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Strategic Management - Concept Of Corporate Strategy

Synergy - Mission and Objectives

   Posted On :  25.06.2018 11:17 pm

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 marketing policies.

Tags : Strategic Management - Concept Of Corporate Strategy
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