complex strategic integration muvrizusinus...
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COMPLEX STRATEGIC INTEGRATIONIN THE LEAN MuvrizusiNus
CORPORATION
by
R. A. BVRGELMAN*and
Y. Doz**
97/03/SM
* Professor at Stanford University's Graduate School of Business, USA.
** Timken Professor of Global Technology and Innovation at INSEAD, Boulevard de Constance,Fontainebleau 77305 Cede; France.
A working paper in the INSEAD Working Paper Series is intended as a means whereby a faculty researcher'sthoughts and findings may be communicated to interested readers. The paper should be consideredpreliminary in nature and may require revision.
Printed at INSEAD, Fontainebleau, France.
COMPLEX STRATEGIC INTEGRATION IN THE
LEAN MULTIBUSINESS CORPORATION'
Research Paper Series #1407
Robert A. Burgelman & Yves L. Doz
Stanford Business School & INSEAD
September 1996
1 The authors gratefully acknowledge the support of Stanford University's Graduate School of Business
and of INSEAD.
Abstract
Complex strategic integration (CSI), upon which more and more corporate strategies are beingbased, involves the exploitation of new growth opportunities spread across the domains ofmultiple business units, by combining resources from these units. This paper conceptuallyexplores what skills, resources and tools managers use in performing CSI. It also developspropositions on the impact the following points have on the managers' ability to successfullyperform strategic integration:
1. delayering downsizing and destaffing;2. shifting from capital to knowledge as the key integration resource;3. introducing new information technology-based management tools.
INTRODUCTION
The Need for Operational and Strategic Integration
Called upon by shareholders and fund managers to provide better justification for the diversity of
their asset portfolios or to focus ("de-merge") their business activities, many CEOs of major related-
diversified companies have articulated ambitious value creation logics, for example, Jim Robinson's
vision of American Express as a "one-stop financial supermarket" or Hewlett Packard's current ambition
of integrating Measurement, Computers and Communication through its MC 2 integrated corporate
strategy. These value creation logics are based on the achievement of higher levels of operational and
strategic integration within and between the firm's businesses. Operational integration concerns, for the
most part, routinely interdependent activities, usually within the same business units. Baldwin and Clark
(1994: 89) have proposed that operational integration depends on five organizational capabilities: (1)
external integration which leads to quality; (2) internal integration which leads to speed and efficiency,
(3) flexibility which leads to responsiveness and variety, (4) the capacity to experiment which leads to
continuous improvement, and (5) the capacity to cannibalize which leads to radical innovation. These
capabilities require integrated business processes, inter-function coordination, interunit core competencies
and technologies, and so on. They are often cast in the evocative language of "core competencies" (e.g.,
Prahalad and Hamel, 1990), "organizational learning" (e.g., Garvin, 1993), and the aboundaryless
organization" (Welch, 1992). Operational integration remains mostly driven by the search for greater
customer-orientation and increased efficiency in current operations, which are achieved with tools such as
business process retmgineering, total quality management, and economic value analysis. In cases where
the company comprises multiple business units, operational integration also encompasses the transfer of
best practices to share learning among business units (e.g., General Electric, BancOne, Cargill, Citibank,
Hewlett Packard, Kodak, 3M). Sometimes inch learning derives from the collaborative efforts of business
units with other firms in different forms of strategic alliances (Doz & Hamel, forthcoming 1997).
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While different from strategic integration (see below), operational integration does have
"strategic" implications and requires strategic investments in organizational capabilities that are often
difficult to make in the context of the firm's traditional capital budgeting-based resource allocation
processes. This is so, in part, because of external pressures for short-term returns faced by publicly traded
companies (Baldwin and Clark, 1994). But it is also so, in part, because of the inherent conflicts between
the interests and perspectives of different functional groups within the firm (e.g., Rotemberg and Saloner,
1995).
