The Growth Philosophy of Bombardier: An Interview with Laurent Beaudoin, Chairman and CEO of Bombardier Inc
Baghai, Mehrdad A., Coley, Stephen C., Farmer, Ronald H., Sarrazin, Hugo, The McKinsey Quarterly
McKinsey: How did Bombardier get where it is today?
Beaudoin: As someone who has been part of the company for 34 years, I find that difficult to answer. To me, the history of Bombardier has been more like a process of evolution than any sudden change.
I joined in 1963 at the request of my father-in-law, Joseph-Armand Bombardier, who founded the company in 1942 to make snow-going equipment for industrial and commercial use. Having trained as a chartered accountant, I came in as a financial controller, but after six or seven months I found myself doing just about everything. I was 25 years old. At that time, we had a new product that my father-in-law had invented, the Ski-Doo snowmobile, and the market was booming. The company was not all that big - it employed about 700 people and had about $10 million in sales - but it was successful, with profits of about $2.5 million.
A year later, in 1964, my father-in-law died. My brother-in-law Germain took over from him, but left the company in 1966 for health reasons. I then became general manager. Those early years were a learning experience. The snowmobile industry was developing rapidly, and we had to put together a whole new team of people who all needed to be trained, motivated, and got up to speed.
These people transformed the company. They propelled our growth so fast that sales reached $200 million by 1970. We were very profitable, too. We were the leader in the snow- mobile industry, and the prospects looked good - until the energy crisis struck in 1973. The industry sold 500,000 units in 1972; by 1974, industry sales were down to 250,000.
After all the years spent building up Bombardier's workforce, resources, and manufacturing capacity, we were confronted by a shrinking market. The energy crisis pulled the rug from under our feet. We were forced to look for something else to do. There were many industries we could have entered, but we resolved to diversify only into a business where we could put the skills we had developed to good use.
Bombardier Inc. was founded in Canada in 1942 as a manufacturer of snow-going equipment. It has since become a diversified global manufacturer of personal watercraft, mass transit systems, business jets, and regional aircraft. It operates manufacturing facilities in nine countries and has 40,000 employees. Its sales in 1996 were Canadian $8 billion. Over the past 10 years, Bombardier has grown by over 20 percent per annum in both revenue and earnings per share.
We found our opportunity in an unexpected place. A few years earlier, in 1969, we had acquired Rotax, the company that built the engines for our snowmobiles. As we were using virtually all its capacity, and its engine was the heart of our machine, we felt that this was an activity we had to control. Part of the acquisition package was Rotax's holding company, Lohner Werke, which built trams in Vienna. We didn't really want to buy it - at the time, trams didn't seem to have much of a future - but we had no choice. As it happened, owning a piece of a mass transit business was no bad thing for us.
The energy crisis got people talking about alternative and public forms of transport. Cities that already had tramway lines began to consider expanding them and replacing their old fleets. As the owners of Lohner Werke, we had some understanding of the skills required in this industry. And then in about 1974, when the city of Montreal was planning to acquire new cars for its subway system, some officials asked us if we would be interested in bidding to build the cars. They had only one bidder, and they wanted competition.
In the beginning, we weren't interested. But then we thought about what we were trying to achieve: to develop a product or enter an industry that would react to an event like the energy crisis in a very different way from our main business, the snowmobile. In other words, we wanted something that would be counter-cyclical to our existing product line. …