he new metrics use these four parameters as benchmarks: activity, cohesion, value, and balance.
Activity: A measure of the company's overall expansion activities. This involves calculating the company's total number of business units, subsidiaries, and alliances. In general, the higher the number, the better.
Cohesion: A measure of how integrated acquisitions and alliances are within the entire business entity. The calculation of this number is a little more complicated than some of the others. We use this formula: number of internal vertices plus number of pendant vertices, multiplied by 0.1, minus number of cycles. Internal vertices are units or alliances that report to another unit and also have units reporting to them; pendant units are those at the bottom of the hierarchy; and cycles are links between units--revenue, investment, or distribution flows. In general, the lower the figure generated by the formula, the more coherent the company.
Value: The total market capitalization of the entire E-community, the network of businesses created with a common purpose. Obviously, higher is usually better.
Balance: A measure of how evenly value is distributed across the whole entity. We arrive at the figure by calculating the total market capitalization for each unit, then calculating the standard deviation of the percentages. In general, the lower the resulting figure, the better.
We applied these measures to the to-be-merged America Online and Time Warner based on data from public sources and arrived at the following answers:
Activity: 215 (high).
Cohesion: 46.3 (several times as high as other companies we have looked at, indicating that AOL Time Warner at the time of the impending merger has the lowest cohesion of companies we've studied).
Balance: 18.7 (on the high side).
Value: Around $220 billion. Time Warner traditionally has operated strong, autonomous units, while AOL is younger, smaller, and centrally managed. These numbers seem to indicate that this media giant has huge potential as an E-community, but it also has some big issues to settle--specifically, how to reconcile Time Warner's autonomous business units with AOL's structure in their new business model.
he new metrics use these four parameters as benchmarks: activity, cohesion, value, and balance. 
Back to This Week's Issue
