Do you think a typical committee or group has more synergy than the same individuals working alone?
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Synergy results from creating a whole that is greater than the sum of its parts, and thus can accomplish more than the total of individual contributions. In an acquisition, synergy occurs if the two firms, when combined, are more efficient, productive, and profitable than they were as separate operations before the merger. Sometimes this is referred to as 2 + 2 = 5.
How can such synergy occur? If duplication of efforts can be eliminated, if operations can be streamlined, if economies of scale are possible, if specialization can be enhanced, if greater financial, technical, and managerial resources can be tapped or new markets made possible—then a synergistic situation is likely to occur. Such an expanded operation should be a stronger force in the marketplace than the individual single units that existed before.
The concept of synergy is the rationale for mergers and acquisitions. But sometimes combining causes the reverse, negative synergy, where the consequences are worse than the sum of individual efforts. If friction arises between the entities, if organizational missions are incompatible, if the new organizational climate creates fearful, resentful, and frustrated employees, then synergy is unlikely, at least in the short- and intermediate term. Furthermore, if because of sheer optimism or an uncontrolled acquisitive drive, more is paid for the acquisition than it is really worth, then we have a grand blunder. With hindsight, that was the case with the Chrysler acquisition, in addition to the culture problem. With the price that Cerberus paid for a wounded Chrysler, it is highly unlikely that the private equity firm paid too much.
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