Synergies Theory Essay

CROSS-BUSINESS SYNERGY: SOURCES, PROCESSES AND THE CAPTURE OF CORPORATE VALUE

JEFFREY A. MARTIN The University of Texas at Austin McCombs School of Business Department of Management 1 University Station B6300 Austin, Texas 78712-0210 Tel: [phone] Fax: [phone] Email: [e-mail]

KATHLEEN M. EISENHARDT Department of Management Science and Engineering Stanford University 342 Terman Stanford, California 94305 Tel: [phone] Fax: [phone] Email: [e-mail]

June 11, 2002

An earlier version of this paper appears in the 2001 Academy of Management Best Paper Proceedings under the title “Exploring Cross-Business synergies”.

The authors wish to thank Constance Helfat, Anil Gupta, Frances Fabian and Filipe Santos for their comments on earlier drafts of this manuscript. Research for this paper was supported by the Stanford Technology Ventures Program and the Kauffman Center for Entrepreneurial Leadership.

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CROSS-BUSINESS SYNERGY: SOURCES, PROCESSES AND THE CAPTURE OF CORPORATE VALUE

The pursuit of synergy is at the heart of corporate strategy in the multi-business firm. Indeed, the promise of synergy is one of the key rationales for the existence of multi-business firms, as well as a primary reason for strategic moves like acquisitions, diversification and alliances. However, despite the enormous attention that management focuses on different means to achieve cross-business synergies, the realization of cross-business synergies remains an elusive goal for many organizations. Moreover, as the pace of change increases, difficulties in realizing cross-business synergies become even more acute as the sources of synergies within corporations may frequently change. Observations from the literature are that: 1) cross-business synergies exist; 2) the three major sources of synergies are economies of scope, market