Financial Daily from THE HINDU group of publications
Friday, Jul 15, 2005
Columns - Coming to Terms
With synergy, differences are celebrated, provided you have the energy
EVER since the Krishnamurthy Committee submitted its energetic report to the Petroleum Minister, Mr Mani Shankar Aiyar, synergy has been stirring up interest. In January, when forming the committee, the Government had optimistically spoken of the need for the oil public sector undertakings "to leverage their strengths in their respective areas of core competence to optimally fulfil the key role envisaged for them in promoting national objectives of energy security, accelerated growth rate and sustained economic development".
It may be long before one sees progress on the recommendations in the latest `synergy in energy' report, such as the thoughts on strengthening the present structure of oil PSUs by policy and management improvements rather than merger, or come to terms with the committee's idea of national shareholding with enhanced autonomy modelled after Temasek of Singapore and Khazanah of Malaysia. In the meantime, a study of `synergy' won't be inappropriate.
Run your finger down, therefore, in the pages of Concise Oxford English Dictionary to find the word after synecdoche (a figure of speech in which a part is made to represent the whole or vice versa), synecology (the ecological study of whole plant or animal communities), syneresis (the contraction of two vowels into a diphthong or single vowel), and synergist (an agent that participates in synergy) with derivatives such as synergistic and synergistically.
Synergy, originating from Greek sunergos `working together' means "interaction or cooperation of two or more organisations, substances, or other agents to produce a combined effect greater than the sum of their separate effects". Online Etymology Dictionary can help with more details: "1660, `cooperation,' from Mod Latin synergia, from Greek synergia `joint work, assistance, help,' from synergos `working together,' related to synergein `work together, help another in work,' from syn- `together' + ergon `work' (see urge (v.)). Meaning `combined activities of a group' is from 1847."
Synergy is achieved when the whole is more than the sum of its parts, such as when two plus two is more than four, as if to make mathematicians shake their head in disbelief. For example, a quote of Steven Kumble is that the key thing that makes law firms work is synergy, and that with the right combination, one and one can make three. "Person A alone is too short to reach an apple on a tree and person B is too short as well. Once person B sits on the shoulders of person A, they are more than tall enough to reach the apple. In this example, the synergy would be one apple," explains http://en.wikipedia.org. "Another case would be two politicians. If each is able to gather one million votes on their own, but together they were able to appeal to 2.5 million voters, their synergy would have produced 500,000 votes." Not something that our netas don't know!
In `Synergetics: Explorations in the Geometry of Thinking' by R. Buckminster Fuller, synergy is defined as behaviour of whole systems unpredicted by the behaviour of their parts taken separately. "The words synergy (syn-ergy) and energy (en-ergy) are companions... Energy relates to differentiating out sub-functions of nature, studying objects isolated out of the whole complex of universe for instance, studying soil minerals without consideration of hydraulics or of plant genetics. But synergy represents the integrated behaviours instead of all the differentiated behaviours of nature's galaxy systems and galaxy of galaxies."
Resuming our discussion, the Oxford Dictionary of Business explains synergy as "the added value created by joining two separate firms, enabling a greater return to be achieved than by their individual contributions as separate entities". Thus, during merger and acquisition talks, synergy is considered or anticipated. "For example, one firm's strength in marketing would be complementary to the other firm's versatility in new product development."
Thus, B.M. Khaitan is optimistic about McLeod Russel India taking over Williamson Tea Assam and states that the synergy will help the company save Rs 15-20 crore annually. Similarly, Gillette India sees marketing synergy from P&G, post merger.
In contrast, though, Videocon that has been in the limelight for the acquisition of Electrolux and Thompson is said to be pursuing a no-synergy merger of its oil and gas operations company with the consumer goods wing, with the sole aim of making the balance-sheet of the combined entity stronger.
There are two distinct types of corporate synergies, says Wikipedia. One, revenue synergy, that refers to "the opportunity of a combined corporate entity to generate more revenue than its two predecessor standalone companies would be able to generate". And two, cost synergy, or "the opportunity of a combined corporate entity to reduce or eliminate expenses associated with running a business". That is when mergers can cost jobs, by eliminating duplicates in positions to realise the economies of scale. Dictionary of Management Jargon is forthright; an example for synergy reads, "The synergy from the merger will lead to some savings," and then a cross-reference is given - "See: Layoff".
Oxford Dictionary of Business points out the flip side of synergy, that benefits may not accrue in practice because of resistance to change, particularly after a contested takeover. "The corporate culture that each participant may have built up over many years of separate existence may prove too inflexible to enable a productive merger to be achieved without friction," and this perhaps explains why the S-in-E report doesn't advise a merger of oil companies.
For merger maniacs, there is a moral to draw from an old story about a religious parrot that the owner of a pet shop was proudly showing to a customer.
"The fellow is very religious. Just pull his leg, and see!" said the shop owner. The customer pulled the parrot's left leg, and the parrot said a solemn line of prayer, `May the world be peaceful'. The shop owner prompted, "Now, pull the other leg." The customer pulled the bird's right leg, and the parrot chirped, "Don't worry, be happy!' Enthusiastically, the customer asked, "What if I pulled both the legs?" Before the frightened shop owner could answer, the parrot squeaked, "You fool, I'd fall!"
More like the word, one may say, because synergy has its origins in theological discourse as what happens when divine will cooperates with human effort, but in the recent past, it has become hip in business jargon, often in plural.
Highly effective people may remember that the sixth habit that Stephen R. Covey asks one to cultivate is `synergy'. It is creative teamwork, creative cooperation, he'd explain. "Synergy comes from a win-win mind-set and seeking first to understand and then be understood. With synergy, differences are celebrated." If oil companies synergise, consumers may not mind celebrating if fuel prices drop.
Synergy has a medical meaning too. It refers to the phenomenon in which the combined action of two things such as drugs or muscles is greater than the sum of their effects individually, according to Encarta, and adds that in the case of drugs, the result may be dangerous to the patient.
"If more than one depressant drug is used (e.g. alcohol and Valium), the combination can cause a much greater reaction than simply the sum of the effects of each drug. In this particular case, the most serious consequence of drug synergy is the exaggerated respiratory depression that is fatal when left untreated," warns The Free Encyclopedia.
"Synergy and serendipity often play a big part in medical and scientific advances," is a quote of Julie Bishop to remind us to be thankful when treatment succeeds.
When chemicals or drugs are used together, they may show negative or positive synergy, notes the Vitamin Glossary on www.doctorshealthsupply.com. "Positive synergy occurs when the sum of the effects of chemicals acting together is greater than the additive effects of the individual chemicals. Negative synergy occurs when the sum of effects of the mixture is less than that of the individual components of the mix. Antioxidant mixtures commonly exhibit positive synergy, although negative synergy can also occur."
In neurology, synergy refers to the faculty by which movements are properly grouped for the performance of acts requiring special adjustments, according to Dorland's Medical Dictionary on www.mercksource.com.
Synergy derives from the holist conviction that the whole is more than the sum of its parts, explains the Dictionary of Cybernetics and Systems on http://pespmc1.vub.ac.be. "Because the energy in a whole cannot exceed the sum of the energies invested in each of its parts (see first law of thermodynamics), that there must therefore be some quantity with respect to which the whole differs from the mere aggregate (see aggregation). This quantity is called synergy."
You'd learn, however, that in practice, synergy is mostly a negative quantity because all complex organisms consume energy merely for maintaining their own structure. "More loosely, synergy refers to the benefits of collaborative as opposed to individual efforts," concludes the entry, relegating the word to the ill-defined domain.
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