How to utilize synergy

How to utilize synergy

In the previous article we explained what synergy is and how it applies to various areas of life and business. In this article we will explore the process of evaluating and utilizing synergy for business needs.

The process typically starts by a company’s deliberate attempt to address a problem, opportunity or strategic goal. 

An assessment of internal needs and capabilities will drive the decision of organic vs. inorganic approach. Management tools such as RBV (Resource Based View) can help the company with such assessment.

Any inorganic effort will start by identifying the profile of ideal candidates for desired synergy.

The nature of the relationship can be temporary, such as partnership and joint venture or permanent with merger and acquisition.

Some organizations use an opportunistic approach, while others use a systematic approach in triggering the process.

Each approach has its own benefits and drawbacks. A systematic approach provides a continuous and predictable growth path for the organization, while helping them maintain a strong competitive edge in their market. However it will require strategic discipline and an organizational structure to support that. 

An opportunistic approach works well for smaller organizations, with flexible and less formalized growth strategies. It can open up more creative and less expensive growth options, with less organizational overhead. However, an opportunistic approach is more risky and prone to management bias. 

Either way, being very clear and aligned about expected synergy is a key to successful realization of it. Research from McKinsey shows that just the fact of announcing the expected synergy produces 6% higher return for shareholders over those who don’t publicize it.

Interestingly enough, less than 20% of companies are announcing their expected synergies publicly, despite evidence that they will benefit from the announcement. That is mostly due to concerns about their ability to govern the integration and realization process.

There are countless reports and studies on successful and failed mergers and acquisitions, with some prominent ones being:

  • ​​Disney and Pixar
  • Sirius and XM Radio
  • Exxon and Mobil
  • AOL and Time Warner
  • Sprint and Nextel
  • Sears and Kmart

In our blog series we will cover multiple case studies and elaborate on the strategy, benefits and challenges that comes with it. Stay tuned…

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