation ecosystem players exhibit some diversity, agility and historic roles. The evolving landscape mandates the need for change, and embracing a broader, more receptive view. The pace of effectively moving through PSR 2.0 deployment stages is strongly dependent on both the leadership team’s expertise within each railroad and across the ecosystem.

Effective operating companies use organizational, regulatory and standards structures to evolve how they manage and conduct their business. Structure is especially important for implementing and delivering PSR 2.0 within a railroad and across the ecosystem. Disciplined leadership with deep experience is key.

The approach to lower risk and least cost is to invest in high-performing “transformation leaders,” outsourced and/or developed within, who can combine deep, practical field experience with theory. They must have a successful PSR 1.0 implementation track record, an understanding of technology, business savvy and experience in complex transformations. They must be highly adept in navigating and bridging various colliding worlds, such as real life in the field and office IT/OT projects. Throughout their mandate, they would promote and instill an entrepreneurial mindset and capabilities into their organization. Such disciplined leadership with deep experience builds reputational equity, strengthens safety and security, and drives growth, within railroads and across the railroad ecosystem.

CAPABILITY CONSIDERATIONS

For PSR 2.0, capability considerations around implementation approaches and managing large scale change are required for a successful transformation.

The Capability Maturity Model Integration (CMMI) contains appraisal tools and best practices to help organizations measure, build and improve their capabilities and improve performance. It focuses on what needs to be done to improve performance and align operations to business goals. It is used worldwide across a range of business capabilities such as Information Technology, Operational Technology, product development, service excellence, workforce management, data management, supplier management, cybersecurity, process improvement, software and hardware development. CMMI is new to the North American railroad industry.

CMMI has five Levels (see http://processgroup.com/wp-content/uploads/2018/08/CMMIV2_Maturity_Levels-full.jpg), ranging from Level 0 (incomplete) to Level 5 (optimized). Few organizations require Level 5. The baseline resets with each new wave.

• Level 0 (Incomplete): Processes are ad hoc. Work may be incomplete. For example, there is no champion to support the change initiative required to deliver PSR. Work is done instinctively and reactively.
• Level 1 (Initial): Processes are unpredictable, poorly controlled, reactive, ad hoc and chaotic. The organization does not provide a stable environment and success depends on the competence and heroics of people. Products and services that work frequently exceed budgets and schedules, and may not deliver to the committed scope of requirements and quality.
• Level 2 (Managed): Processes are characterized and planned, ensuring requirements are managed. However, execution can often be reactive. For example, a champion is in place though not engaged.
• Level 3 (Defined): Processes are well-characterized and understood, described in standards, procedures, tools and methods. They are performed across an organization and multiple projects, and managed more proactively.
• Level 4 (Quantitative): Processes are quantitatively predictable and stable. Selected subprocesses are controlled using statistical and other quantitative techniques.
• Level 5 (Optimizing): Processes are continually improved based on quantitative understanding of variation of common causes, and address variation and performance optimization.

The current wave of Digital Business Transformation and the need to adopt new technology at an unprecedented pace make operating at the lower end of capability maturity unforgiving. A reasonable target for North American railroads would be Level 3; for some aspects of Positive Train Control (PTC), Level 4 is required. These levels allow sustained performance and better alignment with other industry partners. Level 4 and Level 5 feasibility in the foreseeable future requires significant investment, supported by a detailed business case showing forecasted ROI (return on investment). The baseline also resets with each new wave of Digital Business Transformation.

“Capability traps,” where people unwittingly erode system capability by taking shortcuts and making faulty attributions on what they think needs fixing, are important to avoid. Teams may not be aware of how deeply they are embedded in the capability trap. Cultural attributes such as collective creativity, learning and knowledge are focused on maneuvering and surviving within a vicious cycle. This is where capability and culture intersect. Building capability is inextricably linked with cultural maturity. Effective methods, such as Lean Six Sigma, can be applied to develop capability maturity to overcome capability traps. This requires fully committed, aligned and consistent leadership.

ENTREPRENEURIAL, TIME-TO-MARKET APPROACH

Railroading involves complex mission- and safety-critical processes. PSR mandates a higher level of capability for implementation and delivery, such as analytics, skills, lean and repeatable processes, continuous monitoring and improvement, and handling the ripple effects of change. Shareholder expectations were high for PSR early adopters, so executives had to show progress quickly. Implementation focused on rapidly achieving PSR-attributable gains. The underlying cultural and capability maturity levels were often not considered, so the support base for the sustainment and evolution of the results were not sufficiently established.

Early adopters faced internal and external resistance while late adopters placed heavy emphasis on marketing PSR as a “bottom-line” measure to justify cost-cutting. Irrespective of adoption timelines, most railroads resorted to a monolithic implementation, also known as a “Big Bang.”

Through trial and error, more effective approaches emerged. Proof points were demonstrated in subsequent phases of PSR and PTC implementation. With the current wave of Digital Business Transformation, technological developments, and escalated competitive, economic and regulatory pressures, the “Big Bang” approach becomes increasingly risky, because success or failure are binary outcomes, that are evaluated at the end of a long and expensive implementation cycle. This is why an Entrepreneurial Time-to-Market approach is required.

