THE CANADIAN PACIFIC RAILWAY 1
TheCanadian Pacific Railway
Canadian PacificRailway (CP) is a Canadian Class I railroad having been incorporatedin 1882. It is owned by the Canadian Pacific Railway Limited, whichstarted its operations as a legal owner in 2001 in a corporaterestructuring process. Headquartered in the city of Calgary, Alberta,the railroad owns approximately 22,000 kilometers of road trackacross Canada and the United States (Wiseman, 2015). The trackstretches from Montreal to Edmonton, and as far as Vancouver. CP`srail network also covers some of the major cities in the U.S, forexample, Milwaukee, Minneapolis, Chicago, Detroit, and the city ofNew York.
Following theclose of business on November 2015, CP announced to have received anoffer to purchase all the entire Norfolk Southern Railway`s sharesestimated to be above $25 billion capitalizations of the railwaybased in the United States. If this is completed, the merger betweenCP, second oldest railroad, and the Norfolk Southern Railway, fourtholdest railroads in the northern America region, will haveestablished the largest railroad company in North America (Wiseman,2015). Therefore, the paper seeks to focus on an internal analysis ofthe railway owned by Canadian Pacific Railway Limited, itsresource-based view analysis, value chain analysis, core competencyanalysis, and Key Success Factors (KSF) characterizing CP’ssuccess.
Resource-based View Analysis
According toChoko (2015), the resource-based view of a company`s competitiveadvantage is based primarily on the use of tangible and intangibleresources within the company. The resource-based view (RBV) consistsof tangible resources – physical, financial, and technological.Intangible resources include innovation, reputation, and humanresources.
Financial: In2015, based on its financial performance, the Canadian PacificRailway Limited (CP) reported $8.41 Diluted EPS, while the adjustablediluted EPS rose to $10.10 – a 19% improvement compared to the 2014annual report. CP`s operational commitment to efficiency resulted inthe success highlighted in its full year report. On Free cash flow,CP generated $1.14 billion free cash flow, a 59% increase from thatof 2014. The increase was majorly driven by an increase in cash fromproceeds, operations, and partially offset by capital expenditures of$1.4 billion (Canadian Pacific, 2015).
On operatingperformance, CP`s focus on utilization of asset and investmentnetworks led to the Company experiencing tangible improvement`s inits major operating metrics. The end of 2015 financial report showedCP`s train speed to have increased by 18% to 21.3 miles per hour.Terminal dwell also improved by 16% to 7.3 hours and by 4%improvement in fuel efficiency to 0.994 gallons of fuel per 1,000ton-miles (Canadian Pacific, 2015). The 2016 projected outlook willsee CP`s full year report registering a drop in operating ratio to59% EPS growth by double digits and an increase in capitalexpenditure by approximately $1 billion.
Fig 1: CP’s financial performance indicators
Physical: CPcovers the central parts of the U.S and Canada with itstransportation routes covering over 14,300 miles. The latest reportindicates that CP`s railroad is currently approximated at 22,000kilometers of road track across Canada and across the border into theUnited States. The road track stretches from Montreal to Edmonton,and as far as Vancouver. CP`s rail network also covers some of themajor cities in the U.S, for example, Milwaukee, Minneapolis,Chicago, Detroit, and the city of New York.
Technological: CPuses technology improvements in its quest to increase the quality ofperformances. These technological advancements include renewal oflocomotive fleet and new locomotive designs. Choko (2015) noted thattechnologically-advanced locomotives exhibit lower fuel emissions perwork unit. Currently, CP continues to embrace new technologies forpurposes of improving efficiency, while cutting costs on locomotivefuel.
Secondly, thereis the case of anti-idling technology application. The Company hasfixed 79% of its trains with this anti-idling device. Again, thecompany is dedicated to encourage the fuel conservation group todevelop favorable strategies to further reduce fuel consumption.Other technologies employed by the company to improve fuel efficiencyinclude friction reducing technology, a fuel optimization softwareapplication.
Human resource:The Company’s human resource engages in the management function,which involves recruitment, evaluation, placement, development, andcompensation of its entire workforce. Initially, the company`s humanresource had not fully embraced a computer-based system to handle itsHR functions. Today, CP is known to have welcomed the use ofcomputer-based information systems in its generation of employeepaychecks, maintenance of personnel records, and print out of payrollrecords.
