Magazine Article | June 1, 2001

Synergy Versus Convergence

Source: Field Technologies Magazine

Synergy and convergence are high-minded business terms. With the daily news of mergers and acquisitions in the IT space, these concepts could affect your company.

Integrated Solutions, June 2001

If you're a regular viewer of PBS' FRONTLINE, you may have caught a program entitled The Merchants Of Cool. The program explored the cross-promotional and selling techniques used by the media to attract the extremely lucrative teenage demographic. The fact is that almost all forms of media - television, print, radio, film, music - are controlled by six giant corporations. You hear a song on the radio and in a movie and see a video for that song on MTV. You read about the song and the group in magazines and on the Internet. Here's the catch, media giant Viacom probably owns all of the outlets that promoted the particular tune that you heard. If you think that it's a happy coincidence that every media outlet is working in concert, then you would be terribly mistaken.

Ask the media giants, and they would claim they are taking advantage of the synergy (many units working together to accomplish an overall goal) that exists between their different holdings. Ask media critics, and they would claim that the cross-promotion is more a force of convergence (one unit working to accomplish an overall goal).

Mergers Affect Your Company
The IT world is filled with mergers and acquisitions. Inevitably, the press releases that follow such events are littered with similar quotes that all claim "tremendous synergies" will be realized between two newly joined companies. But, let's not get ahead of ourselves. There may be true synergies between two companies. In many cases, however, we're talking about convergence. When a public company acquires a 20-person software business and the niche technology it develops, that's convergence. When a major player in a technology space acquires a key competitor, that's convergence. There is no synergy in those equations.

Ultimately, the concepts of synergy and convergence affect every end user. With every merger and acquisition comes the danger that you will have your choices limited when, ideally, they could have been expanded. With the NASDAQ in a bearish mood and companies struggling to meet financial projections, it would behoove end users to closely watch industries that are critical to enterprise success. After all, the service and product offerings that you have come to expect from a vendor may change drastically if that vendor is acquired. At that point, we're talking about your job performance.

Key Spaces To Watch
During the past 12 months we've seen a lot of acquisition activity in the WMS (warehouse management system) market with such market leaders as Manhattan Associates, EXE Technologies, and Vertex all adding to their companies. In the ERP (enterprise resource planning) space, the Microsoft acquisition of Great Plains Software is probably most notable. The CRM (customer relationship management) and enterprise portal industries are areas for end users to watch closely. With more than 100 vendors pitching products in the portal space, there is bound to be a big shakeout in the form of company mergers. The CRM market is also filled with more vendors than there is end user demand to keep them afloat.

Watch the business wire closely. Unless your company is an all-IBM shop, you may see that another company is acquiring one of your vendors. When you find out that the newly formed company has announced a timetable for discontinuing support for the product you are currently using, then you have an idea as to the difference between synergy and convergence. Of course, it will be a lesson learned the hard way.

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