If you’re a marketer, you’ve definitely heard of the “synergy effect.”
Due to diversifying consumer needs and intensifying competition between companies, an increasing number of companies are aiming for synergy effects.
This time, we will explain the meaning, importance, and examples of synergy effects.
What is synergy effect?
In Japanese, synergy is “synergistic effect,” and it refers to the combination of two elements to achieve an outcome of 1+1=2 or more.
In business, multiple companies or businesses collaborate and collaborate to create greater added value and results than when they work alone.
Importance of synergy effects
By conducting M&A and business alliances aimed at synergistic effects, business expansion can be expected by improving technological capabilities and acquiring customer information. Thinking about the direction of the company and engaging in business will be highly evaluated by shareholders, and the rise in the stock index will increase the company’s value.
Additionally, due to the diversification of market needs and the introduction of IT in a wide range of industries, companies will lose out in competition with other companies if they only do one business.
In order for a company to survive in a fiercely competitive environment, it is also necessary to aim for synergy effects and grow the company.
What is the anergy effect?
Anergy effect is the opposite of synergy effect.
This means that the result of combining two elements is that the synergistic effect is less than expected, or that the disadvantages of both are noticeable, resulting in a decrease in value.
While M&A and diversification strategies tend to produce synergistic effects, they can also have negative effects due to slower decision-making speed and more complex coordination within the organization due to organizational expansion.
Judgment of synergy and anergy effects
Please judge whether the result of a corporate strategy is a success or a failure based on whether a synergistic effect or anergy effect was produced.
Types of synergy effects
There are three main types of synergies that can be obtained by merging multiple companies and businesses: business synergies, financial synergies, and organizational synergies.
business synergy
The following synergistic effects can be expected for business promotion.
1. Cost reduction We will reduce costs by reviewing and eliminating overlapping departments and unifying logistics.
Cost reduction is a major synergistic effect, as costs can be held down without reducing operational efficiency.
2. Economies of scale When the number of production lots increases and the cost per unit decreases, increasing net profit, it is called economies of scale. It is used in a variety of business situations because it is effective regardless of industry or occupation.
3. Utilization of human resources Securing the optimal human resources enables the placement of the right people in the right positions, leading to improved productivity. Through business alliances and joint ventures, we can secure excellent human resources and revitalize human resources.
4. Improving technological capabilities By sharing the technologies and know-how that companies and businesses have cultivated individually, it is possible to raise the level of technology, improve productivity, and develop human resources.
financial synergy
The synergistic effect that works on companies’ money and taxes makes it possible to combine them and make larger investments if both parties have surplus funds. You can aim for further corporate growth by allocating the money to new acquisition costs and the costs of acquiring technology and human resources.
Additionally, if the acquired company has carried forward losses, inheriting those debts and reducing the surplus can lead to tax savings.
organizational synergy
The synergistic effect that can be obtained when previously separate organizations collaborate and cooperate with each other and operate as one organization allows them to work more efficiently by increasing their individual level and motivation, and generating new ideas. , resulting in improved productivity.
4 ways to create synergy effects
In order for a company to create synergy effects, it is necessary to collaborate and combine with other companies and businesses.
Here we will introduce four typical methods.
M&A
M&A (Mergers and Acquisitions) refers to the acquisition and merger of companies, and is said to be the method with the greatest potential for synergy effects.
Various synergies can be expected, such as expanding market power (share), reducing costs through economies of scale, acquiring new resources, and reducing taxes.
Business partnership
This is a method of collaboration between companies with different products, services, and technologies. By sharing their respective know-how and resources, we will create synergies such as developing new markets and improving productivity.
Although the ties are not as strong as in M&A, it is possible to complement each other by enhancing each other’s strengths and compensating for each other’s weaknesses, and it is possible to solve the problems that we are facing.
Integrated group management
Companies with multiple group companies can aim to streamline their management by unifying common operations to reduce costs and share customers and know-how.
It is also possible to strengthen your approach to customers with common needs.
Diversification strategy
By expanding into fields other than your company’s main business, you can aim to improve your company’s overall sales and profits, and gain and expand your market share. Build a strategy that suits your company, mainly categorized into the following four categories.
Success stories of synergy effects
We have explained the meaning and types of synergy effects, but let’s look at examples of companies that have succeeded in actually aiming for synergy effects.
Softbank
Softbank is one of the companies that is often cited as an example of achieving high synergy effects through M&A.
In 2004, we made Japan Telecom a subsidiary, strengthening our corporate sales and establishing our position in the telecommunications business. After that, it became one of Japan’s leading telecommunications companies through repeated M&A, including the acquisition of Vodafone’s Japanese subsidiary.
Furthermore, by acquiring the professional baseball team Hawks, we were able to immediately improve our name recognition and brand power, and successfully expanded our customer base.
J.T.
JT (Japan Tobacco Inc.) saw a decline in sales due to a decline in the number of smokers in Japan. As a breakthrough, we acquired the tobacco business from an American company in 1999, and then aggressively pursued M&A overseas, including in the UK and Russia.
By acquiring a local tobacco business, we were able to significantly reduce the costs of expanding overseas and create synergies in acquiring customers overseas. As a result, sales increased significantly and the company grew to become one of the world’s leading cigarette manufacturers.
family mart
FamilyMart, a major convenience store, is gaining synergy effects through business alliances and diversification strategies.
Gas stations attached to convenience stores, which are now commonplace, began as a business partnership between FamilyMart and ENEOS.
Additionally, Family Mart “Famima Laundry”, which has an integrated coin laundry, also became a hot topic. This creates a synergistic effect where you can shop while doing your laundry or eat in the eat-in space.
Sales at convenience stores tend to drop on rainy days, but coin laundries, on the other hand, are used more on rainy days, which leads to more customers at convenience stores.
Additionally, we have a 24-hour fitness gym on the second floor of our store, which encourages customers to shop before and after exercise, increasing sales.
summary
We introduced the meaning, types, and examples of synergy effects.
“Synergy effect” is a synergistic effect in which value greater than that originally possessed is created through the merger of companies or businesses, and is realized through marketing strategies such as M&A, business alliances, diversified management, and integrated group management. Masu.
However, implementing a strategy does not necessarily guarantee synergy effects. To avoid creating an anergy effect, carefully assume risks, analyze your company, and carefully select companies to approach.