Synergy opportunities and risks
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 organization. You can't force people to work together You can't mandate synergy. You can't manufacture harmony, whether it's between two people or two divisions. You also can't order people to change their thinking or behavior. The only law that applies is natural law.
The only natural law I've witnessed in three decades of observing successful people's efforts to become more successful is this: People will do something - including changing their behavior - only if it can be demonstrated that doing so is in their own best interests as defined by their own values.
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:
Nearly all new product development efforts are motivated by the belief that a common solution can be profitably developed to solve a problem which users need to have solved. Synergy extends this pattern, and bases its value proposition on two related concepts: aggregation of broad needs from multiple domains (to achieve greater economies of scale) and reuse of knowledge and assets to service those needs more effectively (typically using cost avoidance, and by exploiting the best available solutions and strategies available within the community). The elements targetted for this reuse can take many forms, including the sharing of tools, technology, processes, concepts, components, people, and information.
The unique aspect of most synergy efforts is that sharing is often pursued through novel organization schemes which provide multi-dimensional focus on products, architectures, value streams, processes, and time horizons. Such efforts often must be done in parallel (or at a lower priority) than the activities which implement the organization's 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 a project is, the lower the overall productivity of the people who will be in pursuing it; as an example, consider this analysis of software estimating factors, which documents that as much as an order of magnitude reduction in productivity can occur on large projects over small ones.
The ability to realize value from such synergy initiatives rests upon a number of important assumptions:
- A catalog of reusable components, products and services exists and can satisfy these aggregated needs for a target market with only incremental investments
- Requirements are coherent and have significant overlap with end-user needs so that there is a well-formed basis of evaluating the 'as-is' and the 'to-be'. As a result of this overlap (often driven by a common heritage) prior investments have produced results that are collectively useful and affordable (and thus can be expected continue to do so in the future).
- Requirements enable decision-making on investments, design, integration, utilization, and support of solutions. Each of those decisions enables stakeholders to assess the fitness of intended solutions to satisfy their needs.
- Components from this reuse catalog are compatible with a technical and business architecture, which is or can be made to be sufficiently robust to enable 'plug and play' engagements by the user community. The less robust or homogenous this architecture is, or the more difficult it is to 'plug in' to these various parts, products, and services, the more variants will have to be accommodated in practice, with special interface layers, or additional tooling and training, as 'value-harvesting' is attempted by users of these components.
- There are redundant or underutilized resources within the overall scope of the system which the synergy effort is intended to exploit.
- Stakeholders will each commit portions of their available investment funds to align their own resources, development activities, products, and strategies to this new (interdependent) way of doing business.. This includes the leadership in 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
- To realize benefits, the investments required to effect required changes and eliminate waste in parts, assets or resources must be securable and worthwhile.
- Governance exists or can be developed which will efficiently manage planning, development, distribution, and support so the goals of the synergy effort can be achieved. This governance will need to be sufficiently robust to rapidly respond to changes in demand and must meaningfully allocate limited resources to the most important work over time.
- There is an evaluation approach which facilitates the efficient and effective selection of the best sources for meeting user needs, when alternatives exist.
- There are efficient mechanisms in place to support the reallocation of resources and distribution of associated costs to support the synergy efforts. Such mechanisms enable stakeholders to meaningfully invest in capabilities beyond the existing features needed for local users, so each provider of parts, services, and architectures can continue to service the broader user community's needs over time, without unnecessarily burdened 'network' costs.
If these assumptions are not valid, it is quite possible for the appearance of synergy to occur ('Look, everyone's working together!'), while hiding underlying inefficiencies which can continue to persist, or for extra efforts to be required (requirements elicitation, refactoring, etc) to be necessary to realize benefits from a synergy initiative. This is because synergy is just a abstract concept; as a result, it may sound from the 'buzz' like you are generating a lot of synergy, without actually being able to harvest the commensurate value once the details are accounted for.
This is why measurable results are so critical for all commitments related to synergy initiatives, and why disciplined follow-up and accountability must accompany such commitments. Since the assumptions upon which commitments are made may not be valid, the resulting activities should include special efforts towards validating the assumptions, or mitigating them as risks, since such risks may erode the value which can actually be harvested from the synergy initiatives themselves.
The below articles 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 target objectives from such 'common benefit' solutions.