Innovation andCreativity: CP has a rich history of innovation and creativity. In2003, for instance, the company was presented with the Franz EdelmanAward for being the best in Operations Research and ManagementSciences (Wiseman, 2015). It is an international award, whichrecognizes excellent work in operations research at theorganizational stage. The award is presented every year by theOperations Research Institute and Management Sciences (INFORMS).Although rail is considered an old technology, railways today engagein complex operations and thus the need to embrace creativity toreduce workload and increase efficiency.
Daily, CPreceives over 10,000 new shipments and customers. It has to move themefficiently and safely over its 14,000-mile track network. In theplanning process, CP has to account for maintenance of track windowsand connections with other different railway networks. All theseimportant connections account for 39% of the Company’s operations(Canadian Pacific, 2015). The company must integrate and manage acomplex set of assets and other practices more efficient in its dailyengagements. Therefore, CP has embraced communication and informationtechnologies in the transformation of how it handles its dailybusinesses. CP has also designed new data-driven technologies tooffer set of opportunities to avoid failures.
Reputation: CPcontinues to enjoy massive dominance in railway services in bothCanada and the United States. Before, the company`s reputation wasshaky largely attributed to some factors. However, in the recentpast, CP is applauded for taking a step forward in the murky watersof embracing information technology in its operations. For instance,it is recognized for shipping over 6,000 customers daily over 19,000distinct origin-destination pairs (Wiseman, 2015).
Value ChainAnalysis is an essential tool for calculating how you can create thebest possible worth and value for your customers (Wiseman, 2015). Inthis case, CP is a company paid to handle raw inputs and add value tothem by making them valuable to other people.
Inboundlogistics: The Company’s inbound logistics is between the companyand its suppliers. These include transport, storage, and delivery ofproducts into the company. CP procures goods and services from itssuppliers, which includes human resources, sales and marketing, andcorporate travel. The suppliers` quote include making an appointmentwith the Company, use the railway space or container in the company`sterminal, and then moves the facility to the company`s uploadingprocess. Specific suppliers` services are listed in the Company’sDetailed Transportation Service Menu (Choko, 2015). The suppliers areresponsible for ensuring the company`s delivery area is safe andspacious to accommodate the shipment.
Operations: CPengages in transcontinental railway business between Canada and theUnited States. The company`s diverse businesses include merchandisefreight, bulk commodities, and intermodal traffic approximated tocover over 12,000 miles network. Its operations serve the principalcenters of Canada from Quebec and Montreal, to British Columbia,Vancouver, and the United States. CP operates one segment of railtransportation. Although the company offers a revenue breakdown bybusiness line, its operational and financial performance in entiretyis analyzed as a single segment because of the integrated nature ofits rail network (Choko, 2015).
Outboundlogistics: According to Wiseman (2015), outbound logistics refer togoods from suppliers in inbound logistics going out of the business.CP transports bulk commodities comprising of coal, grain, fertilizer,potash, and Sulphur. The Merchandise freight going out of the companyconsists of automotive parts and finished vehicles, consumer, forestand industrial products. The intermodal traffic includes retailcommodities in overseas containers, which can be transported bytrain, ship, or truck. Intermodal traffic also includes domesticcontainers out of the company.
Fig 2: CP’s main outbound logistics
Marketing andSales: The Company`s sales are primarily received through freighttransportation. Non-freight sales are generated by switching assets,leasing, operator contracts, and services in logistics management.Changes in freight sizes contributed to changes in freight sales andother variable expenses, for example, crew costs and equipment rents.
In 2005, Freight revenues stood at $6,552 million, $188 million or1% increase from $6,463 million in 2014 (Canadian Pacific, 2015). Theincrease in CP`s sales was due to the positive impact in FXdifference of $549 million. The Company also registered an increasein the Canadian grain sales because of exports increase.Additionally, this increase was offset partially by the influence oflower prices of fuels and surcharge total revenue of $334 million.The offset was also due to lower sizes of minerals, metals, crude,and consumer products. In 2014, total freight sales stood at $6,463million, rising by $483 million or 7.8% from $5,984 million in 2013(Canadian Pacific, 2015).
