CIO of TwentyEighty, Scott Hicar, shares how he positively positions synergy as a cornerstone of the IT value proposition.
Synergy has gotten a bad reputation. We’ve all been part of a project or a merger where the definition of “synergy” came to mean “the savings that will be generated through job eliminations.”
I believe that as IT leaders we are missing an opportunity to positively position synergy as a guiding principle and cornerstone of the IT value proposition. Here are some actions I have taken to reshape the perception of synergy, and that you may be able to leverage in your organizations.
I define synergy as the efficiencies delivered and/or hard dollar savings generated as IT services are delivered every day.
Several years ago, I was leading a substantial merger integration. Early in the process we discussed the synergy target necessary to deliver a core value of the merger to our shareholders. In this case, the target was over $100 million in synergy.
In discussions with my integration team during planning and even in the initial cross-company meetings on integration, I observed that the word “synergy” carried a negative undertone. Many team members had been through mergers before, and the resulting organization rationalization (layoffs and RIFs) is all that they remembered, and they associated it with synergy.
As a result, we have a somewhat paradoxical perspective on synergy: it is a key part of every IT organizations value proposition but it is viewed with fear or negativity when looked at only through the lens of organizational rationalization. I set out to break that model and re-introduce synergy as a positive term and a critical measure of the value our team delivers across our company.
Synergy as Strategy
Technology organizations will always be challenged to explain how we deliver value to the company. As IT leaders, we do this in many ways - finding more efficient ways to operate, helping drive growth through digital investments or driving the kinds of transformation that come from large system projects.
This is how we went about making “Synergy as Strategy” a core measure of our IT value proposition. I believe these techniques can be leveraged by teams at a group or organizational level to create a distinct, measurable component of overall IT value. When combined with growth enablers, customer enablers and other key service level measures, a picture of IT’s enterprise value is formed.
“Synergy Yield” is a core measure of value. It ties directly to improvements in free cash flow and/or operating margin, which are typical strategic corporate performance measures.
Synergy is everywhere! Track it in detail, capture it continuously, and count it as cash: cash saved, cash deferred, cash recovered.
- Each license, maintenance renewal, equipment refresh, or circuit renewal has a synergy opportunity in it. The difference between the prior contract run rate and the new contract run rate (assuming all else is equal and those costs have reduced) is a synergy yield. Log it, review it quarterly, and set targets to drive negotiations.
- Every business case for a new project, program or business enabling initiative should include a discussion on synergy. We have very deliberately made this a part of our business case process, which has created a proactive, value driven approach within our teams.
- Synergy delivered outside IT to other parts of the company contributes to enterprise value, so count it. We have built and implemented several solutions where the synergy value is delivered outside IT. We count it, add that to our enterprise synergy total and while it doesn’t ultimately reduce our IT operating costs, it does contribute to overall free cash flow/operating margin for the company.
Set goals, push your boundaries
Going into a budget year at a new company where we first implemented this, we weren’t sure how effective or how much synergy yield we could ultimately capture. So we set a target and used that to drive our actions. We ended up exceeding our initial target. We also consider Synergy a key value measure. We review it within our team quarterly as well as with our CFO/CEO along with our other key operating measures.
We measure two key financial components with synergy.
Capture: the initial value at the point the team has created the synergy opportunity.
Actualization: this measures how synergy will flow through our financials. In some cases, synergy flows through immediately, but in others it is recognized over the term of a project’s useful life, or a license agreement term.
It is important to note that 100% of synergy doesn’t always flow to the bottom line as a cost reduction. While we track all synergy capture and actualization in detail, very often a synergy savings funds investment back into a key technology or part of our business. We were clear to set expectations that this doesn’t mean the synergy didn’t occur, but that we re-invested those savings back into our business.
Make it fun and rewarding
To really socialize synergy as not only a core value proposition, but a positive part of the IT team’s vocabulary, we created a quarterly award within our group. Each quarter the team yielding the highest synergy is awarded the “Synergy Cup”. This is a fun trophy, we ship from office to office, and team to team, and it’s been fantastic to see it move from applications to infrastructure and across our business units and projects.
“Synergy as Strategy” is equal parts mindset, team principles, and a simple and effective tracking and communication technique. I suspect everyone is driving synergy value every day in your teams. Hopefully you’ve found something interesting here you can use with your leaders and companies in redefining synergy as a positive activity and a key part of IT value.