Post on 01-Jan-2016
description
Synergy
Group Level Strategy
Andrew CampbellDirector, Ashridge Strategic Management Centre
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• 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
Potential Benefit Areas
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• 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
Synergy: The Frustrations
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Skill presumption
Neglect of downsides
• Four mental biases
Synergy bias
Mechanism bias
ASHRIDGE EXPLANATION
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• 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
Synergy Bias
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• 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
Mechanism bias
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• 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
Skills Presumption
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• 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
Neglect of Downsides
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Understand why Recognise current skills
Size theprize Look for
downsides
FOUR MENTAL DISCIPLINES
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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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• 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
Understand why
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• 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
“Synergy Killers”
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Difficulties that reduce synergy
Benefit possibility is perceived by units
STEPS IN A SUCCESSFUL SYNERGY
1.
Units evaluate net benefit correctly2.
Units are motivated to pursue the linkage3.
Units have skills, resources and processes to implement successfully4.
TYPES OF DIFFICULTY
Perception Issues
Evaluation Issues
Motivation Issues
Implementation IssuesNo
No
No
No
No Parenting Opportunity
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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
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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
Look for Downsides
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Don’t intervene
Identify 3 options that address the
parenting opportunity
Pinpoint the parenting opportunity
Noneexistsunclear
large and clear
unclear Size the PrizeDon’t intervene unless
risks are lowsmall
Choose exploratory interventions
clear
Build on skills and context
Look for down sides
Preferred option
Don’t intervene if risks too high
Framework for Choosing Interventions
Ease ofimplementation
Knock-on effects
Impact on parenting opportunity
Choose an Option
1 2 3
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• 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
Dealing with Uncertainty
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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