Definition of ‘synergy’
Synergy, also known as synergism, refers to the combined effects produced by two or more parts, elements, or individuals. Simply stated, synergy results when the whole is greater than the sum of the parts. For example, two people can move a heavy load more easily than the two working individually can each move their half of the load. Synergy can be a positive or negative outcome of combined efforts.
According to the American Heritage Dictionary , the term “synergy” is derived from the Greek word sunergos , meaning “working together.” Positive synergy is sometimes called the 2 + 2 = 5 effect. Operating independently, each subsystem can produce two units of output. However, by combining their efforts and working together effectively, the two subsystems can produce five units of output.
Negative synergy can be called the 2 + 2 = 3 effect. Again, individuals operating alone can each produce two units of output. However, with negative synergy, the combination of their efforts results in less output than what they would have achieved if they had each worked alone. Negative synergy can result from inefficient committees, business units that lack strategic fit, and from other poorly functioning joint efforts.
Individuals and synergy
One way to observe synergy in an organization is to observe the combined efforts of individuals working together. Synergy can result from the efforts of people serving on committees or teams. By combining their knowledge, insights, and ideas, groups often make better decisions than would have been made by the group members acting independently. Positive synergy resulting from group decisions may well include the generation of more ideas, more creative solutions, increased acceptance of the decision by group members, and increased opportunity for the expression of diverse opinions. Much of the current interest in teams and team building is an effort to achieve positive synergy through the combined efforts of team members.
Negative synergy occurs in groups, committees, and other joint efforts for a number of reasons. Groups commonly experience negative synergy because group decisions are often reached more slowly, and thus may be more expensive to make than individual decisions. The opportunity costs for having a group of high-paid executives spend an afternoon in a meeting rather than in more productive endeavours can be quite high. Negative synergy can also occur in group decisions if an individual is allowed to dominate and control the group decision. Also, groupthink—the pressure to conform—may cause the group to strive for harmony instead of evaluating information and alternative courses of action honestly and objectively.
Synergy at the organization level
Organizations strive to achieve positive synergy or strategic fit by combining multiple products, business lines, or markets. One way to achieve positive synergy is by acquiring related products, so that sales representatives can sell numerous products during one sales call. Rather than having two representatives make two sales calls to a potential customer, one sales representative can offer the broader mix of products.
Mergers and acquisitions are corporate-level strategies designed to achieve positive synergy. The 2004 acquisition of AT&T Wireless by Cingular was an effort to create customer benefits and growth prospects that neither company could have achieved on its own—offering better coverage, improved quality and reliability, and a wide array of innovative services for consumers.
Negative synergy is also possible at the corporate level. Downsizing and the divestiture of businesses is in part the result of negative synergy. For instance, Kimberly-Clark Corporation set out to sharpen its emphasis on consumer and health care products by divesting its tiny interests in business paper and pulp production. According to the company, the removal of the pulp mill will enhance operational flexibility and eliminate distraction on periphery units, thus allowing the corporation to concentrate on a single, core business activity.
The intended result of many business decisions is positive synergy. Managers expect that combining employees into teams or broadening the firm’s product or market mix will result in a higher level of performance. However, the mere combination of people or business elements does not necessarily lead to better outcomes, and the resulting lack of harmony or coordination can lead to negative synergy.
Types of synergy
The capacity of individuals or groups to use resources (time, money, materials, and human energy) as a productive unit falls into one of three categories: self-destructive, static, or synergistic.
1 + 1 < 2: Self-destructive relationships
In this type of working relationship, people interact in a way that consumes more resources than it generates for the organization. The result is less productive output than might be expected if the same individuals worked independently.
For example, in some organizations, the sales and production divisions spend an inordinate amount of resources protecting their turf from one another, miscommunicating, and blaming each other. They resemble two competitors instead of two inter-related functions within the same system. This also happens when individuals spend more time and energy in conflict with one another than meeting customer needs. Such working relationships are eventually self-destructive because the people involved don’t produce enough output to compensate for the drain on resources that’s required for them to work together. They actually have a negative net production level.
To continue operating in this way, additional resources must come from outside the working relationship. If there are no excess resources to draw from, the organization suffers a resource deficit and is consumed by the drain. If the organization is large enough and/or otherwise healthy enough, it may subsidize the relationship; however, over a longer period of time, the relationship will likely continue to waste time, money, material, and human energy.
These relationships are also doomed because there is no means for addressing the shifting demands of the marketplace. There are no resources to meet minimum productivity/quality expectations, nor is there time, money, materials, or human energy to accommodate the changes needed to remain competitive. The relationships suffer from both inadequate output and the inability to do anything about it.
1 + 1 = 2: Static relationships
In static working relationships, people interact in a way that consumes resources at about the same rate they are contributed back to the organization. The result is a productive output level equal to what would be expected when two divisions or two people combine their efforts.
At first glance, there appears to be no problem with this type of relationship. The productive output is “normal,” or what one would assume when people work together, but this is only true under certain circumstances. As long as the total environment in which they interact is essentially stable, a strong case can be made for this being an acceptable method. In a stable environment, few changes affect the organization’s operation and it is possible to react to and deal with predictable events.
Unfortunately, this type of relationship doesn’t work during transformational change. Dramatically shifting circumstances rapidly creates new expectations and demands, which generate pressure on the organization and its workers to react swiftly to unfamiliar realities.