This particularincrease in freight revenues over the past two years was primarilydue to higher volumes registered by the Canadian grain, Crude oil,Metals, Domestic intermodal, consumer products, and minerals. Othersinclude higher rates of freight and favorable environment of FX`schanges. The increase was partly offset by lower shipments inautomotive and international intermodals because of the exit ofspecific customers and contracts (Choko, 2015). Other reasons includelower Sulphur and fertilizer shipments due to shutdowns in Sulphurproduction, and lower shipments, especially in certain lines of itsbusiness operations in the first year. This was because of harshwinter conditions to handle operations.
In CP`snon-freight revenues, the Company recorded $161 million in 2015, a $4million or equivalent of 3% increase from $155 million in 2014(Canadian Pacific, 2015). The increase was because of the favorablebusiness environment at the FX`s change. In 2014, non-freight saleswere $155 million, $5million rise or equivalent of 3% increase inrevenue up from $150 million in 2013 (Canadian Pacific, 2015).
On matters marketing, CP focuses on changing its overall image to amore appealing one, once characterized by a tough, cold, terrible,and inhospitable country that was Canada. CP`s marketing operationsrange from simple things such as selling the Company using leaflets,posters, and brochures printed in different languages. CP doesrigorous advertising as part of its marketing operations. Newofferings are advertised through the realms of commercial art fromsilkscreen studios in Montreal. CP applies marketing strategies inits quest to sell the company`s brand, products, and services. Themarketing strategies currently in operation at CP include the B2Bbranding, target market, product or service, promotion, pricing,communication methodologies, and sales and distribution.
Service: CPoffers services ranging from intermodal shipping, logistic solutions,trucking and Trans load, and network and facilities. Choosing CP`sintermodal shipping services mean combining convenience and deliverywith a more reliable, cost-effective rail transportation (Choko,2015). The Company`s intermodal services are strategic. With close to10 well-positioned terminals, CP connects primary centers acrossCanada and the United States. The Company has two main intermodalservices: Door and terminal direct intermodal services.
CP focuses on improving services, cutting costs, and entering newmarkets. From the origin of the product to its destination, by sea orland, the Company`s operations team manages its customers` shipment,handling service suppliers, performance metrics, and consolidatinginvoices. The company has knowledge and experience of customizingsolutions to suit its customers` needs, while remaining competitive.
On Trans load andtrucking services, CP`s network covers dock-to-dock needs. A railwayline draws on the vast capabilities and access to the local market.It has over 100 Trans load facilities in North America reaching bothrail and non-rail customers. The Company`s trans-load network ishandled by major business partners committed to excellent customerservice. Its trusted partners have virtually all commercial products,which can be shipped by truck and rail networks (Wiseman, 2015). Theoperators avail all the necessary equipment and facilities to bemanaged by responsive and experienced on-site managers. CP is servedby numerous optional routes across the U.S and Canada with easyaccess to North America.
Procurement: Thisinvolves activities that concerns how the company`s resources areacquired and used for business for example, negotiations and sourceswith the suppliers (Choko, 2015). CP`s procurement procedures involveprequalification, consultation, tender invitation, and franchiseaward. The first step involves giving out Prior Information Notice(PIN) that sets out resources anticipation program for theprocurement of a business franchise. It also includes specificationof the relevance of the business.
In line with thepre-qualification process, BP`s procurement department consults therelevant transport administration authorities regarding the servicesto be specified in the contract before the issuance of ITT. Thedepartment then considers potential partners for servicesspecifications. Others things taken into account include widerfranchising, transport, and economic objectives.
Invitation totender (ITT) is a procedural approach that requires the participantsaccredited with ITT receivership to handle the franchise. ITTcomprise of a base service specification that sets out servicefrequency. This service frequency offers set destination along otherrequirements to manage or operate particular resources. Resourceswill only be approved after affordability, wider objectives, valuefor money, and after arriving at a judgement (Wiseman, 2015).However, the procurement department rejects a bid that does notcomply with the specification of base service. The resources areacquired from a bidder that offers the Company the best, favorable,and robust proposition, based on price terms and reliability.
