Building a profit strategy

A case study of the Saint-Gobain Group

Jean-Louis Beffa and Cdric Lomba
___________________________________________________________________________

Introduction
Since the early 1980s, many managers, professional consultants, business executives,
political representatives and researchers have trumpeted the notion of a fundamental change
in capitalism marked by the convergence of the varying forms of corporate organization.
Convergence theories are nothing new in the debate on organizational practices. They have
been given renewed credence, however, with the creation of vast free-trade zones and new
corporate funding mechanisms, and with the rise of information technology (IT). Some feel
that the combination of these phenomena has driven firms towards a model described
alternatively as a new economy model, a modular production model, wintelism (a
contraction of Windows-Intel) or even a neo-liberal firm model. And yet, far from
converging with one another, the worlds various economic spaces have visibly been
reorganizing themselves into political, social, institutional, commercial, legal and cultural
arrangements that are quite specific in nature (Boyer and Souyri, 2001; Saint-Gobain Centre
for Economic Studies, 2001). This statement is based on an observation of actual business
practices there has been no ostensible homogenization in the way that companies operate.
Quite the contrary, firms have been coming up with a wide range of varying responses to the
socio-economic changes they are encountering at present, and will continue to do so for the
foreseeable future. It is precisely this diversity that we are going to try to illustrate using the
case of Saint-Gobain as an example.
To analyse the Saint-Gobain Groups main strategic orientations (as well as the
implementation thereof), the present text will rely on a business development analytical
scheme that was devised by the GERPISA1 international network of social science
researchers. Under the scientific supervision of Robert Boyer and Michel Freyssenet,
GERPISA carried out a comprehensive study of automobile manufacturers trajectories over
the past half-century. This study proved the coexistence (at any one time and in a given space)
of several profitable corporate models or productive models (Boyer, Freyssenet, 2002). It
remains that such models have been both limited in number and also periodically renewed.
By using parts of this analytical scheme to interpret the Saint-Gobain Groups strategic
development, we will be able to hone in on some of these aspects. Unlike the firms that the
GERPISA had been studying up until now, Saint-Gobain is in fact a diversified group with
business interests in a variety of areas. It supplies intermediary goods and finished products to
sectors such as housing, transportation, containers, industrial equipment, civil engineering and
household equipment, for customers ranging from industrials, craftsmen, local authorities or
private consumers. As such, the main issue here will be the structuring and coordination of
strategic orientations in a diversified group. Furthermore, and following socio-economic
changes in the countries where it runs operations, the Saint-Gobain Group experienced some
very strong growth in the late 1990s. This is a result both of the investments it has made in
new lines of business (for example, building materials distribution, ceramics and composites)
1

and its entry into new geographic spaces. All in all, we will show how this Group, which has
been deeply transformed, has over the long run remained systematically profitable, despite the
economic crises that have arisen over the past 10 years.
In summary, the present study of Saint-Gobain carries on from a survey that was
initiated in another industrial sector. It provides new theoretical elements and disavows
hypotheses and analyses that are based on the premise that a convergence is taking place
towards a so-called universally efficient organizational model. The first section will review
the criticisms that can be made of convergence theories as well as the limitations thereof,
before briefly presenting the GERPISAs analytical scheme. The second section will apply
this interpretative framework, using the Saint-Gobain Group as an example, and highlighting
the processes that in the context of a changing socio-economic environment have enabled the
creation of strategic coherency within the Group.

Criticisms of the universal model2

The domination of corporate convergence theories
Ever since a model of large firms operating in industrialized societies was first
developed, theoretical representations of converging corporate organizations have dominated
intellectual debate on this topic. For example, in the early 20th century, Max Weber viewed
the bureaucratic model as the best organizational model for companies, that is, the model that
was best adapted to societies run along legal-rational lines (Weber, 1971). More generally,
debates on the efficiency of organizational forms have been mainly guided by the postulate of
a so-called universal model. Regardless of who developed or inspired such theories (engineers
like F. W. Taylor and T. Ohno; business leaders like H. Ford and A. Sloan; or researchers like
J. P. Womack, D. T. Jones and D. Roos (1990)), and irrespective of the specific political,
social or competitive situation involved, convergence theories have always constituted
attempts to offer some uniquely efficient mode of corporate strategic orientation and
organization. Over the last 20 years an ever greater number of actors have tried to renew their
organizational model, seeking to satisfy the demands and interests of their owners, managers,
employees and clients all at once. After having denounced the inappropriateness of the
Taylorian and Fordian models, certain management theories (conveyed in part by professional
consultants) have encouraged industrials to migrate to these new canons of corporate
management, portraying them as sources of perpetual efficiency. Waves of fashionable
organizational models have succeeded one another for more than a century now. Their
inspiration has usually been drawn from national models (notably the Swedish model of
autonomous teamwork, the Italian flexibility model, the Japanese lean production model, as
so on), themselves based on the example of one or two firms (Volvo Kalmar-Uddevalla in
Sweden, the mini-mills of the Brescia region in Italy, or Toyota and Honda in Japan).
During the 1980s, the so-called Japanese model of lean production was undeniably a
favourite in management literature enthusiasm led to an incipient deployment of this model
in businesses throughout Western Europe and the United States. The most ambitious research
programme in this field was one developed by the Massachusetts Institute of Technology, and
its conclusions are summarized in The Machine That Changed the World (J. P. Womack, D.
T. Jones, D. Roos, 1990), a study produced by the International Motor Vehicle Program
research network that tried to explain why Japanese carmakers were so successful in
comparison with their European and US counterparts. The projects initiators concluded that
if Japanese firms were efficient, it was because they had been able to implement a productive
model that was capable of satisfying employers, employees, suppliers and clients. The
2

models attributes included: the development of teamwork (something that broke with the
Taylorian division of labour); the requirement that employees resolve systematically any
quality problems that may arise; the de-compartmentalization of a firms subdivisions, with a
view towards reducing new products time-to-market; an even distribution of parts throughout
a firm, the purpose being to make significant cuts in inventory levels (just-in-time
production); and the idea that even whilst continuing to service consumer demand, firms
should be setting up long-term partner relationships with their suppliers. Hence, the
recommendation made to US and European firms to ensure their viability and profitability
was to adopt a lean production model, regardless of the macroeconomic and social
environment in which they found themselves the idea being that this would guarantee that
they were converging towards the best model.
A crisis broke out in Japan in the early 1990s, after which the Japanese model made
way for the American model. Basking in the glory of the Internet bubble, this new model
driven by IT (Castells, 2000) and by the development of a financialized regime inside
organizations themselves (Orlan, 2000)3 diffused widely across the business world.
Everyone was forced to fall into line, even those companies that were operating in other
geographical spaces. The principle was exactly the same as the one that had contributed to the
dissemination of the Japanese model: the purest traits of a national model were captured; its
pre-eminence was said to lie in its very essence; and its universal propagation was prophesied.
Even critical theories of the new paradigms of capitalism postulated the existence of corporate
convergence, depicting it as standardization (c.f., contemporary theses on the Americanization
of the planet) or else as domination (Coutrot, 1998).
As aforementioned, the corporate convergence model has not really disappeared as a
way of explaining corporate transformations. It is not fitting at this juncture to explain the
genesis of this model, the origins of the widespread approval (particularly in the media) of its
intellectual simplicity or the tendency to present economic history in an evolutionist light.
Note that many criticisms could be made of such theories, if need be.

The limitations of corporate convergence theses

Convergence theses are a theoretical benchmark for many researchers, entrepreneurs,
employee representatives or political activists. Nevertheless, they can be criticized for at least
the three following reasons.

Epistemological criticism: the first criticism relates to the hypotheses upon

which most convergence theories have been built. Such theories are constantly
shifting back and forth between being descriptive or prescriptive, with the
organizational model being portrayed as a fait accompli, or inversely, as an ideal
that remains to be attained. This confusion, which translates a lack of coherency,
stems from the fact that such models are usually defined both on the basis of an
inductive approach, which lists the attributes of firms deemed to be efficient,
and of a deductive approach, which infers from management principles a pure
but heretofore unapplied mode of corporate organization. This makes it easy to
interpret corporate diversity as if it were indicative of an incomplete
convergence process that is still moving towards an inaccessible model. On the
other hand, the approach we discuss below restricts itself to a fundamentally
inductive orientation, which takes the facts inherent complexity as its starting
point before trying to define the productive models in question.
3

Criticism of the models intrinsic profitability: a second criticism reflects

recurring doubts about any model that purports to be universal and everlasting.
The history of management theory is full of whole series of convergence
models, each of which was supposed to unite corporate orientations over the
long run. Yet a succession of different convergence models cropped up over the
course of the 20th century, with new propositions having accelerated over the
past 20 years. Such transformations, which are part of a wider move to revitalize
the spirit of capitalism, have had many different causes (Boltanski, Chiapello,
1999). In particular, they have reflected changes in social attitudes both towards
forms of workforce involvement and also towards the marketing of consumer
goods (here we are referring to the crisis of work, and of criticisms of the
homogeneity of the products that Fordist companies turned out following the
Second World War). The market for managerial fashions, in university circles
and amongst consultancy professionals, is also responsible for this situation.
Moreover, criticisms of specific models have generally been aimed at the firms
that are said to embody them, whenever such firms have suffered from a
financial and/or economic crisis. For example, the Japanese or German models
made way for the US model as soon as the economic regimes that they
represented first began to experience problems. All in all, what is most
surprising is that theoretical doubts were being raised about the idealized models
towards which firms in industrialized countries should strive, even as such
models were being undermined by the changing profitability of the companies
that embodied them.

