Business of the Year IPSCO.

IT'S BEEN A FORCE FOR HALF THIS PROVINCE'S EXISTENCE, begun as a beacon of industrial diversification designed to move Saskatchewan beyond an economy predicated on the vagaries of agriculture. Half a century later it's become a dominant player on the North American stage supplanting some of the biggest names in that most basic of industries--steel.

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IPSCO celebrated its 50th anniversary in 2006 with record sales and profits. It also marked it with a major acquisition, buying a similar looking, albeit a smaller company headquartered in Kentucky in a cash deal worth $1.4 billion.

And now, it can add the distinction of being named Saskatchewan Business Magazine's 2006 Business of the Year to its impressive list of accomplishments this year.

Based on its business acumen alone, IPSCO is a no-brainer for the Business of the Year selection. But the BOTY criteria is far more than just dollars and cents. Like its five predecessors, IPSCO has exemplified innovation, earned or retained respect amongst its peers, encountered, endured or withstood an outstanding event(s) and last but not least, has been a solid, benevolent corporate citizen of the province.

In fact its $2.5-million community partnership agreement with the Regina Exhibition Association Limited was the tipping point for our selection committee. IPSCO's donation is earmarked to assist with a renewal and revitalization plan for what was formerly known as Regina Exhibition Park, now known as IPSCO Place.

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This 15-year deal was a large part of the 50th anniversary celebrations further entrenching the IPSCO legacy into the Queen City, and by extension, the provincial business community overall.

The journey to a place where it had a billion-and-a-half dollar war chest was not always smooth. In fact, in its earliest days, the small but vital pipe company that bought its steel producing sister seemed more likely to fail than to become a behemoth that was buying up its competition.

At the outset, Prairie Pipe was the common vision of some unlikely partners. A Texas entrepreneur named Bill Sharp and Tommy Douglas, a socialist politician, figured that Western Canada's emerging oil patch would sustain a regionally based pipe mill. Before then pipe was shipped from eastern firms like Stelco and Dofasco.

In those days Douglas had charged his Industrial Development Office and a young lawyer in that office named Allan Blakeney, with finding some ways to diversify Saskatchewan's farm economy. The first major success was development of a cement plant at Regina. Sharp had worked in the cement business in the United States and was lured to Regina to put it together. His ability as a deal maker and entrepreneur was clearly evident so, when a German firm that was planning a pipe mill abandoned the project, Douglas turned to Sharp to fill the gap.

Before long the plant was under construction north of Regina. Soon Sharp began to question one basic tenet of the pipe mill's business model and its reliance on the eastern establishment to supply the raw steel needed to make pipe. So he proposed building a steel mill adjacent to the pipe plant.

A band of local business leaders including names such as Solomon, MacPherson and Sangster who had helped finance the original plant stepped up once again and, with government backing, Sharp's ambitious plan became reality. However, despite the apparent logic of the vertical integration, the steel mill ran into financial problems and the smaller pipe mill ended up taking over the larger steel company and Interprovincial Pipe and Steel Corporation was born.

Standing along side Sharp through the firm's formative years was a feisty accountant named Jack Turvey. A hard-drinking Irishman, he was small in stature but huge in business terms. If Sharp was the brain of the fledgling firm, Turvey was its heart and within five years he had assumed the company's leadership.

The Turvey years were the stuff of legend. A hard-edged character he simply refused to allow the company to fail, sometimes by sheer force of his will--determination that once saw him stare down strikers by renting a helicopter to fly supplies and personnel over the picket line and into the plant. He also had special letterhead made for any correspondence with the eastern steel companies featuring a banner headline that screamed Help Us Break the Trust.

Another feature of the Turvey era was profitability. Some years the company didn't make much money but it made money nonetheless as he encouraged workers to improvise and to save money where possible. On one occasion the team salvaged a Ford truck transmission from the scrap destined for the furnace and used it to drive a broken pipe mill. Prairie ingenuity powered the little company that wasn't supposed to survive.

