Synergy exists when:
A) Cost savings are realized through improved allocations of financial resources based on investments inside or outside the firm
B) Two units create value by utilizing market power in their respective industries
C) Firms utilize constrained related diversification to build an attractive portfolio of businesses
D) The value created by business units working together exceeds the value the units create when working independently

Question

Quizplus · Accepted Answer

Synergy exists when the value created by business units working together exceeds the value the units create when working independently. This means that the combined efforts of the units result in improved performance and efficiency, which can lead to increased profits and market share. Synergy can be achieved through various means, such as shared knowledge and resources, complementary skills and capabilities, and coordinated strategies and systems. Cost savings and diversification may be factors that contribute to synergy, but they are not the defining characteristics of it. Similarly, market power may be a source of competitive advantage, but it does not necessarily imply synergy. Therefore, option D is the best choice because it captures the essence of synergy as a positive synergy between business units.

Synergy Exists When