RailTex lines are designed to be almost like autonomous companies. They are separately incorporated entities rather like franchises. The general managers have total authority in everything from hiring and firing to setting prices with shippers and the connecting class-one lines. Flohr wants his field managers to be entrepreneurs, with bottom-line responsibility and profit-based compensation.
"We're building the company with an eye to acquiring a lot more small railroads, and we feel the only way we can manage it is to have this decentralized structure," he says. "Decisions are best made at the local level, where all the information is available." Headquarters' role is to set the policies upon which local decisions can be based.
So far the approach has worked. Last October Railway Age named RailTex the Short-Line Railroad of the Year.
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Throughout the high-growth period of 1990 to 1992, however, Flohr was wrestling with his evolving role. Change was everywhere -- even the cramped start-up quarters were giving way to roomier digs. Money was no longer a big worry. Profits were strong, the company's private stock placements were oversubscribed, and Flohr was drawing on $40 million in bank credit to finance acquisitions. With venture capitalists as investors, a public stock offering was on the horizon.
With solid, seasoned managerial talent in all key positions, RailTex could pretty much run without him. Big internal decisions -- locomotive purchases, for instance -- were routinely delegated to others. While remaining steeped in the acquisition process, Flohr was now untethered from routine business chores.
Outwardly, Flohr himself was unchanged. He was still calm, modest, friendly, and straightforward -- a gentleman, if you will. Impeccably groomed, well-dressed, bright, and articulate, he was a superb figurehead for his company. But inwardly, he saw his new role as policymaker and "visionary." By staying professionally ahead of the company as it grew and challenging it, he thought he could make it stronger and better. In the process, he would grow along with it.
There was nothing fuzzy about Flohr's new mission. The first thing he wanted was a reality check for RailTex, some kind of benchmark. "My thought was, OK, we're heavily into this short-line business and positioned to do a lot more growth through acquisitions. How do we manage it?"
For that matter, how had others answered that question? If he could find some "gurus" who'd traveled the path RailTex was on, it might save him time, money, and headaches.
The short-line world was of no help -- RailTex was already the pacesetter. Bob Lende, Flohr's financial vice-president, suggested another model: Luby's Cafeterias. It sounded off-the-wall -- learn from a restaurant chain? Sure, Lende said, parallels abounded. Luby's has independent managers, incentive-based compensation, and a team concept. Its senior executives are at a remote location.
In that light, Flohr saw the sense. San Antoniobased Luby's already had more than 100 big cafeterias and was adding more than one a month. With explosive growth, it had covered some ground Flohr expected to cover shortly. He invited a couple of its top officials to lunch. "They really enjoyed talking about how they had handled their growth," Flohr says. "They were proud of it. It turned out they had gone to school on American Airlines to see how American had handled its growth."
As they traded notes, Flohr zeroed in on a problem RailTex and Luby's had in common. As the Luby's empire spread, policies from headquarters seemed to be getting less attention out in the individual cafeterias. They had good stores that weren't living up to their potential. The solution Luby's came up with? Install a layer of regional managers to strengthen communication and oversight.
Flohr had a similar situation. With RailTex lines proliferating, he couldn't devote time to them the way he did when there were only a few. And it was showing. "We started seeing lots of little things going wrong," he says. "I really resisted the idea of anything that might infringe on the autonomy of my field managers. But the Luby's story was so persuasive I decided that a regional manager who could focus full-time on our railroads' performance was worth trying."
The logical candidate was Harland M. "Mac" Irvin III. Like Flohr, he was a Stanford graduate who had worked for Southern Pacific. He'd joined RailTex in 1985, after earning an M.B.A. at the University of Texas. Still in his early thirties, he had already held general-manager posts at four RailTex railroads. As a member of the go team, he'd been involved in launching a number of RailTex lines. Keenly knowledgeable about the field, Irvin was a good choice for the job.
After his experience with Luby's, Flohr looked locally for other outside help. He found counsel in the unlikeliest places -- a grocery-store chain and a magazine distributorship. The industry didn't matter so long as there was common ground. Based on ideas gleaned from H. E. Butt supermarkets and Brian Weiner's Periodical Management Group, Flohr implemented changes in everything from hiring and promotions to performance evaluations and compensation.
But if there were major veins of management wisdom to be mined anywhere, Flohr reckoned, they would be at those executive programs run by business schools. He was big on education -- he wanted everyone in RailTex to take at least a week of schooling every year, at company expense. And who better than he to set the example?
In February 1990 he enrolled in the Owner/President Management (OPM) Program at Harvard's Graduate School of Business Administration. The program ran for three consecutive weeks a year in each of three years, at $10,400 per annum. But Flohr calls it "the best thing I ever did, a bargain at twice the price."
