Meaning of synergy

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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 (eg, 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 (ie, 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.


Author: Krzysztof Wozniak