Searching for synergy
Collaboration is a growing trend, especially in the nonprofit sector, where funders encourage it. Two or more entities collaborate when they work together to create, produce, or implement something. Or, said more succinctly, when they work together to accomplish something. Collaborations range from minimally integrated, temporary combinations (e.g., coalitions and joint ventures) to fully integrated, permanent organizations (e.g., mergers and acquisitions).
When asked why they are collaborating, managers typically cite the “synergy” or “synergies” that will be achieved by the combination. But what, exactly, does synergy mean? And how do you determine the way in which the synergy will be achieved?
Let’s start by defining the term. Say that two organizations, A and B, collaborate. Synergy is said to exist when the collaboration produces a combined effect greater than the sum of the organization’s separate effects. In other words, synergy exists when 1 + 1 > 2.
Say, for example, that when apart, Company A has an annual profit of $1 million and Company B has an annual profit of $1 million. Added together their profit is $2 million. Their collaboration would be said to have synergy if it yielded a profit greater than $2 million. The profit increase could result from a decrease in their combined expenses (say, by making more efficient use of underutilized space, equipment, or people), an increase in their combined revenue (say, by making a more valuable offering), or both.
Rather than revenue, or in addition to it, nonprofits are concerned with impact, where impact is taken to mean the positive change that a nonprofit makes in the world through its programs, services, or advocacy efforts.
In some cases, two or more nonprofits work to achieve the same impact. An example is two disaster relief agencies that provide food and water. In the event of a disaster, they would be able to serve more people (have a greater impact) by coordinating their efforts so as to avoid overlap and unnecessary duplication of their efforts.
In other cases, two or more nonprofits produce lower-level impacts that contribute to a higher-level impact. Imagine, for example, a nonprofit that provides after-school education (produces educated kids) and a mental health service that provides behavioral counseling (produces well-behaved kids). By collaborating, they produce the higher-level impact of educated-and-well-behaved kids. Not only does each contribute its half of the impact, but they also contribute to increasing the impact of the other’s half. The education nonprofit improves the kids’ behavior by increasing their sense of self-worth, and the mental health service improves the kids’ education by improving their behaviors.
But, caution consultants Andrew Campbell and Michael Gould, a predicted synergy benefit might be a mirage, or the benefit might never be realized because of poor implementation.[1] For this reason, they suggest that managers employ a disciplined process for assessing a prospective collaboration. The centerpiece of the assessment is disaggregating the broad objective of the collaboration into progressively more-specific sub-objectives. Doing so enables managers to better evaluate the synergy benefits and create concrete implementation plans.
Let’s use the collaboration between the educational nonprofit and the behavioral counseling nonprofit as an example. Consider how the objective hierarchy shown below enables you to do a better, although not always an easy, job of doing the following:
Decide who are the targets of the collaboration. Is the collaboration targeting all the students, only those students with typical behavior problems, or students who are diagnosed as having behavior disorders?
Decide which of the sub-objectives should, and should not, be an objective of the collaboration. Should the collaboration focus on just some of the “Other” category of educational objectives, or all of them? If just some, which ones?
Evaluate the synergistic benefits that can be achieved, if any. Having decided on the target(s) of the collaboration and the sub-objective(s), determine how the collaboration can enable a synergistic reduction in expenses, increase in revenue, and/or increase in impact. Can the behavioral nonprofit occupy under-utilized space at the after-school facility or vice-versa? In what ways can the collaboration enable the two nonprofits to develop a fee-for-service offering? How will the collaboration enable a synergistic impact on the selected sub-objective(s)?
Determine what initiatives will be required to implement the collaboration. What actions and resources will be required to implement the collaboration? Do the nonprofits have the resources (money, time, people) to conduct the initiatives?
Measure the desired outcomes. What metrics will be used to measure the achievement of the chosen sub-objectives?
One question you might have when building an objective hierarchy is this: At what level of detail should I stop? Campbell and Gould suggest that you continue to disaggregate the objective so long as you are gaining extra insight and understanding.
[1] Andrew Campbell and Michael Gould, “Desperately Seeking Synergy” Harvard Business Review, Sep-Oct 1998, 130-143.
Kevin W. Holt, the founder of Co.Innovation Consulting, is a strategic planning consultant and meeting facilitator based in Phoenix, Arizona. He works with commercial, government, and nonprofit organizations to develop innovative strategies and solutions. His strategy consulting and meeting facilitation practice centers on the use of proven processes mapped to collaboration technologies (e.g., electronic brainstorming) and specialized software tools (e.g., the Blue Ocean strategy canvas). The technologies enable him to serve as both an offsite meeting facilitator and a virtual meeting facilitator for strategic planning workshops, innovation labs, brainstorming sessions, feedback sessions, and other types of meetings. Kevin is the author of Differentiation Strategy: Winning Customers by Being Different, published by Routledge in June 2022, and an e-learning course that serves as a field guide to the book.