Creating a Culture of Opportunity in Canada
Publication
The Empire Club of Canada Addresses (Toronto, Canada), 16 Sep 1999, p. 60-71
Description
Speaker
Mayberry, John T., Speaker
Media Type
Text
Item Type
Speeches
Description
Some personal background. Accomplishing significant change through "group therapy." The need for corporate Canada to change along with Canada's economy. Illustrating how Dofasco has been an integral part of the vital shift to a value-added, knowledge-based economy. The role that steel has to play in Canada's future economic prosperity. Dofasco support for Ottawa's growing focus on industry productivity and its link with trade, investment, human capital and innovation. How steel supports growth in Canada's hi-tech industries and adds muscle to the economy by developing new products and working with customers to revolutionise manufacturing processes. The importance of image. Attracting new people to Dofasco. Challenges facing Canada's steel industry. How the steel industry offers unprecedented opportunities for young people. To that end, the investment Dofasco made to endow chairs in metallurgical engineering, and in process automation and information technology at McMaster University and the University of British Columbia. Reading the signs in the global market. Strategic value. Looking at mergers. Some performance numbers. Some history of Dofasco. Four key planks to the Solutions in Steel platform--a review of each, with examples. The future.
Date of Original
16 Sep 1999
Subject(s)
Language of Item
English
Copyright Statement
The speeches are free of charge but please note that the Empire Club of Canada retains copyright. Neither the speeches themselves nor any part of their content may be used for any purpose other than personal interest or research without the explicit permission of the Empire Club of Canada.
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Fairmont Royal York Hotel

100 Front Street West, Floor H

Toronto, ON, M5J 1E3

Full Text

John T. Mayberry President and CEO, Dofasco Inc. CREATING A CULTURE OF OPPORTUNITY IN CANADA Chairman: Robert J. Dechert President, The Empire Club of Canada

Head Table Guests

John A. Campion, Partner, Fasken Campbell Godfrey and a Past President, The Empire Club of Canada; The Reverend Dr. John Niles, Victoria Park United Church; Jack D. Leitch, Chairman, Upper Lakes Group Inc.; Peter George, President, McMaster University; Irene Boychuk, Vice-President, Human Resources, The Toronto Stock Exchange; Charles H. Hantho, Chairman of the Board, Dofasco Inc.; John C. Koopman, Consultant, Heidrick & Struggles and a Director, The Empire Club of Canada; Khalid Yahia, OAC Student, Bloor Collegiate Institute; Gordon M. Nixon, Managing Director and Global Head, Corporate and Investment Banking, RBC Dominion Securities; and Walter J. Palmer, Partner, Fasken Campbell Godfrey.

Introduction by Robert J. Dechert

The phrase, "Our product is steel; our strength is people," has been one of the most enduring mottos in Canadian corporate history. But for Dofasco, it is more than a catchy slogan; it is a mantra. The emphasis on the importance of its work force has been one of the core philosophies of Dofasco since its founding in 1912 and its introduction in 1938 of one of the first employee profit-sharing plans.

Perhaps it is the combination of Dofasco's emphasis on the skill of its employees and its commitment to technological innovation that has made Dofasco the most profitable steel company in North America.

Since 1980, Dofasco has expended approximately $3 billion on technology improvements which is well above the industry average as a percentage of sales. In July of this year, Dofasco announced its highest quarterly earnings in a decade. And just last week, Dofasco was one of only four Canadian companies selected for the prestigious Dow Jones Sustainability Group Index designating Dofasco as an international leader in the steel industry.

John Mayberry is most certainly one of the "people" that have given Dofasco its strength in an industry which a few years ago was considered by many to be low-tech and aging.

Mr. Mayberry joined Dofasco 32 years ago and has risen through the ranks of the company. He has held the senior positions of VicePresident and Works Manager, Executive Vice-President, Chief Operating Officer and ultimately Chief Executive Officer since 1993. Mr. Mayberry also serves as a director of several other public companies including the Bank of Nova Scotia, Decoma International Inc. and United Dominion Industries Limited. He is also a member of the Business Council on National Issues.

Mr. Mayberry has agreed to share with us today some of the lessons of his remarkable transformation of Dofasco.

Ladies and gentlemen, please help me in welcoming Mr. John Mayberry to the podium of The Empire Club of Canada.

John Mayberry

Good afternoon, and thank you for that very warm introduction. You must all be Dofasco shareholders.

As Robert mentioned in his opening remarks, I was appointed President and CEO of Dofasco in 1993.l have a degree in psychology, which for better or for worse is unusual among steel company CEOs. However, it lends itself to a new twist for an old joke: how many psychology majors does it take to change a steel company? The answer is one. But it really has to want to change.

