Excerpt from www.NDMA.COM, © 2025 N. Dean Meyer and Associates Inc.
Use Case: Multi-product, Multi-geography, Maximum Synergies
optimizing synergies across product-line, functional, and geographic boundaries
by N. Dean Meyer
[excerpt from the book, How Organizations Should Work]
You're a multi-product-line company, and you do business in multiple geographies.
You might be organized into business units for each product line, or for each region, or perhaps a hybrid of the two. But what if your organization were really great at teamwork? I mean really great -- high-performance teamwork -- across all boundaries. By boundaries, I mean across all your product lines, across all functions, and across all geographies. If you were that good at teamwork, would you design your organization differently? Of course you would! Here's why, and how....
Synergies in DifferencesConsider where synergies come from. Let's say you had a number of people with essentially the same personalities and perspectives. Putting them together on a team solves the challenge of volume. But there are no synergies -- no new capabilities, tools, or out-of-the-box ideas in the team. But if you assemble a team of people with diverse life-experiences, there are synergies. That's one reason why teams perform better than an equal number of individuals. The point is, synergies come from differences. Now let's apply that principle at the corporate level. Let's say you acquire a company, but leave it to operate independently. You may get some financial synergies. But neither the acquired company nor the mothership will operate any differently. Neither will perform better. You won't get any other synergies. But let's say those business units share Marketing staff (as a shared service to both). Instead of Marketing staff in each business unit who only see their own product lines, you now have people on the team who see the big picture -- the market across product lines. That should lead to brand synergies. And let's say they use a shared-services IT department. Instead of systems that support only one business unit, shared services can produce integrated systems and data, giving the enterprise a common view (across business units) of customers, suppliers, products, etc. Again, more synergies. And that can be true even if applications are tailored to the needs of individual business units. Mini case study: decentralized IT....
I personally experienced the effects of decentralization of IT as a customer of an insurance company. The decentralization of its IT function resulted in multiple customer databases. Since customer-numbers varied, the enterprise was not able to spot customers who bought from multiple business units. One day, the Specialty Automotive business unit cancelled the policy covering my vintage sports car, saying they were no longer interested in that type of business. Annoyed, I moved all my insurance to another company -- the policies for my other cars, my home, my personal liability umbrella, and my corporation. Of course, they never knew this. Because their customer databases were fragmented among their business units, they knew me as a few discrete policies, not as one customer with diverse needs.
Shared Engineering sees opportunities to reuse components across product lines. For example, in a heavy equipment manufacturing company, nobody said that one size fits all when it comes to tractors and construction equipment. But sharing a common parts list of nuts and bolts makes a lot of sense. A shared sales force creates opportunities for cross-selling. The more that business units share, the more they get the benefit of enterprise perspectives and the greater the synergies. And that's true even when shared-services functions produce unique solutions for each business unit. Synergies accrue even without a one-size-fits-all approach.
Performance Through SpecializationThere's an even more lucrative source of synergies: diversity in capabilities, tools, and talents -- i.e., specialization. When each business unit has its own function, that function does everything for their business unit. That could mean covering a lot of ground. For example, their IT group has to support networks, infrastructure (including cloud), applications, end-user computing, customer service, vendor management, etc. When you put them together into a shared-services IT department, that larger combined group can afford a higher degree of specialization (without being one-deep). In the IT example, applications engineers can specialize in the various types of data and applications, e.g., financial systems, customer systems, supply chain systems, etc. The bigger they get, the more specialization they can afford. Continuing the IT example, a larger financial-applications group can subdivide itself into teams specializing in general ledger, orders, tax, etc. This is critical because specialization improves performance. There are many reasons why specialists outperform generalists. Specialists accumulate deeper knowledge and experience in their disciplines. As a result, they're faster (they've done it before, and they have templates and tools). They produce higher quality and lower risks (they know what they're doing). They reduce costs (they're faster, and produce more efficient solutions). They're more innovative (they're better at keeping up with the literature in their fields). In every way, specialists outperform generalists. In fact, specialization is why organizations exist. A company of generalists may as well be broken up because being one company delivers no synergies. Only through specialization can a company perform better than an equal number of individuals. If you have any doubts about the value of specialization, ask yourself if you'd trust your family doctor to do surgery. Probably not; you'd go to a specialist. Why? They perform better. Independent business units necessarily have relatively smaller groups for each needed function (marketing, sales, finance, IT, HR... any discipline). As business units share these functions, they grow and specialize to a greater degree. And teams of those shared specialists outperform small groups of relative generalists in each business unit.
Economies of ScaleIn addition to synergies, shared services presents opportunities for economies of scale. For example, shared Operations presents opportunities to rationalize assets like manufacturing plants, warehouses, and transportation systems. Savings may be found in greater negotiating power with vendors, reduced safety stocks in inventories and staff, access to larger and more efficient assets, etc. The more that business units share functions, the more economies of scale and synergies they get.
