What Is Synergy, and How Can It Help My Management

These dynamics increase the importance of interaction amongst actors, voluntarily or involuntarily. Relationships amongst companies are often lingering ones, lasting at least a product’s lifecycle (Mattsson and Johanson, 2006). This time perspective is critical for suppliers to understand in their negotiations with the integrated company. Dependencies amongst actors through business relationships are also affected by how, in what way and to what extent company relationships develop (Johanson and Mattsson, 1987; Håkansson and Ford, 2002; Gadde et al., 2003). Quah and Young (2005), for example, have found that retaining good customer relationships was of key importance in all the acquisitions they studied.

  • In recent years, its usage has increased due to the growing emphasis on collaboration and interdisciplinary approaches in various fields.
  • This study aims to contribute with an extended framework on synergy realisation in acquisitions.
  • Cost saving synergy – usually referred to as operational synergy – can be achieved by eliminating redundant costs, gaining better bargaining power with suppliers and vendors, and improving operational efficiencies.

Cost synergies, related to redundant personnel, are especially difficult to realize since they necessitate laying off or repurposing personnel for different roles. Furthermore, as stated before, the complexity of combining and integrating processes and systems can be overwhelming. One of the best practices in realizing cost synergies is to eliminate one of the entities’ processes and systems, and port over the least amount of critical data to the new systems.

Can you solve 4 words at once?

For an advertisement, the copy for television, the radio and audio components must work together to produce the synergy effect of desired impact. (1990), “Coordination of action in mergers and acquisition – interpretive and systematic approaches towards synergy”, Dissertation. The first section of our findings highlights the elements of synergy in the three acquisitions. Our developed framework is, thereafter used to analyse an extended view on synergy. Yes, social synergy refers to positive outcomes achieved through effective collaboration between individuals or groups. This term holds significant importance because it underlines the potential power of collaboration in different scenarios and fields.

  • A couple of years ago, I had a business problem with internal customers because they insisted on a feature request that I found unnecessary.
  • All the interviewees represented the Alfa perspective on the acquisitions as both the acquirer and the acquired.
  • King et al. (2004) call for a need to develop acquisition research with reference to unidentified variables that explain acquisition performance.
  • Synergy is one building block in company strategy (Ansoff, 1965) and during the 1960s and early 1970s, synergy was a motive for corporate strategic development through diversification (Porter, 1985; Rumelt, 1974).
  • During the fall of 1997, purchase coordination showed positive results after only a few months, although the process to coordinate the purchasing function took two years to complete.

Focus the majority of your attention on open communication, trust, and shared goals. Problems with synergy and trust aren’t tied to a specific role, but the person who works between the teams is responsible for bridging the gap. Once you set your environment and team, you have to keep synergy alive. Synergy occurs when you work as a group to deliver more value than you would’ve through individual efforts. The term is used to explain team efforts and collaborative working methods.

Takeovers and Mergers

The phrase “two heads are better than one” embodies the essence of synergy. More ideas, more solutions, innovations one person quite simply would not have been able to achieve- better results for a greater effect. To get you going on understanding the full breadth of synergies for a new project, product, service M&A, or consolidation, download the free Synergy PowerPoint Worksheet. Below is a nice visual logic tree that outlines the various sources of synergy, which you can use to better evaluate potential options. Merger and acquisition synergies should be well-thought-out during every stage of the deal. Revenue synergies most commonly occur between companies that sell in the same industry.

Telecoms Takeovers – BT Buys EE in the Battle for Market Leadership

The point of departure in the present study was to assert a need for knowledge and understanding of synergy from the perspective of business networks in a contextualised conceptualisation. This is in line with Rouzies et al. (2019), who call for “[…] an embedded perspective on M&As and address post-acquisition integration as unfolding in a context of co-evolving processes” (Rouzies et al., 2019, p. 280). King et al. (2004) call for a need to develop acquisition research with reference to unidentified variables that explain acquisition performance. Our findings also show that related companies such as customers and suppliers, play important roles in synergy realisation. This positions our study in what Haleblian et al. (2009, p. 491) call an important dimension, the purpose of which is to increase our understanding of the effects and consequences of acquisitions.

Management synergy

At the time, the combined businesses had approximately $28 billion of revenue, so the total synergies (the $1.5 billion in expected cost savings noted in the Heinz press release) represented approximately 5% of that. When two companies merge, there is a reorganization of the management teams. Depending on the goals and character of the management team members, the synergistic effect may be positive or negative. A merger can also reduce job duplication and multiple levels of management. The idea is that the combined efforts of two or more entities are greater than those entities alone. In business terms, however, though companies may aim to achieve synergy by joining forces, the end result often lacks synergy, making the endeavor a wasted one.

You should be the one who demonstrates workspace culture and encourages collaboration. Destroying a well-build synergy is so easy — one word, or one excuse can erase all your efforts. I had to arrange meetings, brainstorming sessions, gamification activities to repair trust between them.

Redundant costs frequently relate to personnel, such as not requiring two CEOs and thus being able to eliminate one from the payroll. Bargaining power with suppliers can be improved because a larger company that places larger orders has more leverage and therefore the ability to negotiate better pricing and better payment terms. Lastly, operational efficiencies may be realized by sharing best practices and streamlining processes across both companies. Corporate synergy describes the expected additional value companies achieve by merging. In other words, two companies working together under a merger or acquisition can produce more value than the sum of their individual effects. Larger, merged businesses not only support one another, but they also achieve cost reductions that ultimately lead to higher profitability.

The present case study illustrates and suggests a broader interpretation of synergy in which context was considered. Our study gives findings useful for both managerial implications and implications for research. For research, we suggest an extended framework to discuss synergy related to M&As.

Some suppliers were changed, but the overall result was more favourable price levels for the purchased components. The post-acquisition integration did not identify numerous integration projects. However, several technology transfers were exchanged, for example, the alternating current technology developed by Alfa was transferred to Gamma, adding a new supplier for Gamma. There were also examples of transfer to Alfa; Gamma had an electrical engine supplier with which Alfa replaced some of its suppliers. It became possible to work in a more integrated manner with the product development of future products and to use more common components.

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