Synergy
Group Level Strategy
Andrew Campbell
Director, Ashridge Strategic Management Centre
Potential Benefit Areas
• There are six areas of possible benefit:
– shared tangible resources
– shared know-how
– pooled negotiating power
– co-ordinated strategies
– vertical integration
– combined new business creation
Ashridge Strategic Management Centre
GLS/MG/Synergy
2
Synergy: The Frustrations
• Despite the evident potential,
– parents’ interventions frequently fail
– business units typically complain about parent
involvement
– business units often prefer to link with third parties
rather than sister units
Ashridge Strategic Management Centre
GLS/MG/Synergy
3
ASHRIDGE EXPLANATION
• Four mental biases
Skill
presumption
Mechanism bias
Neglect of
downsides
Synergy
bias
Ashridge Strategic Management Centre
GLS/MG/Synergy
4
Synergy Bias
• Synergy bias arises when managers are “desperately
seeking synergy”
– to justify their corporate strategy
– to justify their organisational role
• Synergy bias leads to overoptimism about coordination
benefits, neglect of costs and risks, and the pursuit of
mirages
Ashridge Strategic Management Centre
GLS/MG/Synergy
5
Mechanism bias
• The mechanism bias is the belief that, if the centre
doesn’t get involved and knock heads together, the
business managers will never work together as they
should
• The mechanism bias leads to excessive interference by
the parent, failure to recognise compromise and
opportunity costs that are clear to the businesses, and
poor relationships between the centre and the
businesses
Ashridge Strategic Management Centre
GLS/MG/Synergy
6
Skills Presumption
• The skills presumption is that, if a synergy is worth going
for, the parent should be able to put in place whatever
skills are needed to implement it
• Skills presumption overlooks the importance of possessing
the right skills to make synergies happen, underestimates
the difficulty of building new skills, and causes promising
synergies to fail in implementation
Ashridge Strategic Management Centre
GLS/MG/Synergy
7
Neglect of Downsides
• Neglect of downsides is based on the mistaken view that
the knock-on, second order effects of synergy initiatives
are far more often positive than negative
• Neglect of downsides causes the risks of synergy initiatives
to be understated or overlooked entirely
Ashridge Strategic Management Centre
GLS/MG/Synergy
8
FOUR MENTAL DISCIPLINES
Recognise
current skills
Understand why
Size the
prize
Ashridge Strategic Management Centre
GLS/MG/Synergy
Look for
downsides
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Size the Prize
1. Define the benefits
– disaggregate for precision
2. Assess order of magnitude net benefit
– e.g. 1%, 10% or 50% impact on profits
3. Take account of opportunity and compromise costs
4. Focus on big prizes
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GLS/MG/Synergy
10
Understand why
• Identify why sensible managers are not doing the sensible
thing
– “synergy killers” that need to be removed to allow
enlightened self-interest to operate well
– “difficulties” that are making enlightened self interest
ineffective
Ashridge Strategic Management Centre
GLS/MG/Synergy
11
“Synergy Killers”
• There are some features of the corporate context that can
inhibit synergies. For example:
–
–
–
–
–
–
–
lack of support from corporate strategy
infighting between the “barons”
culture of secrecy
misaligned incentives
inappropriate targets
domineering corporate staffs
mistrust
• The parent needs, as far as possible, to remove synergy
killers
Ashridge Strategic Management Centre
GLS/MG/Synergy
12
Difficulties that reduce synergy
STEPS IN A SUCCESSFUL SYNERGY
1.
Benefit possibility is
perceived by units
No
No
2.
Units evaluate net
benefit correctly
3.
Units are motivated to
pursue the linkage
4.
Units have skills, resources
and processes to implement
successfully
TYPES OF DIFFICULTY
Perception Issues
Evaluation Issues
No
Motivation Issues
No
Implementation Issues
No Parenting Opportunity
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GLS/MG/Synergy
13
Build on Skills and Context
1. Lay out the key requirements to implement each synergy
initiative in terms of
– management skills
– corporate context
2. Determine changes that would be needed
– and assess how easily these changes could be made
3. Prioritise possible initiatives in terms of ease of
implementation
– use well-grooved mechanisms if possible
– build around natural champions if changes needed
Ashridge Strategic Management Centre
GLS/MG/Synergy
14
Look for Downsides
1. Make explicit any likely knock-on effects
–
–
–
–
stand-alone parenting
dynamic of organisation culture
cross-unit contamination
sense of motivation/innovation
2. Revisit cost-benefit analysis, taking account of knock-on
effects
Ashridge Strategic Management Centre
GLS/MG/Synergy
15
Framework for Choosing Interventions
unclear
Size the Prize
small
Don’t intervene unless
risks are low
large and
clear
Choose exploratory
interventions
unclear
Pinpoint the parenting
opportunity
None
exists
Don’t intervene
clear
Identify 3 options
that address the
parenting opportunity
Choose an Option
Build on skills
and context
1
Impact on parenting
opportunity
Ease of
implementation
Look
for down sides
Ashridge Strategic Management Centre
GLS/MG/Synergy
Knock-on effects
Preferred option
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2
3
Don’t intervene if
risks too high
Dealing with Uncertainty
• If there is high uncertainty, select “exploratory”
interventions that are designed for maximum learning, at
relatively low risk/cost, about the size and nature of the
prize and the parenting opportunity, and about the impact
of possible interventions
–
–
–
–
–
“piggy back” mechanisms
facilitating the network
pilot projects
time limited projects
built-in review procedures
Ashridge Strategic Management Centre
GLS/MG/Synergy
17
Synergy: Review
• Many valuable synergies will and should proceed through
enlightened self interest and without involvement of
parent
– provided “synergy killers” do not get in the way
• Some important synergies will not work well without help
from the parent
– do something about the “difficulties
• The parent should be comfortable doing nothing if
– there is no clear opportunity to help
– the risks of intervention are too high
Ashridge Strategic Management Centre
GLS/MG/Synergy
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