Desperately seeking synergy

Corporate executives have strong biases in favor of synergy, and those biases can lead them into ill-advised attempts to force business units to cooperate--even when the ultimate benefits are unclear. But executives can separate the real opportunities from the mirages, say Michael Goold and Andrew Campbell. They simply need to take a more disciplined approach to synergy. These biases take four forms. First comes the synergy bias, which leads executives to overestimate the benefits and underestimate the costs of synergy. Then comes the parenting bias, a belief that synergy will be captured only by cajoling or compelling business units to cooperate. The parenting bias is usually accompanied by the skills bias--the assumption that whatever know-how is required to achieve synergy will be available within the organization. Finally, executives fall victim to the upside bias, which causes them to concentrate so hard on the potential benefits of synergy that they overlook the possible downside risks. In combination, these four biases make synergy seem more attractive and more easily achievable than it truly is. As a result, corporate executives often launch initiatives that ultimately waste time and money and sometimes even severely damage their businesses. To avoid such failures, executives need to subject all synergy opportunities to a clear-eyed analysis that clarifies the benefits to be gained, examines the potential for corporate involvement, and takes into account the possible downsides. Such a disciplined approach will inevitably mean that fewer initiatives will be launched. But those that are pursued will be far more likely to deliver substantial gains.