4 ms·

The aquire and fire strat is business as a whole. You dont need 5 people doing the job of 2 when it comes to convergence.

mason55 7y ago
The much mocked "synergies" that come from an acquisition. I never did understand why people make fun of that term so much, it's a very simple concept.
- sailfast 7y ago
  When a word is used to the point of meaninglessness (when "expected synergies" don't exist), or when its use is really a euphemism for "we're going to fire a bunch of people" then it exposes itself to mockery. Synergy's eventual heat death was, I'd hypothesize, greatly accelerated due to its preponderance in merger announcements and consulting decks in the 80s, 90s, and 2000s. Would be nice to use it again without caveats. Maybe one day.
  - sokoloff 7y ago
    Eliminating duplicative or wasteful structures are “synergies” whether that’s engineering, sales, support, manufacturing, or G&A staff, real estate, or basically anything else that has a fixed cost component. The fact that we’re in a people-heavy and asset-light industry means that these synergies are often people-related doesn’t make the use of the term improper or a euphemism any more than any other industry common term.
    - sailfast 7y ago
      The dictionary definition of this is typically something like "when combined, greater than the sum of their individual parts." I guess technically if you combine two companies and accomplish the same thing but more cheaply due to overlap the company is therefore "greater" but you see where the meaning is already watered down from its original intent. This is elimination of redundancy, not synergy. "This merger will result in a big ROI due to redundancy that can be eliminated" is the proper way to say it. Not "This merger will realize a number of synergies". Hence the euphemism comment.
    - vageli 7y ago
      > Eliminating duplicative or wasteful structures are “synergies” whether that’s engineering, sales, support, manufacturing, or G&A staff, real estate, or basically anything else that has a fixed cost component. I would characterize that as removing redundancy. Synergy has a different definition altogether.
      - sokoloff 7y ago
        The definitions I found across several dictionaries (after looking just now) all amounted to something like: > the interaction of elements that when combined produce a total effect that is greater than the sum of the individual elements, contributions, etc. When an intended effect of a for-profit company is profit and a combination of two companies becomes more profitable (has a greater total intended effect) as a result of the combination, how is that altogether different?
        TeMPOraL 7y ago
        Because the definition of "synergy" doesn't contain the part where you start firing people and closing departments to deduplicate jobs done in the now merged companies.
- wpietri 7y ago
  It's because it was radically overused by managers trying to justify all sorts of dumbassery, so much so that it became a joke. E.g., it was memorialized in this lovely deck of corporate jargon flashcards: https://www.amazon.com/Corporate-Flashcards-Knock/dp/160106019X https://www.amazon.com/Corporate-Flashcards-Knock/dp/1601060...
wpietri 7y ago
Nah. Per a study The Economist covered some years back, about half of all mergers destroy value. The acquire-and-cut-to-the-bone strategy is a good way to juice short-term numbers, but it's bad in the long term in that you destroy the drivers of long-term growth. All the execs get their bonuses and get to cash out their options at a high value, it's bad for everybody else in the long term: customers, employees, investors. The theoretical justification for post-merger cuts has also been declining for some time. Improved computation and communication have made it much easier to outsource non-critical functions, so merged companies will have a lot redundancy today. E.g., in a merger 20 years ago, maybe two merged tech companies could consolidate data centers and get rid of a bunch of ops staff. Now maybe they get a slight improvement on their AWS bill and they can lose a few execs, but it's not nearly the same. And let's not forget the diseconomies of scale. Everybody here should already know that small companies can innovate much more quickly than large ones. And mergers have their own costs; I consulted for a while for a company that grew mainly through mergers, and you cannot imagine the number of meetings that existed just to bridge fault lines between different legacy software, different teams, different offices. It was a mess.
- takinola 7y ago
  "half of all mergers destroy value" I keep hearing this and it is from a widely misunderstood study. It did not find that half of all mergers destroyed value, instead, it found that only half of mergers created value. The proportion of mergers that destroyed value was much smaller (about 20% iirc). Unfortunately, most people did not bother looking beyond the headline and extrapolated incorrectly.
  - wpietri 7y ago
    You appear to have the numbers backwards: https://www.theguardian.com/business/1999/nov/29/10 https://www.theguardian.com/business/1999/nov/29/10

mason55 7y ago

The much mocked "synergies" that come from an acquisition. I never did understand why people make fun of that term so much, it's a very simple concept.

