Corporate Synergy and ‘Quality-of-Fit’

Synergy between corporate objects (both vertical and horizontal) is one of the key concepts in BDL methodology. It is based on the proposition that in a lean organization (and often in the ‘not-so-lean’ as well), everything is connected to everything else. Well, not necessarily everything, but a lot. More specifically, performance (sometimes, even existence) every corporate object influences the performance of many other corporate objects.

The ‘classic’ business (‘corporate’) synergy relates mostly to mergers and acquisitions (M&A) projects. Actually, this synergy is one of the primary driving forces behind these projects. In a properly executed M&A project, a whole is always more than just the sum of two parts (1+1=3 or even more).

Which is the definition of the ‘M&A synergy, by the way’. Revenues of the unified company exceed the sum of those of independent company, profits, cash flows, etc. Often due to so-called ‘economies of scale’.

BDL takes this ‘external’ concept of synergy and takes it into the internal realm. In this realm it means that when analyzing a specific corporate object (e.g. brand, product, etc.) you must always consider (and measure!) how specifically its performance influences – directly or indirectly – the performance of other corporate objects. In the corresponding composite objects (that both objects happen to belong to), objects portfolio and your whole business system.

‘Maximizing’ the synergy between objects in the composite objects or a portfolio in question means (1) know how one objects influences all others, and (2) maximizing the positive impact of every object on other objects – in terms of financial value generation, of course.

For example, adding a new product to your products portfolio can (and must) increase sales of other products (e.g. by making your product line more whole) and/or reduce costs (via economies of scale).

 

A related – and very important BDL concept is the ‘match’. Or the ‘quality-of-fit’. Like all components of an aircraft, all corporate objects must fit well with each other. For example, all key objects – for obvious reasons – must match your key external factors. Your brands and products – your marketing strategy. And so on.