And Dofasco did.

But to continue with the psychology theme, we knew we could only accomplish significant change through "group therapy." All our people had to be engaged. And they have been. Our success is directly attributable to all our people, working together within a Culture of Opportunity to create value for our shareholders, for our community, and ultimately for the Canadian economy.

Canada's economy is changing, and corporate Canada must change along with it. My intent this afternoon is to illustrate how Dofasco has been an integral part of the vital shift to a value-added, knowledge-based economy,

Just as it has been to Dofasco over the past five years, a shift such as this is essential to Canada's future economic prosperity. And steel has a major stake and a strategic role to play in this transition.

Dofasco supports Ottawa's growing focus on industry productivity and its link with trade, investment, human capital and innovation. As government formulates policy to advance Canada's knowledge-based economy, it must understand how technologically intensive steelmaking has become. We call on our policy-makers to take a hard look at the critical mass the steel industry creates, and learn about the enabling role we play in the field of valueadded manufacturing in Canada.

And the impression I hope to reinforce this afternoon is that steel supports growth in Canada's hi-tech industries and adds muscle to our economy by developing new products and working with customers to revolutionise manufacturing processes.

Unfortunately, yesterday's image of steelmaking lags today's reality. You can forget the worn-out image of the steelmaker as a low-tech, cyclical commodity producer with an unchallenging job.

Make no mistake: image does matter, especially when companies like Dofasco must compete against the Nortels and Microsofts of the world to attract and retain the aggressive and innovative young people who are anxious to build rewarding careers in leading industries.

First impressions are key to bringing new talent to our front door. The need to attract new people is going to be one of the toughest challenges in the next century.

The average worker at most steel companies is now in his mid-to-late 40s. In the United States half of the steel industry's 20,000 engineers are expected to retire in the next 15 years and will need to be replaced.

Canada's steel industry will face a similar challenge. But the image of steel as a low-tech, no-skill job is already prejudicing the career choices of young Canadians leaving university. What we're working hard to communicate is that the steel industry offers unprecedented opportunities for young people who want to apply their talents and be rewarded for them.

That is one of the reasons why Dofasco has invested almost $3 million to endow chairs in metallurgical engineering, and in process automation and information technology at McMaster University in Hamilton, and at the University of British Columbia.

Not only do these chairs help re-position the image of Dofasco at the post-secondary level, they give us a talent pool to tap into for the future while providing access to current, state-of-the-art research.

By providing the critical mass that fuels excellence in the academic institutions and vitality to the goods-andservices market in innovation, Dofasco accumulates added intellectual capital through our focus on people resources.

Dofasco is a large engine in Ontario's knowledge-based economy and like all Canadian companies has to be able to read the signs in the global market to remain successful in an ever-changing environment.

Pick up the morning newspaper and you are likely to read that the world is on the verge of an Asian economic revival, a Euro collapse, North American deflation, Latin American inflation, consolidation, fragmentation, a knowledge-worker crunch, or Silicon Valley meltdown. Tomorrow's headlines will be similar in topic, quite possibly advancing entirely opposite. points of view as prevailing theories shift in the breeze of world markets.

The message is clear. Canadian companies are competing in a mature but volatile global market. And I can say with some experience that bigger is only better when that size provides strategic value.

What is strategic value? Five years ago, we called it 'synergies.' Today it is referred to as 'power points.' To find out what it will be called next week, you should surf into www-dot-business-dot-com-slash-nomenclature when you get back to the office.

In this developed global market, becoming bigger through mergers and acquisitions has become one of the primary tools to increase market share. According to The Economist, corporate consolidations were up 50 per cent in 1998.

To this I say: "Investor beware," and question how many of these mergers will deliver the intended strategic value.

The signs are not encouraging. According to The Bloomberg News Service, 50 to 80 per cent of all corporate combinations fail. A New York University study suggests that only 33 per cent of acquisitions provide returns in excess of the cost. A joint study by the Universities of Chicago and Arizona concluded that 44 per cent of acquisitions were sold within five years-almost always at a loss.

There are likely enough examples in heavily capitalised industries to support each of those conclusions, especially during a recession when there are increased pressures to break up big companies into smaller, more responsive ones.

Clearly, you can't rely on size to add value on a sustainable basis. If size were the ticket to operating efficiency and profit, a lot of steelmakers would be outperforming us. This is not the case. On an earnings-per-shipped-ton basis, Dofasco is North America's most profitable steel company.

We are also one of the most productive. Since 1990, Dofasco has increased productivity 50 per cent, which is approximately twice the rate of the Canadian manufacturing sector.

