What is Synergy?
The word synergy comes from the Greek words of syn (“together”) and ergon (“work”).
Synergy is a simple but powerful value creation concept that can be applied to many aspects of life. In simple terms “synergy” is about a complementary relationship that unleashes gains exceeding the sum of what each party could have achieved separately.
As Aristotles famously put it: “the whole being greater than the sum of its parts“.
Synergy can be illustrated through two horses pulling weight. A Belgian draft horse on its own can pull about 8,000 pounds. However when two draft horses work together they can move about 24,000 pounds! Not 2x, but three times as much. (3x)
The idea of a synergy is one of the core concepts within systems theory and can be created between any combination of entities and forces.
This is the effort of individuals working together, serving on committees or teams. By combining their knowledge, insights, and ideas, teams often make better decisions than would have been made by the team members acting independently.
We’ve all heard, “Two heads are better than one” and studies are able to show such an effect scientifically.
Interaction and coordination of business processes can also create synergy.
Several studies have researched multiple synergy types between key business processes such as customer relationship management (CRM), supply chain management (SCM) and new product development (NPD).
Organizations can create synergy within their own functions and business units as well as with other organizations, individuals or agencies
In synergistic relationships the goals of parties may vary, nevertheless the returns for each party will exceed their investment. The value creation is typically the byproduct of shared knowledge, skills, resources, strategy, operation or power position and their halo effects.
Companies engage in inorganic growth for the synergies they create. This will not only leapfrog the progress but will create additional capacity and opportunities for growth.
The Japanese Keiretsu model was an implementation of synergy established in the 1950s.
A keiretsu, is a set of companies with interlocking business relationships and shareholdings.
The members’ companies own small portions of the shares in each other’s companies that helps insulate each company from stock market fluctuations and takeover attempts, thus enabling long-term planning in projects.
Today the most common ways for businesses to engage in synergistic relationships is through partnership, joint venture, strategic investment, or merger and acquisition; some being temporary and some permanent in nature.