Static systems do not generate resources beyond what is required to produce their product or provide their service. They have no reserves from which they can draw to meet the unanticipated demand. Accommodating change is a resource-consuming activity and the needed adaptation resources must come from somewhere. The only option is to pull them from what was allocated to production. Thus, a downward cycle is created that continues until the status of 1 + 1 = 2 degenerates into the 1 + 1 < 2, or self-destructive, state.
1 + 1 > 2: Synergistic relationships
In a synergistic relationship, cooperative action results in a total effect greater than the sum of what each party could produce independently. Simply stated, operating synergistically means effective “teamwork.” For example, when professional athletes execute a play, they often demonstrate what can happen synergistically by merging the skills of separate players into a smoothly operating unit capable of performing far beyond what the team members could do independently. It is common to see teams composed of individual “no name” players who, operating synergistically, defeat teams made up of a collection of non-synergistic superstars. As the Navy Seals say, “Individuals play the game, but teams beat the odds.”
Of course, such relationships exist in work settings as well.
- Different divisions can synergistically combine their efforts so that their products are ordered, manufactured, and delivered in a more efficient and effective manner than when each area works independently from the other.
- Management teams can fuse the knowledge and skills of each member into an operating unit vastly more competent than a group functioning as a composite of individuals.
- The relationship between an employee and supervisor can function in a way that blends the talents of both parties while compensating for each other’s weaknesses, yielding a highly productive work team.
People engaged in synergistic working relationships make optimal use of their time and resources to achieve the all-important “excess” needed to manage transitions. The additional resources facilitate change-related productivity and competence as well as create new options that were otherwise unavailable. Synergy does not grant individuals or work teams’ immunity from the stress of change—it provides the optimal use of resources necessary to react to change sooner and more effectively.
The use of synergy in business
All too often in business we try to bring together different pieces of our operations to accomplish a more productive output. In bringing these areas of operation together, we should focus on the most important factor to success, and that is synergy. Synergy can best be defined as the interaction of two or more agents so that their combined effect is greater than the sum of their individual effects.
Think of synergy in terms of a bond, whether you think of a chemical bond or a human relationship bond, the desired result is a mutually beneficial bonding. When we bring our marketing and advertising divisions together to talk about the newest product rollout, we want to promote good communication and healthy attitudes. The reason being, when good communication is used to deliver a message coupled with a healthy attitude, the impact of the delivery is much more effective and residual. In turn, the receiver will respond with a genuine comment that directly relates to the topic being discussed, thereby good synergy is formed and an instant brainstorming session of productive ideas is created
Another example of good use of synergy in business is through the relationships you foster with the affiliates of your organization. Let’s suppose you own a car wash business, and you constantly have to reorder soap. The price you pay is too high in your opinion and it takes two days for delivery. Now there is another soap distributor who has just moved into the area who is slightly smaller, but would like to do business with the car wash. This supplier will give you the same soap at a 25% discount if you display a sign at the car wash that advertises his soap. This is a no-brainer, since soap is a primary expense in your business, you would be happy to cut your cost by 25%. In addition the new supplier can advertise his new product at no cost to him. Once again, this is an example of synergy working for both owners of each business. They combined their locations and services and the result was a superior arrangement for both of them.
The importance of concentrating on forming strong synergy amongst areas of operation in business is directly related to maximizing productivity and efficiency. The better synergy two elements have together, the more productive and efficient those operations will run. The more efficient and productive an operation is run, the more profits will result.
In organization synergy becomes very important. Take an organization of your choice and bring out the importance of Synergy in making the organization more productive. Synergy means that the whole is greater than the sum of its parts. In organizational terms, synergy means that as separate departments within an organization cooperate and interact, they become more productive than if each were to act in segregation. The concept of synergy is resulting from the systems approach in which the management views the organization as a unified, decisive system rather dealing with it as separate units. This approach gives managers a way of looking at the organization as a whole and as a part of the larger, external environment. System theory tells us that the activity of any segment of an organization affects, in varying degrees, the activity of every other segment.
We can explain the importance of synergy by analyzing a group and commenting how synergy affects the productivity of the complete organization. For example if we take the management at the airport where they have to supervise hundreds of airlines and endow with proper services to thousands of passengers, synergy becomes very important in dealing with such hustle situation.
The importance of synergy to managers
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.
A synergistic working relationship is a powerful phenomenon to witness in action—people working together to consume the fewest resources possible to get the job done, while achieving a higher quantity and quality output than if they worked independently. Sponsors, agents, and targets who achieve a high level of synergy stand a much greater chance of realizing their goals during major organizational change. Synergy between change practitioners and clients also accelerates the odds of reaching full realization.
The trouble is, many professional change facilitators lack an in-depth understanding of the underlying dynamics of how synergy works. They hope synergy exists within their client populations, and leverage it when it does, but they often aren’t clear what specific actions can be employed to foster it.
References
David, B. & Andrzej, H. (2007). Organizational behaviour, introductory text. New York: Prentice Hall.
Fuller, R. B., (2005). “Synergetics: Explorations In The Geometry Of Thinking”. New York: Macmillan Publishing Company.
Goffee,R. & Jones, G. (2013). Creating the best workplace on the earth. Harvard Business Review, 99-106.
Hertzberg, R. C., & MacDonell, M. M. (2002). Synergy and other ineffective mixture risk definitions. Sci Total Environ 288, 31-42.
Peter, A. (2003). Nature’s Magic: Synergy in Evolution and the Fate of Humankind, New York: Cambridge University Press.