Management costs ( % of synergy value) & uncertainty. Synergy & partnership opportunity Explanation of the diagram in terms of the title the application of the diagram. Don’t just talk about synergy (...

The given picture captures a direct relationship between managerial effort as plotted against
time. We also have a group diagram of managerial costs versus uncertainty. We have to look in
toto to these two diagrams to analyse partnership opportunities. Partnerships can be of many
types and it is important to know about the efforts required from the top management who
drives the process.
Management effort is highest during consolidation amongst partners and while it increases
once the formalisation starts till it reaches the highest point of stabilization, the effort required
gradually goes down as over a period of time the operational issues start getting addressed
properly. Consolidation requires a high amount of buffering amongst the partners which may
also include ironing out decadent business processes and establishing new ones. However in
this phase, while the uncertainity over the outcome of partnership is quite low given the
formalization of structured mode of merger/acquisition/partnership, the costs associated with
bringing the partners on the same ship is quite significant. It should be noted that once the
things are in place, there is very small management effort required to drive the association as
most of the operational issues are already over and addressed with.
If the partners are being combined or merged, there always exist quite a significant amount of
management effort to run the association. This is particularly high at the start and after the
formalization goes through the stabilization phase, over a period of time it becomes stagnant
and there always is a need of management driving out and/or sorting out problems/issues. The
uncertainty index is average but there are high management costs to run this partnership as a
part of synergy values.
For connection strategy of partnership, there is an average uncertainty over the future as only
those SBUs connect which will make business sense and to achieve that a lot of due diligence
must have happened. This leads to significant costs associated but less than the combination
and/or consolidation modes of partnership.
The co-creation mode of partnership is highly uncertain but since there is just a formality of
two partners coming forward to join hands (50-50, 60-40, etc), the management costs are
minimal if seen from synergy level perspective. Each partner knows clearly their respective
roles so there is no extra effort required for streamlining and tweaking the business processes,
modes of doing joint business, sharing information, etc.
This is regarding outsourcing:
Explain how to control transaction cost on those four aspects, especially the last two.
Selective Outsourcing
The companies should focus on their Core Competencies and should analyze what are the
businesses which are supplemented or peripheral....