What is Synergy?

Case breakdown: Movie In Good Company

In the scene above from In good company, the lead actor can be seen talking about synergy in the company, by tying up with their sister company ‘Krispty Krunch’. He says that their sports magazine can advertise in the boxes of their sister company and how both of them can benefit through this. In this blog, Learning Perspectives will explore the meaning of synergy.

What is Synergy?

The above scene is a classic example of synergy. Synergy states that when two businesses combine their strength, it is greater than they operating alone. Synergy creates 1+1 =11 rather than two. This analogy clarifies that synergy helps build strong businesses.

Synergy is quite often seen in mergers & acquisitions. Generally, companies merge & acquire each other for a strategic benefit. A larger company might acquire a small company, for its innovative product and the start-up can gain benefits from its large marketing presence.

Many companies have a parent-subsidiary structure. This structure too helps in creating a larger presence in the market. Companies generally focus on their core competencies. This leads to creating value from the relationship between the parent and its businesses.

In this form of corporate headquarter, the parent company has a great deal of power in this relationship. If there is a good fit between the parent’s skills and resources and the needs and opportunities of the business units, the corporation is likely to create value.

The primary job of corporate headquarters is, therefore to obtain synergy among the business units by providing needed resources, transferring skills and capabilities among the units, and coordinating the activities of shared unit functions to attain economies of scope.

This is in agreement with the concept of a learning organization in which the role of the large firm is to facilitate the transfer of knowledge assets and services throughout the corporation.*

Understand Synergy with a Video

References:

D.J. Collins “Corporate Strategy in a multibusiness firms”

D.J. Teece, “Strategies for managing knowledge assets”

Strategic Management and Business Policy: Thomas L. Wheelen, J.David Hunger, Krish Rangarajan