Criticism of the convergence hypothesis: firms have never adopted a single

mode of organization, neither in the past nor in the present. Moreover, there is
little chance that they will do so in the future. With the exception of models
whose definition is vague (i.e., the Taylorian-Fordian model), any in-depth study
of corporate history will indicate to the contrary that a wide range of varying
organizational models have coexisted throughout history. For example, the
Taylorian model was not nearly as widespread as some would have it (Sabel and
Zeitlin, 1997). It always coexisted in specific economic spaces with other
organizational modes (that is, with the decentralized management model, with
the flexible small-business model, etc.). Furthermore, whenever models migrate,
they have to come to grips with the growth regimes, labour market regulations
and products in the countries to which they are being exported. In this situation,
actors behaviour will lead to the development of hybrid forms of a model.
These are not just marginal adaptations of the original model instead they are
complete reconfigurations of structural elements drawn from the originally
exported model (Boyer, Charron, Jrgen and Tolliday, 1998; Zeitlin and
Herrigel, 2000).

For these three main reasons, corporate convergence theories are limited both in their
ability to explain changes in capitalism and in their capacity to serve as a guide for economic
action. What we should be doing is to try to come up with interpretative matrices that are
geared more towards an explanation of facts and less towards the creation of revolutionary
theories that are likely to go past their sell-by date as soon as they have been explained. It is in
this sense that theories about the limited plurality of productive models are the most judicious.

The limited plurality of productive models

Several theories share this postulate of a limited diversity of corporate models.4
Amongst them, we find the explanatory framework that Robert Boyer and Michel Freyssenet
suggested in the aftermath of the GERPISA international research programmes. This is a
particularly stimulating approach since it is based on the historical analysis, at a worldwide
level, of all the firms in a given competitive sector automobile manufacturing (Boyer and
Freyssenet, 2002; www.gerpisa.univ-evry.fr).

A productive model is:

- a management compromise between the main actors in a firm (primarily its
executives, shareholders, employees and labour unions);
- based on means that are coherent with one another and that are acceptable to these
actors (in the three areas of product policy, productive organization and employment
relationships);
- able to implement, durably and profitably, viable profit strategies within the
framework of the modes of growth that are to be found in the countries where a
firm develops its activities (Boyer and Freyssenet, 2000, p.23).

Productive model definitions will delineate the general conditions explaining why a
firm is profitable or else in crisis. They give reasons for the productive models diversity,
show how such models can be renewed and provide keys for identifying them. According to
Boyer and Freyssenet, profitability generally depends on whether a firms profit strategy is
well adapted to those countries in which it operates (that is, whether it suits the host countrys
mode of growth), and on whether the durability of the compromise that allows actors within
that firm to find coherent and acceptable ways of implementing the chosen profit strategy. In
laymans terms, these conditions determine the circumstances in which a productive model
will fall apart, meaning whether actors will have to develop another model. This happens
when a profit strategy loses its relevancy and/or when at least one of the firms main actors
reneges explicitly or implicitly on the existing compromise. Such conditions of profitability
(or crisis) are all analytical tools that the various actors can adjust to reflect their own personal
perspectives and specific objectives.
The process leading to a limited plurality of productive models now becomes clearer. It
is born out of the diverse nature of the different profit strategies that will be feasible within
the framework of the varying modes of growth found in the countries concerned, and
subsequently out of the compromises that will develop during the implementation of the
strategies that have been chosen. This simplifies considerably the analytical work needed to
identify which models will enable a firm to be profitable and to consolidate its long-term
prospects, even if, as is the case for Saint-Gobain, new indicators have to be devised to bring
the analysis to its logical conclusion. What this first entails is an identification of the sources
of profits that a firm relies upon, the purpose being to gain an understanding of the profit
strategy at stake. Next, the market and the work structures that are born out of this growth
mode have to be verified, since they are what allow the firms profit strategy to unfold in the
places it is operating. Lastly, it remains to be seen whether the product policy, productive
organization and employment relationship fulfil the imperatives of the profit strategy.
5

Robert Boyer and Michel Freyssenet have identified eight modes of growth that existed
in the 20th century, or that are still in existence.5 By combining national income growth
drivers and forms of national income distribution in a number of different ways, these modes
generate a final demand and a type of workforce that are characterized by specific volumes,
structures and types of development. For example, in the coordinated and consumeroriented growth mode that marked a number of countries (especially France) from the 1950s
until 1970, growth was driven by domestic consumption, and national income was distributed
in a coordinated and moderately hierarchical manner; final demand grew regularly and was
moderately differentiated; and the workforce was professionally mobile and often unionized.
Each growth mode only allows for certain profit strategies, meaning combinations of
profit sources in proportions that render them compatible with one another. For the
automobile sector, Boyer and Freyssenet chose six profit sources:
- economies of scale:
- diversity of the product offer:
- product quality:
- innovation:

- productive flexibility:
- permanent reduction in costs:

lower unit costs by spreading fixed costs over

increasing volumes
broaden demand by offering products that are
suitable for each category of solvent customers
enhance added value by selling products whose
quality justifies higher prices
enjoy temporary monopoly rents by designing
and manufacturing commercially innovative
products
build or keep market share by ensuring that
costs adapt quickly to variations in demand
continuously lower costs to maintain sufficient
profit margins, regardless of the circumstances

In the automobile industry, at least six profit source combinations (that is, six profit
strategies) seem to have been implemented in varying proportions.6 The list is not exhaustive,
but we can conclude from such a large number that no firm could attribute the same
importance to all six profit sources. There are two reasons: the context may not have been
conducive; and contradictions may have arisen had actors tried to exploit more than one profit
source at a time. For example, it is clearly difficult to increase economies of scale when
national income distribution is structurally non-egalitarian and highly variable, when the
workforce unstable, or when the firm also wants to offer a number of specific products to
particular clienteles.
The three main components of the means that firms apply to satisfy their profit strategy
needs are: product policy (with an emphasis on certain market segments, product types and
design); productive organization (that is, the means used by a firm to implement its product
policy in other words, the extent to which it is integrated its spatial distribution activities
and techniques, and how it organizes design, sourcing, manufacturing and marketing); and
employment relationships (recruitment, employment, classification, remuneration, promotion,
scheduling, expression and employee representation systems). These components constitute a
productive model if and only if they are coherent. The GERPISA surveys showed that the
coherency of a chosen strategys implementation is the product of a more or less deliberate
process that is sanctioned at a given moment in time by the compromise that is agreed
between the main actors in a firm if they accept (or at least do not systematically contest) the
profit strategy being followed or the means being used.
As shown by the examples of Toyota and Honda (c.f., Appendix 3), a growth mode can
lend itself to more than one profit strategy. Moreover, a single strategy can be implemented
6

by different means as long as they are coherent. Everything depends on the compromises that
could be made, given the actors involved. Such compromises will define a variety of different
productive models as long as they make it possible to adopt means that are coherent both
amongst themselves and with the strategy being followed. Our analysis of Saint-Gobain
mainly involves identifying the profit strategies the Groups different divisions and
subsidiaries have followed. The outcome (the Groups regular profitability over the past 10
years) primarily stems from the fact that coherent means were used to implement them.
In short, we can retain from this GERPISA research project the fact that no convergence
has taken place towards a single productive model, neither at the global nor at the national
level. In addition, the profit strategies that firms implemented were not universally efficient.
Their suitability (in terms of resources and constraints) depended on what kind of growth
mode was in place in the countries where such strategies were being developed. In the end,
the GERPISA concluded that there can only be a limited diversity of productive models, due
to the fact that profit strategies have to be coherent with the means being used. A firms actors
must agree, at least tacitly, on external relevancy and internal coherency. From this
perspective there can be no miracle solution in terms of products, people management or
technical organization. The relevancy of each solution depends on its interaction with the
firms other dimensions and on its integration into the profit strategy. A corollary to this is
that the meaning of the decisions firms make vary according to the profit strategies being
pursued. It may be true that all manufacturers have adopted a work-group organization over
the past two decades, but they did this to varying degrees, and the meaning of this new
organizational mode has differed depending on the other components of the productive model
that are being applied and the profit strategy that is being pursued (Durand, Stewart, Castillo
(eds.), 1999). This is a complex theoretical model that must account for a firms different
dimensions, the purpose being to enable their interpretation.

