Since the go-go days of the conglomerateurs, synergy has been the word that's launched a thousand acquisitions. In the peculiar accounting of corporate America, where good concepts often suffer from accelerated depreciation, synergy means that 2 + 2 equals 5.
"Synergy has long been a very, very vague notion that by somehow combining businesses, we could create something that is more than the sum of its parts," says Michael E. Porter, a Harvard Business School professor whose 1981 book "Competitive Strategy" was a big seller among top managers.
"In my research, I have not been able to find much evidence of real synergy in terms of what it's really meant. The mandate I've taken to that question is to try to pin that down."
So Porter has produced "Competitive Advantage: Creating and Sustaining Superior Performance," published by The Free Press, to help do so. Betraying his academic origins, Porter prefers the phrase "horizontal interrelationships" to "synergy," but hastens to point out that "I don't want to carry the baggage of 'synergy,' " as the word has kept its meaning but lost its value.
For those getting sick and tired of management books and afraid that they'll be reading an academicky "In Search of Competitive Advantage," fear not. Where "In Search of Excellence" is stuffed with aphorisms and anecdotes, "Competitive Advantage" is more of a structure and a framework to explore what gives one company an edge over another in the marketplace.
No "Ready. Fire. Aim." or "Management by Wandering Around" quickies for Porter's readers. Instead, they have to labor through this 557-page tome, filled with in-depth discussions of concepts like "value chains" and "cost drivers." While the prose lacks the snap, crackle and verve of "In Search of Excellence," its popular counterpart, it manages to be readable. It's a logical sequel to "Competitive Strategy" and is clearly Porter's bid to remain a maven of managerial thought as American industry looks for ways to recapture its own competitive advantage in the global marketplace. Porter himself has an impressive consulting list that includes McGraw-Hill and Arthur Andersen & Co.
The book ambitiously portrays itself as nothing less than a new way to analyze corporate strengths, weaknesses and strategic position in the marketplace. In many respects, it succeeds.
Drawing on many concepts initially discussed by such management gurus as Peter F. Drucker and the McKinsey & Co. staff, Porter gives managers a bristling arsenal of questions to ask and techniques to apply to the problem of cost-effectively coping with diversity.
Specifically, Porter goes to great lengths exploring and explaining how managers can wring synergy from horizontal interrelationships. The key here, he says, is creating organizational structures and incentives that encourage related business units to collaborate to create products and markets.
"I think the model of management is a set of distinct but cooperative business units," Porter says. "The phrase I like is 'collaborative entrepreneurship.' "
Of similar importance in Porter's analysis is the phenomenal rise and pervasiveness of information technologies, which he describes as a "vital driving force" shaping the modern corporate organization. Not only do information technologies reduce the cost of sharing know-how and information, he says, but they also can "minimize the cost of coordinating" several divisions. Indeed, Porter implies that these technologies create a necessary infrastructure for corporations that want to capture the benefits of horizontal interrelationships.
This technology can help corporate headquarters regain control over decentralized business units -- which Porter sees as an essential priority. "American managers have gone much further down the path of decentralization" than they should have. "The strategic business unit is a good concept that's been carried to an extreme. . . the SBU is often its own company," he said. His approach is "corporate federalism," a balance between central control and divisional autonomy.
Porter argues that top management has to create a vision of the total company and a culture that cultivates divisional cooperation.
Central to both that vision and cooperation is an analysis of the company's "value chain."
"The value chain is a way of taking a firm apart and looking at its individual functions," Porter says. Essentially, the value chain is how the firm "adds value" to its products and services through its research abilities, its cost structures, its channels of distribution, and its marketing abilities, for example.
The value chain, as its name implies, examines the links between these "activities" and how the links themselves add -- or subtract -- value from the ultimate product.
Perhaps more importantly, Porter insists that corporations examine the buyer's value chain. "Buyers are now looking more broadly at how their suppliers impact their market position," Porter says. "The buyer is taking a new look at value and at what creates value."
This may sound suspiciously like the old business axiom: Meet a customer's needs. What's important, though, is the emphasis Porter places on standing squarely in the customer's shoes. That perspective can yield vital questions, such as the price that will cause a customer to seek substitutes for a supplied item.
In one of the more useful sections of the book, Porter uses the chainsaw business to discuss the technique of generating "industrial scenarios" as a means of addressing a buyer's value chain of priorities.
Though Porter's book is a brilliant structural analysis of what competitive advantage might mean, it is too often a taxonomy of technique rather than a guide to actually creating competitive advantage. In that sense, the book's subtitle of "creating . . . superior performance" is misleading. The book does not really say how a company can create superior performance; it lists techniques that can be used to create superior performance. Saying, as Porter does, that one should "coordinate strategic postures of related business units" is interesting but far from what a manager needs to know in terms of how to get his disparate units to share anything.
No, this book is not a good "how to" guide for any executive and should not be read with that in mind.
Instead, it should be read with a pencil and notepad nearby to jot down and chart the new ways Porter suggests businesses should be examined. Concepts such as the value chain and multipoint competitors are so basic and useful to meaningful business analysis that they may one day rank up there with synergy as buzzphrases of the highest order.
Porter's virtue is perhaps his weakness: He can identify and describe key useful and new business concepts with pithy phrases in an appropriate context; but in terms of applying them to real world situations, the manager is on his or her own.