Human ResourceManagement: It includes those activities that concerns recruitment,motivation, development, and rewarding the business workforce (Choko,2015). The Company’s HR management plan is powerful with over15,000 cutting across intercontinental borders from Canada to theUnited States. The Company`s HR and Industrial Relations (HRIR) teamsdevelop a continuous process to come up with new and favorable waysto create a work environment that supports both the individual andcompany goals (Canadian Pacific, 2015). HR management engages withthe relevant parties within the Company, especially with the managersand other senior employees, which also include Industrial Relations,HR field, Total Compensation, HR Service Centre, and HR Developmentand Planning, to execute the processes of employee recruitment,motivation, and rewarding.
TechnologyDevelopment: Involves activities that are concerned with managinginformation processing, development, and protecting ideas and crucialknowledge in a company`s operations (Choko, 2015). As a business thatis in operation 24 hours a day and 7 days a week, CP depends heavilyon technology. The use of Information Technology (IT), for instance,is scheduled and management by the company to plan and operate itsnumerous components efficiently. Applications in IT map outinterconnections of the Company’s freight cars, facilities,locomotives, and train crews to more than 9,000 individuals every.
Core to theCompany`s success has been the innovation of product design softwareknown as the MultiRail. MultiRail is an application full-integratedto allow the Company to refine and evaluate its operational planstrategy. The software creates and delivers a balanced plan to attendto the shipper`s requirements, considerations, including assetutilization. CP modeled the IOP by fully integrating it MultiRailthat uses traffic data (Wiseman, 2015). This integration into theoperation control systems allows the company to move from theplanning phase into the execution phase. It allows the quick andefficient reaction to change opportunities and business conditions.
Anotherapplication is the Train Area Marshalling (TrAM). CP Introduced theTrAM application, which is a comprehensive train marshaling set ofrules and supports IT tools that enable the Company to become theindustry`s leader in DP (Distributed Power). The Company utilizesthis technology on most of its trains. TrAM provides positioningtechniques in multiple locomotives in specified sections within thetrain (Canadian Pacific, 2015). By doing so, the Company is able tomaintain in-train sections within acceptable limits that optimize andguarantees safety and reduces equipment’s wear and tear. Othertechnology developments include the Truck Rail Intermodal Excellence(TRIEX), Mycirca, Engineering Excellence, and Equipment HealthManagement System (EHMS).
General Administration: Major changes of executive officers havegiven the Company a new face in its general administration andoperations overseeing. On 11th February 2015, CP announcedthat the then Executive Vice President and CFO (Chief FinancialOfficer), Mr. Bart W. Demosky, has left the company. Three monthslater, the Company announced that Mr. Mark J. Erceg has beenappointed as the Executive Vice-President and CFO. He assumed work on18th May 2015. In October 2015, CP announced that Mr. Paul Guthrieplans to retire within the first three months of 2016 (CanadianPacific, 2015). He had served as the Special Counsel to the Company`sCEO to facilitate the transition. On November 2015, Mr. Jeffrey Elliswas appointed as both the Corporate Secretary and Chief Legal Adviserto the Company.
The Company`s general administration also made up of the Board ofDirectors. Since May 2015, Mr. Keith Creel and Hon. John Baird becamepart of the BOD of the CP through an election. Mr. Stephen Tobiasresigned in July 2015. He was the member of the Company`s BOD havingjoined in 2012. Mr. Andrew Reardon serves as the current Chairman ofthe BOD since July 2015. Mr. Colter joined the BOD in May 2012 andbecame the Chairman until May 2014.
Core Competency Analysis
Core competencyrefers to a management theory concept defined as the "harmonizedcombination of skills and multiple resources that separate a companyin the industry" (Choko, 2015). Core competencies are made up ofthree criteria: They provide possible access to market varieties,contribute to customer benefits, and are difficult to be imitated bycompetitors.