The development of a volume and diversity leadership strategy

The stability of a Group that has been profitable over the long run
Saint-Gobain is a diversified group that is present in a number of industrial sectors
relating to the production and sale of intermediary and finished goods. Since its creation after
the 1970 merger between Saint-Gobain and Pont--Mousson (Martin, 1984), the Group has
combined several distinct businesses (flat glass, containers, insulation materials, glass threads,
cast iron pipe, plumbing fixtures, construction, paper, cardboard, steel, chemicals and oil).7
This tradition of having multiple activities remains an essential characteristic, even if the
range of businesses has changed greatly over time (for a presentation of the Group, cf.,
Appendix 1).
The Group has systematically posted positive results for more than a decade now (cf., p.
13). Whatever the indicator used, it is very clear that Saint-Gobain has been profitable since
the early 1990s, despite the economic crises to which most large companies (and especially
most large industrial groups) have succumbed. The Saint-Gobain Groups breakeven point
has been systematically positive and quite stable. The average profit margin over the
breakeven point actually rose during the latter half of the 1990s. Even more significantly, the
breakeven points variation coefficient (the ratio of the standard deviation to the average) was
very low during this entire period (0.20 from 1988 until 2001), proof of how very stable the
Groups results were.8 Within this general framework, we can distinguish two eras for SaintGobain. During the first era, from 1988 to 1994, performance continued to be dependent on
the current economic situation (variation coefficient of 0.27), whereas during the second era,
from 1995 to 2001, results were very stable and relatively independent of economic cycles
7

(with a variation coefficient of 0.04). Finally, division performance analysis underlines the
fact that the same stability that marked profitability at a group level could be found at the
division level. The offsetting mechanisms that were still very important before 1995 became
much less so afterwards. In other words, it was possible to find counterbalances of this ilk
(that is, counter-cyclical phenomena) in most of the Groups businesses.

Saint-Gobain Group, Breakeven point, 1988-2001

100%

80%

60%

40%

20%

0%

Saint-Gobain Group
-20%
1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

* For reasons of confidentiality, subdivision names are not indicated, however their results are included in the
chart.

Saint-Gobain Group, Return on Investment, 1990-2001

25%

20%

15%

10%

5%

0%
1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

We can measure Saint-Gobains profitability using two indicators. The first is the one that the
GERPISA applied and is called the breakeven point (being in fact the profit margin level in terms of
the breakeven point). This indicator makes it possible to measure a firms manufacturing activity (the
breakeven point being calculated as the ratio of the difference between the value added and
unavoidable expenditures [total wage bill + depreciation] and these same unavoidable expenditures
multiplied by 100). This way of calculating the breakeven point shows from what level of value added
forward a firm is in the black.
The second indicator is the more traditional one of Return on Investment (ROI) (100*
[operating profits/industrial assets used during operations]). It measures the profitability of the
industrial capital that has been invested (c.f., Appendix 2).
8

Manufacturing profitability indicators show that Saint-Gobain was always profitable,

even during economic downturns. The developments we will be looking at now describe the
strategy that made it possible to achieve these results and analyse how it is that this strategy
developed, particularly in the mid-1990s, in such a way as to accommodate the socioeconomic changes that took place in the parts of the world where the Group is present today.

A volume and diversity leadership strategy in Saint-Gobains traditional

businesses
Since the very beginning, the Saint-Gobain Group has been a multi-division and multiregional complex composed of operational entities that are largely autonomous in terms of the
means they employ to implement orientations and objectives that the Group Management
defines on behalf of its board of directors. This type of organization (multi-divisional
company with controlled decentralization), inspired by the examples of General Motors and
General Electric, and largely disseminated by consultancy firms in the early 1970s (Chandler,
1994; Dessaux and Mazaud, 2000), has been applied for more than 30 years within the Group.
Although few people work at the Groups management level (the Compagnie Saint-Gobain
itself only employs slightly more than 200 persons), this is where objectives (that is, return on
investment, cash flow, growth, etc.) are set, and where their implementation at the various
group entity levels is controlled. The different divisions, subdivided into profit centres, devise
industrial and commercial policies that are discussed before being validated by Group
Management. In social matters, the divisions autonomy is limited by the presence of regional
or national delegations that are responsible, in particular, for the harmonization of social
policies. Power is therefore very concentrated within the Groups management structure,
which continues to define the overall strategic orientation, whilst the components of the
productive model are determined at the level of the entities that make up the Group.9
According to the GERPISA analytical matrix, the strategy that the Saint-Gobain Group
has been pursuing for its main businesses is based on volume and diversity leadership,
meaning that it has been trying to increase economies of scale during the upstream phases of
its production process whilst diversifying products downstream10, and that it has been seeking
to occupy a leaders position in the businesses concerned. This is the strategy that has been
followed in most of what we call Saint-Gobains traditional businesses, meaning the ones it
had integrated before the 1990s: flat glass, insulation, building materials, containers, and pipe.
Saint-Gobain had started out in these areas by pursuing a volume and diversity
strategy concretized by increased capacities for the facilities located at the upstream end of
the production process, specifically the larger volume installations in each line of business.
Examples include the flat glass business with float glass, reinforced fabrics with glass thread
spinning units, insulation with the production of glass wool, container furnace, and pipe with
cast iron centrifugations. GERPISA has put together a [NI] benchmark system to assess its six
profit sources, and it is helpful to use this to evaluate the aforementioned activities. In
volume/volumetric terms (economies of scale), the marks are between seven and nine (c.f.,
Appendix 2). On the other hand, Saint-Gobain offers a very wide product range downstream,
frequently the widest of any of the ranges in the markets in which it competes. For example,
in the insulation sector, not only is Isover present in the glass wool market, but also, and
unlike its competitors, in the rock wool sector, and it frequently includes plastic foam in its
product offer. The same applies in the containers business, where Saint-Gobain is capable of
supplying ranges of bottles for all types of beverages as well as food jars, fragrance flasks and
pharmaceutical containers. This explanation also applies to the traditional divisions.
Nevertheless, to be profitable this strategy means coming up with the right balance
between volume and diversity. Economies of scale gains obtained upstream can be cancelled
9

out by excessive downstream diversity. The volume and diversity strategy traditionally leads
to the abandonment of the very top-of-the-range and the very bottom-of-the-range, with
products remaining durably lodged in small niches. This is because working at the very topof-the-range often means moving diversity far upstream, leading to a commensurate reduction
in possible economies of scale. Inversely, working at the bottom-of-the-range leads to a sharp
fall in downstream diversity, despite the fact that this is a source of added value. As for the
smaller niches (at least the ones that are destined to remain small in size), they introduce a
complexity that is usually quite expensive in industrial terms. At the same time, the sales
prices to which such niches lend themselves are more or less capped. For this reason, the
Group has moved quite quickly into those niche markets that are the most likely to experience
good growth. In other words, Saint-Gobain, regardless of the division, is very rarely present in
the very top-of-the-range or very bottom-of-the-range markets (the bottom-of-the-range
segment where products trade on a discounted basis). Clearly there are some exceptions to
this rule, but these are few and far between. The Group is relatively poorly equipped to
compete with firms that produce very short series of high-quality goods, and it has little
interest in conducting a price war with companies that produce very long series of standard
goods. As such, the diversity marks for the maximum range offered by all of the producers in
Saint-Gobains traditional businesses is between eight and nine.
As a result, competition with firms that adopt the same strategy is mainly based on the
ability to remain the player that has found the best balance between volume and diversity.
Competition then becomes quality based. The products on offer are of above-average quality,
but there is no attempt to reach a quality level exceeding that which is commercially
necessary, whether or not customers even perceive or desire this. Saint-Gobain products are
generally acknowledged as possessing this strength. Their quality is also perceived differently
in different parts of the world. For example, the container division places a lot of emphasis on
wine makers as opposed to beer brewers, because the former are prepared to pay higher prices
than the latter, given the fact that the latters bottling costs represent a smaller proportion of
their sales price. Here the assessment marks are six to seven for the same lines of business.
Group Management associates a leadership strategy with a volume and diversity
strategy. Since 1986, all of the Groups businesses have been systematically involved in the
search for a leading position. At present, two of the traditional divisions (insulation and pipe)
have clearly become global frontrunners in sales terms, whereas the others are number one in
Europe and/or amongst the world leaders (flat glass, containers, building materials). This big
is beautiful principle is not thought of in terms of overcoming the conglomerate discount
a motivation for those groups that had refocused on their core activities because they wanted
to become more readable for analysts (Streeck, 2001). Quite the contrary, Saint-Gobain
believes that its position as a socially recognized market leader provides its different business
lines with a competitive advantage, since this means that they can charge higher prices than
their main competitors and also determine the rules (or at least the habits) that will govern the
social constructs of their markets and products (notably product presentation or distribution
customs, cf., Jacob and Verin, 1995). In most of these businesses, not only is Saint-Gobain in
first-place, but it also has a strong market share. This makes it a ubiquitous counterpart for
customers, especially in industries that are highly concentrated. In addition, being first in the
market, Saint-Gobain often has good reason to raise its prices before its main competitors. Of
course, it is also true that competitors dominate certain sub-markets to a greater or lesser
extent. In general, however, Saint-Gobain enjoys a leaders position, even in those professions
where customers like to haggle over prices (for example, automobile flat glass in the
European market). Saint-Gobain is often the number one in a given sector clearly because of
market share, but also because the sectors Saint-Gobain division has customers to accept this
role. Thus, even though a number one spot (in sales terms) does constitute one outcome of the
volume and diversity strategy, the leaders role, on the other hand, calls upon mechanisms
10