As Turvey complemented Sharp, Turvey's right hand was a fellow named Jim Maclennan who ultimately assumed the helm in the mid-'70s. A quiet financial expert, Maclennan was CEO for only a half decade but his wisdom and selflessness were the foundation that positioned the company for the massive growth that would come 20 years later.

It was Maclennan who determined that the time had arrived for the company to make the profound transition from an entrepreneurial organization to one characterized by more formalized structure. And, he further concluded that he wasn't the one to guide that transition so he stepped aside to allow the board of directors to find a seasoned executive capable of shepherding IPSCO to the next level. The one the board chose was Roger Phillips, who came from Alcan to Regina and IPSCO's top job.

The next 20 years under Phillips, who occupied the chief executive's office longer than anyone, are best described as a period of increased depth and expansion. He looked beyond Saskatchewan for talent, filling the executive offices with seasoned steel industry players with experience throughout North America. He pushed research and development while capitalizing on the experience of IPSCO's remarkable steel makers, innovative and talented farmboys who could convert the research team's ideas into products.

But it also became clear to Phillips and his team that IPSCO had the limits of the Western Canadian market. The cost of shipping finished steel and pipe, as well as bringing scrap to feed the electric furnaces from longer distances, made the company uncompetitive outside the West. Basically the time had come to decide if IPSCO would settle for being a regional player or if it would expand into new markets. The board and executive chose the second option and began looking south.

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The first U.S. acquisition was a small pipe mill in the Midwest. Soon another was added. An 11-year employee, Moose Jaw-born David Sutherland, transferred from the personnel department to take on management of these new operations, a move that put him on the fast track that would ultimately lead to the chief executive's chair after Phillips. Then a major facility in Minneapolis was added, giving the company access to the Mississippi River system and cheaper transportation costs. Those of us who toil in the centre of the continent are all too aware of overland freight tariffs but to provide some context, it was costing IPSCO about $50 a ton to move steel from Regina to Minneapolis. It was roughly $10 a ton to forward it on water from Minnesota to Houston where the company bought another facility.

Despite the new options afforded by its American acquisitions, its U.S. operations were not integrated so the team began exploring the possibility of building its own steel mill. After considering several locations the firm chose Iowa and a site on the Mississippi River for a half-billion-dollar mill roughly equal in size to the one in Regina.

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The idea was to incorporate the innovative techniques developed in Regina in the new mini-mill and create raw material for its rapidly expanding American value-added operations.

Unfortunately, the company encountered all sorts of trouble in the construction phase as a German contractor hired to do the job simply wasn't up to the task. Despite the delays brought on by the construction difficulties, the board of directors chose to make another major bet--to build yet another steel mill in the U.S., this time on the Gulf Coast. Once again they compared sites and were even pursued by Texas Governor George W. Bush to choose his state, but Phillips and his team ultimately recommended a location near Mobile, Alabama.

This time the company would act as its own general contractor and the plant was completed on time and on budget, effectively tripling IPSCO's capacity, making IPSCO a major player in the United States steel plate market as venerable names such as Bethlehem Steel, firms that didn't keep up with technological advances including incorporation of electric furnaces rather than expensive blast furnaces employed by legacy players, couldn't compete and disappeared.

Two key strategies that were at the core of the corporate strategy through this growth period were something Phillips called 'steel short' and dealing with the market when it was ready.

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Steel short remains a fundamental element of IPSCO's operating strategy today. Although the company produces significant volumes of steel in its three plants--more than three million tons annually--it always bought steel from competitors to feed its pipe mills. This gave the company some flexibility in downtimes as it would stop buying from the competition when orders fell but could keep its own facilities operating at full capacity, even in slower periods. In effect it used the competition as a steel supply buffer.

Phillips characterized the second stratagem, going to the market when it was ready, very simply. The company acquired equity when the market was prepared to give it--generally at the top of the cycle--and then the company sat on it until growth or acquisition opportunities presented themselves at the bottom of the cycle. Not only did the company make acquisitions at bargain prices, it tended to get lower construction costs during slower segments of the steel cycle.

