Lessons from the Front.

With more than 50 acquisitions under its corporate belt in the last decade alone, Paris-based Saint-Gobain is an experienced buyer of businesses large and small. Here's what they've learned.

Saint-Gobain's growth strategy, like that of many firms, requires acquisitions. In North America alone, we've made about 50 in the last decade, ranging in size from $500,000 to $1.9 billion. So it might seem a simple matter for me to reflect on those and devise "rules for successful integration."

However, each acquisition is unique. Integration is complex. Even our own managers draw conflicting conclusions: don't be heavy-handed; be more heavy-handed. Make changes quickly; change things slowly. Divest unrelated businesses immediately; hold off and see what happens.

To the question, "What's the right way to integrate an acquisition?" the answer is, "That depends on what you're trying to accomplish." For example, two articles in the same publication had very different takes on the IBM acquisition of Lotus Notes. The first writer called the acquisition a mistake because the people who developed Lotus Notes had left, not wishing to work within the IBM bureaucracy. The second dubbed the acquisition a success because the skills of IBM's sales organization leveraged the product into a real challenger for Microsoft.

At Saint-Gobain, "success" means we achieve synergy, and therefore get the financial results we expect from the acquisition; and the best people in the acquired company decide to stay. Headquartered in Paris, Saint-Gobain is a worldwide leader in engineered materials with approximately 160,000 people in 45 countries. Our businesses are divided into three sectors: glass, high-performance materials, and housing.

One of our targets is to grow revenues by 8 percent per year, with half that growth coming from internal development and half from acquisitions. We acquire companies to increase market share, become a significant player in a geographic market, gain technologies, increase capacity, or improve profitability through synergies.

We don't have a corporate M&A department. Executives of our businesses make and integrate acquisitions with the help of corporate staff. We prefer friendly acquisitions to hostile rake-overs: a good relationship with the acquired company's people is key to a successful integration.

Cultural issues present the toughest obstacles to successful integration. This is doubly true with international acquisitions. By "culture," I mean the underlying, often unexamined assumptions that companies bring to day-to-day activities, such as people-oriented vs. results-oriented; production-oriented vs. market-oriented; technology-focused vs. customer-focused; centralized vs. decentralized; balanced vs. workaholic.

The wider the differences, the rougher the integration. But even apparently small differences can be difficult to resolve. One of our businesses bought a company making the same basic product. Both companies used the same quality measures, but our business insisted on tighter tolerances. Since the other company wasn't receiving customer complaints, they were very difficult to convince. We learned that some terms should be non-negotiable, and now we say so up front.

If you decide to keep an acquisition at arm's length--let it operate almost independently--cultural differences present minimal interference. But for full integration, you will operate successfully only if you have one corporate culture--ultimately, that of the acquiring company. With the Chrysler/Daimler-Benz merger, for example, early announcements suggested that a true integration of cultures was possible: the decision that English would be the working language. But a fully integrated company would see both organizations well represented on the management team, and it appears that American executives didn't want to go to Stuttgart. Then the departure of Thomas Stallkamp from DaimlerChrysler gave many people the impression that Daimler was turning Chrysler into a German company. But the only real surprise is that so many people have found this surprising.

Before You Sign the Papers

Presumably, you know a company quite well before you decide to acquire it: you've been watching it in the marketplace.

Through the due diligence process, as you get to know it even better, you might discover cultural differences so great that you should walk away from the agreement.

Compensation--salaries, wages, and benefits--can make a critical difference, not only the form it takes, but how it's calculated. We ended negotiations with one promising acquisition in part because their benefits were not competitive. You can't rake benefits away, and we couldn't raise benefits in the rest of the company to match those at the new one.

Planning for integration should start while you're negotiating the agreement. In our recent acquisition of Irving, TX-based GS Roofing Products Co., our business managers were able to:

* Update the strategic objectives of the existing business;

* Lay out the purpose and objectives for the acquisition;

* Define critical success factors for the acquisition;

* Lock in non-negotiable decisions (for example, which company's computer system would be used);

* Set up a steering committee, an integration team to take care of day-to-day activities, and 13 functional task teams. Because the acquired company was a competitor, its people could not be involved until the agreement was signed. They were brought in the following day. (Teams should grapple with issues like maintaining customer service during the integration and, if the acquired company is a competitor, devising a brand strategy.)

