Achieving the Dual Goals of Innovation and Horizontal Integration through Business Platforms

Not surprisingly, as we continue to emerge in the western world from this latest and deepest economic recession, private and public sector organisations are being required to re-visit and fundamentally challenge once again ‘the way we do things around here’. On the one hand innovation is commonly cited by many CEOs as the way to grow out of this recession, whilst at the same time horizontal integration continues to be pursued in the quest for realising and sustaining those synergies that come from stream-lining, rationalisation and eliminating duplication.

So, if both innovation and integration are really back on the strategic agenda, what can we learn from a body of knowledge over the past two decades that informs this discussion, and also from what we observe going on in future best-practice companies and organisations?

Let’s begin with a historical scan of some of the most relevant management literature.

Back in 1989 – at a time when new enterprise operating models were  beginning to generate a fair amount of interest – Christopher Bartlett and Sumantra Ghoshal, in their book Managing Across Borders: The Transnational Solution, argued that a new hybrid form of organisation was emerging that was neither fully global nor fully decentralised but ‘transnational’ in nature. In parallel with many large ERP programmes and projects around this time, organisations were encouraged to unbundle ‘what gets done where’ and challenge some of the fundamental assumptions about which business processes needed, justifiably, to be local, which could be more common and shared, and which were truly corporate. Rather than ‘pouring electronic concrete’ around the current way of doing things, this was the golden opportunity to look for opportunities for horizontal integration of processes across business units, geographies – regions or countries – product/service offerings and even customer segments. Many organisations, such as Royal Dutch Shell, seized upon this kind of opportunity to move from country to regional and ultimately to global configurations of a small number of key business processes (Order to Cash, Order to Pay, etc) whilst at the same time developing regional clusters of shared services for IT, Finance, HR and Procurement, for example.

In 2002, in the Fall edition of the MIT Sloan Management Review, Ghoshal, together with Lynda Gratton, updated this thinking in an article called Integrating the Enterprise and identified four different kinds of horizontal integration as a construct:

  1. Operational integration through standardisation of technology infrastructure.
  2. Intellectual integration through a shared knowledge-base.
  3. Social integration through collective bonds of performance.
  4. Emotional integration through shared identity and meaning.

The thinking behind this kind of distinction between different types of horizontal integration, which combined to create a mutually-supportive eco-system, was that:

  • Autonomy of business units was respected – but also clearly defined – and sustained entrepreneurial spirit, initiative and innovation close to the customers and markets served.
  • Investment at the enterprise level fostered internal, and ultimately external, collaboration and knowledge sharing.
  • Peers were supported in a network of relationships to drive superior business performance.
  • The enterprise gained the benefits of horizontal integration in those areas where synergies could be achieved through economies of scale, reduced duplication, critical mass of scarce resources and global or multi-national sourcing partners.

Bringing this perspective even more up to date, in November 2008 James Cash, Michael Earl and Robert Morison published their article Teaming Up to Crack Innovation and Enterprise Integration in the Harvard Business Review. They argued that organisations needed increasingly to pursue both the innovation and the integration agenda as a recipe for growth and cost-effectiveness. The authors argued that organising for innovation required a distributed innovation group – which seeded innovation capability throughout the organisation, and that integration needed an enterprise integration group to drive synergies and benefits of the increasing amount of horizontal integration from an enterprise perspective. This represents a combination of both a bottom-up form of innovation and a top-down capability for horizontal integration. The authors argued that the CIO and the IT organisation were instrumental in putting in place many of the capabilities to make this happen.

What we have observed in the last decade of both management thinking and real-world experience can be summarised as follows:

  • In a few best-practice companies – P&G, GE, Whirlpool, for example – distributed innovation and back-office consolidation are in place and reasonably mature. For the majority of organisations, innovation capability needs to be substantially improved.
  • A third way is emerging, which is not only focused on cost-efficiencies, economies of scale, etc, but increasingly focused on building a business platform for growth, agility, flexibility, collaboration and front-line innovation. For example, in financial services, we are seeing the emergence of banking and insurance platforms, which are integrated, modular and configured through parameters, as opposed to software changes, and able to deliver rapidly developed new products and services across multiple customer segments and channels. This has been an aspiration for over 20 years and is now becoming a reality. In other sectors, Amazon, Google, Tesco and others have clearly been investing in this kind of business platform, which can scale up to bring together any and every buyer and seller of all kinds of products and services – including ones that are not supplied directly by themselves. This kind of agile business platform is also being used to integrate acquisitions more rapidly, which is new and not new. Cisco, for example, invested heavily in the early 1990s in anticipation of its rapid growth through the acquisition and integration of hundreds of relatively small companies, and created the Cisco way of doing things within 90 days or less.

Undoubtedly these business platforms represent a truly differentiated and competitive basis of doing business in the future, and the most forward-looking organisations have invested time in understanding what capability they bring.

Thus, the dual goals of achieving innovation AND horizontal integration are now not in conflict, but rather complement one another in moving business performance to new levels.

I welcome your thoughts.

Peter Boggis

Formicio Insight Article: Achieving the Dual Goals of Innovation and Horizontal Integration through Business Platforms

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