Meaning of synergy

From CEOpedia | Management online

Synergy in business means a specific type of relation between factors, which results that final effect is better than the sum of the effects of each factor acting separately and thus independently of one another. Synergy has positive sense due to the difference between the effect obtained due to the cooperation and the combined effect of the factors isolated and separated (in the opposite case, when this difference takes the negative it is called: dis-synergy). Synergy in management is also called as organizational effect or synergistic effect.

Sources of synergy

Synergistic effects can be achieved by integrating two or more activities, so that both of then bring more result than without integration. Meaning of synergy implies multiple benefits through skilful combination of all components. This term is used mainly in managerial circles about good companies and individuals operating within them.

Synergistic effect are commonly expressed as equation 2 + 2 = 5 The benefits of synergy can be expressed by an increase in profitability or as an increase in the value of an integrated organization.

Scientist usually distinguish between pure synergies and cost synergies. Pure synergy is for example: increased creditworthiness of the merged company giving access to cheaper sources of financing. An example of cost synergy is development of a common system of management accounting. Synergies can be divided into those that can be achieved in a short time (e.g., by use of the basic management techniques, access to cash, increase credit opportunities, etc.) and those whose achievement is only possible in the long term (i.e., economies of scale resulting from the integration of production, marketing, distribution, research and development, increased ability to control prices, etc.). The acquisition of the company, its restructuring and resulting efficient operating condition are treated as part of the expansion strategy.

Applications of synergistic effect

Collaboration, cooperation, mergers, acquisitions, forms of interaction are synergies resulting form advantages of joint action, expressed in increased effects, as well as possibility to reduce operating costs. When two companies decide to cooperate to bring the results in the form of increased market reach, they often also reduce the cost of research and development. Even within one company there can be a reduction in costs resulting from combining departments.

Teamwork: With respect to the organizational unit. In this case, there will always be observed effect of the positive synergies as to get the result: 1 +1 +1 +1> 4

In contrast, it often turns out that a highly intelligent group of people working together gets a lot worse than their individual members acting individually, or a group made up of the less able employees. This phenomenon is called The Apollo Syndrome and was discovered by Meredith Belbin. It can be jokingly described as: 1 +1 +1 +1 <4

Bad effects are the result of a lack of understanding between team members. They are not able to make a joint decision, because everyone wants to convince the rest to their own particular opinion. Participants follow the team in their "own way" recognizing their own infallibility, regardless of the opinions of others, so that there is confusion in the team.

However, such group is able to achieve the desired effect, but it requires a proper selection of its members (elimination of dominant individuality) and the appropriate management team. Synchronization of work, appropriate roles and responsibilities allow for the proper functioning of the team. Synergistic effect is measured in units of excess benefit per member of the team (organization), in case when each of them interacts with other people in an organized manner within the institution - in comparison to the benefit that could be achieved in isolation.

Examples of Meaning of synergy

  • Teamwork: Teamwork is a powerful example of synergy in business. When people come together to work on a project, the result of their combined effort is often greater than the individual contributions of each member. For example, a team of software developers working together to create a new application is likely to achieve more than each member working independently.
  • Network Effects: Network effects are another example of synergy in business. Network effects occur when the value of a product or service increases as more people use it. This can be seen in popular social media platforms like Facebook, Twitter, and Instagram, where the more people use the platform, the more valuable it becomes.
  • Product Development: Product development is another example of synergy in business. Companies often use a combination of resources — such as research, engineering, marketing, and sales — to develop new products. When these resources are used in combination, the result is often a more innovative and successful product than any one of these resources working independently.

Advantages of Meaning of synergy

  • Synergy has the potential to create a more efficient and effective operation of a business. It allows for better coordination of resources, teams, and departments, and can lead to increased productivity and cost savings.
  • Synergy also encourages collaboration and innovation, which can result in new ideas and products. By combining different perspectives and talents, businesses can develop new solutions that can give them a competitive edge.
  • Synergy also helps to foster communication and understanding between different levels of the organization. This can help to reduce misunderstandings, increase trust, and create a better working environment.
  • Synergy can also help to create a strong corporate culture by encouraging employees to work together towards a common goal. This can lead to increased loyalty and commitment, which can help to improve employee morale and performance.

Limitations of Meaning of synergy

  • Synergy should not be confused with the notion of a single entity, as synergy is only achieved when multiple factors combine to produce a result greater than the sum of the parts.
  • Synergy also does not necessarily mean that all components in a system are equally important. One key factor could be responsible for the majority of the success, while the other components contribute only marginally.
  • The concept of synergy is not necessarily applicable to all situations, as there can be cases where the sum of the parts is greater than the whole.
  • Synergy does not always lead to positive outcomes. It can also result in dis-synergy or negative effects. For example, if two companies merge and the resulting company performs poorly, this could be considered an example of dis-synergy.
  • Synergy is not necessarily an easy concept to measure due to the difficulty of quantifying or isolating the effects of individual components.

Other approaches related to Meaning of synergy

  • Synergy in business is also understood as a system of cooperation between different departments or companies, which together create a bigger or better effect than what each entity could do alone.
  • Synergy can also refer to the collective effort of individuals, teams, or organizations, which together create a result that is greater than the sum of their individual efforts.
  • Synergy is also used to describe the relationship between a company and its stakeholders, in which working together can create a mutually beneficial outcome.
  • Synergy can also be used to describe the relationship between different parts of an organization, in which working together can create a better outcome than if each part was working independently.

In conclusion, synergy in business typically refers to a cooperative relationship or system in which the whole is greater than the sum of its parts. Through various forms of cooperation, synergy can create powerful results that are greater than what could be achieved by each entity working separately.


Meaning of synergy — recommended articles
Merit pay — Delegative leadership — Horizontal organization — Organizational knowledge — Strategic intent — Advantages of team work — Importance of teamwork — Third sector — Network structure

References

Author: Krzysztof Wozniak

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