The process of strategic integration involves crafting and implementing strategic objectives from an informed perspective of an organization’s competitive environment. However, problems arise when multiple integration strategy meaning business houses of the same parent organization employ the same types of integration strategy. Like any merger, horizontal integration does not always yield the synergies and added value that was expected.

Put simply, to make a success of digital transformation – and avoid making a pig’s ear of existing processes by hastily throwing a ton of new technology and applications into the mix – organization’s need an IT integration plan in place. Gartner gives the example of an organization implementing an artificial intelligence (AI) solution into its web-based customer services platform to answer customer queries more quickly. Such a solution would need constant and seamless connectivity with customer data. Next, as part of the organization’s ongoing digital transformation initiative, it introduces a new customer-facing IoT initiative, enabling customers to submit their queries via their smart speaker devices. All of a sudden, the company is dealing with an exponential increase in data volume and velocity stemming from thousands of endpoints.

Integrating acquisitions is the process of consolidating a buyer and seller to the degree necessary to achieve the anticipated benefits from a merger or acquisition. An M&A integration strategy defines the integration targets, priorities, success metrics, non-negotiables, and the extent of the integration. Vertical integration may lead to lower transportation costs, smaller turnaround times, or simpler logistics if the entire process is managed in-house.

And this is all well and good – but without an IT integration strategy, much of the real value of the products being used is lost because their data is kept in silos and often doesn’t touch core backend systems. To give you an example, connecting CRM (customer relationship management) systems with order processing or billing systems can help to build a better understanding of the customer, the customer journey, and the whole customer experience. The cost of mergers and acquisitions goes far beyond the financial aspects of swinging the deal. The impact on productivity, profits and personnel in both the acquiring and the target firms is often overlooked.

Vertical integration occurs when a company attempts to broaden its footprint across the supply chain or manufacturing process. Instead of sticking to a single point along the process, a company engages in vertical integration to become more self-reliant on other aspects of the process. For example, a manufacturer may want to directly source its own raw materials or sell directly to consumers. A key to success is establishing an integration management office and empowering a dedicated integration leader. The integration leader should be someone who understands the business strategy, deal objectives, and the current operations and operating model.

  1. The company must buy or recreate a part of the production, distribution, or retail sales process that was previously outsourced.
  2. The company now uses its distribution model to promote its original content alongside programming licensed by studios.
  3. You want to make sure these data points flow seamlessly between different systems and departments.
  4. The company often wants to enhance its existing product or get a larger share of the market.
  5. If horizontal mergers within the same industry concentrate market share among a small number of companies, it creates an oligopoly.

Thus, IT was considered an unavoidable cost center or business expense, as computers and storage replaced paper documents and file cabinets. But IT had no direct effect on any aspect of the business or the products and services the business delivered. When the authors decided to start exploratory field research focused on complex strategic integration https://1investing.in/ in multibusiness companies, systematic research on the subject was virtually nonexistent. They carried out some of the field research jointly during spring 1998, interviewing senior and top executives at several European companies. For instance, Carnegie Steele Company acquires the iron mines to guarantee the consistent supply of raw material.

Vertical integration

To ease the transition, communicate openly, provide training, and involve employees in decision-making. Consider these challenges and potential risks when creating integration strategies in your organization. So, you need to choose an integration strategy that can grow along with us. It’s important to have a system that can handle more data and complexities as you expand. Follow these easy steps to create a meaningful integration strategy for your business.

The Power of Strategic Integration

The company would aim to bring in more money per product, assuming it can operate its retail arm efficiently. When developing integration strategies, executives need to consider the specific deal type and translate the strategy for that acquisition into specific integration strategies across both enterprises. In simple terms, B2B integration is the use of IT to connect systems, data and processes that enable one business to interoperate or integrate with another to create a digital ecosystem. Any new solutions you employ will have an impact on your employees, so it’s important to make sure that tool streamlines work and frees up valuable time, rather than creating additional busy work for your team. With work-life balance more important than ever, technology that cuts down on repetitive tasks can help companies increase revenue and customer satisfaction. It keeps your teams focused on the ultimate goal as their day-to-day tasks change.

Disadvantages of business integration

Clear communication helps everyone understand what’s happening, why it’s happening, and how to deal with any issues that pop up. Your data is valuable, and integrating systems can pose risks to its security and privacy. When different systems come together, sensitive information can be exposed to cyber threats. To tackle this, implement robust security measures like encryption and authentication to keep your data safe and private.

Through vertical integration, companies can circumnavigate external monopolies. In addition, a company may gain insights from a retailer on what goods are selling best; this information may be very useful in making manufacturing and product decisions. Consider the supply chain process for Coca-Cola (KO) where raw materials are sourced, the beverage is concocted, and bottled drinks are distributed for sale. Should Coca-Cola choose to merge with both its raw material providers as well as retailers who will sell the product, the company is then engaging in balanced integration. It usually refers to the importance of ensuring that there is an appropriate match between the human resources policies and the wider business policies within an organization. Consequently, there is often a mismatch between current human resource policies and business objectives.

The barrier to accessing this data is not due to a lack of skills or resources, but the lack of a coherent IT integration strategy to connect the dots and make the information available centrally to view, analyze and use. It  acquires supplying units and reaches out directly to end-users through its retail units. A shoe organization may acquire another shoe organization if it allows them a greater share of the pie. Generally, horizontal integration growth strategy comes with long-term advantages. In a merger, both companies are striving to become a larger presence in their existing market.

Areas Executives Should Agree on Before Integration Planning Begins

The ultimate goal of vertical integration is to become independent of suppliers and control more aspects of the supply chain. On the other hand, horizontal integration strives to eliminate competitors, grow in market size, and create economies of scale. Vertical integration involves the acquisition of a key component of the supply chain that the company has previously contracted for.

The supply chain or sales process typically begins with the purchase of raw materials from a supplier and ends with the sale of the final product to the customer. Vertical integration requires a company to take control of two or more of the steps involved in the creation and sale of a product or service. The company must buy or recreate a part of the production, distribution, or retail sales process that was previously outsourced. The specific integration strategy that a company uses will depend on the nature of the companies involved, the goals of the merger or acquisition, and the particular challenges and opportunities presented by the integration. In reality, most companies must combine these strategies to integrate a new acquisition or merger successfully. In this article, we will only cover vertical and horizontal integration strategies.

The company needs to perform a comprehensive analysis before of its resources before the integration. Digital transformation will include a number of technology projects, and a plan for IT integration must be behind them all. As new technology solutions are released on the market, your various departments may be excited to try them out, or perhaps they’ve seen a competitor using a particular solution, so they feel they need to have it too. Many companies make the mistake of implementing all the hottest new technology, only to find out later – after a lot of expense – that it doesn’t work for their business. As such, integrating new technology to improve your business on both the frontend and back should be done in stages. Without a digital transformation roadmap, you’ll quickly find yourself wandering around in the dark, not knowing where you’re going, nor if you’re moving in the wrong direction.