that are based on a social recognition of this position and offers a competitive advantage that
supplements the volume and diversity strategy.
The other profit sources are clearly not absent, but they are not preponderant in these
divisions. In innovation matters, for example, the Group rarely succeeds in being the first to
introduce new products, and thus to enjoy temporary monopoly rents. On the other hand, it
benefits from the volume of its research credits (this being a group effect) and uses this to
adapt very rapidly to, and even supersede, the successful innovations of its competitors
(Saint-Gobain has the reputation of being excellent at catching up) and to develop small
targeted projects.11 It is not really that Saint-Gobain does not possess the intellectual and
financial resources to enable it to come up with product innovations; it is rather that the Group
does not systematically take the risk of focusing on markets that are destined to remain little
more than niches. In flat glass (glass plating) for example, Saint-Gobain was one of the first to
develop the layered flat glass technology that has allowed for a clear improvement in the
products vitrification properties, in particular in the automobile sector. As part of this drive,
it developed a coating technique that did not fundamentally modify the glass production
process. It was unable, however, to get its customer base to accept this innovation.
Conversely, a US competitor introduced this product successfully, and it became a signature
product in the European automobile industry. The US competitor took this risk a few years
after Saint-Gobain had first gone down this path; the technique it developed was more
audacious, and it dedicated part of its production lines to this process, so as to be able to
respond to any sudden shifts in demand. Once the product started to be requested by some of
the European customer base, Saint-Gobain mobilized its R&D resources, ultimately offering
the most advanced technique available on the market (the Kappa process). In this case, the
desire not to commit to innovations that might constitute a very costly mistake in the case of a
commercial failure was stronger than the desire to apply research. Along these same lines,
note that Saint-Gobain does not particularly stand out in its traditional businesses for
following either a flexible cost policy that is based on making adjustments to variations in
demand or a policy that is geared towards a permanent reduction in costs, regardless of the
circumstances (and involving measures that are more limited in time, such as automation or a
reorganized purchasing policy).
The volume and diversity leadership profit strategy has turned out to be relevant
mostly when applied in those markets where the populations moderately hierarchical income
has risen regularly and in a coordinated manner, as is the case in Continental and Northern
Europe target markets of the Groups traditional businesses. This mode of income
distribution is what makes it possible to enjoy a relatively stable and versatile, multi-skilled
workforce, as is the case in Saint-Gobains European units (Beffa, Boyer and Touffut,
1999).12 In addition, this income distribution mode offers Saint-Gobain a market structure that
fits in with its own commercial priorities. In these countries, Saint-Gobain tries first and
foremost to service the middle classes, the upper segments of the working classes and the
lower segments of the upper classes. These clienteles are prepared to pay more for average or
above-average quality products, that is, for products offering something less than the very
highest quality. For example, in the building sector, Saint-Gobain focuses on sales to
craftsmen in the renovation market as opposed to sales to large construction firms or
individuals. The craftsmen market constitutes a guarantee of stability (notably thanks to
supplier credits) since renovation work is less dependent on economic cycles than new
construction, and it allows Saint-Gobain to sell goods at relatively higher prices. This is
because craftsmen prefer good quality materials whose prices they can pass on to their clients.
Everything in the strategy that Saint-Gobain pursues in those markets where it is active
stems from this search for stability. All in all, the Group is characterized by a dynamic of
prudence and by its desire to avoid economic and financial upheaval.
11

The strengths and weaknesses of Saint-Gobains traditional lines of business

and of the volume and diversity leadership strategy
The actors involved at Saint-Gobain did not create the profit strategy it has been
pursuing out of thin air. This strategy owes a lot to internal changes in the different elements
of the productive models being implemented, as well as to the adjustments that have been
made for reasons of external constraint or advantage. Of course, the Groups main
orientations have survived the ups and downs of its external environment albeit SaintGobain has sometimes modulated its aims to reflect the institutional, economic and
commercial changes, like those that took place during the 1990s. For example, the Groups
traditional businesses had to contend with a slowdown in growth, especially in their original
markets (automobile, housing, agribusiness and civil engineering). Furthermore, they had to
come to grips with ever-greater cyclical fluctuations in demand. Due to the sustained and
continuous growth in these markets, economies of scale could no longer be obtained as easily
as had once been the case. This is because customer demand translated increasingly into
greater diversity, and new materials became more and more of a threat (in particular plastics
that could be used for containers, flat glass and pipe).
Faced with these transformations, Saint-Gobains response was to seek new ways to
increase economies of scale (particularly since at the same time it was also being forced to
increase the diversity of its traditional businesses product offer). The Group chose to
integrate activities featuring greater growth potential and less cyclicality into its portfolio.
Between 1988 and 1997, Saint-Gobain sold off businesses for which it had little chance of
becoming a market leader (including its mechanical, corporate and paper-wood
businesses). These areas had accounted for 45 per cent of the Groups total sales in 1988.13
Saint-Gobain then undertook an acquisitions programme in its traditional businesses, focusing
on international opportunities and seeking either to become market leader or else to
consolidate its current position as market leader. Sites were specialized at a regional level
whenever possible (notably when transportation costs allowed for this), the purpose being to
optimize production capacity utilization and to achieve the economies of scale that had
become necessary. Saint-Gobain diversified downstream in order to maximize the value of its
products. Finally, it also committed to two new sectors: ceramics and composites, and
housing materials. This involved a few major acquisitions, with the Group trying from the
very outset to play a leading role in these markets at a European level at least. All in all,
between 1995 and 2001, Saint-Gobain increased group turnover by 180 per cent, essentially
through a policy of external growth.
The volume and diversity leadership strategy was relaunched in Saint-Gobains
traditional businesses, with a new balance being set up between volume and diversity. This
involved specializing upstream sites and adding value to the downstream through the
integration of final transformation and distribution activities, specifically as a result of
internationalization and a regional integration of divisions. Traditionally the European
divisions had been decentralized and comprised autonomous national companies, each of
which manufactured an entire product range on flexible production lines using a versatile and
multi-skilled workforce. This system was radically rethought in the 1990s. In divisions for
which Europe constituted the main focus of activity, there was a trend towards site
specialization. For example, little by little Saint-Gobains float glass division began to
specialize by final markets (building versus automobile) and product characteristics (tint,
thickness). The purpose was to avoid excessive downtime during production-line
changeovers. Similarly, in the containers business, production lines were progressively
specialized by tint or by product (for example, jar production was concentrated to a single site
in France in 1991).
12

Site specialization was only possible in a given geopolitical, commercial and social
environment and would only generate economies of scale if accompanied by an extension of
the geographical zone that was being served. In Europe, this coincided with the development
of the EU, leading to lesser currency risk, lower import duties in the Euro-zone and increased
trade with Central and Eastern European countries. This specialization engendered product
range harmonization, with certain divisions, after having experienced a period of sustained
external growth, being responsible for scores of brands. It also caused diversity to be pushed
further downstream in the production process. Lastly, it required a workforce that was
prepared either to manufacture longer series with no operational product range changes or to
be responsible for the supervision of increasingly flexible automated facilities.
A further enhancement of downstream added value came along with this upstream
specialization-concentration drive to increase economies of scale. This involved extending the
production process to include the products final transformation and distribution, either
through direct investment or (and more frequently) via acquisitions. This enhancement of
value also helped Saint-Gobain to avoid having to compete with low-cost producers (in
particular with operations in emerging countries like Chinese manufacturers of everyday
goods). Unlike its competitors, Saint-Gobains flat glass division was progressively able to
integrate its building flat glass transformation network, Europes largest. These are small
entities that cut, shape and sell glass products. They constitute the main outlet for the capitalintensive structures of the divisions upstream end (more than 60 per cent of the building flat
glass that Saint-Gobain manufactures is transformed by its own structures) and represent up to
40 per cent of total division sales, as well as 7 per cent of total group turnover. The same
thing happened to a lesser extent in divisions like pipe which worked to integrate its retail
outlets through Germany and Great Britain and developed a range of coated pipe products,
suitable in particularly corrosive environments. Likewise, the insulation division developed
complex products (ceilings, walking billboards, and so on) to bring Saint-Gobain closer to the
end users of its products.
At the same time, under the aegis of this acquisition policy the Group internationalized
extensively its production operations. Two reasons explain why this was an example of
internationalization and not of globalization: first, certain regions remained entirely
uncovered by Saint-Gobain, both in terms of production and consumption; second, division
activities tended to be organized on a regional basis. The first principle underlying the
Groups internationalization drive was identical to the one that usually circumscribes its
actions the search for stability. Saint-Gobain has always preferred zones and countries that
are politically, economically, socially and financially stable. It has avoided setting up
operations in, or trading with countries, that are prone to frequent political unrest, uncertain
regimes (some African countries) or economic uproar (Argentina and up until 2001 Russia).
Lastly, Saint-Gobain, which as recently as the early 1980s still did most of its business
in France and Germany (with 53 per cent and 16 per cent of group sales, respectively),
progressively re-oriented into new markets. By 2001, Germany, now including the former
East Germany, still accounted for the same proportion of Saint-Gobains total sales, but
Frances share had dropped to 30 per cent. In other words, the Saint-Gobain Group may have
continued to maintain a strong presence within its home boarders, but more noteworthy is the
way it has increased its relative and absolute exposure to a number of new markets. The
principal change was its expansion into North America. Over the past decade, this region has
accounted for twice as big a share of group revenues (rising from 12 per cent of total sales in
1990 to 24 per cent in 2001). In absolute terms, North American sales increased by a factor of
5. Other international trends included a small (and relative) withdrawal from Latin America,
a zone where the Group had traditionally maintained a presence (in Brazil, in particular) and
which accounted for 9 per cent of total turnover in the early 1980s, but only 5 per cent in
2001; the Group also made a breakthrough in Asia in the latter half of the 1990s (3 per cent of
13