Did the plan work? The manager in charge told me that the first two weeks went pretty well, then they started bogging down. This is to be expected. But the committees accomplished what they set out to do.

What if you don't have time to put together such a comprehensive plan? At least define and update your strategic goals and understand how the acquisition fits in. And immediately put experienced people in place to manage the integration.

Can We Talk?

One of our North American businesses, Norton Co., recently acquired Laguna Niguel, CA-based Furon Co., which has 14 U.S. sites and six in Europe. Two days after the offer was announced, their senior executives began to visit every site, talking with employees about their strategy and explaining how the new business fits in. They later conducted focus groups to identify employees' questions, then returned to answer them. Financial and human resources people from both companies met to mesh the systems and the organizations.

For someone in an acquired company, even the friendliest acquirer presents negatives. Maybe headquarters or a plant will be closed, managers will lose some independence, decision-making might take longer, the company will have to change its financial reporting system. But an acquiring company can bring positives as well. Saint-Gobain has the financial and technical strength to grow the acquired business. We're quite decentralized. And the company is more than 300 years old, so we're in business for the long term. If we can clearly communicate the whole picture and help people understand that they're an important part of the Saint-Gobain family, we're halfway to a successful integration.

Additionally, if you acquire a company that has a strength you need (geographic presence, for example) but that is under-performing, move quickly and impose your systems and your people. If you're certain of some changes, announce them immediately. People in an acquired company expect change. In a lingering atmosphere of indecision, productivity suffers and some of the best people leave.

If, on the other hand, the acquired company is better than yours--perhaps it has a leadership position in a particular area--move cautiously. Don't discourage the people or destroy the successful culture. Involve people at all levels of both organizations in decisions about how to merge the two.

Make sure that executive appointments represent both organizations. In the merger of Travelers and Citicorp, this last idea was taken to extremes. Wherever the companies had overlapping areas, they immediately appointed co-heads, one from each company. This looks like fairness and openness. Actually, it institutionalizes indecision. Neither co-head can act without the other, and they compete to see who will ultimately survive.

In any acquisition, we try to learn from the acquired firm. Maybe their MIS system is better, their ideas can improve our productivity, or they have a better technical approach. We provide opportunities for people to mingle and share ideas.

For every "rule" about integrating acquisitions ("quickly divest unrelated businesses"), there's a flip side. When we acquired Norton Co., it had a small plastics business that we thought we might divest, but we decided to wait and see. A new management team put together an aggressive growth strategy, and now it's one of our more promising businesses.

Culture Clubbing

Normal cultural differences between companies intensify when the companies are located in different countries.

For example, in most American companies, a top executive who needs information phones the person in the company who has it. In many European companies, he is expected to send a written request down through the ranks, and the answer comes up the same way. Americans also tend to be direct. To Europeans, this can seem combative, even insulting. A European's softer approach frustrates Americans, who feel as if they're not getting their message across.

Eastern practices also differ dramatically. In China, things seem to take a long time. The Chinese don't yet believe, as Westerners do, that rime is money.

As with any acquisition, it's important to explain to people in an overseas company what your expectations are and how they fit in. Because of the distances involved, it's tempting to tell them, "Here's how to report the numbers" and then go home. But senior executives have to be involved, show the new company how things are done, and arrange opportunities for the American staff and the overseas staff to work together.

Sometimes, as happened in the merger of Pharmacia AB of Sweden and Upjohn Co. of the U.S., cultural differences can be so vast that the CEO is almost destined to fail: He is so decisive that it is perceived as a threat to the business, or so bogged down in the conflicting systems that he can't accomplish anything.

Especially with large international acquisitions, a cultural assessment should be as much a part of due diligence as legal and financial issues. If you decide to go ahead with the merger, you'll at least be prepared for the complexities involved to succeed. Cross-culture integration can be done successfully, but it takes a long time, careful planning, and lots of patience.

Probably the only observation that's true of all integrations comes from one of our managers responsible for an acquisition: The integration will take longer than you planned, cost more than you expect, and cause more stress in both organizations than you can imagine. My main advice is to be flexible and stay focused on your objectives.

Gianpaolo Caccini is president and chief executive of Saint-Gobain Corp., the North American holding company for Paris-based Saint-Gobain, a $25 billion manufacturer of engineered materials.