Derived form the Greek word “synergos,” which means “working together” exceeds the value those units could create working independently.
Derived form the Greek word “synergos,” which means
“working together” exceeds the value those units could create working
independently. Another way of saying this is that synergy exists when assets”
are worth more when used in conjunction with each other than separately.
Synergies can involve physical and non-physical assets” such as human capital.
For shareholders, synergy generates gains in their wealth that they could not
duplicate or exceed through their own portfolio diversification decisions.
Synergy exists when the value created by business
units, working together exceeds the value those same units create working
independently. But, as a firm increases its relatedness between business units,
it also increases its risk of corporate failure, because synergy produces joint
interdependence between business units and the firm’s flexibility to respond is
constrained. This threat may force two basic decisions. First, the firm may
reduce its level of technological change by operating in more certain
environments. Alternatively, the firm may constrain its level of activity
sharing and forego the benefits of synergy. Either or both decisions may lead
to further diversification. The latter may produce additional, but unrelated,
diversification. Synergetic effects occur across functional areas and core
competencies emerge as a result of the concentration of resources to the areas
where an organization wishes to build up strategic advantages. This can be
observed in the case of a company, which is, or intends to be, a market leader,
a low-cost producer, a technologically superior competitor, or an ideal
employer. For achieving each of
these objectives, an integrated approach to functional plans and policies would
be necessary. For instance, a company, which intends to be a market leader,
would have to offer products of the best quality at a competitive price through
an efficient distribution network supported by an aggressive promotion policy.
The other functional area plans and policies would have to supplement these
Tags : Strategic Management - Concept Of Corporate Strategy
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