Jeffrey Bewkes, president of Time Warner, told his Sports Illustrated magazine division to go take a flying leap when they wanted to partner with AOL's sports channel to build a giant sports web site. Synergies, he told the Wall Street Journal, are bullshit.
As someone who made part of her career not just believing in synergies but putting solid numerical values to them and offering them up, like holy sacraments of PowerPoint, to the strategists at gigantic corporations: this is a hard pill to swallow. And though I see it not working more often than not, I also see so many areas -- yes, within Time Warner, where I work today -- where it does work. Heck, everyday I make my bucks on the back of the synergy.
But instead of calling them "synergies," now, Time Warner is calling them "adjacencies." Sumner Redstone split up Viacom and CBS because the "clout" he was supposed to get from his company's huge size "got us nowhere." Is the day of the synergy over and done with?
Recently, Peter Cohan suggested that Time Warner might generate more shareholder value by going private in an LBO -- and spinning off or selling its businesses. Tom Taulli suggested eBay might be better off going private in the face of rumors of a synergy-less merger with Microsoft. Clearly, many of our bloggers at BloggingStocks are skeptical about the synergy.
Jason Calacanis says Bewkes' comment is "a breath of fresh air" and that he's been "vindicated" for his recent public criticism of his own company. Henry Blodget wonders why Time Warner won't "just throw in the towel and sell AOL." Michael Parekh calls Time Warner management "confused" and points to this anti-synergy strategy as just one more example of big media (and, really, all big U.S. corporations) "cater[ing] to the whims of Wall Street."
David Card, though, has the best analysis (in my opinion) writing for Jupiter Research. He takes Bewkes to task for objecting to divisions being "forced into cooperating," saying, "if only!" and reminding us that Time Warner has never been a brilliant "practitioner" of synergy, rather, "its most senior managers have been prominent proponents of synergy benefits the company rarely delivered." (Card rather scandalously calls WSJ writer Matthew Karnitschnig "history-blind" -- care to respond to that throw-down of the guantlet, Matthew?)
I think I agree with Card. It's not that synergy is dead. It's that the illusion of synergy is being called out. I knew in a good third (or more) of my fancy Excel spreadsheets, the synergies would never be realized in anywhere near the dollar figures I assumed. It's not that the strategy of synergy doesn't make sense, ever. It's just that the bigger an organization gets -- and the further apart the cultures of the organizations doing the -gizing -- the less likely synergies are to be realized.
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Reader Comments (Page 1 of 1)
6-03-2006 @ 10:37PM
trish merlin said...
Sarah, you are so right about how the real potential for synergy to be realized is critically linked to the number of folks who buy-in, and understand core practices. The potential is diluted proportionate to the increase in participants. As a recent retiree (kind pseudonym) at the call center level, I regret the need for the action the corporation felt it had to take, but intellectually understand that inconsistencies in messaging and practices on the direct member and shareholder contact level to our own demise. This is not to de-value contributions made by most contact center employees, I am suggesting there were some missed opportunites, or rather, opportunities were left on the table. Real synergy takes a minute to minute re-commitment to the goal by every body and department. A cautionary tale to anyone in corporate America who is so well taken care of, as we were, that tomorrow is not promised, and each day must be earned.
6-04-2006 @ 4:48AM
rajAT said...
Manual Track back.
http://rajatgupta.wordpress.com/2006/06/04/aol-time-warner-is-bull/
6-04-2006 @ 9:06AM
Wadi Khoury said...
Why Time-Warner will not sell AOL is Because AOL Owns Time-Warner.
Do you remember in 2001, when AOL bought Time-Warner...Lock, Stock, and Barrel for 110 Billion Dollars?
Time-Warner is a subsidiary of AOL. The Board of Directors just chose to rename "AOL", "Time-Warner".
6-05-2006 @ 10:20AM
Rashid said...
Its only called synergies when the perspective is that of several companies trying to work together. If the perspective was that of one company, then it would be called efficiency or effectiveness. The fundamental issue is that TWX is an umbrella for several companies, each with its own brand, leadership, culture, history, etc. That was fine as long as the media world was split between print, video, content and distribution. In the digital world, bit are bits - they are created, distributed and consumed over the same IP based pipe. As such, we are not talking about adjacency but overlap. Integrate or liberate - the choice is clear.
6-05-2006 @ 10:24AM
JDaggitt said...
Call them synergies or call them adjacencies, as long as the guy at the top views them as "bullshit," they are bound to fail. But remember, just because Bewkes thinks they are bullshit doesn't make them necessarily so.
However, what is BS is the sad fact that TWX tolerates this sort of view from a senior manager. I’m not sure what the argument is to keep TWX as a media conglomerate if it is not to strive for synergies across the various divisions.
It would be easy to make a case that the bloggingstocks.com site, that you are reading right now, would be more successful and more compelling if it was accessible from Time.com, Fortune.com and CNN.com. All TWX properties, but none of which promote/point to bloggingstocks.com.
So, bloggingstocks.com being successful would be a good thing for TWX, but because of Mr. Bewkes' view of synergies as bullshit rather than one of the reasons for TWX's existence, bloggingstocks.com struggles on its own, rather than being fully and widely promoted throughout the TWX family of websites.
It makes you wonder what other opportunities TWX is missing. Perhaps this explains why the stock is stuck where it has been for the last 3 years.
6-06-2006 @ 8:54PM
LVG said...
http://louisgaldieri.com/blog/2006/06/synergy_adjacency_inanity.html
6-07-2006 @ 9:48AM
Norman said...
How is it a company that loses 100 billion plus in market value and nobody is going to jail for it. TWX gets sued by everyone admits to nothing and gets away w/ it. They get investigated by the FCC and the SEC deny any wrong doing get fined for illegal accounting practices , pay the fine, and thats the end of it?? They will settle shareholder lawsuits sometime this year, pennies to what they lost, lawyers are getting all the money. Enron executives are going to jail maybe for life for doing the same thing.
My next gripe is w/ the ceo of TWX here is a guy that took over the company when the stock was 18 and change oh so long ago , tells shareholders at the shareholder meeting to get over it move on, today's stock price is 17 and change , here is a guy gettting over 15 million dollar bonuses year after year for doing what , because I dont know. This guy has made somewhere around 100 million in the past 5 or 6 years and has shown me nothing ,1 dollar loss in stock price since he has been ceo of TWX truely sad, this is how the the wealthy get wealthier at the expense of the working class stiff.