Organizationalcapabilities refer to the company`s ability to handle resources, forexample, the employees’ ability to handle operations effectivelymeans having an added advantage over their rival business or company.CP strives to retain and attract dedicated and professional personnelfor purposes of sustainability in safety and financial performances.Both the Company`s goals and objectives revolve around incentiveprogram aims at measuring and maintaining standards that are tiedclosely to its set objectives, for example, the return on capital,free cash, safety, and reduction of expenses (Wiseman, 2015). To makesure the Company is set for success, crucial elements used in humanresource management include its ability to protect and maintaintalent base aimed at meeting the prospects of freight volumes. Othersinclude the Company`s capability to implement processes, whichaddress its productivity goals and emerging demographic shifts.
Over the next four years, approximately one-third of the company`semployee base will retire. CP`s demographics offer an opportunity forthe implementation of change process. The Company is capable ofproviding unique opportunities for all its employees to engage in thetransfer of knowledge, development of new skills, and participate innew roles within the Company. To facilitate continuous success, theCompany undertakes an in-depth review of its cross-functionaloperational processes to make sure it streamlines opportunities(Choko, 2015). CP also can pursue certain techniques that willsupport a more productive and functional workforce. The Company isalso able to introduce a new ideological approach to facilitate theculture of employee improvement.
The company isalso capable of implementing automated inventory report systems aspart of its approach. This system allows its train crews to recordand report card transactions in real-time. These enhancements allowtransfer of immediate updates to the Company`s rail-asset inventoriesfor purposes of planning and application, while improving on waybillaccuracy. The organization is also capable of handling vast employeenumbers. For instance, the Company employs approximately 15000employees, 75% of them operating in Canada and the remaining in theUnited States (Canadian Pacific, 2015). Choko (2015) noted that theorganizational capabilities allow CP to focus on the business` effortto meet the customer demand.
SpecificKnowledge, Skills, and Abilities: CP`s operations knowledge,workforce skills, and abilities are curved in its network andinterline management. For instance, specific knowledge involves thecompany`s agreements and business arrangements with other railnetworks to include regional Class I railroad. Having this kind ofknowledge enables CP to offer its wider range customers morecompetitive services, while extending the business` market reach toall part of North America. Having specific knowledge in businessenables the Company to stay ahead of its competitors.
CP`s abilitiesand employee skills allow it to improve its network planning,standardized processes, and shipment visibility, to make sureshipments arrive on time. The Company`s workforce has the necessaryskills to address issues whenever shipments fall behind schedule.These skills also allow the workforce to operate Customer Self-ServeSystems to improve their shipment visibility. Automated/assisteddispatch and advanced optimizer programs require the necessary skillsto help with the optimization of rail performance.
VRIO Analysis:VRIO Analysis refers to an analytical technique in that for eachresource type, there are several considerations in the evaluation ofdimensions for both the company and its competitors (Wiseman, 2015).
Value – CP ispreferred for its value in generating growth for quality revenuethrough the realization of benefits in its bulk, intermodal business,and merchandise with sets of targeted capacity investments linkedwith opportunities around the world. The Company`s value is measuredby its quality in productivity (Choko, 2015). CP leverages onoperating partnerships and strategic marketing, while adding morevalue to its assets and resources.
Rareness – CP`squality customer care services and modernized operations enables itto create rareness in the market compared to its rivals. As a result,the Company creates a market environment that allows room forcreativity and innovation. Its rarity also allows increased demandfor its infrastructure and more opportunities, while increasingdemands from its customers in the industry.
Imitability –CP uses the cost of imitation, which is often high to gain addedcompetitive advantage, because of these reasons: its unique history,social complexity, patents, and causal ambiguity (Wiseman, 2015). TheCompany enjoys rare history having been among the oldest railwaycompanies.
Organization –CP is a firm that is ready, organized, and is capable of exploitingresources at its disposal. The Company is well-positioned to takeadvantage of opportunities in the industry. The marketplace allows CPto exploit available resources, which includes carload (bulk), grain,and coal. It has improved network capabilities standardizedprocesses, and shipment visibility that allows easy organization ofthese resources. Additionally, the company enjoys ample engineeringand mechanical spaces.
Key Success Factors
These are acombination of essential facts that are required to accomplish thecompany`s desirable goals (Wiseman, 2015). For Canadian PacificRailway, these Key Success Factors include managing and developingits workforce, strategic focus, operations, and customer relations.
