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The business synergy myth

(MoneyWatch) COMMENTARY One of the most common buzzwords in corporate America is synergy. The whole is greater than the sum of its parts. One plus one equals three. Two entities working together to achieve what neither can do independently.

What an attractive concept.

Whether it's a merger of two companies, a strategic partnership, or multiple product lines, synergy is always the goal but rarely achieved. Why is that?

Honestly, I'm not exactly sure, but I think it usually has something to do with human optimism, wishful thinking, or things just never turning out the way you plan. The cynical and jaded former executive who lives inside my head might say it's sometimes the result of a CEO who's either delusional, full of himself, or both.

10 companies with insanely bad marketingMost mergers fail, so why do them?

Whatever the cause, in my experience, synergy has proved to be so elusive that it's nearly mythical. Here are two examples.

Mergers and acquisitions

The rationale for companies to merge usually focuses on increasing shareholder value by growing market share or increasing economies of scale while reducing the expenses of the combined company. Something like that.

So why does it almost never go down that way? Lots of reasons, such as sales channel conflict or product cannibalization that results in unrealized efficiencies. Also, people are human (at least most of us). It takes a lot of guts and discipline to actually lay off the number of people needed to achieve synergy.

Synergy is often used as justification to gain board or shareholder approval for an acquisition that, for whatever reason, the management team thinks will benefit the company. Funny thing is, they're almost always wrong.

There are certainly dozens of famous examples of the AOL Time-Warner and Sprint Nextel type. And I've seen plenty in my day -- far more "up close and personal" than I would have liked.  

Product synergy

Beer and salty snacks, like nuts, is a great example of product synergy that anybody in his right mind would think is a no-brainer. At least, that was the theory when Anheuser-Busch (BUD) marketed Eagle snacks for more than a decade before discovering there actually was no synergy. It sold the brand to Procter & Gamble (PG) in 1996.

In the technology industry, synergy between different companies' products has forever been thwarted by the need for open standards and making devices compatible. But that didn't stop Sony (SNE) from desperately trying to get Wall Street and consumers to believe there's synergy between its movie business -- which it acquired, incidentally -- and its consumer electronics products. For example, that watching a Sony movie on a Sony TV-streamed through a Sony PS3 somehow made a difference in the user experience. It doesn't.

Still, it was always amusing to watch former CEO Howard Stringer try to explain it, like in this Wall Street Journal interview. Sony lost over $3 billion last year. Not much synergy there. 

I can go on and on with examples of failed mergers, product lines, partnerships, and even customer-vendor relationships that were somehow cast as synergistic, as little sense as that makes. Few companies have actually managed to deliver on the promise.

Personally, I think Apple's (AAPL) got a decent chance of creating synergy between all its devices when it launches its integrated Apple TV. Just think: a common interface in Siri; using an iPhone, iPad, or Mac to set things up and as a controller; common apps. It's a no-brainer, just like beer and nuts.

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