The Relationship between Operational Synergy and Firm Performance: A Review of Literature

Abstract

Theoretical and empirical evidence has documented erratic and fluctuating firm performance amongst financial firms worldwide and across different economic sectors. The need to stabilize firm performance has instigated a variety of corporate reorganization strategies including Mergers and Acquisitions. However, theoretical and empirical literature has not been quite categorical on the link between operational synergies (arising from Mergers and Acquisitions) and firm performance. Firms have increasingly inclined towards operational synergy to enhance firm performance. Operational synergy has consistently improved firm performance outcomes in most firms. However, while numerous studies have examined the relationship between operational synergy and performance, there exists a need to synthesize and consolidate the findings across diverse contexts and economic sectors. Hence, the purpose of this review was to determine the relationship between operational synergy and firm performance via desktop review. The study was informed by three theories; The Theory of Misvaluation, The Hubris Theory and Stakeholder Theory. The review adopted a positivist research philosophy and desktop review design via evidence-based approach. The Study Documents that operational synergy has a significant effect on firm performance. Additionally, the review finds that firms which actively pursue operational synergy strategies exhibit improved financial performance, cost reduction, streamlined processes, and higher customer satisfaction. The study further finds that firms which successfully achieve operational synergy, particularly through mergers and acquisitions, have a tendency to outperform their competitors financially, with improved profitability, cost efficiency, and overall financial performance. Hence, the study recommends that firms should prioritize the development and implementation of strategies that foster operational synergy such as promoting a culture of collaboration, communication, and integration across different operational functions. Keywords: Operational synergy, Organizational effectiveness, Integration, Efficiency, Review of literature, Performance