Strategic Synergy

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What is Strategic Synergy?

Strategic Synergy is used to indicate the added value of shared resources or costs by combined organizational entities. The term is often used in strategy and mergers & acquisitions to compare the combined situation with separate entities.

Whether synergy is a real phenomenon or that the drawbacks of combining entities often outweigh the benefits, is a highly disputed theme in strategy and Corporate Finance. Synergies are often mentioned as a reason behind mergers & acquisitions, but they are difficult to achieve and even more difficult to measure.

Synergies can take many forms such as:

• Sharing know-how about products, markets, marketing, manufacturing, R&D, or other functions.

• Resource sharing of investment capital (cash and borrowing capacity) and other major assets.

• Sharing and developing top management talent.

• Combined branding.

• Sharing customer relationships.

• Sharing other stakeholder relationships (government).

• Cost savings through combined purchasing power.

• Cost savings in central services (HR, Legal, Purchasing, Finance, Governance, etc).

A standard drawback to consider is the reduced responsiveness of the less focused combined entity. Also, it may be possible to achieve many of the intended benefits without actually combining the organizational entities.

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Compare with: Acquisition Integration Approaches  |  Parenting Advantage  |  Parenting Styles  |  Strategic Alliance  |  Joint Venture  |  Spin-Off  |  Horizontal Integration  |  Vertical Integration  |  Economies of Scale  |  Disaggregation  |  Divestiture

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