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When a synergy program founders, it is usually the business units that take the blame. With a more disciplined approach, executives can realize greater value from synergy-even while pursuing fewer initiatives. The challenge is to separate the real opportunities from the illusions. We believe that synergy can provide a big boost to the bottom line of most large companies. As a result of the business world’s increased concern for corporate regeneration and growth, several companies have placed added emphasis on this type of synergy. The creation of new businesses can be facilitated by combining know-how from different units, by extracting discrete activities from various units and combining them in a new unit, or by establishing internal joint ventures or alliances. In process industries such as petrochemicals and forest products, well-managed vertical integration can yield particularly large benefits. Vertical IntegrationĬoordinating the flow of products or services from one unit to another can reduce inventory costs, speed product development, increase capacity utilization, and improve market access. Striking the right balance between corporate intervention and business-unit autonomy is not easy. Although coordinated strategies can in principle be an important source of synergy, they’re tough to achieve. And coordinating responses to shared competitors may be a powerful and effective way to counter competitive threats. Divvying up markets among units may, for instance, reduce interunit competition. It sometimes works to a company’s advantage to align the strategies of two or more of its businesses. The gains from pooled negotiating power can be dramatic. Companies can also gain similar benefits by negotiating jointly with other stakeholders, such as customers, governments, or universities. Pooled Negotiating Powerīy combining their purchases, different units can gain greater leverage over suppliers, reducing the cost or even improving the quality of the goods they buy. Companies often justify acquisitions of related businesses by pointing to the synergies to be gained from sharing resources. By using a common manufacturing facility or research laboratory, for example, they may gain economies of scale and avoid duplicated effort. Units can sometimes save a lot of money by sharing physical assets or resources. The emphasis that many companies place on leveraging core competencies and sharing best practices reflects the importance attributed to shared know-how. Value can be created simply by exposing one set of people to another who have a different way of getting things done.
#What is synergy manuals
The know-how they share may be written in manuals or in policy-and-procedure statements, but very often it exists tacitly, without formal documentation. They may, for example, improve their results by pooling their insights into a particular process, function, or geographic area. Units often benefit from sharing knowledge or skills. We’ve found that most business synergies take one of six forms: Shared Know-How The word synergy is derived from the Greek word synergos, which means “working together.” In business usage, synergy refers to the ability of two or more units or companies to generate greater value working together than they could working apart. Simply put, many synergy efforts end up destroying value rather than creating it. Sometimes, the synergy programs actually backfire, eroding customer relationships, damaging brands, or undermining employee morale. It distracts managers’ attention from the nuts and bolts of their businesses, and it crowds out other initiatives that might generate real benefits. If the only drawbacks to such efforts were frustration and embarrassment, they might be viewed benignly as “learning experiences.” But the pursuit of synergy often represents a major opportunity cost as well. Others become permanent corporate fixtures without ever fulfilling their original goals. Others generate a quick burst of activity and then slowly peter out. Some never get beyond a few perfunctory meetings. What emerges from all this activity? In our years of research into corporate synergy, we have found that synergy initiatives often fall short of management’s expectations.
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Organizational structures are reshuffled to accommodate new, cross-unit managerial positions. Processes and procedures are standardized. Incentives for sharing knowledge, leads, and customers are built into complex compensation schemes. Cross-business teams are set up to develop key account plans, coordinate product development, and disseminate best practices. Meetings and retreats are held to brainstorm about ways to collaborate more effectively. The pursuit of synergy pervades the management of most large companies.