Beyond the need for operational integration, CEOs of major related-diversified companies are
increasingly aware of the need for strategic integration. Strategic integration involves the managerial
capability to combine resources and capabilities from various business units in order to create new
business development opportunities. Such efforts can be oriented toward identifying and exploiting a
multiplicity of opportunities lying between the product-market domains of different business units (so-
called "white space" opportunities); or, more ambitiously, toward creating an integrated and centrally
directed corporate development strategy. These efforts result into all kinds of cross-SBU initiatives of the
type traditionally managed by senior managers. Interestingly, a lot of attention has been paid by
management scholars to the operational integration issues, for example in product development, business
processes, customer responsiveness and the like, while strategic integration has received only scant
attention. Me operational integration, strategic integration efforts increasingly extend beyond the
individual firm boundaries to include partners, customers and suppliers in interfirm cooperation to co-
develop new opportunities.
Ironically, the growing need for interfirm strategic integration results, to a large extent, from
CEOs' efforts to focus their firms on a narrower range of activities, closer to "core" activities and
competencies (Markides, 1990). This drive toward "focus" is consistent with conceptual (Prahalad &
Hamel, 1990), theoretical (Rotemberg & Saloner, 1994), and empirical propositions that suggest a link
between focus and performance. In the process of focusing, firms have often shed activities that seemed to
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add little value or, if still needed, decided to outsource them. Yet, as they start to consider strategic
integration opportunities, firms are discovering the need for complementary capabilities many of which
cannot be acquired nor developed internally in a timely fashion. This leads them to seek alliances and
partnerships and thus to extend the tasks of strategic integration beyond their firms' boundaries.
Of course, both the refocusing efforts and the search for strategic integration do not proceed at an
equal pace in all companies, leaving some with a relatively greater diversity of activities and businesses
than a tight resource-based refocused strategy would probably call for (Williamson & Markides, 1996),
while others are left with less than optimally leveraged resources and capabilities.
TYPES OF STRATEGIC INTEGRATION
Received View of Strategic Integration
Although we are far from having a comprehensive picture of the link, if any, between numbers of
middle and senior managers and strategic integration capabilities, in the companies researched in the
1960s, 1970s and 1980s, the capability to integrate strategically was primarily seen as hierarchical,
vertically linking operating and corporate managers through the planning and budgeting processes. This
hierarchical integration process was seen as rooted in strength ( quality and number of people) at senior
and middle management levels (Chandler,1962; Uyterhoeven, 1989; Bower, 1970; Berg, 1965 ;
Haspeslagh, 1982, Hamermesh and White, 1984; Kanter, 1982; Burgelman, 1983a). Little horizontal,
inter-business integration activity was observed in these early studies.
The common thread between these studies was to observe and conceptualize strategic integration
as an interactive cognitive, social and political multilayered process, integrating the resource allocation
needs and opportunities perceived and championed by operational managers, given the existing
organizational context, and the overall strategic position and priorities of the firm (Bower & Doz, 1979).
While in some companies the process was driven in a prescribed and relatively mechanistic way, within a
well-determined strategic and organizational context, in others it was more creative, in particular for the
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development of new ventures the strategic context of which was not clear ex-ante ( Bower, 1970;
Burgelman, 1983a; Doz, Angel= & Prahalad, 1985; Prahalad & Doz, 1987 ) and the organizational
"home" of which had to be chosen or constructed. Strategic integration could be more or less top-driven
either directly (e.g., in entrepreneurial companies where the founder often keeps playing the sole
integrating role,) or indirectly in an "induced" strategy-making process; or it could be more emergent,
usually bottom-up in an "autonomous" process with the completion of the integration taking place ex-post
rather than ex-ante (Burgelman, 1983b). Rather similar observations about the critical role of senior
middle managers were made by other scholars of the opportunity generation and exploitation process in
major American, European and Japanese firms (e.g., Kanter, 1982; Prahalad & Doz, 1984; Doz &
Lehmann, 1986; Nonaka, 1988).
Revised View of Strategic Integration
Narrowly conceived, strategic integration can be viewed as the oprinii7Ation of resource
allocation choices between opportunities generated by individual business units of diversified companies.
This view, rooted in portfolio planning (e.g., Haspeslagh, 1982) fails to capture the broader strategic
concern with identifying and exploiting business opportunities transcending the product-market domains
of the business units in the portfolio. It also does not capitalize on the dynamic capabilities view of
diversification (e.g., Teece, Pisano, and Shuen, 1992).
