![]() ![]() ![]() An older manufacturing company may have a great logistical system, but their equipment is outdated. For example, a new manufacturing company may have the latest technology to produce excellent products, but may not have an effective logistics system. If they find they can enhance profitability and create greater efficiency, businesses may then agree on synergy. The companies usually assess whether they can generate more revenue or reduce costs. Mergers and acquisitionsīusinesses examine potential synergy during the mergers and acquisitions process. There are a number of ways companies can create a synergy. Related: Everything You Need to Know About Strategic Management 7 ways companies can create synergiesįinancial benefit may be one of the most important advantages to a creating synergy. This may allow these companies to pursue bigger, more financially attractive projects. Sales and marketing: A merger allows the organisations to access each other's resources and through their shared resources, synergy may aid companies in increasing their debt capacity. Research and development: Each organisation can have access to its own research and development information that allows for better development or, because of the shared information, creates opportunities to cut costs without sacrificing quality. Shared information technology: Each company in the merger can have its own proprietary access to information technology (IT), potentially creating opportunities for operational efficiencies. For example, as one company, a business requires only one CEO and one CFO. Lower salaries: When two or more companies become one, organisational changes take place and because of this change, lower salaries are imminent. Supply chain efficiencies: If one company has access to better supply chain relationships, the other company can take advantage of those relationships during a merger and streamline its own supply chain, benefiting from the associated cost savings. It also saves money if one company was paying a fee to access the patent. Patents: Access to patents can allow the merged organisation to create more competitive products and generate more revenue. Different types of synergies include:Ĭomplementary geographies and customers: This gets achieved by merging two organisations with different geographies and customers that, when merged, give the companies access to increased demographics and higher revenue.Ĭomplementary products: When companies that produce complementary products merge, they can bundle their products to generate higher sales. Synergy helps management because it creates better results, achieves the organisational vision and mission and generates better solutions to problems. Synergy can impact the value of an organisation, as it enables the company to produce higher cash flows from existing assets, higher rates of growth, longer growth periods or lower costs of capital. If a financially solid company buys a cash-strapped company, the former might put its money into the latter's revenue-generating profits. ![]() The merged firm may also be eligible for greater tax benefits and pay less tax than the two previous corporations. A merged company inherits a strong asset base from its predecessors, allowing it to get financing and use the combined assets as security. With synergy, the combined companies may also benefit financially in things such as tax savings or debt. Synergy is possible through factors like combined talent, combined technology, streamlined processes that allow for financial benefits like cost reduction and increased revenue. ![]() Shareholders often benefit from synergy, as a post-merger share price often increases because of the effect synergy has on the deal. Companies often use synergy to merge with similar businesses or individuals. They focus on collaborating, which can help companies accomplish objectives they may not accomplish on their own. Synergies occur when two or more people or organisations work together to maximise productivity and reduce costs. In this article, we define synergy, provide examples of different types of synergy, look at ways companies can create them and explore their benefits. Learning how to establish a synergy might help you put one in place in an organisation or appreciate the advantages of merging with another. Synergies enable businesses to increase revenue while lowering costs. Although businesses can function effectively on their own, managers can improve their performance by combining resources with another business or organisation through synergy. ![]()
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