Phillips's plan to expand the company's footprint in the United States, something that very few Canadian companies have successfully executed, was in its final stages by the end of the 20th century, shortly before the North American market took off. It was a fitting final chapter in his two decades at the helm, leaving the company poised to capitalize on the impending upswing as the chief executive duties were transferred to David Sutherland, the fifth CEO in the corporation's history.

The last three or four years have been a remarkable ride. The resurgent market coupled with IPSCO's new capacity proved a potent combination as it emerged as the leading producer of plate steel and the dominant supplier of large diameter pipe in North America. It was somewhat ironic given that the old line companies back in Canada were in the midst of restructuring or disappearing. IPSCO was not only the one Canadian company that avoided bankruptcy protection, it actually thrived while others struggled, largely because of its ability to adopt new technology in deploying the highly efficient mini-mill concept. On top of that, it thrived in the United States as well. Clearly IPSCO had become the class of the industry.

Perhaps because of his predecessors' qualities--be they remarkable, flamboyant or efficient--Sutherland's contemporary leadership style unfairly tends to be understated by some. But his contributions and leadership are immensely significant.

When he took over, IPSCO had very little market and its new equipment installed in Iowa and Alabama wasn't working too well. Stark improvements were made such that a recent third party industry study recognized IPSCO as first in every significant category for a plate supplier.

Though few people would recognize this, it is not easy to build a huge marketing system for $4 billion in sales and do it well. Yet Sutherland has.

In the years under Sutherland's leadership the company's profits have surged. For example, the third quarter of this fiscal year saw revenues of a billion dollars (USD) and profits of just under $200 million, positioning it to capitalize on emerging opportunities. The most recent was the $1.4-billion acquisition of NS Group in Kentucky. The purchase gives the company another steel mill and access to the NS Group's customer base in the pipe market. In announcing the deal, an IPSCO news release summed it up this way: "With the acquisition of NS Group, IPSCO now operates four steel mills, eight pipe mills, scrap processing centres and product finishing facilities in 25 geographic locations across the United States and Canada."

The significance of the NS acquisition can't be overemphasized due to the burgeoning market in OCTG, the all-encompassing acronym given to pipe products used for petroleum exploration and drilling. The market has roughly doubled in the past two years and IPSCO is now the dominant domestic supplier of tubular products for the oil and gas sector in the United States and Canada.

From a dream inspired by the unlikely combination of a Texas entrepreneur and a socialist premier 50 years ago, IPSCO has written a story that is required reading for any entrepreneur looking to build an enterprise that grows into the dominant player in its market space. And does it in two countries at that.

Photos courtesy IPSCO

RELATED ARTICLE: Never Underestimate the Power of a Dream

IPSCO president and chief executive officer David Sutherland holds five principles as the keys to success at the top of a binational powerhouse. He used a recent address to the University of Regina Business Students Society as a venue to explain his business philosophy.

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* Principle One: Good People Make Great Companies

Attract, develop, reward and retain talented people who share your passion for your ideas and what you're trying to achieve.

* Principle Two: Celebrate Success

A successful company is at the centre of a 'virtuous spiral' of opportunity. Success builds shareholder value, shareholder value creates new investment and jobs, new jobs build demand, increased demand, in turn, provides new business and opportunity for your suppliers and their shareholders and employees.

* Principle Three: Concentrate on Innovation

You don't get ahead by looking back. You get ahead by beating your competitors to tomorrow. Today's leading edge product or service will soon be yesterday's news. The steel industry is littered with 'Rust Belt Relics' who forgot this vital rule.

* Principle Four: Strong Communities Build Strong Companies

Strong and vibrant communities create greater opportunities for us to attract and retain both people and investment.

* Principle Five: Never Underestimate the Power of Doing the Right Thing

Doing the right thing is almost always the best bottom line business decision for your company. Among the 'right' things IPSCO undertakes is environmentally sound business practices including recycling scrap steel and focusing on safety programs for employees, including the workers of contractors.

In concluding his address to the U of R students, Sutherland told the young people "your dreams can build a better province. Don't let the naysayers convince you to take a pass on opportunity. Believe in the power of your dream."

Written by Paul Martin