From the book called Billion Dollar Lessons by Paul Carroll and Chunka Mui, Portfolio Books, 2008. The book is subtitled What Can You Learn for the Most Inexcusable Business Failures of the last 25 Years. The strategies outlined are not necessary bad, sometimes they work. When they go are bad, lots of money is lost.  The authors’ research indicates most of the people who lost money were from well managed companies, not taking excessive risk, and there was no widespread fraud. In looking back, the question of what were they thinking? comes up. Basically good companies following the wrong strategy.One of the reasons the companies fail is the overestimation of company loyalty. If the customer buys your service, would they buy more than one product? why?

Deadly Strategy One is Synergy – maybe an overused word and a variety of groups make a good living promoting synergy – investment bankers, consultants. Synergy is the promise of something for nothing, leaving a legacy for the CEO. Synergy is alluring but does it work? has it ever worked in the past for the company? maybe but more often than not the answer is no. Even it it does not work, synergy is a great sound bite.

Synergies start with the best of intent – two companies in the same competitive space join each other to make a better company for customers and investors. The problem is the two companies do not exactly compete on the same field – one maybe better in company to company products, the other one in personal products but they are in same industry. These two companies on the outside look similar but just about everything about them are different. The companies are different in approaches, culture, all software programs are not the same – they were built to measure different parts of the business?  How do companies hire people or is there really synergies?

Some of the companies that tried and failed are Unum and Provident in disability insurance; UAL (United Airlines) bought Hertz and Westin Hotels; Sears and Dean Witter; JC Penny and buying pharmacies; Quaker Oats and Snapple; Time and AOL; Safelite Glass and Vistar; IBM and software business; Union Pacific and Overnite Transportation (trucking company), there are many examples they had the same result. Great efforts were made to find synergies only to locate very few and a short time later the people who made the decision to join have left the company.

Why? many costs expected to be saved are are easily moved to another department, and more importantly many people have a vested interested in ensuring nothing changes for people at all levels protect their jobs. Would you chop your job?

Synergies can work, they are sexy, but as a dividend holder of a company, when they happen to your company (ies) watch out and ensure you do not say what was management thinking?

There are more questions than answers, till the next time – to raising questions.