In the last six months, Dofasco has consistently outperformed the TSE 300, as well as the share values of our competition.

But we are small on the world stage. While we are the second-largest steelmaker in Canada, we are only the ninth-largest in North America and 58th-largest in the world. We were approximately one-fifth the size of British Steel before it announced its merger with Hoogovens of the Netherlands to create one of the world's largest steelmakers.

And more of the big players are frantically searching for growth opportunities, struggling to meet their cost of capital. At Dofasco, we are just beginning to hit our stride.

To understand where we're going, you should know a little bit about where we've come from. Ever since C.W. Sherman founded the Dominion Steel Casting Company in 1912 to manufacture steel castings for Canadian railways, we have relied on a deep-seated culture of opportunity and innovation to become a recognised pioneer in the steel industry.

From the outset we have competed against industry Goliaths by pushing the technology envelope available to us. In 1918, we fired up the first universal steel plate mill in Canada. In the 1950s we pioneered in North America the use of Basic Oxygen Furnace steelmaking, the worldwide standard for steelmaking.

In the late 1980s we stumbled. Our ill-fated investment in Algoma Steel left us with a negative cash flow and a billion-dollar debt. It precipitated an intensive re-evaluation of what we wanted to be when we grew up.

Rebounding wasn't easy. At times it seemed like we were trying to turn around the proverbial battleship--an appropriate analogy given that in 1977, large chunks of the North American steel industry began to sink. By 1996, 32 per cent of this continent's steelmaking capacity had disappeared.

For many North American steelmakers, the fundamental market shift that caused this decline in steelmaking capacity was incremental. For us, it was overnight.

Dofasco not only survived but has prospered because we navigated a course sharply different from those taken by our Canadian and American cousins. Instead of increasing capacity, we moved the company closer to the customer with a strategy called Solutions in Steel.

There are four key planks to the Solutions in Steel platform:

- Customer Intimacy;

- Technological Preparedness; o Financial Preparedness; and o People Preparedness.

Let me address each of those.

Customer intimacy means collaborating with customers to understand their business, to bring workable solutions to the table, and make products that people need and want to buy.

Let me give you a real-time example. Approximately 90 per cent of the steel products made today were not available 10 years ago. One of these products is tubular steel used for hydroforming, a process where manufacturers mould a length of steel tube into complex shapes using thousands of pounds of water pressure. It reduces the number of parts to be assembled, strengthens the integrity of the design, and reduces production costs.

Dofasco was the first steelmaker in North America to capitalise on the opportunity in this new and growing market. We approached the auto-parts makers and convinced them that, even though we didn't then have a tube mill in our asset mix, we could make the highest-quality tubes for their hydroforming operations.

Now, two years later with our #1 Tube Mill in full production and our #2 Mill scheduled to start up in the third quarter of 2000, we are regarded as the industry leader. In fact, we have been awarded the tubing business for all the light truck frames to be assembled by Magna International and Budd Canada.

What can this type of product development expertise mean to Dofasco?

We see an exciting opportunity to increase market share by working with car makers to take out production costs by advancing new technologies like hydroforming, while incorporating benefits such as increased strength and added safety.

Technological Preparedness means having the right facilities in place to deliver the highest-quality, lowestcost products to our customers to bring those products to market.

Dofasco searches the globe for best steel-producing technologies and practices. Over the last 10 years, we have invested more than $2 billion in new steel-producing technologies, making us a Canadian steel industry leader in technological expenditures-responsible for about 40 per cent of the capital expenditures of the total steel industry in this period.

Financial Preparedness means having the financial wherewithal to be able to step up to the new market opportunities when they become available. For each of the past three years, and likely again in 1999, Dofasco has generated more than $400 million from operations before changes to working capital. Our strong cash flow and low debt are clearly strategic advantages for Dofasco.

But financial and technological preparedness alone won't produce the results that our customers and shareholders expect. You also need good people who are committed to the success of the business.

Which brings me to the final component of the Solutions in Steel strategy, our People Preparedness. You've all heard it: "Our product is steel. Our strength is people." That is a lot more than our advertising slogan. It is a reflection of our value system. And it goes back a long way, too.

In the 1930s Dofasco set new standards in employee relations by becoming the first Canadian company to introduce profit sharing, and outlining a progressive set of management and employee values then dubbed The Dofasco Way.

And we continue to benefit from those roots. Today, Dofasco is a company of 7,000 leaders in Hamilton, each one engaged in the technological dynamic founded in a unique employee relations environment.

To enable this, we have aligned the interests of our employees with those of our shareholders.