Entrepreneurial Time-to-Market:

• Allocates capital and effort in stages.
• Designs in an adaptive, systematic way, while applying governance that keeps end-to-end system in mind when making decisions.
• Calculates and manages risk tightly, incrementally delivering value, earlier, to avoid binary outcomes.
• Starts small with an isolated region and supporting technologies/systems, incrementally replicating and adapting for scale and scope.
• Correlates root causes and effects through the analysis of facts and data.
• Improves performance on a “do only good/do no harm” basis.

Entrepreneurial Time-to-Market fosters capabilities in organizational agility and business precision. At the macro level, Entrepreneurial Time-to-Market enables an environment where state-of-the-art organizational change, process and technology management practices can be used effectively. Entrepreneurial Time-to-Market uses multidisciplinary process definition and monitoring through measurement to systematically architect, design, manage and control outcomes through correlation to the variables in the ecosystem. The inclusive process preserves the end-to-end value stream through the analysis of value-enhancing lifecycle elements. The method is outcomes focused, therefore the voice of all customers and employees are pervasive.

At the micro level, Entrepreneurial Time-to-Market builds capabilities to sustain performance and safety through integrated Process Management Control Systems. Safety capability evolves from a reactive instinctual state to being engineered upfront in the definition phase of Systems Engineering. People actively engage in safety as respected and accountable contributors when the capability is mature.

Entrepreneurial Time-to-Market allows for better absorption of changes as they percolate through an organization and the wider ecosystem. It makes PSR more accessible to implement, manage and scale.

MANAGING LARGE-SCALE CHANGE

A groundbreaking General Electric study found that 100% of all change efforts evaluated as “successful” had a good “technical” solution, yet more than 98% evaluated as “unsuccessful” also had a good “technical” solution. What is the differentiating factor between a successful and a failed initiative?

The study found that the effectiveness (“E”) of the change effort (results) is equal to the quality (“Q”) of the solution (tools, processes, technology) multiplied by the acceptance (“A”) by people across the company: E = Q x A.

Various frameworks and methodologies exist for managing organizational change of various scales and proportions. The Change Acceleration Process model is simple enough to be used by everyone in an organization. It states that adoption and permanency of change is predicated on the following elements of culture and capability:

• Culture: Committed and authentic leadership.
• Culture: A shared need and urgency, where the need for change outweighs resistance.
• Culture: Articulating a clear and legitimate vision of the future, once the change initiative has been completed.
• Culture + Capability: Committing to roll out change, starting with early adopters to influence and build momentum.
• Capability: Leveraging early wins, transferring knowledge gained into best practices and broader rollouts.
• Capability: Monitoring and measuring progress and holding accountability for achieving benchmarks.
• Capability: Systematically change systems and structures (staffing, IT/OT, training, organizational design, resource allocation, processes and workflows, etc.) to support the desired future state, understanding how these systems influence the behavior you are trying to change.

Change management must be applied systematically and led by experienced practitioners with solid track records of compelling a culture to embrace change, while orchestrating the requisite capabilities to render and operate the railroad in its end state. The effectiveness of change efforts depends on the quality of the solutions and the acceptance by people.

20% TO 80% PROCESS WASTE REDUCTION

These key considerations are intrinsic to starting, rendering and delivering PSR. They are multidisciplinary in nature. PSR 2.0 compels all inter and intra ecosystem entities to work together. When the cultural and capability factors are used by railroads in the Digital Business Transformation journey, process waste is reduced by 20% to 80%, in our experience, which includes statistically correlated data of our results. The level of improvement depends on cultural and capability maturity at the beginning of the transformation.

Sustained gains in operational efficiencies, financial savings, faster and more predictable delivery, defect reduction, quality improvement, opportunity cost avoidance, and improved employee and customer experience are dependent on a change that has a strong foundation in core culture and capability development.

In the transformed railroad, investment and creative energy is freed up for addressing new types of services and ways of doing business, which then forms a basis for envisioning, planning and building revenue growth initiatives.

Topics such as how railroads develop their respective capacities, standardize handoffs between partners, or leverage supporting platforms are conversations for another day!

This article is based on the novella-sized white paper, “Delivering PSR 2.0 for Entrepreneurial Railroading and its Ecosystems: The Evolution of Precision Scheduled Railroading” (Bot & Orr, 2020). Drawing from academic theory and deep practical experience, Bot and Orr comprehensively and practically unpack the myths and realities of PSR, define the vision and delivery approaches for PSR 2.0, and bring it all to life with various case studies. For more information, contact Sonia D. Bot at  [email protected]. and John F. Orr at OrrJohnF@outlook.com.

Sonia D. Bot, chief executive of The BOT Consulting Group Inc., has worked at the forefront of technology, media, and telecommunications companies worldwide, and was instrumental in PTC implementation on CN’s U.S. lines. John F. Orr, a top-level operations executive for railroading and transportation ecosystems, is a fourth-generation railroader who rose through the ranks and became CN’s Chief Transportation Officer. With E. Hunter Harrison and his successors, Orr delivered PSR operations, and continues the mission today throughout North America, Europe and Asia.