Sources of operational synergy and competitive performance

Which types of operational synergy are important for performance in different industries? Does the anticipation of operational synergy drive business ownership changes? The dissertation answers these questions for 360 manufacturing industries. Identification of industry-specific operational synergy is important because theoretical reasons for synergy exist at the industry level but studies of diversification to date have compared the performance of diversified firms that compete in a wide variety of industries. This study links the theoretical motivations for diversification to the competitive performance of businesses within industries.;The dissertation derives new measures of operational relatedness at the business level of the firm. Advertising, R&D, customer, supplier, and industrial marketing relatedness define relationships between each business of the firm and other businesses of the firm. Backward and forward integration relationships are also defined. These measures are calculated by combining the Trinet database, which has plant level data on sales, with Input-Output tables and the FTC line of business expense ratios. A type of synergy is identified when a measure of operational relatedness is associated with business market share in an industry.;The study concludes that operational relatedness is an important contributor to business unit performance in most manufacturing industries. This result is in marked contrast to recent studies which de-emphasize the role of diversification strategies in business unit performance. The multi-dimensional approach to identifying synergy exploited by businesses within industries provides a new conceptual framework in which to think of diversified firms.;The dissertation also addresses the current controversy concerning the effects of mergers and acquisitions on the competitiveness of businesses. The model developed to estimate synergy predicts market share for businesses before and after business ownership changes. The change in prediction measures whether the business moves to a portfolio of businesses in the acquiring firm that has more operational synergy with the business. The study concludes that business ownership changes increase predicted market share by changing operational synergy. While consistent with the results from event studies which posit that wealth gains are due to synergy, this study identifies the source and extent of the operational synergy gains from changes in business ownership.