Blackwell Reference Online

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Synergies is a business term used to identify potential cost savings or other gains resulting from the simultaneous production of more than one good or, more commonly, from the combination of two firms through a merger. As such, the concept is related to economies of scale and economies of scope and may include both in its measure, but it is not limited to these as it is generally not a clearly defined term. Sirower (1997) developed a model of four cornerstones necessary to achieving synergies. These are: 1 a strategic vision for the newly created firm; 2 a mechanism for rewards and decision‐making, and for solving corporate culture differences within the two newly merged firms; 3 an operating strategy for the new firm to better compete with its rivals; and 4 the physical integration of sales, research and development, and other systems. The improved ability to compete may result from acquiring access to a preferred distribution network, or by acquiring products that have complementary marketing or production needs. It may also occur as a result of expansion by the firm to a size needed to achieve minimum efficient scale , or by enabling the removal of excess industry capacity while increasing the market share of the remaining firm ( see excess capacity ). Sirower's study of major mergers and acquisitions during the 1980s cites corporate executives' predictions of expected ... log in or subscribe to read full text