The Power of Strategic Integration

All multibusiness corporations face the strategic imperative imposed by the stock market: maximizing the profitable growth of their businesses. Long-term success in meeting that imperative requires developing new strategy-making capabilities. During the early 1990s, many multibusiness companies focused on improving profitability through operational integration. They reengineered, focusing on the capabilities that would improve speed, quality and efficiency —and pruning business activities that no longer fit the value-creation logic of the corporate strategy. Then, starting in the late 1990s, senior managers began to focus on integrating strategies to add to revenue growth. Strategic integration involves more fully exploiting growth potential by combining resources and competencies from business units and directing those units toward new business opportunities that extend the existing corporate strategy.1

Today leaders of multibusiness corporations are learning to identify the maximum-strategic-opportunity set — those opportunities that can let companies take the fullest advantage of their capabilities and their potential to pursue new strategies. But to exploit those opportunities, managers need to become accomplished at what we call complex strategic integration (CSI). (See “About the Research.”)

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References

1. WPP, a holding company of independent marketing-services companies created by Martin Sorrell in 1985, is a good example. WPP seeks to create superior value for customers, employees and shareholders by getting its highly independent businesses to collaborate. See J.L. Bower and S. Ellingson-Hout, “WPP: Integrating Icons,” Harvard Business School case no. 9-396-249 (Boston: Harvard Business School Publishing Corp., 1996).

2. R.A. Burgelman, D.L. Carter and R.S. Bamford, “Intel Corporation: The Evolution of an Adaptive Organization,” Stanford Business School case no. SM-65 (Stanford, California: Stanford Business School, 1999).

3. D.A. Garvin, “Harvey Golub: Recharging American Express,” Harvard Business School case no. 9-396-212 (Boston: Harvard Business School Publishing Corp., 1996).

4. The opportunities identified in the strategic-integration framework are different from the growth vectors in Ansoff’s product-market framework. For instance, the scope-driven opportunity set could involve product development (new products developed by two or more business units together for their existing markets) or market development (new markets developed by two or more business units with their combined existing products) or both. Ansoff’s framework also does not consider trade-offs among the various growth vectors as a result of resource constraints nor the strategic-integration issues across business units possibly involved in the various growth vectors. On the other hand, the business opportunities generated in the context of each form of strategic integration can be fruitfully interpreted in terms of Ansoff’s typology. The two frameworks are thus complementary. See H.I. Ansoff, “Corporate Strategy: An Analytic Approach to Business Policy for Growth and Expansion” (New York: McGraw-Hill, 1965). The assessments involved in establishing the different opportunity sets may vary across different parts of a company. A high degree of participation, negotiation and flexibility will be necessary in the process of establishing the maximum strategic-opportunity set in order to get companywide support. And significant external and/or internal changes may affect the frontier over time. Sometimes, such changes force companies to disengage from a major profitable opportunity when it does not fit any more with the corporate value-creation logic. Hewlett-Packard’s 1999 exit from test and measurement businesses is an example.

5. Y.L. Doz and G. Hamel, “Alliance Advantage” (Boston: Harvard Business School Press, 1998).

6. Robert Burgelman thanks Pekka Ala-Pietila, president of Nokia Corp., for that insight (personal communication).

7. R.A. Burgelman, “Strategy Is Destiny: How Strategy Making Shapes a Company’s Future” (New York: The Free Press, in press); and J. Kolotouros, J. Maggioncalda and R.A. Burgelman, “Disney in a Digital World,” Stanford Business School case no. SM-29 (Stanford, California: Stanford Business School, 1996); and J. Kolotouros and R. Burgelman, “Disney in a Digital World (B),” Stanford Business School case no. SM-29B (Stanford, California: Stanford Business School, 1998).

8. S.K. Yoder, “How HP Used Tactics of the Japanese To Beat Them at Their Game,” The Wall Street Journal, Sept. 8. 1994, A1.

9. J.M. Hurstak and A.E. Pearson, “Johnson & Johnson in the 1990s,” Harvard Business School case no. 9-393-001 (Boston: Harvard Business School Publishing Corp., 1993); and C.A. Bartlett and A. Mohammed, “3M: Profile of an Innovating Company,” Harvard Business School case no. 0-384-054 (Boston: Harvard Business School Publishing Corp., 1995).

