Assess the extent to which synergy represents a significant factor which should be exploited by firms during the new product development phase and beyond. New Product Development always comes with an enthusiastic vision of success. Success is the result of combining strategy and synergy. Synergy, by definition, is the interaction of two or more things, people or forces which produces combined effects greater than the sum of its individual effects or capabilities. Generally, one way of classifying several types of synergy is in terms of the components of ROI or the Return of Investments.
In every business, the ROI always serve a parameter of how the firm par and the following types of synergy are always significant. They are Sales Synergy, Operating Synergy, Investment Synergy and Management Synergy. Sales synergy can be achieved when the products use common warehousing, sales administration and distribution channels. The new product experiences the opportunity of being handled by the effective sales and distribution personnel and the chance to be promoted and advertised along with other products. This maximizes the productivity of the sales force and utilization of resources while maximizing the results.
With the proper management, this synergy gears towards the firm’s growth and success of the new product launched. Operating synergy offers the advantages of common learning curves, maximized utilization of the facilities, personnel and materials giving maximum yield on a relatively lower financial requirement. The process effectively produces the quantity and quality needed by the consumers’ demand on time. Investment Synergy results from the joint use of the facilities, raw materials, and transfer of research and development of the products.
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The cost of investment seems to be the highest however, investment synergy gives multiple effects and keep the investment cost lower. Management Synergy may not be on the front line in the level of product marketing but it is an important contributor in such that enhancement of performance can be greatly influenced by it. Combined top-level management results to positive enhancement of performance. Synergy is considered as one of the major components of the firm’s product-market strategy. It is understood that strategy must be accomplished with synergy and in that timing is a key factor.
It aims to get a desired fit between the firm and its new product market entry during the process of New Product Development. New product development (NPD) refers to the complete process of giving birth to a new product or service in a market which intends to replace current ones. To gain a new product-market area means going through two successive phases which are start-up and operating. Generally, synergy effects during start-up go hand in hand with operating synergy. Both offer significant and critical effects which the firm should exploit.
Start-up synergy will be strong in the advantages of timing and basic business know-how and skills gained from trainings and experiences. The cost that can be incurred in the start-up phase depends on how the skills and resources matched with the requirements of the new product-market. Thus, careful selection of people, training, skills, competencies, procedures, facilities, inventories and technology are very vital considerations in the establishment of start-up synergy. Operating synergy, on the other hand, will be limited to sales administration and general management.
The two basic effects to establish synergy is the advantage of lowering the cost in producing large volumes and by distribution of the burden of overhead expenses for maximum utilization of the resources. The application of management expertise with the adequate financial resources results to synergy. The firm’s intervention is to create a positive synergy to have a competitive advantage over other firms. New Product Development involved two complementary channels – one which deals with product’s features and benefits, design and engineering and the other one which involves marketing research and analysis.