Our people not only understand the importance of earning our cost of capital but, more critically, they have a clear understanding of what they can do to improve results. And they have a vested interest. Our variable compensation plan, a part of every employee's pay, has a large component tied to the Return on Capital Employed we earn in Hamilton.

Most other steel companies tie the incentive component of their compensation to throughput or production, not adequately reflecting the real need to earn money for shareholders.

And we can leverage our intellectual capital into added shareholder value. For example, we recently entered into a joint venture with a software developer-VARA Corporation of Burlington-to further develop and market preventive maintenance software that Dofasco had created to improve our own operations.

- While this is neither a major financial investment nor a change in strategic direction, it is evidence of the intellectual capital our people possess to increase shareholder value.

So when considered in its entirety, our Solutions in Steel strategy has transformed Dofasco from a hi-tech manufacturer of steel, to an ultra tech producer of innovative, value-added steel products. It has equipped Dofasco with the manufacturing and human resources necessary to solve the immediate and the future needs of our customers, enabling us to follow profits across the value chain of steel production.

And what of the future? We're already down to about six major worldwide auto manufacturers. Increasingly, they will standardise new vehicle platforms on a global basis. To maintain and grow market share, steel companies will have to be part of global supply solutions through strategic alliances, technology transfers and various forms of business combinations.

Our most recent joint venture, an 80-20-per-cent partnership with Sollac of France, is an excellent example of such an alliance. Sollac is one of the largest steel companies in the world, a leading supplier in Europe of galvanised steel for exposed application in the European auto industry.

Using Sollac's proven technology, we will officially start up DSG Galvanising in Hamilton at the end of next month. DSG is a hot-dipped galvanising line that will produce a cost- and quality-competitive alternative to the electrogalvanised material widely used for exposed applications in North America.

Clearly, Dofasco is positioning itself for success with global growth strategies-not just North American. This is a dynamic that has yet to blossom in the global steel industry. But it will, and we will be there.

But globalisation does not have to mean consolidation. Sometimes, consolidation seems to be the last resort when the strategic well runs dry. Most steel companies fail to deliver returns greater than their cost of capital. And so while consolidating may be accretive to earnings, it can be a form of retrenchment if it doesn't generate positive, sustainable competitiveness and shareholder value.

In Dofasco's case, we believe that our Solutions in Steel strategy will allow us to continue to differentiate ourselves from our competition and make us the supplier of choice to our customers, and therefore generate the sustainable returns that our shareholders expect and deserve.

And this view has been validated as recently as last week when Dofasco was identified as an international leader, positioned to provide sustainable returns to shareholders. We are the leading steel company in the newly launched Dow Jones Sustainability Group Index, an index of more than 200 companies in 22 countries, chosen from more than 3,000 companies in 68 industries in 33 countries.

The broader lesson for the Canadian manufacturing sector is that it risks becoming marginalised on the world stage unless it can add value on a sustainable basis. Ultimately, the key to competitiveness is making the products that people want and need. In order to do this, this country needs to embrace a culture of opportunity and innovation. We need to believe in and invest in our future. Dofasco is doing just that, and is going to be a winner on a global scale. We will deliver superior value to our customers and our shareholders.

I believe that all Canadians and Canadian companies can similarly continue to be prosperous. But not by retrenching, and not by taking refuge in worn-out ways of doing things. We must invest in ourselves at a level that is competitive, and give ourselves the opportunity to succeed, and to exceed.

Thank you very much.

The appreciation of the meeting was expressed by John A. Campion, Partner, Fasken Campbell Godfrey and a Past President, The Empire Club of Canada.

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Creating a Culture of Opportunity in Canada


Some personal background. Accomplishing significant change through "group therapy." The need for corporate Canada to change along with Canada's economy. Illustrating how Dofasco has been an integral part of the vital shift to a value-added, knowledge-based economy. The role that steel has to play in Canada's future economic prosperity. Dofasco support for Ottawa's growing focus on industry productivity and its link with trade, investment, human capital and innovation. How steel supports growth in Canada's hi-tech industries and adds muscle to the economy by developing new products and working with customers to revolutionise manufacturing processes. The importance of image. Attracting new people to Dofasco. Challenges facing Canada's steel industry. How the steel industry offers unprecedented opportunities for young people. To that end, the investment Dofasco made to endow chairs in metallurgical engineering, and in process automation and information technology at McMaster University and the University of British Columbia. Reading the signs in the global market. Strategic value. Looking at mergers. Some performance numbers. Some history of Dofasco. Four key planks to the Solutions in Steel platform--a review of each, with examples. The future.