What Is Synergy?

Synergy occurs when two (or more) agents work together to achieve something that one couldn't have achieved on its own. The simplest concept of synergy is the whole being greater than the sum of its parts.

In management, synergies may be created between management teams, resulting in increased capacity and workflow that weren’t possible with independent teams.

Example of Synergy

Synergy is often a major goal during mergers and acquisitions, specifically because two firms may be able to achieve higher profitability than either firm could achieve on its own.

In this straightforward example of synergy in business, Company ABC may acquire Company XYZ, a similar firm. This could allow ABC to expand its product offering and – as a result – increase its sales and revenues. Had these two firms remained independent, this could not have been accomplished.

How Can Synergy Be Measured?

Synergy can be reflected in increased revenues and/or lowered expenses. When measuring synergy, it is heavily influenced by three variables: benefit size, likelihood, and timing.

Why Synergy Is Important

The concept of synergy may seem elusive, but it’s one of the most important objectives in business to boost efficiency and efficacy. The effects of synergy can also improve employee morale, amplify customer satisfaction, improve competitive advantage, and expand market share.

Synergies allow for the creation of economies of scale. For example, a merger can reduce multiple levels of management and duplication, as well as spread fixed cost technologies over larger operations.

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Paul Tracy
Paul Tracy

Paul has been a respected figure in the financial markets for more than two decades. Prior to starting InvestingAnswers, Paul founded and managed one of the most influential investment research firms in America, with more than 3 million monthly readers.

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