total sales in 2001). The Groups internationalization drive has therefore been mainly focused
on the US market, and secondly on emerging countries in Asia.14
As the aforementioned developments indicate, profit strategy implementation inferred
the adaptation of certain aspects of the productive model. In a sense, this meant reacting to
changes in the political, social and economic conditions that constitute the Groups different
environments and fulfilling the specific requirements of the strategy itself (in this case, a
strategy based on a continuous realization of economies of scale, diversified production and
the consolidation of the Groups positions in the different parts of the world).

Diversification of the diversity and flexibility and volume and diversity

leadership profit strategies
In its traditional businesses, Saint-Gobain has been following a volume and diversity
leadership strategy. In parallel to this, in recent years, the Group also initiated a new
diversity and flexibility strategy that has consisted in targeting a broad customer base whilst
rapidly adjusting costs and production volumes to each segments variations in demand.
Systematic attempts are no longer made to lengthen production series; instead, the goal is to
develop short or medium-length series to match clientele segmentation. This strategy has
brought about three transformations of the Saint-Gobain Group itself: more emphasis on
businesses with a higher growth potential; expansion into regions where income is distributed
on a competitive basis; and a change in the management compromise, with owners or their
proxies playing an indirect yet increasingly significant role in defining group orientations.
The new businesses that Saint-Gobain has moved into touch upon three divisions:
abrasives, ceramics and high-performance plastics; reinforcement; and building materials
distribution.15 For a variety of reasons, these areas have a higher growth potential. The
activities covered by the first two divisions are very dynamic, on the one hand, due to the fact
that the products on offer are new or else substitutes that are well-suited to markets with a
strong growth potential, and on the second hand, because for some of them, the
manufacturing function (which was previously carried out by a large number of small and
medium-sized companies) can be rationalized and concentrated. As for the building materials
distribution business, its growth potential resides in the development of the renovations
market, a field marked by the presence of a multitude of small firms,16 all of which prefer
finding a broad and varied product range at a single location rather than having to deal with
small specialized distributors scattered all around.
Saint-Gobain has allocated 75 per cent of its post-1996 acquisition outlays to the new
fields it has been entering. In ceramics, high-performance plastics and abrasives, the main
acquisitions were Norton (1990) and Furon (1999) in the United States. There were also a
number of other acquisitions of lesser importance. In 2001, this division represented 13 per
cent of consolidated group sales as opposed to 2 per cent in 1986. In the reinforcement
business, acquisitions mainly pertained to transformation activities (with companies like
Bayex in Canada or LMC in Italy); over the same period, this divisions share rose from 3 per
cent to 4.5 per cent of total group sales. Lastly, in the building materials distribution sector
Saint-Gobain bought three major European actors: the French company Poliet in 1996 (total
sales of 3,606 million, and including the Point P and Lapeyre chains), the English company
Meyer International in 2000 (total sales of 2,738 million and including the Jewson chain),
and the German company Raab-Karcher in 2000 (total sales of 2,042 million). All three are
building materials retail market leaders in their respective countries.17 The goal here has been
both to push Saint-Gobain towards service professions and also to go further down the path
towards downstream diversification in the building goods market that the Group knows so
well. In line with the general policy of decentralization, the building materials distribution
14

division only buys a small proportion of its supplies from Saint-Gobains production
divisions. Today, this division, which was not part of the Group in 1995, accounts for 32 per
cent of total turnover.
All in all, growth in these new businesses has radically transformed the Groups
structure. How then did Saint-Gobain arrange its profit strategy during this growth phase? In
the reinforcement division, growth has been a way to satisfy the requirements of a volume
and diversity leadership strategy and involved an immediate reorganization of long-time
activities like glass fibre spinning and, starting in 1998, new activities like weaving and
transformation. Nowadays, specially spun glass threads are delivered to the downstream
transformation units, specifically in the form of rovings or chopped strands, all of which are
very different fibres that can be used to manufacture transformed products. Such units
currently offer a very wide product range without targeting the extremes of the spectrum. In
addition, this division is organized on a global basis and has been able to rationalize its
manufacturing programmes by specializing upstream industrial facilities by the different
aspects of the production process. In sum, strategic implementation has indeed been the
prevailing force in the Groups traditional businesses.
In building materials distribution, on the other hand, the situation is much more
contrasting. Today in Europe, Saint-Gobain runs a network of 2500 retail outlets offering
building materials and industrial carpentry goods. This network is partially composed of
general stores targeting craftsmen and individuals who come on average from 30 km around.
There are also dedicated professional platforms where this particular target market is able to
immediately find a complete range of products in stock. Transposing our profit strategy-based
analysis to the retail sector, we could say that this network is also based on a volume and
diversity leadership strategy inasmuch as it is by far the most developed of all of the Groups
networks in the three countries where Saint-Gobain runs store chains; another reason is that
bulk purchasing and on-site regrouping enable the requisite economies of scale, at the same
time as the diversity of the product offer makes it possible to offer the target clientele
(renovation work craftsmen) the high-quality materials and carpentry items they seek. Once
again, Saint-Gobain is neither selling at the very top-of-the-range nor at the discount-based
bottom-of-the-range, in that it is trying to achieve the right balance between volume and
diversity. It remains that the retail division has associated this strategy with one in which
economies of scale are of secondary importance. The division has kept certain specialist
chains (that is, Graham in England for heating or sanitation materials, or CEDEO in France
for bathrooms and heating materials) and created or acquired centres that are specialized in
certain aspects of the building profession and which draw in customers who come on average
from 130 km around. This is because a much wider demand exists for specialities, and it may
not be possible to satisfy this demand in the general stores. The profits that are made here are
a reward for the Groups success in satisfying a specific demand, and it is the flexible nature
of its organization that allows it to provide this service at a lower cost. To use the GERPISAs
terminology, this activity is more representative of a diversity and flexibility strategy since
the product range is very wide (certainly wider than what the general stores offers), and
because the service provided satisfies the specific requirements of each craft. Even though
this may be the strategy that the division has adopted, the volume and diversity leadership
strategy still predominates this business in revenue terms.
With regards to the ceramics and abrasives division, many products are designed and
manufactured on a custom-made basis or as part of extremely wide-ranging catalogues.
Nowadays, almost all the divisions experience a very high demand for short (and even very
short) series of specific tools and products. For example, a large proportion of all bonded
abrasives and super-abrasives are tailor-made for orders that rarely exceed five products. In
the abrasives business, there are in fact 250 000 different types of products. Industrial and
specialty ceramics tend to be sold in catalogues, enabling a modicum of standardization. The
15

