Synergy surge: The conglomerate’s blueprint to achieve skyrocketing profits
ILLUSTRATION BY RUTH MACAPAGAL
In today’s dynamic business landscape, conglomerates stand as towering giants overseeing diverse industries and sectors. With their multifaceted portfolios, these vast entities have a unique advantage that often needs to be utilized: the potential of synergies. Understanding and harnessing these synergies can unlock unprecedented profit potential for CEOs and business owners.
The untapped gold mine
At its core, synergy occurs when a group’s combined efforts produce a result more significant than the sum of their parts. In the context of a conglomerate, synergies arise when two or more business units collaborate, leading to increased efficiency, revenue or market presence that wouldn’t be achievable if the units operated in isolation.
Many conglomerates have grown through acquisitions, bringing together companies from various sectors under one umbrella. While the primary goal of these acquisitions might be diversification or market expansion, they inadvertently open doors to synergistic opportunities. Yet, these opportunities often need to be explored, hidden beneath layers of bureaucracy, siloed operations and a lack of inter-departmental communication.
Lost profits and opportunities
I was sitting in the boardroom of a multibillion-dollar family business conglomerate with two members of a European family dynasty. While we were enjoying the views from the 32nd floor, they told me that the group had yet to use synergies to its full potential. They explained that their strategy had been to let most of the business units fight on their own and allow synergies to emerge if the business units found it feasible. This is the laissez-faire approach to synergies. The problem is that it rarely works.
Why is that? The answer is simple: The CEOs of the respective businesses in a conglomerate focus on fighting their battles for themselves. They usually need the incentives to take a step back and look at synergies and profit potentials from a group-wide perspective. In short, they usually focus more on their business than the group. They usually have no incentive to do that, neither monetary incentives nor otherwise. As a result, their view is siloed.
The solution? There has to be a cohesive and concerted approach on a group-wide level to drive synergies holistically to properly utilize the combined strengths of all the business units within the group.
The example of our clients I cited earlier was an eighth-generation family business. They admitted that the family felt they had foregone a lot of profit opportunities for additional growth. Imagine all the money and possibilities they lost for eight generations because they didn’t drive synergies strategically. This case is typical for most family businesses.
How to do it best
Another of our clients in Europe had been in business for over half a century, and two sons were heading the most important companies of the conglomerate. But never in those 50-plus years had the family sat together to analyze how they could profit more from synergies.
When they approached us to harness their synergies within their group of companies, my team and I took a concerted and focused approach. First, we did a deep dive, or X-ray as we call it, to analyze all profit potentials from synergies that have so far been untapped.
We then got all stakeholders together in the same room: the family members involved in the business day-to-day, the CEOs and some selected members of top management.
Then, we drove the conversation to focus on low-hanging fruits first: where can we tap into easy-to-execute and fast-to-realize profit potentials? Here lies the beauty of working with neutral experts who look at the business from the outside. A pair of fresh expert eyes like ours can so easily see the unexploited opportunities lying there in easy reach. Business owners and top executives are usually too close to the trees to see the forest. There are walls they cannot see through at all—but we can.
Then we looked at a broader time horizon: what are the profit potentials and synergies that will take more time to tap into, and what are the actionable strategies the group can take now to make sure they get there?
Lastly, we made a plan of action that ensures quick wins, fast results, but also takes care of long-term outcomes.
The Asian lion
One of our clients in Asia is a rare example of what to do best when it comes to synergies. They relentlessly and ruthlessly, almost at a level of being aggressive, force synergies among the different businesses within the group. They do this to a point where new partners or clients of the conglomerate have to do business with at least two group entities.
For example, if you are a vendor and want to set up shop in one of their shopping centers, you have to transact with their bank, which is part of their conglomerate. If you have no interest in creating an account with the bank, you are already out, as simple as that. You may think that is going a bit too far, but the proof is in the pudding: that group is one of the most profitable in Asia, and the family is one of the wealthiest too.
Remember what we discussed above: the main problem most conglomerates have is that they still need to make a focused and concerted effort to combine a cohesive strategy that will drive synergies systematically across the entire conglomerate. In the case of our Asian client, that strategy was their constant companion on their road to massive expansion.
The Middle Eastern sleeping giant
Another problem with many family businesses is that they usually grow organically with too little professionalization. A multibillionaire Middle Eastern client of ours—whose owner family ranks among the top 50 Middle Eastern families, according to Forbes—was still running like a mom-and-pop store when they approached us for support. The three sons running the main parts of the group only used synergies within their respective businesses, the ones they were running. There was no group-wide CEO, not even a group-wide expansion strategy, let alone synergy profit strategy in place. Synergies were only used in silos.
From a business standpoint, it is easy to see how much money and business opportunities they lost. However, this is typical for family businesses worldwide because they often grow according to their unique characteristics and often tend to forget to apply rigorous best practices.
The road ahead
For conglomerates, the road to unlocking untapped profit potential is paved with synergies. However, realizing these synergies requires a proactive approach, a shift in organizational culture and strategic technological investments.
In conclusion, as the business world becomes increasingly interconnected, the conglomerates that will thrive recognize the gold mine of synergies they sit upon. For CEOs and business owners, now is the time to embrace synergistic strategies, unlocking value and driving their conglomerates to new heights of profitability. INQ
Tom Oliver, a “global management guru” (Bloomberg), is the chair of The Tom Oliver Group, the trusted advisor and counselor to many of the world’s most influential family businesses, medium-sized enterprises, market leaders and global conglomerates. For more information and inquiries: www.TomOliverGroup.com or email [email protected].
