What is created when output from some units serves as input for others, often leading to reduced costs and increased profits?

The concept of synergies refers to the idea that the combined performance or output of several units working together can be greater than the sum of their individual performances. In this scenario, when the output from some units serves as input for others, it creates efficiencies and optimizations that can lead to reduced costs and increased profits for the organization. For example, if a business produces a product in one division that can be utilized as a raw material in another division, it minimizes the need for external sourcing, streamlining the operations and cutting costs.

These synergies can take various forms, such as economies of scale, where increased production leads to lower per-unit costs, or operational synergies, where collaboration across departments enhances productivity and innovation. Thus, focusing on how the interconnected operations leverage their outputs for mutual benefit highlights the essence of synergies in organizational strategy.

In distinction, a value web emphasizes the interconnectedness of the various services and products among businesses, and a value chain concentrates on the series of activities that create value at each step of the process within a single organization. Core competencies are the unique strengths of a company, distinguishing it from competitors but do not directly point to the interplay between units leading to reduced costs and increased profits in the manner described in the question.