By changing relationships and alignments between certain organisational factors, synergy can be delivered to the bottom line to drive tangible business benefits, writes Dave Hanna
Sometimes we hear someone say, “We need better teamwork in this organisation.” Managers and experts alike describe “synergy” as the epitome of good teamwork. But what exactly is synergy and how do we make it happen in organisations?
The term “synergy” was first expressed by Greek philosopher Aristotle who said, “The whole is greater than the sum of its parts.” In the ensuing centuries, synergy has been found to be relevant in many sciences: physiology and chemistry being two notable examples. A modern shorthand phrase for synergy is simply “1+1=3 or more.”
What produces synergy?
Think carefully about these definitions and you will realise you don’t get synergy by merely adding more ingredients (people, money, resources). It emerges from changing the relationships in those ingredients. Combining hydrogen and oxygen produces water. Adding a catalyst to some docile chemicals may produce an explosion or a new “wonder” drug.
And, of course, synergy may occur in living beings. For example, research has shown that one draught horse can pull 3,700 kg. Two horses can pull 8,200 kg. But two horses trained as a team can pull 9,550 kg. Training is the synergistic catalyst.
In the world of organisations, you may have a talented workforce, highly educated leadership, and financial backers – but little synergy. But, change the relationships and alignments in these ingredients (i.e., their working culture), and synergy can be delivered to the bottom line.
“You don’t get synergy by merely adding more ingredients (people, money, resources). It emerges from changing the relationships in those ingredients”
A case study of synergy
Some years ago, the Shell Oil Company spent $30-50 million each year on new and replacement oil tanks. Chicago Bridge and Iron (CBI), one of Shell’s largest contractors, approached Shell with a proposal to create a partnership that would provide more of a win for both corporations. CBI told its Shell customers, “You bid out all of your tank work each year, but we always get about 75 percent of the contracts. Would you be interested in really partnering with us?” The Shell managers were interested, but just a little sceptical. What did CBI mean by “really partnering?” CBI wanted 100 percent of Shell’s business. “Put all our eggs in one basket?” the Shell managers asked themselves. They cautiously agreed to discuss the subject further.
Representatives of the two companies held three meetings in which they each shared their principles and practices of doing business. They particularly focused on how each worked with its customers and suppliers. They also discussed their technical standards for designing and constructing oil tanks. They found their values, technical standards, and competencies were closely aligned and there was a synergy.
The partners on both sides decided they were ready to craft a new working agreement, recognising they would both have to abandon some past assumptions and practices and do some things differently in the future.
“Shell had saved $9 million from its annual budget ($42 million) for tanks. And CBI had increased its Shell business by 25 per cent”
CBI and Shell each dedicated one manager exclusively to their partnered account. The first thing they tackled was the job bidding process. It was time-consuming, costly, and not very effective. An oil tank proposal, for example, might go through a full engineering review four or five times: once by each prospective vendor and once by Shell. Shell paid for each of these reviews. The partners agreed that CBI alone would do all of these reviews in the future. This decision alone saved Shell $1 million per year!
Then CBI told Shell, “Instead of telling us the dimensions and materials you want to use in your tank, just tell us how much gas you want to store. Let us come back to you with the best way to do a quality job at the lowest possible price.” That sounded good, but how could Shell be sure it would be getting the best deal in the current market? CBI volunteered to open its books and scope the project in detail as if they were bidding on the open market.
Then the partners set a lump sum total cost target and a win-win profit margin. CBI eliminated any contingency provisions in its bid. Any deviation in profits or total costs (+ or -) would be split 50-50 between CBI and Shell. Progress was monitored quarterly by a joint steering team.
After the first year of operating under the new agreement, Shell had saved $9 million from its annual budget ($42 million) for tanks. And CBI had increased its Shell business by 25 per cent.
Note: the same people with the same resources had achieved this breakthrough. Their new relationships in setting targets, dividing up the work, and monitoring progress were catalysts to superior results. Synergy indeed!