Home > Articles > Business & Management > General Business

This chapter is from the book

Strategic Management

Researchers from the field of strategic management focus on the management of the organization itself and its long-term planning. Strategic management does not accept the assumptions of economic/finance researchers and of the capital market approach that maintains that

  • It is possible to precisely predict the future cash flow of the firm for a period of several years.
  • There is the potential for increased inner effectiveness that is greater than the performance of the acquired party’s managers.

The experience and knowledge that have accumulated in the realm of strategic management show that strategies change following the frequent environmental shifts and following implementation difficulties. Therefore, future cash flow, which constitutes a main basis for the value evaluation, is difficult to predict.

In addition, strategic management scholars maintain that the ability of inner improvement of effectiveness of the organization is limited, and at some stage, it may detrimentally influence its competitive ability. In contrast, the ideas advocated by economics/finance reseachers led at the end of the 1980s to a growth of hostile takeovers and leveraging using finance and LBO (acquisition of the company using the leveraging by managers and workers). Capital actors who adopted these methods believed that it was possible to increase the effectiveness of the organization and thereby boost its value. However, these hostile takeovers nearly vanished in the 1990s. In addition, it must be remembered that this economics/finance approach is influenced by the American capital market for the measurement of M&A success and emphasizes the short-term effects. In Japan and Europe, the tendency is to focus on performance and long-term strategic goals, and the measurements and reward systems are commensurate with this tendency.

The strategic management approach addresses a large number of measures of success, including the size of sales, the increase of the market share, the improvement of competitive abilities, and of course the change in profitability after the merger in relation to a period before the M&A. These measures are influenced, according to strategic management researchers, by the fit between the organizations, and therefore the main factor of success/failure in the merger/acquisition is the degree of strategic fit between the two companies. Strategic fit is expressed in the synergy potential (2 + 2 = 5) of the merger. (The topic of synergy will be discussed separately in Chapter 5, “Synergy Potential and Realization.”) Simply put, there is synergy when it is possible to operate two business units more profitably when they are under the control of one factor than when each one operates separately. Strategic fit and synergy exist in the related merger in which the two organizations operate in the same industry or in related industries. The clearest example is the merger of competitors, when it is then possible to unite administrations and operative functions. Thus, it is possible to achieve the joint level of sales (or more than that) at lower costs, such as in the merger of Elco and Electra in the beginning 1990s in the field of air-conditioning units.

In contrast, when Elco acquired Shekem, which included a food chain and a clothing chain, the synergy was low (only evident in the area of the marketing of electronic products). This was similarly the situation in which a building contractor acquired the Pizza Hut chain. There was no potential for synergies, and the merger was defined as an unrelated merger. Some people asserted that there were synergies because Pizza Hut restaurants are situated in buildings. (Cynics maintained that the only synergy would be if pizzas were sold with a cement sauce.) These unrelated mergers did not succeed. The recommendation in the strategic management approach is unequivocal: Only synergetic mergers are recommended, and unrelated mergers should be avoided, with the exception of highly specific cases.

However, even in related mergers, the number of failures is high. Research conducted by Professor Michael Porter from Harvard examined the percentage of success among related mergers. The criterion of success/failure was the percentage of organizational divorce in a period of 5 years (and even more) after the merger/acquisition. The sample included large firms in the United States, and the basic assumption was that in related mergers, the intention is to maintain the acquired party for a long period of time to realize the synergy potential. In this sample, too, the percentage of divorce was high, above 50 percent. The conclusion was that a firm that is forced to resell a company it has acquired does so after several attempts to connect the organizations and to exploit the synergy, and when it finally despairs, after much suffering, it “vomits” the company. This was the case in the merger of Madge and the Israeli company Lannet. Lannet was acquired for 330 million dollars and was sold after approximately 3 years to Lucent for approximately 100 million dollars. The integration process of the organizations did not succeed. Madge’s profits dropped, and its stock value reached approximately 5 percent of the value on the day of the merger.

