Synergy opportunities and risks
Efficiency is doing things right; effectiveness is doing the right things - Peter Drucker
Synergy is the idea that the whole is greater than the sum of the parts. It is the driver for nearly all product development efforts, the presumption behind most business mergers, and the motivation behind many top-down efforts that encourage independent groups to work together. But true synergy is not easy, free, or even possible without the right environment.
Consider this cautionary note:
Barry Diller, the chairman of IAC/Interactive Corp., was at Harvard Business School explaining the rationale behind the mosaic of interactive commerce companies he had assembled at IAC, such as Ticketmaster, Hotels.com, Match.com, and LendingTree.com. One of the students pointed out that these various businesses seemed to be operating independently, not in a coordinated synergistic fashion.
Diller erupted in mock anger. "Don't ever use that word synergy. It's a hideous word," he said. "The only thing that works is natural law. Given enough time, natural relationships will develop between our businesses."
I agree. What applies to disparate parts of a giant company also applies to disparate people in an endeavor. You can't mandate synergy. You can't force people to work together. You can't manufacture harmony, whether between two people or two divisions. You also can't order people to change their thinking or behavior. People will change their behavior only if they believe that doing so is in their own best interests, as characterized by their own values.
New product development efforts are motivated by the belief that a common solution can be profitably developed to solve a problem that users need to have solved. Synergy initiatives attempt to extend this concept, and base their value proposition on two related beliefs: aggregation of needs from multiple domains will achieve greater economies of scale), and greater reuse of knowledge and assets can be applied to service those needs more effectively (typically by being smarter at avoiding sources of unnecessary cost, removing redundant solutions and excess capacity, and by exploiting the best available solutions and strategies available within the community). The elements targeted for such reuse can take many forms, including the sharing of tools, technology, processes, concepts, components, people, and information.
The unique aspect which most synergy efforts introduce is that this sharing is often pursued through novel organizational schemes. These new approaches attempt to provide multi-dimensional focus on products, architectures, value streams, processes, and time horizons. The work inherent in this new focus often must be done in parallel (or at a lower priority) than the activities which implement the organization's continuing primary mission. Unrealistic expectations may be set to just 'do it all', without providing any additional resources for providing solutions which satisfy these added dimensions, or without the disciplines that would accompany normal project efforts. Both of these situations ignore the fact that the bigger and more complex the work, the lower the overall productivity of the people who will be in pursuing it; as much as an order of magnitude reduction in productivity can occur on large projects over small ones.
The ability and time horizon to realize value from such synergy initiatives rests upon a number of important assumptions:
A catalog of reusable components, products and services exists that can satisfy the aggregated needs for a target market with only incremental investments. If this assumption is not true, you do not have a synergy project, but instead, have a large and complicated development program with many dynamic constraints.
Components from this reuse catalog are compatible with technical and business architectures. This architecture is essential because it is the glue that will enable components (both organizational and physical) to be made sufficiently robust to enable 'plug and play' engagements with the user community in delivering value to them over time. The less robust or homogenous this architecture is, or the more difficult it is for contributing organizations to 'plugin' their various parts, products, and services to deliver value to customers, the more variants that will have to be accommodated in operational configurations (typically through special, costly interface layers), or by implementing additional tooling, training, and translations, as 'value-harvesting' is attempted by developers and users of these components.
Requirements exist which accurately characterize this catalog; these requirements are coherent and have complete overlap with end-user needs. Such requirements are necessary to provide a well-formed basis to evaluate gaps between the 'as-is' and the 'to-be' perspectives of stakeholders. As a result of this overlap (often traceable to a common heritage from which these items were designed), prior investments have produced results that are collectively useful and affordable (and thus can be expected continue to do so in the future).
These requirements enable decision-making on investments, design, integration, utilization, and support. Each of those decisions is essential to enable stakeholders to shape the fitness of existing and proposed solutions to satisfy end-user needs.
There are redundant or underutilized resources available which the synergy effort is intended to exploit. While it may be possible to do more with less over time, it is only possible if there are people and money available to make these changes.
Stakeholders will agree to commit adequate investment funds to align their own resources, support development activities, evaluate candidate products, and align strategies to the new (interdependent) way of doing business. This includes thought leaders of all affected organizations and the customers of those organizations, who must 'buy-in' to the benefits of the value propositions which the effort intends to pursue. You can't just roll out products - the community of customers must be willing to invest in new ways of doing business.
There must be an evaluation approach that facilitates the efficient and effective selection of the best approaches to satisfy stakeholder needs (both supplies of talent, suppliers of new components, and technology) from among available alternatives.
Governance is sufficiently robust or can be developed to efficiently allocate resources and manage planning, development, distribution, and support so the goals of the synergy effort can be achieved. This governance will need to rapidly respond to changes in demand, must allocate limited resources to the most important work, ensuring that investments will reliably return expected business results once an endeavor is launched. Conditions are dynamic, and no one will be smart enough to allocate resources properly upfront.
There are efficient and effective mechanisms in place to track benefits, evaluate tradeoffs, shape strategies, and accurately distribute their associated costs to the organizations responsible for these decisions, so the underlying business drivers of the synergy efforts can be managed and operated as a closed-loop system. Such mechanisms enable stakeholders to meaningfully invest in capabilities beyond the existing features needed for local users, and manage varying rates of products and services, so each provider of parts, services, and architectures can continue to service the collective organization's and broader user community's needs over time, without unnecessarily burdened 'network' costs.
If these assumptions are not valid, it is possible for the appearance of synergy to occur ('Look, everyone's working together!'), while underlying inefficiencies continue to persist. Without these features in the environment in which synergy is expected to emerge, extra efforts will be required (requirements elicitation, refactoring, etc) to realize benefits from a synergy initiative. This additional effort will erode the value which can be realized and may even tip the endeavor over from being useful to being harmful. This value erosion is not immediately apparent because synergy is usually just an abstract concept; as a result, while it may sound from the 'buzz' of an initiative that you are generating a lot of synergies, you may not actually be able to harvest the commensurate value you thought you could once the details are all accounted for, and all the required transformations are made.
This is why establishing a basis for measuring results is so critical for all commitments related to synergy initiatives, and why disciplined follow-up and accountability must accompany commitments to pursue all synergy endeavors. Since the assumptions upon which commitments are made may not be valid, the resulting activities should include special efforts towards validating the endeavor's assumptions, or mitigating them as risks, since these risks may severely limit the returns which can be harvested from the synergy initiatives themselves.
The articles in this series consider the above assumptions about synergy, explore the synergy value proposition (and the dynamics which it can exhibit over time) in more depth, discuss case studies and examples of pursuing synergy in practice, and make recommendations on approaches which can enhance the feasibility of achieving your target objectives from such 'common benefit' solutions.