Concept of Synergy

Strategic advantages in particular business area do not yield requisite benefits automatically unless all parts work together smoothly. The concept of synergy is all about this. Synergy is an economic effect in which the different parts of the firm contribute a unique source of heightened value to the firm when managed as single unified entity. Synergy suggests that (2 Plus 2 could be 5 or even 1). Organizational units more often can be more successful together than working alone. The Walt Disney Company, for example benefits greatly from synergy. The company’s movies, theme parks, television programs and merchandising licensing programs all benefit from one another. Its recent movie the Lion King earned over $300 million in box office revenues. In addition Disney earned hundreds of millions more from the sale of licensed Lion King toys, clothing and video games. The Lion King stage show at Disney world attracts more guests to the park and the video sold 20 million copies during the first week of its release. In India today Banks and insurance companies are linking up in an effort to market a wide array of financial products that each would have trouble selling on its own, Within a firm, synergistic effects can occur in a number of ways. The successful launch of Amul’s pizza bears testimony to this as the Gujarat Cooperative Milk Marketing Federation popularly Known as Amul, is able to combine its pricing (Rs 25) promotional efforts (aggressive campaign) and distribution channels (3000 outlets) admirably while wooing customers away from competing brands.

Synergy is an important concept for managers because it emphasizes the importance of working together in a cooperative and coordinated fashion. To obtain special benefits in the form of cost savings, better grip over the markets, full exploitation of scarce managerial talent, join sharing of technology etc. firms often have good relations and strong alliances with suppliers, creditors and customers. Team members share equipment customer lists and other information that helps the see small companies to go after more business than they ever could have without the team approach. Hammod Enterprises a seven employee firm in Marietta Georgia designs and produces promotional caps, mugs and T shirts for major corporations such as Coca-Cola and Lockheed Martin. Synergy develops because Hammod relieves the corporate giants of the hassle of research, paperwork and design of logo bearing promotional items, enabling the corporations to obtain the items at fewer costs than if they produce the items themselves.

Building Synergy:

The primary job of managers then is to identify and leverage the firm’s competitive advantage resources across closely fitting businesses to create new sources of value that form the basis for building synergy. In actual practice finding a close fit among the firm’s different businesses is not easy. The firm may often find that its competitive advantages do not lend themselves well to application in other industries or markets. A firm specializing in housing finance business as a result may find the going tough if it were to venture into auto finance or consumer finance business. In a field marked by intense competition and cut throat rivalry the only way to build and sustain is to make the firm’s unique advantages as distinctive as possible and enduring over a long period of time. The more distinctive the firm’s resources (capabilities, skills and technologies) the more difficult it is for competitors to copy and imitate the firm’s synergy. A truly distinctive skill or competence will enable the firm to lower costs enhance differentiation or accelerate learning in ways faster or better than its competitors’ (Pitts and Lei). A firm’s organizational capability for fast innovation (3M) or quality manufacturing (Hero Honda) is hard to imitate and represents durable resources that last over many product life cycles.
Source: Strategic Management

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