Broadly conceived, strategic integration can be viewed in terms of how corporate management
creates value carer and beyond what the individual businesses (and the resources attached to them) would
be worth separately (Prahalad & Doz, 1995). The value of each business, and the whole corporation to
which they belong, is enhanced by managed interdependencies between multiple businesses. For instance,
GE's corporate management has been able to add considerable value to the company's 13 major
businesses. Corporate management has done so by capitalizing on the reputation of the GE name,
transferring best practices between businesses, enforcing strong performance discipline, creating new
financial products through its GE financial services business to help sell its industrial products, and so on.
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In this view, successful integration stems from the harmony between the bundle of assets of the firm, the
value creation logic adopted and pursued by top management, and the organizational contexts and
administrative mechanisms used for coordination. Strategic integration has to do with the assembly and
cultivation of resources, including intangible assets and the integration capabilities themselves, over time
and their coordinated deployment toward opportunities that not only confer competitive advantage but
also drive the further sharpening and deepening of these tangible and intangible assets (Itami, 1987;
Baldwin & Clark, 1994). In that dynamic process, how management adjusts to external challenges and
opportunities, and inaintaim OT restores harmony through phases of dissonance and consonance,
constitutes the major challenge for strategic integration (Burgelman, 1994; Burgelman & Grove, 1996;
Doz, 1986; Prahalad & Doz, 1995; Tushman, Romanelli & Newman, 1986). This broad view of strategic
integration basically equates strategic integration with corporate strategic management in a diversified
firm.
For the purposes of our inquiry in this paper, we situate strategic integration as a distinct
managerial phenomenon between the narrow and broad views. Strategic integration in this view
encompasses the development of substantive new business opportunities involving more than one but
usually not all business units. The more ambitious and distant these opportunities, and the more business
units need to be involved in their pursuit, the more complex the strategic integration tasks become. The
basic premise underlying our analysis is that many companies probably have available, at least in latent or
unrecognized form, more possibilities of value creating resource combinations and associated business
opportunities than are captured or exploited by their existing corporate strategy. But these resource
combinations and associated business opportunities need to be discovered. One manifestation of this
relative abundance is the push coming from the internal impulse to grow (Penrose, 1959); another
manifestation is the pull coming from external munificence leading companies to reconsider bow their
untapped resources and competencies can be deployed in the pursuit of novel business opportunities
(Chandler, 1962); still a third manifestation is the identification of autonomous strategic behavior
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exploring the boundaries of the firm's capabilities and opportunities sets associated with corporate
entrepreneurship (Burgelman, 1983c).
Based on this premise, we view strategic integration as a firm's ability to recognize the
opportunities for value-creating new combinations of resources - some of which exist already within the
firm but some of which may have to be mustered from outside -, and to access, redirect and integrate those
resources successfully. This view of strategic integration reflects our belief that for many companies the
challenge is not so much the scarcity of resources as the lack of new opportunities to invest available
resources (witness the vogue of "Internet stocks") and to more fully leverage investments already made in
tangible and intangible assets. Put differently, the issue is not just to put resources to the most profitable
known use, but to discover new value creating combinations that may include resources provided by
partners and customers.
Our view of strategic integration can be further elucidated with the help of a simple conceptual
framework in terms of stretch and scope dimensions. This is captured in Figure 1. In simple terms, Figure
1 suggests a series of trade offs between stretch and scope along a possibilities frontier.
Figure 1 About Here
Stretch refers to whether the strategic integration task involves compliance with an existing
strategic context or requires the creation of a new one. This dimension refers primarily to the cognitive
and substantive managerial activities involved in strategic integration. Scope refers to whether the
strategic integration task involves one or more business units. This dimension refers primarily to the
social and political activities involved in building intraorganizational and interorganizational
partnerships.