list of available products is very long, however, and product range rationalization efforts and
site concentration and specialization drives have been hampered by the persistent atomization
of demand. In other words, this market continues to be a highly fragmented one. Lastly, the
Saint-Gobain division is not in a dominant position in this market, although it is number one
in the world in sales terms, both in ceramics and abrasives. This is at odds with the Groups
traditional business approach. In this division, the objectives that have been set correspond in
reality to a diversity and flexibility strategy.
Is the diverse nature of the profit strategies that are being followed supposed to last?
Should an effort be made to get several different profit strategies to coexist in significant
proportions at the heart of the Group, and no longer at its margins? We would be hard-pressed
to answer this question at present. Suffice it to say that transformations in the Groups
operating environment seem to indicate that it would be a good idea to prolong this diversity.
Saint-Gobain has made many acquisitions as part of its efforts to relaunch its volume
and diversity leadership strategy and to redeploy it towards activities that feature a greater
growth potential. The mechanisms for funding this growth have deeply modified the Groups
management compromise. Growth may have been partially funded by the divisions selffinancing capabilities (which continue to be an important activity control criterion), but the
Group has also used other instruments, specifically asset sales (essentially the paper-wood
division that was sold to finance the acquisition of Poliet, as well as the corporate services
department), debt (indebtedness rose from 9 per cent of shareholder equity in 1995 to 62 per
cent in 2001) and securities sales. This latter element relates of course to the French Groups
recent tendency to unwind their cross-shareholdings. The earlier (1981-1987) era of State
control (a traditional way to control companies in France) was replaced by a cross-holding
system (1987-1995) that enabled Saint-Gobain to undertake an in-depth restructuring of its
main equity participations without having to subjugate its overall objectives to considerations
of short-term profitability. The French State had always taken care not to interfere with SaintGobains daily operations, but it could not help getting involved in matters like asset sales and
acquisitions. On the other hand, the Groups core shareholders not only hardly interfered in its
daily operations, but also allowed it to reposition itself without exerting any undue external
pressure. The main change came from the unwinding of cross-shareholdings, as this freed up
capital for external growth. In actual fact, this unwinding (not the doing of Saint-Gobain, but
a measure propelled by some of its partners) was synonymous with a major change in the
nature of the parties that held a controlling interest in the Group. Henceforth, institutional
investors would hold much more than 50 per cent of Saint-Gobains capital. This alteration of
the shareholder structure, marked as it was by increased employee share ownership as a result
of company savings programmes (6.5 per cent of the Groups capital and 9.4 per cent of all
voting rights) led to a partial reconfiguration of the Groups management compromise. The
growing influence of institutional investors, who mostly came from the United States and
Great Britain, forced Saint-Gobain to reconsider its management procedures, which became
increasingly sensitive to the management principles favoured by this class of shareholders
(Aglietta, 2000; Streeck, 2001).
Although the board of directors remained a central figure in determining the Groups
objectives, specifically by approving its strategy each year, Saint-Gobain has begun to adopt
new procedures to satisfy institutional investor requirements (establishment of a stock option
programme for top executives; systematic utilization of new instruments [i.e., Return on
Assets]18 to control division and operational entity activities; creation of an investor
relationship department; repeated road shows presenting and explaining the Groups strategy
to financial analysts and investor groups, etc.), and above all to ensure a constant, or even
better, a rising remuneration for shareholders. This explains the Groups major efforts to
become more resistant to the effects of economic cycles by investing in counter-cyclical
sectors and by making each division less sensitive to cyclical influences. This has included
16

further investment in markets that are stable and counter-cyclical, both geographically
(Europe and North America) and at the product consumption level (building and industry). In
addition, highly volatile and risky businesses (like electronics) have been pushed to one side.
This issue became particularly topical for the Group as a result of the summer 2002 fall in its
share price following the announcement that it had set aside funds to cover possible liabilities
from an asbestos trial it was involved in in the United States. This case is a reminder of both
the political and legal risks that are inherent to the internationalization of production, and also
of the fact that a shareholder value approach is disconnected from the realities of firms
operational performance. In short, Saint-Gobain used to try to enforce its strategy without
dwelling upon what was currently fashionable in managerial thinking. Changes in its
shareholder structure, however, have forced it to look for new earnings stabilization
mechanisms that will enable it to guarantee a fixed remuneration to shareholders. This quest
has led the Group to transfer some of its risks to other actors, especially certain employees,
through mechanisms like variable remuneration (employee shareholder plans, bonus schemes,
group savings plans) or temporary labour contracts. These steps have somewhat undermined
the ostensibly prevailing Saint-Gobain model of a stable and versatile, employee (Beffa,
Boyer and Touffut, 1999). Note that such mechanisms are better suited to a diversity and
flexibility strategy.
A second transformation of the Group, coinciding with a modification of its profit
objectives, relates to developments in national growth modes. Exports have become
increasingly important, and income is distributed in a much more competitive fashion. These
developments have led to increased heterogeneity in both the final and the intermediate
markets, and to greater workforce instability. This is particularly obvious in English-speaking
countries. By moving into non-Continental regions, Saint-Gobain now has to contend with
markets where the structure of the customer base is quite different from what the Group is
used to back home in Europe. Although Saint-Gobain remains very present in countries where
the income distribution mode continues to be partially coordinated and moderately
hierarchical (due to regular meetings between social partners to discuss increases in the total
wage bill or else income disparities, i.e., Western Europe, Northern Europe and Japan), it has
started selling an ever-greater proportion of its products in countries where the income
distribution mode is a competitive one that is mainly dependent on local bargaining strengths
(primarily the United States and Great Britain), in countries shifting towards a more
competitive type of distribution (Central Europe, China), or in countries marked by a very
non-egalitarian mode of income distribution (like Brazil or Argentina) (Table 1).
Table 1.Saint-Gobain Group sales according to mode of income distribution
Coordinated
1990

Volume and diversity

leadership strategy

Diversity and
flexibility strategy
Dominated by a
volume and diversity
leadership strategy

72%
84%
89%
75%
20%
83%
72%
28%
71%

GROUP
Flat glass
Containers
Insulation
Building materials
Pipe
Reinforcement
Abrasives
Ceramics and plastics
Building materials
distribution

2001
60%
70%
54%
51%
32%
74%
48%
40%
34%
72%

17

Competitive
1990
21%
9%
0%
23%
59%
12%
28%
59%
29%

2001
34%
8%
42%
33%
59%
20%
40%
50%
64%
26%

Other
1990
7%
7%
11%
2%
21%
5%
0%
13%
0%

2001
6%
22%
4%
16%
9%
6%
12%
10%
2%
2%

Those divisions that are primarily focused on countries featuring a coordinated

distribution of income (by order of importance: retail, pipe, flat glass, containers and
reinforcement) have developed a volume and diversity leadership strategy.19 They deliver
average to superior quality intermediary or final products that come in a moderately
hierarchical price range and which are sold to a middle-income population. On the other hand,
those divisions (ceramics and plastics; abrasives) that have mainly focused on markets
marked by a competitive distribution of income have tended to offer a wide range of specific
small series products and are mostly geared towards a diversity and flexibility strategy.
Moreover, units situated in countries of this sort have to try to agree on a management
compromise with a workforce that is much more volatile in nature and which tries to take
advantage of the opportunities offered by the competitive distribution of income. Here,
workforce flexibility management is facilitated by labour legislation, even though the
workforce will respond to such laws by becoming less involved personally in the company, as
witnessed by the higher turnover rate in the Saint-Gobain units that operate in such regions
(Beffa, 2001).
A new structural logic is taking shape in the Saint-Gobain Group, one that associates
two different profit strategies. This logic combines a strategy that ensures stable and regularly
growing profits (as long as the means being implemented as part of the strategys application
are coherent with one another) with a strategy that is riskier, but which is better suited for
markets that feature a competitive mode of income distribution. The main decision that the
Group will have to make is whether it should maintain this double strategy, thus perpetuating
the risks associated with it (by combining the facilities productive flexibility and the search
for longer manufacturing series), or whether it should place greater emphasis on one or the
other of these two strategies.

Conclusion
This presentation of the principal changes that the Saint-Gobain Group has experienced
helps us to show how over time the Group has put together a volume and diversity
leadership strategy with which it has tended to associate a diversity and flexibility strategy.
Above and beyond Saint-Gobains own specificities, the case study reminds us that there are
no ready-made solutions for turning a profit, creating a working community and/or
manufacturing products that enjoy a widely recognized social value. It is as if the limited
diversity of corporate modes of organization were the norm. For the purposes of the present
paper, we may have only relied on a single example, but we also know of other sectors where
diversity has prevailed. In each division, we can find competitors who have also performed
well, despite implementing strategies that were very different from the one adopted by SaintGobain (in particular, volume-based strategies like the US company Guardian in the flat glass
business or quality-based strategies like the Austrian company Tyrolit in the abrasives
business). Once again, we should stress that it is not the product type that determines whether
diversity is taking place (Fujimoto, 2001) a company can very well develop a volume-based
strategy in the chemicals sector, whereas a steel-maker might be able to develop a productinnovation strategy. It is more appropriate to look for differentiation factors in the market
structure and in the structure of work, that is, by comparing companies within a given sector
at an international level instead of comparing sectors we assume to be homogeneous.
One key to a companys success is the long-term choices it makes about which profit
source(s) it should stress, given that it is impossible to hedge all of your bets in this field.
Similarly, no single profit source is per se more apt to guarantee profitability than another
one. Many observers today see innovation as a miracle remedy for firms operating in
industrialized countries (Amable, 2002). And yet, there is good reason to believe that this
18

profit source can only be relevant if it is applied by some, and only by some, firms in a given
sector. Convergence is not what guarantees success rather it is the development of strategic
coherency over the long run. Strategy should be considered with a view towards the longterm. After all, however relevant the changes in the objectives may be, they will also cause
the relationships between individuals, groups and techniques to evolve. Now, there is little
doubt that such relationships evolve in slow motion and that they are grounded in a slow type
of social and individual learning. This does not mean that strategies must be set in stone.
Saint-Gobains example has demonstrated this amply. Development and adaptation to
changes in economic policy, new competition orientations and the internal limitations of the
models being implemented all of these phenomena must be based on durable foundations.