Explanations to the miserable results of related mergers are that the potential of synergy is not always realized in the implementation. There are two main reasons for such lack of synergy realization. First, the synergy is not exploited because of lack of prior planning. Using prior planning, it is possible to avoid superfluous costs, to identify the main sources of synergy, and to enable the actualization of the synergy potential in a relatively short time frame. Without a defined plan, the potential of synergy melts away in long and complex organizational processes that do not bear fruit. (Part II, “Analysis Tools for Key Success Facgors,” is dedicated to the process of planning.) The second reason for the lack of synergy realization in related mergers is linked to the lack of focus on human factors, namely, the managers and the workers, and then primarily those of the acquired company. This reason is the topic discussed under the title of organizational behavior next.

InformIT Promotional Mailings & Special Offers

I would like to receive exclusive offers and hear about products from InformIT and its family of brands. I can unsubscribe at any time.


Pearson Education, Inc., 221 River Street, Hoboken, New Jersey 07030, (Pearson) presents this site to provide information about products and services that can be purchased through this site.

This privacy notice provides an overview of our commitment to privacy and describes how we collect, protect, use and share personal information collected through this site. Please note that other Pearson websites and online products and services have their own separate privacy policies.

Collection and Use of Information

To conduct business and deliver products and services, Pearson collects and uses personal information in several ways in connection with this site, including:

Questions and Inquiries

For inquiries and questions, we collect the inquiry or question, together with name, contact details (email address, phone number and mailing address) and any other additional information voluntarily submitted to us through a Contact Us form or an email. We use this information to address the inquiry and respond to the question.

Online Store

For orders and purchases placed through our online store on this site, we collect order details, name, institution name and address (if applicable), email address, phone number, shipping and billing addresses, credit/debit card information, shipping options and any instructions. We use this information to complete transactions, fulfill orders, communicate with individuals placing orders or visiting the online store, and for related purposes.


Pearson may offer opportunities to provide feedback or participate in surveys, including surveys evaluating Pearson products, services or sites. Participation is voluntary. Pearson collects information requested in the survey questions and uses the information to evaluate, support, maintain and improve products, services or sites, develop new products and services, conduct educational research and for other purposes specified in the survey.

Contests and Drawings

Occasionally, we may sponsor a contest or drawing. Participation is optional. Pearson collects name, contact information and other information specified on the entry form for the contest or drawing to conduct the contest or drawing. Pearson may collect additional personal information from the winners of a contest or drawing in order to award the prize and for tax reporting purposes, as required by law.


If you have elected to receive email newsletters or promotional mailings and special offers but want to unsubscribe, simply email information@informit.com.

Service Announcements

On rare occasions it is necessary to send out a strictly service related announcement. For instance, if our service is temporarily suspended for maintenance we might send users an email. Generally, users may not opt-out of these communications, though they can deactivate their account information. However, these communications are not promotional in nature.

Customer Service

We communicate with users on a regular basis to provide requested services and in regard to issues relating to their account we reply via email or phone in accordance with the users' wishes when a user submits their information through our Contact Us form.

Other Collection and Use of Information

Application and System Logs

Pearson automatically collects log data to help ensure the delivery, availability and security of this site. Log data may include technical information about how a user or visitor connected to this site, such as browser type, type of computer/device, operating system, internet service provider and IP address. We use this information for support purposes and to monitor the health of the site, identify problems, improve service, detect unauthorized access and fraudulent activity, prevent and respond to security incidents and appropriately scale computing resources.

Web Analytics

Pearson may use third party web trend analytical services, including Google Analytics, to collect visitor information, such as IP addresses, browser types, referring pages, pages visited and time spent on a particular site. While these analytical services collect and report information on an anonymous basis, they may use cookies to gather web trend information. The information gathered may enable Pearson (but not the third party web trend services) to link information with application and system log data. Pearson uses this information for system administration and to identify problems, improve service, detect unauthorized access and fraudulent activity, prevent and respond to security incidents, appropriately scale computing resources and otherwise support and deliver this site and its services.