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Figure 1 situates the view of strategic integration adopted in this paper relative to earlier efforts
to examine the phenomenon. Hierarchical integration, situated in the lower left part of Figure 1, involves
minimal strategic integration. This situation was examined by Bower (1970) in his study of the strategic
capital investment process in the diversified major firm. In Bower's model, middle-level managers
translated corporate objectives into criteria that helped them decide which capital appropriation requests
emerging from the operational level, in response to practical discrepancies such as capacity shortages, to
support. Conversely, they tried to ascertain that bottom-up initiatives reflected in capital appropriations
requests met corporate objectives, primarily financial ones. These middle-level managers performed a
critical role in the internal selection environment constituted by the resource allocation process, but
usually not a very strategic one. Indeed, while some of these capital investments were clearly associated
with new product initiatives that had substantive strategic implications, there seemed to be little concern
on the part of middle-level managers to add value to the bottom-up initiatives in substantive strategic
terms. Later studies, including a replication of Bower's study in a more integrated firm (Ackerman, 1970)
confirmed the integrative role of middle-level managers in the resource allocation process (Bower and
Doi, 1979).
Vertical strategic integration, in the upper-left part of Figure 1, was examined by Burgelman's
(1983a) study of internal corporate venturing in the diversified major firm. Burgelman's study
corroborated Bower's findings but discovered the importance of substantive strategic inputs on the part of
middle-level managers in the strategic integration process. The middle-level managers involved in
strategic integration in internal corporate venturing contributed "strategic building" - conceprva1i7ing a
broader strategic framework in order to be able to agglomerate several strategic projects dispersed in other
parts of the corporation with the strategic thrust provided by a new venture -, "organizational
championing" - persuading top management to continue to support a new venture based on the new
venture's results in light of the broader strategic framework conceived through strategic building -, and
"delineating" - de facto establishing the product-market domain of the corporate strategy in a new
business area as a result of the successful strategic building and organizational championing activities.
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This study yielded the concept of "strategic context" determination to complete the Bower-Burgelman
process model of strategy making in diversified major firms. While this study discovered instances of
strategic integration involving multiple divisions, the fact that these efforts usually involved peripheral
activities of the other divisions limited its ability to document the full set of managerial activities involved
in strategic integration.
In more recent research concerning the strategic business exit process in a much less diversified
company (Intel), Burgelman (1994; 1996) observed that initiatives for significant resource redeployment
(both freeing-up resources and directing them to opportunities that require their reconfiguration) also
started with middle-level managers. These managers contributed "resource shifting" - moving scarce
resources from an existing business to a new one -, and "technological uncoupling" - unbundling
technologies and making choices that changed the technological foundation of different businesses. These
middle-level managers' activities helped dissolve the strategic context of an existing core business and
helped shape top managements vision and their efforts to reconsider the existing organizational context.
Horizontal strategic integration, situated in the lower-right part of Figure 1, has been examined
by Bartlett and Goshal in their study of Asea Brown Bayer (Bartlett & Ghoshal, 1993). These authors
have documented the role of country managers and business area managers in identifying opportunities
for cross-business unit -both product and geographic- strategic integration, without having to effect major
changes in the strategic context. They also observe that sophisticated management control tools, such as
the "Abacus" amounting and control systems, an emphasis on overinformation and communication, and
the extreme decentralization of the company in thousands of investment and profit centers, help reduce
information screening and asymmetry. These management control tools leave little need for the kind of
processes observed by Bower, and little room for the political games of planning and budgeting that often
characterize these processes, and presumably thus free up the energy and the time of senior managers, in
particular in the business areas, to pursue horizontal integration opportunities. Bartlett & Goshal further
find that corporate norms and values create an environment which encourages front line managers to
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develop personal networks and operating interdependencies, and rewards them for doing so. Yet, by 1996,
Eberhard von Koerber, President of ABB, commented: "We did it (the organization analyzed by Bartlett
and Ghoshal) with a little too much fundamentalism and now we are reversing that to recapture the loss of
synergies - for example on large projects- which result from splitting up too much, leading to over-
individualistic behaviors by the rulers of smaller kingdoms" (quoted in World Link, May 1996, pp. 16-
18). In other words, networking processes were far from coming naturally to ABB's subunit managers,
making interunit strategic integration difficult Further, except for some localized instances (Moore, 1996,
pp. 6-8), this process seldom seems to involve stretching and redefining the strategic context of the firm's
activities to discover and pursue new resource combinations. In terms of Figure 1, ABB tended to see its
integration process pulled toward the lower left corner.