19

Bibliography
Aglietta, Michel (2000), Le capitalisme de demain, Paris: Notes de la Fondation Saint-Simon.
Beffa, Jean-Louis (2001), Pourquoi les modes de gestion continuent diffrer : le cas de
Saint-Gobain, in R. Boyer and P.-F. Souyri, (eds), Mondialisation et rgulations.
Europe et Japon face la singularit amricaine, Paris: La Dcouverte, pp.123-128.
Beffa, Jean-Louis, Robert Boyer and Jean-Philippe Touffut (1999), Employment
Relationships in France. The State, the Firms and the Financial Markets, Paris: Saint
Simon Fondation.
Boltanski, Luc and Eve Chiapello (1999), Le nouvel esprit du capitalisme, Paris: Gallimard.
Boyer, Robert (2004), The Future of Economic Growth: As New Becomes Old, Cheltenham,
UK and Northampton, MA, USA: Edward Elgar.
Boyer, Robert, Elsie Charron, Ulrich Jrgens and Steven Tolliday (eds) (1998), Between
Imitation and Innovation: the Transfer and Hybridization of Productive Models in the
International Automobile Industry, Oxford: Oxford University Press.
Boyer, Robert and Michel Freyssenet (2002), The Productive Models. The Conditions of
Profitability, New York: Palgrave MacMillan.
Boyer, Robert and Pierre-Franois Souyri (eds) (2001), Mondialisation et rgulations. Europe
et Japon face la singularit amricaine, Paris: La Dcouverte.
Castells, Manuel (2000), The Information Age: Economy, Society and Culture, Oxford:
Blackwell.
Chandler, Alfred D. (1994), Scale and Scope. The Dynamics of Industrial Capitalism,
Massachusetts: Belknap Press.
Coutrot, Thomas (1998), Lentreprise no-librale, nouvelle utopie capitaliste ? Enqute sur
les modes dorganisation du travail, Paris: La Dcouverte.
Daviet, Jean-Pierre (1989), Une multinationale la franaise. Saint-Gobain 1665-1989,
Paris: Fayard.
Dessaux, Pierre-Antoine and Jean-Philippe Mazaud (2000), Rception du modle divisionnel
en France au dbut des annes soixante-dix la lumire de ltude des pratiques,
Cahiers du Centre de Recherches Historiques, n 25, pp.13-47.
Durand, Jean-Pierre, Paul Stewart and Juan Jos Castillo (eds) (1999), Teamwork in the
Automobile Industry. Radical change or passing Fashion?, London: MacMillan.
Flynn, Michael S., Changement stratgique ou drive tactique de General Motors?, in M.
Freyssenent, et al. (2000), Quel modle productif ? Trajectoires et modles industriels
des constructeurs automobiles mondiaux, Paris: La Dcouverte, pp.199-227.
Freyssenet, Michel and Andrew Mair (2000), Le modle industriel invent par Honda, in M.
Freyssenet, et al., Quel modle productif ? Trajectoires et modles industriels des
constructeurs automobiles mondiaux, Paris: La Dcouverte, pp.139-154.
Fujimoto, Takahiro, La diversit de lorganisation des firmes: une analyse, in R. Boyer and
P.-F. Souyri (eds), Mondialisation et rgulations. Europe et Japon face la singularit
amricaine, Paris: La Dcouverte, pp.131-137.
Hamon, Maurice (1998), Du Soleil la Terre. Une histoire de Saint-Gobain, Paris: J-C
Latts.

20

Jacob, Annie and Hlne Verin (eds) (1995), Linscription sociale du march, Paris:
LHarmattan.
Jrgens, Ulrich, Le dveloppement du modle industriel de Volkswagen, in Michel
Freyssenet (et al.) (2000), Quel modle productif ? Trajectoires et modles industriels
des constructeurs automobiles mondiaux, Paris: La Dcouverte, pp.293-336.
Lomba, Cdric (2001), Lincertitude stratgique au quotidien: trajectoire dentreprise et
pratiques de travail. Le cas de lentreprise sidrurgique Cockerill Sambre, 1970-1998,
Ph.D. thesis in sociology, E.H.E.S.S.
Martin, Roger (1984), Patron de droit divin, Paris: Gallimard.
Orlan, Andr (2000), Le pouvoir de la finance, Paris: Odile Jacob.
Sabel, Charles F. and Jonathan Zeitlin (eds.) (1997), World of Possibilities. Flexibility and
Mass Production in Western Industrialization, New York-Paris: Cambridge University
Press-Maison des Sciences de lHomme.
Salais, Robert and Michael Storper (1993), Les mondes de production. Enqute sur lidentit
conomique de la France, Paris: Editions de lE.H.E.S.S.
Shimizu, Kochi (1999), Le toyotisme, Paris: La Dcouverte, Repres.
Streeck, Wolfgang (2001), La transformation de lorganisation de lentreprise en Europe: une
vue densemble, in J.-P. Touffut (ed.), Institutions et croissance. Les chances dun
modle conomique europen, Saint-Gobain Centre for Economic Studies, Paris: Albin
Michel, pp.175-230.
Touffut, Jean-Philippe (ed.) (2001), Institutions et croissance. Les chances dun modle
conomique europen, Saint-Gobain Centre for Economic Studies, Paris: Albin Michel.
Weber, Max (1971), Economie et socit, Paris: Plon.
Womack, James, Daniel Jones, Daniel Roos (1990), The Machine that Changed the World,
New York: Harper Perennial.
Zeitlin Jonathan and Gary Herrigel (eds) (2000), Americanisation US Technology and
Management in Post-War Europe and Japan, Oxford: Oxford University Press.

21

Appendix 1. Presentation of the Saint-Gobain Group

Total Sales
(in millions of Euros)

1990

1995

Operating Income

2001

1990

1995

2001

Employees

Main products manufactured

1990

1995

2001

Flat glass
Insulation/reinforcement
Containers
Ceramics and plastics,
Abrasives

1,940

1,936

4,478

344

253

551

19,532

16,379

35,683 Flat glass, for buildings and transportation; speciality glass

1,958
1,497

2,181
2,255

3,274
4,070

189
241

245
263

402
404

14,615
12,917

12,694
22,397

17,139 Glass wool, rock wool, glass threads, glass fabrics and grids
20,346 Bottles, jars, flasks, plastic pump

1,036

1,957

4,018

110

215

392

21,384

18,298

28,742

Building materials

1,146

961

3,184

104

111

294

8,863

7,985

Building materials
distribution
Pipe
Paper-Wood
GROUP

10,061
1,348
1,408
10,497

SAINT-GOBAIN Group

1,084

1,782

10,719

30,390

45,868 Distribution for new building or renovation work, industrial carpentry

490
147
64
1,223

1990

1991

1992

10,497
1,223
512
1,280
104,991

11,444
1,052
382
1,250
104,629

11,282
978
362
1,199
100,373

97
1,187

Industrial ceramics, crystals, high performance plastics, abrasive

grinding wheels, applied abrasives and superabrasives
PVC siding products, roofing products, concrete products, mortars,
13,221
terracotta tiles

131

13,905
10,060
2,681 104,991

7,972

9,725 Pipes, cast-iron connectors, plumbing fixtures

Cardboard containers, paper for publishers, paper bags

90,023 171,861

1993

1994

1995

10,906
759
200
971
92,348

11,356
1,112
553
1,237
80,909

10,719
1,187
642
1,404
89,852

1996

1997

1998

1999

2000

2001

13,931
1,434
659
1,628
111,701

16,324
1,593
858
1,693
107,968

17,822
1,775
1,097
1,912
117,287

22 952
2 314
1 226
2 360
164 698

28 815
2 693
1 517
2 643
171 125

30 390
2 681
1 134
2 733
173 329

(in millions of Euros)

Total sales
Operating income
Net income
Cash flow
Employees (as of 31 December)