Strategic Focus –Canadian Pacific is facilitating change as it tries to maneuver itstransformational journey to become the leading railroad in Canada andthe United States. It also creates long-term value for both thecustomers and shareholders. CP is focused on providing customers withleading rail services, profitable growth, driving sustainability,assets optimizations, and costs reductions, while remaining a saferrailway (Choko, 2015). Focusing on the future, CP attempts to executea strategic plan to lower costs in rail carriers centered on keyfoundations that are performance driven in the Company. Thesestrategies include providing services, central costs, optimisticassets, safe operations, and individuals` development.
CP seeks toprovide consistent and efficient transportation solutions to itscustomers. Through centralized planning and in alignment with localexecution will bring the Company closer to its customers and speed updecision-making process. Costs control process will require astrategic focus that removes unnecessary costs from the company,elimination of bureaucracy, and continuation of productivity. In theoptimization of assets, the Company tends to improve utilization ofassets by having longer sidings, increase train lengths, and increasevolumes of locomotives.
Managing anddeveloping the workforce – CP identifies that there are no otherfoundations that can be achieved or succeed without the people. Thesepeople make up the Company`s workforce. Every employee working at CPis considered a railroader. The Company shapes a new culture as partof its strategic focus to nurture and manage people to have a passionfor service, while serving with integrity in every function.Additionally, mentoring and coaching managers to be leaders withinthe company will assist in driving the Company`s operations forward.
Operations –CP, through its vast subsidiaries, carries out its operations – atranscontinental rail business in the United States and Canada, andoffers supply chain expertise and logistics solutions. CP alsoengages in intermodal, and rail operation services over a vastnetwork approximated at 12,500 miles. The Company`s operations servethe main centers of British Columbia, Vancouver, Montreal, and Quebec(Canadian Pacific, 2015). The Company`s engagement with other railcarriers expands its operational market to the Far East of Montreal.CP`s transport bulk merchandise, commodities, and intermodal traffic.Operations on bulk commodity include the Canadian grain, coal,potash, U.S grain, Sulphur, and fertilizers. The merchandise freightcomprises of automotive parts, finished vehicles, crude oil,chemicals and plastics, minerals, metals, and other consumer products(Choko, 2015). Operations on intermodal traffic are made up of timesensitive, high-value retail goods in massive containers, which canbe transported by ship, train, and truck.
Customerrelations – the success of the Company largely lies on the abilityto handle its customers. Railway services to unit train, and carloadcustomers at the origin consist of the shipment and customerplacement. The Company engages in supplementary performances, whichincludes in-plant switching. The shippers are often located on theoutside of a switching zone, for example, forest products, and grainelevators to have their switching customer services from theCompany`s freight train. This is a train that handles its operationsbetween the railways terminals, while it provides customers locatedon its route. The Company`s success is based on its ability tooperate the industrial switching engagements that define particularoperations on specific days of the week at particular times.
Limited (CP) primarily serves Canadaand the United States. It majorly operates the rail servicetransportation with the majority of its operations covering railcenters as Milwaukee, Minneapolis, Chicago, Detroit, and the city ofNew York. Canadian Pacific (CP) is the Canadian Class I railroad, acompany characterized by numerous operations ranging from intermodalservices to merchandise, bulk, and transport.
Therefore, the paper looked at the Company from an internationalperspective to identify details that make it one of the leadingrailways in Canada and the United States. The main focus of the paperincludes components such as the resource-based view analysis. Thisanalysis comprises of its financial, technological, physical, humanresources, reputation, and innovation and creativity factors. Othercomponents are value-chain analysis – inbound logistics, outboundlogistics, operations, service, and marketing and sales.Additionally, the paper managed to analyze core competencies, whichinclude organizational capabilities, VRIO Analysis, and Key SuccessFactors. KSF touched on the success of the Company from theperspective of managing and developing the Company`s workforce,strategic focus, operations, and customer relations.
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Choko, M. (2015). Canadian Pacific: Creating a Brand, Building aNation. National Book Network.
Wiseman, B. (2015). The building of the Canadian Pacific Railroad.