1. In an organization Synergy becomes very important. Take an organization of your choice and bring out the importance of synergy in making the organization more productive. In this assignment I have chosen Al Wahdania General Trading Company (AWGTC) to bring out the importance of synergy. We will see how synergy helps the organization to reach new heights. Concepts of Synergy. Synergy means that the whole is greater than the sum of its parts. The concept of synergy is at the core of resource-based thinking, dating back to Edith Penrose’s seminal contribution.
More specifically Penrose (1959), without using the actual word though, was concerned with two forms of synergy: the possibility of sharing particularly managerial resources, which is brought about due to inevitable indivisibilities of resources, and transfer of excess (and limitedly tradeable) resources. Ansoff (1965, p. 80) describes four types of synergy: 1. Sales synergy, which occurs when different products use common distribution channels, common sales administration, or common warehousing.
Operating synergy, which includes higher utilization of facilities and personnel, spreading of overhead, advantages of common learning curves, and large-lot purchasing. 3. Investment synergy is the result of joint use of plant, common raw materials inventories, transfer of R&D from one product to another, common tooling and machinery. 4. Managerial synergy is possible when a new business venture faces strategic, organizational or operating problems, which are similar to problems that the management has dealt with in the past.
A Danish company Danfoss defines Synergy as: -“…. a net improvement in output, margins, or some other measure of performance that can be reliably traced to structured, purposeful collaboration among different units or to the merging of two or more units. ” Introduction To AWGTC. Since its establishment in 1981 Al Wahdania Gen Trading Company (AWGTC) has been one of the most successful exporters and distributors in the United Arab Emirates. Every single year since its establisment AWGTC has shown great profits. Though AWGTC is a small company with only 85 employees still it has an annual turnover of 100,000,000 AED.
The company imports different kinds of Foodstuff products, Cigarettes and also manufactures Cigarettes locally. The company distributes its products locally and also exports to many CIS countries and some Asian countries. Most of the company’s products have one thing in common i. e. all the products it deals in are of FMCG type, which provides rich opportunities for synergies of different kind. Sources Of Synergy at AWGTC.
1. Common Finance Dept. Though the company has four branches and one factory in United Arab Emirates but still they share a common finance dept.i. e. all transactions made to and from any branch of the company are actually controlled by the finance department, and all salaries and expenses are also done by the finance dept. The sharing of the accounts department has greatly reduced the cost of setting up different accounts dept. in different branches and the cost of the employees working in that department. 2. Common Advertising & Promotion Dept. The Advertising & Promotion Dept. handles locally and internationally the promotion & advertisement of all products.
This again reduces the cost of setting up two different departments one looking into local market and the other covering the international market. 3. Sharing of Rents. Although U. A. E. is an expensive place commercially but still the company has managed to hire a few warehouses that are economical. These warehouses are used for local distribution and the branches share the cost of these warehouses equally. The warehouses are ideally located and so each warehouse covers at least two of the seven Emirates. This again reduces the cost of setting up individual warehouse for each Emirate.
4. Common Export Bureau. A common export bureau has been setup at the head office. Any export enquiry that approaches to any of the branch is forwarded to the export bureau that handles them. This again saves the cost of keeping an export manager in each branch. 5. Asset Sharing. Different branches of the company come up with orders for manufacturing of cigarettes and other products of different specifications. A centralized R&D department has been setup, which deals with these queries forwarded by any of the branch.
The ability to share R&D costs among multiple product lines therefore remains an important opportunity for gaining cost and differentiation advantages compared to less diversified competitors. Conclusion. At the end of this assignment we come to conclude that implementing different kinds of synergies can greatly effect the position of the company and helps different departments of an organization in cooperating with each other. This cooperation of the departments leads to the success of the organization.