The Idea in Brief
One plus one should equal three when your business units collaborate. That’s the promise of synergies. But the reality often falls short: In high-velocity markets, businesses may not have time to even spot synergies. Or, they create too many collaborations that go on too long, causing agility and profits to suffer.
Coevolving revives the promise of synergistic success, letting business units respond quickly and flexibly to dynamic markets and to each other. This strategic process builds a shifting web of relationships that exploits fresh opportunities for synergy, and drops stale ones.
Coevolution rules are counterintuitive: Don’t force collaboration; let businesses decide to work together. Encourage collaboration, but let competition flourish among units. Don’t cement interbusiness links; think temporary, Velcro organizations instead.
The Idea in Practice
Develop your coevolving company with these rules:
- Shift collaborative webs. Regularly reconfigure links among businesses to exploit changes in internal capabilities and markets.
Example:
At NovaMed Eyecare, doctors in one research-driven practice pioneered new surgical procedures. When NovaMed launched a new surgical-equipment clinical-trial business, the innovating doctors from that practice collaborated with it. This collaboration spread to other practices. NovaMed reaped the benefits—growing more than 60% and dominating the newly hot refractive-surgery business.
- Bring the market inside. Competition between online and brick-and-mortar counterparts, between alternative technologies, and between new distribution channels all catalyze growth.
Example:
At Hewlett-Packard, desk- and laser-jet printing technologies initially went after the same customers. Not knowing how the market would unfold, the company let the two technologies compete. The result? HP grew two enormous businesses—a combined $15 billion operation.
- Balance the number of links. Too many links restrict adaptation; too few miss important synergistic opportunities.
Example:
Vail’s four ski resorts tried—and failed—to collaborate around the Vail brand. This simply homogenized all four resorts. Now the resorts collaborate in just a few areas; e.g., supply procurement and IT. Each resort leverages its own style to adapt to—and better serve—its particular market.
- Uncover high-leverage links. Identify high-payoff links; forget the rest.
Example:
Multichain retailer Dayton Hudson exploits one simple, powerful link: the regular exchange of fashion information among its chains. Its lower-scale chain, Target, learns very early about fashion trends from its upscale chains. The payoff? Target has repositioned itself as “hip fashion at a low price,” burying competitors like Kmart.
- Build a multibusiness team. This group of business-unit heads orchestrates collaborations. Keys to its success? Freedom to decide when and how to collaborate, frequent meetings that focus on internal operating numbers and external market statistics, and familiarity and trust.
- Get the incentives right. Reward unit heads for self-interest, not collaboration. Evaluate unit performance against key external competitors, as measured by growth, profit, and market share. This focuses managers on winning in their own markets. They collaborate based on market realities—not friendships—and expand the corporation’s synergistic pie, even if units get unequal slices.
Capturing cross-business synergies is at the heart of corporate strategy—indeed, the promise of synergy is a prime rationale for the existence of the multibusiness corporation. Yet synergies are notoriously challenging to capture. Shell’s initial attempt to launch a common credit card across Europe failed. Allegis, United Airlines’ bid to build synergies in related travel businesses like hotels and airlines, was dismantled. Amazon.com has yet to see significant synergies from its PlanetAll acquisition, which was supposed to drive additional sales by linking to people’s Rolodex of family and friends. The truth is, for most corporations, the 1+1=3 arithmetic of cross-business synergies does not add up.