Figure 1 also shows a possibilities frontier indicating the loci of combinations where tradeoffs
between scope and stretch are necessary in order to further gain on one or the other dimension. This
frontier is likely to exist at any given time because of binding constraints in terms of available
management time, energy, and imagination, and limitations associated with technological and market
opportunities. Just to exploit the possibilities offered by the frontier, calls for stretching the ambition of
existing operating units within the company (moving upward in Figure 1) and/or for widening the scope
of collaboration between an increasing number of subunits (moving toward the right in Figure 1).
Different companies will make the tradeoffs between scope and stretch in different ways. For instance,
scope may be more emphasized in companies that grow through acquisitions and try to identify
opportunities for synergy between their various acquisitions, sometimes ex-post. Conversely, stretch may
be more emphasized in companies with fewer business units and where coordination is more centrally
achieved. Intel and Microsoft may be examples of this latter approach, with strong stretching
entrepreneurial cultures and quick recognition of opportunities and needs for redirection at the top. Still
other companies that diversify organically around core competencies, such as Canon or 3M, combine
scope and stretch in a process &mushrooming but strategically constrained entrepreneurship. This may
well be the most challenging development vector, as suggested by the diagonal growth path plotted on
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Figure 1. In the remainder of this paper we will call this type of integration complex strategic integration
(CSI): the discovery and creation of new business opportunities combining resources from multiple units
within the firm and requiring a reconsideration of the strategic context of the firm.
Moving the existing possibilities frontier outward (see Figure 1) presents the greatest complex
strategic integration challenge. A quantum leap in stretch calls for a long-term orientation, a high degree
of imagination and creativity, and a willingness to take seriously the true opportunity costs of =exploited
major opportunities. Add to this the need to integrate contributions from many subunits (sometimes
including external partners), each with its particular perspective and vested interests, and the challenge
becomes daunting. The more complex, uncertain, and far into the future the potential benefits of
collaboration, the more difficult will senior managers find it to commit to the opportunity. Yet, many
corporate strategies are increasingly predicated on just such a difficult integration process.
Purposes of Complex Strategic Integration
Complex strategic integration serves two key strategic purposes in the broader corporate strategy
of firms, each of which puts a different emphasis on the scope and stretch dimensions of complex strategic
integration.
Acceleration. One purpose of CSI is the acceleration of the existing strategic thrust of the firm's
core business by moving faster down a particular competence-deepening or market-capturing trajectory. In
the pursuit of acceleration, complex strategic integration usually strives to capitalize on competence
deepening through continuity. Continued competence-based leadership serves to sustain market leadership
by making the firm's product/service offerings the preferred choice, even when they are not intrinsically
the "best" one, perhaps because of network externalities (Arthur, 1996). This moves the market in the
direction of the firm's capabilities and creates an irreversibility favorable to the firm. Strategic integration
for acceleration also requires the ability to rapidly mobilize resources for the scale-up of major
opportunities and to selectively pursue some, and drop others, rather than stretch and fragment resources
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over too wide a front (e.g., Matsushita's fast "ramp-up" toward a few major growth opportunities vs.
Philips stretching itself too thin, historically, or Coming's ability to focus on a few renewal options vs.
3M's relative dispersion, today). Perhaps even more difficult, is to disengage from a major profitable
opportunity when it does not fit any more with the corporate value creation logic (e.g., Corning's recent
exit from the diagnostic lab business).
A strong form of acceleration involves the top-driven pursuit of an integrated corporate
development strategy bringing multiple business units into joint action. Intel Corporation's corporate
strategy, for instance, involves combining microprocessor, software, and communications business
initiatives to continue to generate rich applications that require available processing power. Smith Kline
Beecham sees itself as anticipating and gaining from "a paradigm shift in the industry from selling pills to
managing total health care" through the integrated creation and use of information in its different
activities and in collaboration with others in the complete health care system (Hyde & Haspesuel, 1994).
