SOTP For Synergies (Not A Typo)

When you have a skill that can help someone else with their project, you – collectively – have “positive synergies.”

When you can’t apply your skill to their project because it just doesn’t make sense, or worse, if you’d actually slow their project down by being involved, then you – again, collectively – have “negative synergies.”

We can always look to estimate synergies by doing what is called a “sum-of-the-parts” analysis (SOTP for short). With SOTP we’re essentially looking for the factors that drive time (can we do it faster than I alone can?), and costs (can we do it cheaper or more “economically efficient” than just I can?).

Let’s say I’m going to chop some wood and stack it up.

I can do the job by myself, but with your help, we can complete the job in a fraction of the time (time savings). That’s because you’ve got a wood splitter that you’ve already paid for and we can use it (cost savings).

We can say that the sum of our parts are greater than the whole (me doing the job alone) in this scenario, so we have positive synergies. We should definitely “merge,” aka join up.

What if we then brought on someone else to move the process along even faster, but instead of helping, they were a colossal distraction and kept messing everything up? They’re whining, and trying to show us Facebook posts, and then when we ask them to just stand near the woodpile to let us get something done, they “accidentally” knock the whole thing over. That’s what we call negative synergies. We should break that team up. We need to “divest” or “spinoff” that person from our group.

Negative synergies can be obvious like in this example, but sometimes they’re hidden from plain view. That’s why thinking in terms of SOTP can be so helpful. It’s a method to raise awareness of this stuff.

Two more things: You want to exercise using both data for measurement, and anecdotal observations for judgement.* Sometimes two people doing the job of one can cultivate (add) OR destroy (take away) more than one type of value. For example, mentoring is, on paper, a waste of time. However, mentoring also can also shape the future of your organization. This requires human judgement, which is susceptible to bias. Anecdotes and bias therefore mean that people frequently misrepresent synergies. Not necessarily on purpose or with malicious intent, but because they are biased to want to believe in some ideal (kind of like a fairy tale). “If we get this together, then we’ll be amazing and can do x, y, AND z…”

SOTP helps is to spot the drivers of this wishful thinking and make our own assessment. Don’t be scared to double check someone else’s work, or ask others to do the same for you.

Our goal at work and in life should always be to look for ways to create positive synergies. We want to make sure the whole adds up to more than the sum of its parts. Sometimes that means reductions too, like divesting or spinning off parts, but in many cases it is to create or protect the other positive synergies that we need to keep pure.

Once you start looking at things with these labels, you’ll see it everywhere.

Now, can you spot the flaws in using this logic alone? Can you see where even positive synergies can get you into trouble? Hint: think over multiple projects and time.

*for more on the philosophy of data use and abuse, see Jerry Muller’s book, The Tyranny of Metrics, or at least listen to his interview with Russ Roberts on the EconTalk podcast.

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