A canny ability to anticipate new developments in its industry has helped SNC-Lavalin Group Inc. quietly grow from a small Montreal consulting firm into one of Canada's biggest global successes, an engineering and construction powerhouse with projects in 100 countries.
Not long after it was founded in 1911, the then-tiny firm got an important taste of the power of forward thinking when it diversified from consulting into sectors such as industrial plant design, a strategy it credits with helping it survive both the 1929 stock market crash and the years of the Great Depression.
Today, there's no question SNC has developed the expertise to take on projects with confounding technological and logistical requirements. (Its role in Libya's Great Man-Made River project, for example, involved trucking in huge loads of industrial supplies by 24-hour road trip when planes were forbidden in the country's airspace.)
But there's lots of competition out there, too, and SNC has also learned the importance of finding creative ways to set itself apart from its peers.
Until recently, gaining that edge often involved helping cash-poor countries figure out a way to finance their projects.
But emerging countries are getting richer, their cost of capital is going down, and SNC has realized it's time to find a new hook.
So the company has taken a seemingly incongruous turn down the value chain, offering to stick around to operate and maintain the power plants, bridges and other assets it designs and builds.
Chief executive officer Jacques Lamarre explains how this strategy is helping win his company new business, and is becoming a new and growing source of revenue in its own right.
An unexpected opportunity
Fifteen years ago, SNC-Lavalin entered the business of operations and maintenance (O&M) in an unexpected and low-key way. The company had created a high-tech mail-sorting facility for Canada Post in Ontario which the Crown corporation immediately had trouble operating.
The call for help went out, and SNC returned to oversee operation of the new facility.
"We built them a new plant to sort the mail. It was very complicated and they had a hell of a trouble running the facility," Mr. Lamarre said. "When we left, we said to them, 'It's working now, it's yours.' A week after, they called us back and said, 'Maybe you should run it for two or three years,' and that's the way it started."
SNC is still running the facility today, along with others for Canada Post and assets for a variety of Canadian clients. Many of its newer project proposals now also include an O&M component, such as the recently completed Brun-Way Highway in New Brunswick, which SNC will operate and maintain until 2033.
As the contracts roll in, SNC's engineers have overcome their initial resistance to the idea of entering a business once perceived to be the bastion of "cleaning ladies," Mr. Lamarre said.
"The first perception of O&M is that it was low added value. But when you succeed to maintain in a proper state the roads, any kind of asset, it's not only a cleaning function, it's much more than that. The engineers understand this now."
Growth potential
SNC-Lavalin decided to take tentative steps toward developing an O&M business close to home about 10 years ago, focusing exclusively on Canada.
Its first customers were those willing to pay a high price to ensure their assets operated without any hitches, such as broadcast companies that could not afford any disruption to their programming.
During that 10-year period, the business has grown from earning "zero" to $1-billion in yearly revenues, Mr. Lamarre said.
About 95 per cent of these sales come from Canada, a dramatically higher number than the 57 per cent domestic projects represent of the company's overall business mix.
SNC believes the geographic makeup of its O&M revenues can more closely mirror that of its overall business, and is now on the cusp of a major expansion of these services into international markets. It already has its first toeholds in the sector overseas through agreements to oversee power facilities in the United Arab Emirates (UAE) and Northern Africa.
"In Canada, in 10 years, we went from zero to $1-billion in revenues. So if we keep on in Canada to increase at the same rate, we could be in 10 years from now at $2-billion. At the same time elsewhere in the world, we can do the same thing. So ... we could be at $4-billion like nothing in 10 years," Mr. Lamarre said.
At this point, the company's commitment to O&M has become so strong, it recently included Charlie Rate, the head of the O&M division - called SNC-Lavalin ProFac Inc. - in the firm's echelon of top managers.
The challenges
One of the biggest questions for SNC when it entered the O&M business was how potential customers would respond to paying top dollar for its services.
The company is "definitely" on the high end of the price scale in this business, with its work largely carried out by highly-trained engineers, Mr. Lamarre said.
However, the stars appear to be aligning in the company's favour for a number of reasons, he said.
One is that more customers now believe in the value of maintaining their assets using skilled technicians, which, in SNC's case, often involves the people who actually built them.
"First we had communications companies which said, 'I cannot have 10 seconds being out of operations, I want to deal with someone where I'm sure there won't be an interruption.' Or the mail, which said, 'I don't want to waste one day.' For them it's worth it. Now that's spreading, more people are adopting that view," he said.
Companies are also realizing that investing in maintenance adds significantly to assets that are very expensive to build in the first place.
High-profile failures in infrastructure, including fatal bridge collapses in Laval, Que., and Minneapolis, have also stressed a need for highly skilled people to carry out operations and maintenance on critical infrastructure, detecting possible problems before they happen, Mr. Lamarre said.
Another major challenge, and perhaps the key stumbling block to providing this type of service, is the ability to organize and move the right people into an area quickly.
As part of its overall business strategy, SNC is establishing geographic bases in more parts of the world.
Mr. Lamarre said he's confident SNC has the ability to execute any contract it wins, and believes SNC has a "first-mover" advantage over other engineering firms, few of which currently provide operations and maintenance services.
Jacques Lamarre
Title: President, chief executive officer, SNC-Lavalin Group Inc.
Age: 64
Personal Information: Married, with two children - a son who works at SNC and a daughter who is a lawyer. Has four grandchildren.
Education: Studied at Laval University, has degrees in engineering and philosophy.
The philosopher: While he grew up in the small town of Jonquière, Que., Mr. Lamarre says he prefers life in a bustling city. At the same time, however, he worries the compartmentalization of city life can lead people to live in a bubble.
"You may end up living just with people like you ... you don't see poverty or people that have trouble with justice, you don't see the full spectrum. For me, it is good when someone can see the full spectrum."
© The Globe and Mail