sailfast 7y ago
When a word is used to the point of meaninglessness (when "expected synergies" don't exist), or when its use is really a euphemism for "we're going to fire a bunch of people" then it exposes itself to mockery. Synergy's eventual heat death was, I'd hypothesize, greatly accelerated due to its preponderance in merger announcements and consulting decks in the 80s, 90s, and 2000s. Would be nice to use it again without caveats. Maybe one day.
- sokoloff 7y ago
  Eliminating duplicative or wasteful structures are “synergies” whether that’s engineering, sales, support, manufacturing, or G&A staff, real estate, or basically anything else that has a fixed cost component. The fact that we’re in a people-heavy and asset-light industry means that these synergies are often people-related doesn’t make the use of the term improper or a euphemism any more than any other industry common term.
  - sailfast 7y ago
    The dictionary definition of this is typically something like "when combined, greater than the sum of their individual parts." I guess technically if you combine two companies and accomplish the same thing but more cheaply due to overlap the company is therefore "greater" but you see where the meaning is already watered down from its original intent. This is elimination of redundancy, not synergy. "This merger will result in a big ROI due to redundancy that can be eliminated" is the proper way to say it. Not "This merger will realize a number of synergies". Hence the euphemism comment.
  - vageli 7y ago
    > Eliminating duplicative or wasteful structures are “synergies” whether that’s engineering, sales, support, manufacturing, or G&A staff, real estate, or basically anything else that has a fixed cost component. I would characterize that as removing redundancy. Synergy has a different definition altogether.
    - sokoloff 7y ago
      The definitions I found across several dictionaries (after looking just now) all amounted to something like: > the interaction of elements that when combined produce a total effect that is greater than the sum of the individual elements, contributions, etc. When an intended effect of a for-profit company is profit and a combination of two companies becomes more profitable (has a greater total intended effect) as a result of the combination, how is that altogether different?
      - TeMPOraL 7y ago
        Because the definition of "synergy" doesn't contain the part where you start firing people and closing departments to deduplicate jobs done in the now merged companies.
wpietri 7y ago
It's because it was radically overused by managers trying to justify all sorts of dumbassery, so much so that it became a joke. E.g., it was memorialized in this lovely deck of corporate jargon flashcards: https://www.amazon.com/Corporate-Flashcards-Knock/dp/160106019X https://www.amazon.com/Corporate-Flashcards-Knock/dp/1601060...

wpietri 7y ago

Nah. Per a study The Economist covered some years back, about half of all mergers destroy value. The acquire-and-cut-to-the-bone strategy is a good way to juice short-term numbers, but it's bad in the long term in that you destroy the drivers of long-term growth. All the execs get their bonuses and get to cash out their options at a high value, it's bad for everybody else in the long term: customers, employees, investors. The theoretical justification for post-merger cuts has also been declining for some time. Improved computation and communication have made it much easier to outsource non-critical functions, so merged companies will have a lot redundancy today. E.g., in a merger 20 years ago, maybe two merged tech companies could consolidate data centers and get rid of a bunch of ops staff. Now maybe they get a slight improvement on their AWS bill and they can lose a few execs, but it's not nearly the same. And let's not forget the diseconomies of scale. Everybody here should already know that small companies can innovate much more quickly than large ones. And mergers have their own costs; I consulted for a while for a company that grew mainly through mergers, and you cannot imagine the number of meetings that existed just to bridge fault lines between different legacy software, different teams, different offices. It was a mess.

takinola 7y ago
"half of all mergers destroy value" I keep hearing this and it is from a widely misunderstood study. It did not find that half of all mergers destroyed value, instead, it found that only half of mergers created value. The proportion of mergers that destroyed value was much smaller (about 20% iirc). Unfortunately, most people did not bother looking beyond the headline and extrapolated incorrectly.
- wpietri 7y ago
  You appear to have the numbers backwards: https://www.theguardian.com/business/1999/nov/29/10 https://www.theguardian.com/business/1999/nov/29/10