Whether it’s a marriage or a merger, there’s no experience of success without synergy. If synergy is the same as cooperation and vitality in service of common goals, then simplifying logistics, cutting costs, reorganizing functions and markets, on the assumption that these will produce synergy, is both wrong and misdirected. None of that has any necessary relationship to synergy. Synergy comes from how people relate to each other. Any reorganization of physical circumstances does not increase cooperation, vitality and coordinated action unless people change the attitude, tone and essence of how they have been with each other. In many mergers and acquisitions, actual behavior doesn’t change much.
Over the ten years, there were business problems that did not improve much or at all. Each change in ownership had been justified, in part, as a solution to these problems.
These problems included; product quality, turnover in engineers and successful salespeople, projects delivered well past schedule, product innovation behind domestic and Japanese competition, deteriorating relationships with customers, unsuccessful attempts to open markets in India, China and South America.
Synergy, in a merger, is the Holy Grail. It is usually defined as “Synergy Benefits” arising out of the merged entity. Synergy benefits become a goal in themselves. Teams are always set up to look for such benefits .e.g. a global purchasing organization to buy things cheaper or assuming the combined sales force could triple the lucrative parts business of one of the parties to the merger.
People get very creative about labeling things as “Synergies.” This is often forced. It’s sort of a conspiracy to get brownie points, plus the top executive is already on the hook with the board to realize the benefits. But, the synergies are rarely seen going to the bottom line. For example, “ the 150,000,000 savings we just asserted can’t be located on an operating statement or balance sheet.” People seem to get beguiled by mass synergies or other apparent synergies that promise to drive the whole thing.
A friend and CEO of a Fortune 500 company told me, “From my perspective, the real problem is that the original estimates of savings are never realistic as the assumptions upon which they are based are typically faulty for a variety of reasons. What’s missing—a realistic assumptions as to the real world and what could go wrong. Remember that the people that put these numbers together want the acquisition to happen and have a mind set of selling the deal, rather than critically analyzing the transaction. More in depth oversight is usually required. All assumptions must be clearly articulated and challenged by an independent group such as the board. Also too often the cultures do not fit well together, and the anticipated changes just do not happen or do not happen in a timely manner.Download Article 1K Club