Question

What is the difference between synergy and value creation with respect to strategy? Employing at least two different web resources, please give details and examples. Can you find an example of an organization that is employing true strategic value creation as opposed to the marketing/PR illusion of strategic value creation?

Answer 1

When we look at the two concepts of synergy and value creation there can be certain similarity. They both focus on improving the environment for all the parties concerned. However, the approach of doing them is different.

In strategy, synergy refers to arrangement or agreement between two entities where they tend to work together. The collaboration has to be in such a way that it is sustainable and creates a greater efficient impact than merely the sum of the different entities. For example, consider company A that makes $X million per year and company B that makes $Y by themselves. If there exist a synergetic strategy between them and they form partnership then their joint effort will generate revenue that is greater than $(X + Y). This is how synergy is defined in strategy.

When it comes to value creation in strategy we merely focusing on increased output for a given input. In every business there are many processes and each of them have inputs and outputs. When the output is achieved with comparatively greater benefit than the input itself, it is considered creation of value. For example, when we grind wheat and make flour we have input as wheat. However when we have flour we have not only the product but also convenience of utilizing the flour readily. This is an addition of benefit of convenience. This added benefit is considered creation of value.

A company that is truly creating strategic value is TOMS. They are a socially conscious company that donates a pair of sneakers for every pair sold. This approach of the company has caused them to align their revenue generation process along with their social cause tightly. This has created a strong strategic value creation in the meantime.