Vision of a Fully Integrated OrganizationIt's a spectrum. On one end is a company made of completely autonomous business units. It's essentially holding company, like the conglomerates of the 1960s. More on the demise of conglomerates....
Conglomerates are breaking themselves up. Abbott spun out pharmaceuticals (Abbvie). Johnson & Johnson followed suit. GE spun off financial services, and now is breaking itself into three companies. There are many examples of conglomerates that failed to get sufficient cross-business-unit synergies. Without those synergies, there's little value in being under one corporate umbrella. Generally, stock prices rose as a result of these break-ups. The market likes industry-focused stocks that are easier to understand. But one can only wonder what their shareholder value would have been had they achieved all the available synergies and economies of scale. If they were fully integrated, every business unit would outperform what it could do alone.
On the other end of the spectrum is a fully integrated organization that maximizes synergies. In a fully integrated organization, everything is a shared service. Imagine:
In a fully integrated organization, all support functions serve multiple product managers and product lines. (They're shared services.) They all have global scope, and place staff in the appropriate geographies as needed. So, if you need local presence or country-specific tailoring, they're there.
And they're all led and staffed by the best executives the world has to offer. Note that there are people in the enterprise representing a product-line view, as well as all the support functions. Those functions include people focused on customers and markets (sales), and on geographic locations where needed (design localization, sales, marketing messaging, field technicians, regulatory compliance, etc.). But they're all managed globally. That's how you'd maximize synergies and economies of scale. The logic is clear: Fully integrated organizations can perform significantly better than silos of independent business units.
High-performance TeamworkThere is a big "BUT...." Sharing support functions only works if you're really good at teamwork across boundaries -- across organizational, functional, and geographic boundaries. The better you are at teamwork, the more product lines can share support functions, and the greater the enterprise synergies. On the other hand, without high-performance teamwork, you have no choice but to establish independent business units and forgo the potential synergies and economies of scale. Let's clarify the goal: What is high-performance teamwork? There's a lot more to it than people liking and trusting one another (traditional teambuilding).
One important factor is telecommunications and collaboration tools. Christopher Columbus had to be self-sufficient, having no means of communications back home. Now, we can work closely with people anywhere in the world. But it takes more than the ability to work side by side to engender great teamwork. High-performance teamwork has the following attributes:
High-performance teams are agile, diverse, accountable, and work great together.
The Market OrganizationHere's the logic so far: Synergies depend on bringing diverse people together on teams. The more teams include diverse perspectives, the better they do. The most powerful form of diversity is specialization -- diversity in capabilities, tools, and talents. The more business units break down silos and share support functions, the greater the degree of specialization, and the greater the synergies across the organization. But sharing support functions (enterprise specialists) depends on high-performance cross-boundary teamwork. Pragmatically, how can an enterprise achieve high-performance teamwork across product-line, functional, and geographic boundaries? A Market Organization is the answer. In a Market Organization, every group on the organization chart is defined as a business within a business. Each is an entrepreurship, with customers inside (and in some cases outside) the enterprise. This network of internal entrepreneurs is tied together through internal customer-supplier relationships. (This does not require chargebacks. What's more important is the paradigm: viewing other groups as customers and suppliers, and contracting to "sell" one another your products and services.) Internal entrepreurship has tremendous value in its own right, inducing customer focus, accountability for results (products and services), frugality (to be competitive), innovation (to stay in business), and employee engagement (a sense of purpose serving customers with valued deliverables). On top of all that, the Market Organization is the key to teamwork. Here's how it works:
This dynamic team-formation process is called a "walk-through." It assembles the team, and produces a tree-structured set of internal customer-supplier transactions (prime buys from sub; sub buys from sub-sub) which provides the basis for more detailed project planning. The result is high-performance teamwork:
Serendipity (noun): Unplanned Fortunate DiscoveriesAs if global synergies and economies of scale weren't enough, the Market Organization offers additional benefits:
It takes time and investment to implement a Market Organization. But it's a great investment. And the alternative -- lost synergies, higher costs -- doesn't seem like a great long-term strategy!
How to Implement a Fully Integrated OrganizationNow, on to the practicalities.... How is a high-performing Market Organization implemented? It's not a matter of quick hits -- a new process or two, some training, perhaps some preaching from leadership. (You get what you pay for.) Implementing a Market Organization is a transformation process. It takes systemic change. Consider the five organizational systems and what needs to be implemented in each:
All these systemic changes are implemented in a well-planned organizational strategy -- a transformation road-map. The bottom line: organizational strategy is the way to implement a Market Organization, which will maximize synergies and economies of scale in multi-product, multi-geography companies. It may be the best investment you can make.
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