22

Appendix 2. Saint-Gobain Group profit sources

Methodology
The GERPISA method, when adapted to the sectors in question here and to available data,
helps us to ascertain levels for each profit source. The first problem encountered in this
transposition is that it is impossible to quantify physical production volumes in activities that
relate to the production and sale of incommensurable products (that is, retail sales of
insulation materials, concrete or work clothes, or abrasives division manufacturing of
grinding wheels as small as a few millimetres for the clock-making industry or as big as a
several tonnes for the paper industry). Unlike the GERPISA, we were unable to test our data
by assessing control organizations that are external to the firms themselves (that is, technical
controls used to define vehicle quality) or by comparing them with competitors production
data, which was kept secret. To overcome these hurdles, where data was unavailable we relied
on the qualitative knowledge held by Saint-Gobain personnel, specifically senior managers in
the industrial and commercial service divisions. We used the following methods.
- Volume: we analysed changes in the lengths of the series the Saint-Gobain factories have
been turning out and compared them qualitatively with competitors series.
- Diversity of the product offer: we determined the theoretical product range and positioned
Saint-Gobain relative to its competitors.
- product quality: we positioned Saint-Gobain relative to its competitors by taking into
account the reputation, sales price and product range positioning of its products.
- Innovation: we positioned Saint-Gobain after taking its research efforts into account and
determining which firms had initiated major product innovations over the past few years.
- Productive flexibility: we compared rates of change in unavoidable expenditures (total
wage bill + depreciation), calculated on an ex-inflation basis, with rates of change in
production volumes. A division is deemed to be all the more flexible if it reduces its
unavoidable expenditures whenever output falls and limits their rise whenever output
increases.
- Permanent reduction of costs at constant volume: whenever possible, we crossed changes
in unit costs, calculated on an ex-inflation basis, with the technical, social and organizational
measures that were taken to cut costs. A division was deemed to have cut its costs whenever
this diminution in costs stemmed from sources other than economies of scale (volume-based
strategy), and whenever it also occurred during periods of expansion.

23

Traditional volume and diversity leadership businesses

Containers

Flat Glass

Cost cutting

Volume
10
8
6
4
2
0

Flexibility

Cost cutting

Diversity

Quality

Flexibility

Innovation

Cost cutting

Flexibility

Pipe
10
8

Cost cutting

Diversity

Flexibility

Diversity

Quality

Innovation

Volume

Diversity

Quality
24

Innovation

4
0

Building Materials

Flexibility

6
2

Innovation

Cost cutting

Quality

Volume

Quality

10
8
6
4
2
0

Diversity

Innovation

Insulation
Volume
10
8
6
4
2
0

Volume
10
8
6
4
2
0

New businesses
Dominated by volume and diversity leadership

Building Materials Distribution

Reinforcements

Cost cutting

Volume
10
8
6
4
2
0

Flexibility

Diversity

Quality

Cost cutting

Volume
10
8
6
4
2
0

Flexibility

Diversity

Quality

Innovation

Innovation

Dominated by diversity and flexibility

Abrasives

Cost cutting

Volume
10
8
6
4
2
0

Flexibility

Ceramics & Plastics

Volume

Diversity

Quality

Innovation

Cost cutting

10
8
6
4
2
0

Flexibility

Diversity

Quality

Innovation

Appendix 3. Applying GERPISAs theories to Toyota and Honda

Two examples taken from the Japanese automobile industry can help us to
understand how the productive model theory developed over time. These examples
are Toyota and Honda, the only two Japanese carmakers to have been constantly in
the black.
From the early 1950s until a certain point in the 1990s, Toyota was mostly
trying to cut costs whilst maintaining constant volumes the purpose being to
increase its profit margins even when sales volumes were stable (Shimizu, 1999).
Toyota was therefore able to sell everyday products with a competitive price
advantage it obtained by providing a basic car that offered limited features, but whose
quality was constantly improving. Inversely, the company never risked product
innovation, preferring to adapt models that were already being manufactured by other
carmakers. As regards its productive organization, Toyota devised a variety of
measures that were intended to help it cut its production adjustment costs constantly,
reduce inventory levels, meet deadlines and diminish production line workload
variations. As for the employment relationship, Toyota was able to organize shorter
production schedules by devising a system wherein some of the wages it paid out
were dependent on work teams being able to reduce the time needed to achieve a
given outcome. It also used overtime to manage variations in production volumes. In
exchange for all of this, employees enjoyed lifelong employment and a senioritybased promotion system. All in all, by developing both a profit strategy that was
relevant to the modes of growth in those locations where it kept its facilities, as well
as a coherent productive model, Toyota turned into one of the worlds most profitable
carmakers. This model may have weakened somewhat in recent years, with Toyotas
employment relationship having changed due to the fact that ever since the 1990s, it
has been unable to attract a young workforce in response to rising production
volumes. In addition, as of late, it has been trying to focus on something akin to a
product innovation strategy (with the launch of its first solely battery-operated
commercial vehicles and development of new vehicles to target smaller customer
segments).
Honda, which has had to contend with an identical growth mode, has pursued a
profit strategy (based on innovation and flexibility), that albeit different from
Toyotas, is just as appropriate (Freyssenet and Mair, 2000). This strategy is
predicated on the idea that the firm is capable of turning out innovative cars that can
satisfy consumers new expectations. Honda invented the model to fulfil this
strategys requirements when it adopted a product policy based on periodic
international launches of innovative products (models or engines). It took the various
actors concerned many years to discover the means that were compatible and
acceptable for reaching this goal. They succeeded by emphasizing light and
convertible tools, and by not hesitating, unlike others, to get rid of heavy automatic
processes. With regards to personnel management, these actors linked promotion to
responsiveness, expertise and initiative (aims that Hondas labour unions long refused
to countenance) whilst offering the best working conditions and shortest working
hours in the sector. Together with Toyota and Volkswagen, Honda was one of the
three companies in this industry to have remained in the black even after the 1973 and
1980 crises.

Endnotes
1. The Permanent Group for the Study and Research of the Automobile Industry and its Employees,
Ecole des Hautes Etudes en Sciences Sociales, Universit d'Evry, France)
2. Cdric Lomba (2001) presents a more detailed analysis and criticism of convergence theories.
3. For a critical presentation of the emergence of the American model, see Boyer (2002).
4. See in particular Salais and Storper (1993) for studies on the situation in France.
5. The eight growth modes are competitive and competed, competitive and consumer-oriented,
competitive and price export-oriented, coordinated and consumer-oriented, coordinated and
specialized export-oriented, coordinated and price export-oriented, inegalitarian and rent-oriented,
shortage and investments-oriented.(Boyer and Freyssenet, 2000, pp. 12-17).
6. These profit strategies are called quality, diversity and flexibility, volume, volume and
diversity, permanent reduction in costs and innovation and flexibility.
7. For a historical presentation of Saint-Gobain, cf., Hamon, 1998; Daviet, 1989.
8. Analogous conclusions can be drawn regarding return on investment (the Groups return on
investment remained stable during this entire period and especially from 1995 to 2001, when its
variation coefficient was 0.04.).
9. Control of the divisions autonomy also means that the Group Management monitors leading
executives careers. This control encourages internal mobility for senior managers and avoids a
situation for powers that are disconnected from the Groups overall strategy to be built up at the
division level.
10. As per the example of the model that General Motors first introduced to the automobile industry,
and which Volkswagen successfully applied in the 1980s and 1990s, cf., Flynn, 2000; Jrgens, 2000.
11. Saint-Gobain, traditionally a company of engineers, values process innovations and is more apt to
adopt them pervasively.
12. Of course this is just an overview of the characteristics of the Saint-Gobain workforce. More
detailed analyses might emphasize the Groups many different kinds of employment relationships,
which vary by sector, worker category, gender, country or factory. For a presentation of some of these
differences, cf., Hirata, 1991
13. The paper pulp division (10 per cent of total sales), which was sold off in 1994, was an isolated
division. Even more importantly, it was vulnerable to market volatility. Saint-Gobain came far behind
the sectors leading global players and did not have any particularly broad product range or mediumsuperior quality to offer.
14. The US market was mainly attacked in the 1990s through a few big and widely discussed
acquisitions.
15. These businesses are described as being new as opposed to more traditional activities. Only
building materials retailing (1996) and abrasives (1990) are in fact new businesses that the Group has
integrated; the others were already part of the Group, but they experienced very high growth during the
latter half of the 1990s.
16. In France, 260,000 companies with fewer than 50 employees divide up the renovation work market.
17. To a lesser extent the Group has also got involved with building materials retailing in Spain with
Mercader, and even more so in Brazil with Telhanorte.
18. Return on Assets, like Return on Investment, measures the profitability of the capital that is being
committed whilst taking total acquisition costs into account to a larger extent.
19. Certain divisions, for strategic reasons or because they have heretofore been unable to conduct
external growth operations in highly structured markets, have had problems expanding into any market
that is not based on a coordinated distribution of income. One example is flat glass, with the problems
it experienced in trying to set up operations in the US market, which is run by seven major actors, or
the English market, which is controlled by one producer. Another example is piping, for historical
reasons relating to the factories it built in France and in Germany, whose output was exported to
markets that were still in an initial equipment phase. A final example is retail, which is present almost
nowhere outside of Europe, and which due to the very nature of its production cannot export any of its
services without simultaneously exporting its sales structures.