10. F. Aguilar, “Johnson & Johnson (B): Hospital Services,” Harvard Business School case no. 9-384-054 (Boston: Harvard Business School Publishing Corp., 1983).

11. For early work on resource sharing among business units, see A. Gupta and V. Govindarajan, “Resource Sharing Among SBU’s: Antecedents and Administrative Implications,” Academy of Management Journal 29 (1986): 695–714. Also, top management can use various approaches to foster resource sharing. Bob Pittman, co-COO of AOL Time Warner, is renowned for his ability to get independent business-unit leaders to collaborate. He does so by convincing them that they’ll will win bigger by cooperating and also makes sure to give them the credit for successful cooperation. See C. Yang, R. Grover and A.T. Palmer, “Show Time for AOL Time Warner,” Business Week, Jan. 15, 2001, 56–64.

12. The contextual factors and skills proposed for building a company’s CSI capability can be related to McKinsey & Co.’s 7-S framework, which encompasses strategy, structure, systems, skills, style, staffing and shared values. The 7-S framework also emphasizes the importance of configuration and the balancing of each in harmonious ways. The contextual factors we propose touch on structure, systems and shared values. The proposed cognitive, political and entrepreneurial skills have obvious bearing on skills but also touch on style and staffing. Identifying the maximum strategic-opportunity set speaks directly to the strategy component in the 7-S framework. Examining what changes are needed in a company’s existing 7-S configuration in order to build a company’s CSI capability is an important task for top management.

13. R.A. Burgelman, “Designs for Corporate Entrepreneurship in Established Firms,” California Management Review 26 (spring 1984): 154–166.

14. R.A. Burgelman and P. Meza, “The New HP Way,” Stanford Business School case no. SM-7 (Stanford, California: Stanford Business School, 2000).

15. R. Simons, “Levers of Control: How Managers Use Innovative Control Systems To Drive Strategic Renewal” (Boston: Harvard Business School Press, 1994).

16. C.A. Bartlett and S. Ghoshal, “Beyond the M-Form: Toward a Managerial Theory of the Firm,” Strategic Management Journal 14 (1993): 23–46.

17. The difficulties associated with aligning incentives in multibusiness companies lead economists to emphasize the benefits of narrow (single) business strategies. See J.J Rotemberg and G. Saloner, “Benefits of Narrow Business Strategies,” American Economic Review 84 (1994): 1330–1349.

18. For an analytical approach to designing the relationships among incentives and strategy and structure in complex corporations using multiple dimensions in their structure (for example, function, product, geography), see D.P. Baron and D. Besanko, “Strategy, Organization and Incentives: Global Corporate Banking at Citibank,” Research Paper Series no. 1488, Stanford University Graduate School of Business, Stanford, California, 1998.

19. D.C. Galunic, “Recreating Divisional Domains: Coevolution and the Multibusiness Firm” (Ph.D. diss., Department of Industrial Engineering and Engineering Management, Stanford University, 1994).

20. T.R. Eisenmann and J.L. Bower, “The Entrepreneurial M-Form: Strategic Integration in Global Media Firms,” Organization Science (May–June 2000): 348–355.

21. For a discussion of the key entrepreneurial activities, see R.A. Burgelman, “Managing the Internal Corporate Venturing Process,” Sloan Management Review 25 (winter 1984). On a smaller scale, “patching” —which involves adding, splitting, transferring or combining chunks of businesses — is also a potentially useful entrepreneurial skill. See K.M. Eisenhardt and S.L. Brown, “Patching: Restitching Business Portfolios in Dynamic Markets,” Harvard Business Review (May–June 1999): 72–85.

ADDITIONAL RESOURCES

Little has been written about the management process involved in complex strategic integration. However, research on integration after acquisitions provides some insight on getting different organizational entities to work together. Interested readers will appreciate P.C. Haspeslagh and D.B. Jemison’s 1991 Free Press book, “Managing Acquisitions: Creating Value Through Corporate Renewal.” For research on strategic integration in companies operating in the global economy, we recommend Y. Doz, J. Santos and P. Williamson’s “From Global to Metanational: Competing in the Global Knowledge Economy,” which is scheduled for release this year.