A somewhat weaker form of acceleration concerns the capture of "white space" opportunities without
necessarily questioning the operation of existing core businesses. The challenge here is to envision new
opportunities that are within technological and/or market reach, but are unlikely to be noticed or are
likely to be seen as outside the scope of the strategy of any given business unit. In other words, the
opportunity may be new from a market point of view but a very logical next step from a competence and
capability standpoint, and vice versa. A few companies, such as Kodak for instance, have put in place
specific integration processes for the purpose of identifying, or even better imagining, such opportunities.
Kodak's growing focus on electronic imaging technologies, beyond conventional photography, and the
leadership of a CEO coming from one of the most entrepreneurial companies in the electronics industry,
may pull it toward an integrated overall corporate strategy.
Redirection. Strategic integration can also serve redirection, by shifting the direction of the
trajectory followed by the firm, often in the face of felt or impending discontinuities, raking previously
peripheral competencies become more central to the evolution of the firm, and finding new opportunities
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to leverage them ( e.g., software development for Canon and for Apple, consumer marketing for Motorola
and Nokia). Redirection involves freeing up the use of resources to face discontinuities deriving from
disruptive technologies (e.g., Christensen and Bower, 1996) and/or market developments rather than
reinforcing the use of resources along established deployment trajectories (e.g., the pursuit of digital
printing for R. R. Donnelley). The technical and/or market signals associated with these discontinuities
are often less obvious and less easy to detect. Because they are usually harbingers of change from quarters
the firm is not used to observe they are hi* to be less forcefully represented within the organization.
Redirection thus requires mechanisms for amplifying weak technical and/or market signals and for
managing the resulting strategic dissonance (Burgelman and Grove, 1996).
Redirection usually involves diffusing the results of organizational experimentation and
innovation from the periphery of the organization to its core. This is difficult because activities at the
periphery usually offer freer and more fertile ground for trying out innovative approaches than core
activities and businesses (e.g., transformation at Ford started with the diversified product group, or Alcatel
SESACI s component operation provided a learning ground for Alcatel as a whole). Redirection fosters
anticipatory adaptation to different opportunities and competence needs. This type of CSI is more difficult
than the type required for acceleration. It poses different risks and calls for a more difficult task of
improving the quality of decision making, both by working on the odds of individual decisions being
"right" (Szulanski & Doz, 1995), and by breaking single decisions into sequences of learning and
commitments, where risks are contained and reassessed at each stage in the sequence and at each
management level involved in the decision process (Burgelman, 1988).
DETERMINANTS OF COMPLEX STRATEGIC INTEGRATION
To lay the foundation for studying complex strategic integration, it seems useful to consider key
determinants of CSI which help to further define and bound the phenomenon, and to identify measures of
CSI performance. Three key determinants of CSI can be identified: (1) integration resources, (2)
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integration tools, and (3) integration skills. In terms of measures of CSI performance it is useful to
distinguish between process and outcome measures.
Integration Resources
The CSI process uses different types of resources to develop new business opportunities. The
supply of these resources is characterized by greater or lesser scarcity and greater or lesser mobility.
Scarcity. Tangible resources tend to be scarcer than intangible ones. Scarce tangible resources -
such as money, capital equipment, raw materials, types of labor, management time - must be allocated
among different business unit: what one unit gets, the others cannot On the other hand, some intangible
resources - such as corporate brands, patents, know-how, technology, and competencies (unless embodied
in specific people) - are more ble public goods: their use in one part of the organization to pursue one set
of opportunities does not prevent their use elsewhere. Some intangible resources may even benefit from
positive externalities: their use in one subunit makes them better and more available to other subunits. As
one moves from allocating scarce tangible resources to known investment opportunities to mobilizing
freely available intangible resources toward emerging opportunities, the demands put on the CSI process
shift. While the sequencing of specific projects may still occasionally pitch managers one against another
in competing for scarce professional resources, the overall nature of the allocation of freely available
resources becomes one of a positive sum game, where self-interested but forthright cooperation pays off.
Resource recombination in new co-specialized patterns between subunits creates opportunities for
everyone to benefit The issue is no longer to imitate the market within the firm, by pricing knowledge
assets, but to develop an organization and a set of management systems and incentives that foster sharing.
What incentive structure leads to this process of sharing knowledge assets? How are trade-offs in the use
of scarce strategic assets toward =certain emerging opportunities of limited duration being resolved?
