Why Are Synergies Non‐universal? Consequent Tendencies in the Evolution of a Firm

Abstract

Consider the case of Procter and Gamble (P&G), when it ships carloads combining diapers and other paper products. It saves transportation costs (about 10% of sales) relative to a firm that sells only diapers. This is one example of synergies among divisions that seem to explain the superior performance of companies like P&G. Examples of other related companies are General Foods, General Mills, Pillsbury, Dupont, 3M, Westinghouse etc., each of which try to exploit some form of synergy or other. But at the same time, managers also find that there are several conglomerate firms comprised of unrelated business units which are also performing well. Examples of conglomerates in this category include ITT, Rockwell International, Dart Industries, Signal Companies, United Technologies, Gulf and Western Industries, Tenneco, Textron, USX etc. An erudite manager is thus faced with a dilemma. Are synergies real? If they exist, why are they not ubiquitous? Why and when is unrelated growth pattern an attractive alternative?

Citation

Chan, P.S. and Chinta, R.R. (1990), "Why Are Synergies Non‐universal? Consequent Tendencies in the Evolution of a Firm", Management Research News, Vol. 13 No. 1, pp. 20-23. https://doi.org/10.1108/eb028063