Cookies and Related Technologies

This site uses cookies and similar technologies to personalize content, measure traffic patterns, control security, track use and access of information on this site, and provide interest-based messages and advertising. Users can manage and block the use of cookies through their browser. Disabling or blocking certain cookies may limit the functionality of this site.

Do Not Track

This site currently does not respond to Do Not Track signals.


Pearson uses appropriate physical, administrative and technical security measures to protect personal information from unauthorized access, use and disclosure.


This site is not directed to children under the age of 13.


Pearson may send or direct marketing communications to users, provided that

  • Pearson will not use personal information collected or processed as a K-12 school service provider for the purpose of directed or targeted advertising.
  • Such marketing is consistent with applicable law and Pearson's legal obligations.
  • Pearson will not knowingly direct or send marketing communications to an individual who has expressed a preference not to receive marketing.
  • Where required by applicable law, express or implied consent to marketing exists and has not been withdrawn.

Pearson may provide personal information to a third party service provider on a restricted basis to provide marketing solely on behalf of Pearson or an affiliate or customer for whom Pearson is a service provider. Marketing preferences may be changed at any time.

Correcting/Updating Personal Information

If a user's personally identifiable information changes (such as your postal address or email address), we provide a way to correct or update that user's personal data provided to us. This can be done on the Account page. If a user no longer desires our service and desires to delete his or her account, please contact us at customer-service@informit.com and we will process the deletion of a user's account.


Users can always make an informed choice as to whether they should proceed with certain services offered by InformIT. If you choose to remove yourself from our mailing list(s) simply visit the following page and uncheck any communication you no longer want to receive: www.informit.com/u.aspx.

Sale of Personal Information

Pearson does not rent or sell personal information in exchange for any payment of money.

While Pearson does not sell personal information, as defined in Nevada law, Nevada residents may email a request for no sale of their personal information to NevadaDesignatedRequest@pearson.com.

Supplemental Privacy Statement for California Residents

California residents should read our Supplemental privacy statement for California residents in conjunction with this Privacy Notice. The Supplemental privacy statement for California residents explains Pearson's commitment to comply with California law and applies to personal information of California residents collected in connection with this site and the Services.

Sharing and Disclosure

Pearson may disclose personal information, as follows:

  • As required by law.
  • With the consent of the individual (or their parent, if the individual is a minor)
  • In response to a subpoena, court order or legal process, to the extent permitted or required by law
  • To protect the security and safety of individuals, data, assets and systems, consistent with applicable law
  • In connection the sale, joint venture or other transfer of some or all of its company or assets, subject to the provisions of this Privacy Notice
  • To investigate or address actual or suspected fraud or other illegal activities
  • To exercise its legal rights, including enforcement of the Terms of Use for this site or another contract
  • To affiliated Pearson companies and other companies and organizations who perform work for Pearson and are obligated to protect the privacy of personal information consistent with this Privacy Notice
  • To a school, organization, company or government agency, where Pearson collects or processes the personal information in a school setting or on behalf of such organization, company or government agency.


This web site contains links to other sites. Please be aware that we are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of each and every web site that collects Personal Information. This privacy statement applies solely to information collected by this web site.

Requests and Contact

Please contact us about this Privacy Notice or if you have any requests or questions relating to the privacy of your personal information.

Changes to this Privacy Notice

We may revise this Privacy Notice through an updated posting. We will identify the effective date of the revision in the posting. Often, updates are made to provide greater clarity or to comply with changes in regulatory requirements. If the updates involve material changes to the collection, protection, use or disclosure of Personal Information, Pearson will provide notice of the change through a conspicuous notice on this site or other appropriate way. Continued use of the site after the effective date of a posted revision evidences acceptance. Please contact us if you have questions or concerns about the Privacy Notice or any objection to any revisions.

Last Update: November 17, 2020