How are submit goals being transcended when choices in the mobilization of resources work against their
own subunit interests? We suspect that most firms do not address these questions explicitly.
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Mobility. Mobile resources can be relatively easily moved from one area of use to another. Not all
integration resources can equally easily be redeployed nor do they require the same integration effort
Some, like corporate image, do not need managers to engage in active sharing since they are highly
mobile and applicable to multiple opportunities at no extra cost. Yet, the consistency of their use may need
to be controlled, so each individual use reinforces the collective value of the resource rather than erodes it,
a difficulty well-known to owners of luxury brands. Other integration resources require the sharing of
information (e.g., Smithirline Beecham's concept of health management, or American Express trying to
leverage data on consumer spending patterns...) to create an information advantage, but little coordinated
action. Others, still, may require to set up and manage very interdependent joint projects across units as
they are very embedded in the activities and practices of the involved units (e.g., Automotive electronics
for Motorola or HP). Further, whether integration resources are centrally held and allocated, leading
managers to compete for their allocation, or widely distributed, leading managers to exchange them in a
mutually beneficial way has obvious consequences on their propensity toward complex strategic
integration (Pierce and White, 1996). CSI, however, also requires to develop a keen sense for the firm's
strategic position in its overall competitive space, which managers of individual business units may not be
able to perceive easily. CSI requires the creative combination of internal resources and competencies and
external strategic position. Extending CSI to partner companies raises similar issues, but in an even more
demanding context (Doz & Hamel, forthcoming, 1997). For example, complex strategic integration
between separate companies may require to bridge deep positional and organizational and cultural divides
(Doz, 1988) but may raise lesser issues of personal rivalry between managers involved (Gupta & Singh,
1996). We thus need to be highly sensitive to how much active and opportunity-specific integration efforts
accessing and mobilizing individual resources requires.
Integration tools
Control and steering systems are tools of strategic management (Simons, 1994). These systems,
though, by focusing measurement, steering and incentives on individual subunit performance, may well
deter subunit Planners from engaging in strategic integration activities. Individual subunit accountability
15
seldom encourages cooperation. Collaboration may require a level of sophistication and self-confidence
that eludes many managers used to operating under systems emphasizing individual unit performance.
Systems that register cross-unit contributions and encourage norms of reciprocity foster cooperativeness.
Yet, these work best for repeated exchanges with limited initial stakes between given subunits (Axelrod,
1984; Gulati, 1994; Doz, 1996). On the other band, incentives for cooperation may be perceived by
managers as blurring their accountability, and diffusing responsibilities in dysfunctional ways. Norms of
cooperation are probably more effective than incentives, but usually emerge gradually over time as part of
a culture of trust and support among managers. Such norms are suited to certain environments, such as
investment banking, with multiple deals involving the same networks of people and reciprocity norms
governing repeated interactions. They arc perhaps less suited for the infrequent, sometimes one-time big
commitments that complex strategic integration may call for. Attempts at quickly building such norms are
not Wcely to be effective.
Integration skills
Complex strategic integration is a creative managerial process that cannot be accomplished only
with a set of resources and/or tools, but involves cognitive, political, organizational and entrepreneurial
skills.
Cognitive skills: In principle, there exists a possibilities frontier that defines the value creation
potential of integration strategies successfully implemented. The challenge for top and senior managers is
to discover the unknown value creation potential and to conceive a strategic integration process that leads
to achieving the firm's value creation potential. This challenge is, in part, one of imagination and
intellectual grasp. Conversely, it also involves the ability to avoid getting seduced by spurious "synergies"
before considerable efforts and resources have been expended in vain in their pursuit, (a kind of type 1 and
type 2 error problem). The assumption here is that some managers do not try hard enough to discover a
compelling and feasible corporate value creation logic (e.g., Kay Whitmore at Kodak whose "related"
diversification moves were questioned from the start, or Gerard Worms at Suez who found it difficult to
16
develop a compelling logic for his group's wide range of assets), and thus appear myopic or complacent.
Others, on the other hand, may try too hard and be led to take their dreams for reality until proven wrong
(Edzard Reuter at Daimler Benz with his view of an integrated communication and transportation
technology group, or Jim Robinson's concept of American Express as a financial supermarket) with
damaging consequences for their firm.
Political skills: How well can integrators execute partnerships with peers? how can they actually
make integration happen? how do they create common ground and a shared vision of potential benefits,
and manage distributive conflicts between subunits? The ability to define solutions that serve the interests
of various subunits and to entice their managers into self-interested cooperation is key here. The skills
may be similar to those displayed by successful coalition builders and diplomats in complex alliance
situations, and by politicians in democratic processes.
Organizational skills: CSI involves fluidity of resource reconfiguration , either through cross-unit
projects (Hyde, in progress) or through redefinition of unit boundaries or of the content of individual
subunit charters (Galunic, 1994, Galunic and Eisenhardt, 1996). It also requires to build a consistent
organizational context to foster and encourage interunit cooperation. So, a key question is how can
managers build the appropriate context for strategic integration to become an ongoing institutionalized
process rather than an infrequent =offence that depends inordinately on the championing efforts of
senior managers.
Entrepreneurial skills: Nevertheless, successful strategic integration is likely to call for some
championing processes and for the ability to transform projects from the status of small subunit ventures
to that of major corporate renewal opportunity (e.g., Burgelman, 1983a; 1983c). In most companies
business development processes seem to self-censor themselves to opportunities that can be pursued in the
existing organizational context, at the initiative of existing subunits playing by the rules. Yet, strategic
integration should transcend those limitations.(What separates Corning from 3M? Do NEC, Canon or
17
Sharp have it right? Why do corporate venturing processes seldom yield real corporate renewal options?)
This may consist in a capability to shift from opportunity generation through an autonomous strategy
making process, of a scouting, exploring and probing variety, to opportunity exploitation through an
induced process which selects a few major initiatives and pours resources into them rather than rides off
in all directions .The issue here may not be what renewal process to pick (Chakravarthy & Lorange, 1991
) but how to make several processes coexist and when/ how to shift from one process to another for a
given project, or to put it differently, how to manage projects of very different scopes and sizes when they
cannot be anticipated clearly?
Measures of CSI Performance
We also need to be able to assess CSI in terms of the quality of the CSI processes themselves and
in terms of their outcomes. Several possible yardsticks can be considered, and different CSI processes,
e.g., acceleration versus redirection, can be measured using the same yardsticks but perhaps giving each
yardstick a different weight in the total assessment.
Process quality measures. These could include, for instance:
- Process quality of decision making (e.g., Burgelman, 1983b; 1988; Ghemawat, 1991;
Szulanski & Doz, 1995).
- Capacity to manage induced and autonomous strategic processes simultaneously
(e.g., Burgelman, 1991)
- Capacityto manage strategic dissonanceand exert strategic leadership (e.g.,
Burgelman and Grove, 1996).
- Quality and range of management levers of control (e.g., Simons, 1995).
Process outcome measures. These could include, for instance:
- Capacity to be a first mover and for shorter migration paths than rivals; revealed
success at strategic foresight and imagination (e.g., Hamel & Prahalad, 1994).
18
- Ability to exploit positional advantages versus dynamic competence building
(e.g., Hogarth et. aL, 1991).
-Ability to shift resource allocation logics to pursue selected renewal opportunities: focus
on a limited number of high-potential opportunities versus dissipation of resources.
In sum, complex strategic integration results from managers applying skills and tools to mobilize
resources toward new opportunities that call for both stretch and scope. Its success can be assessed by the
revealed quality of outcome and by the observed quality of process.
TOWARD A THEORY OF COMPLEX STRATEGIC INTEGRATION
We need a descriptive theory of CSI to answer questions such as: To what extent are the activities
of senior managers deliberately concerned with complex strategic integration? Or is complex strategic
integration the outcome of patterns of activity which ostensibly pursue something else? Does complex
strategic integration happen "on the side", perhaps fortuitously? Is CSI the hallmark of great integrators
and of managers who can both deliver day-to-day operating results and not miss integration opportunities?
A descriptive theory of CSI could form a building block in constructing a normative theory to answer
questions such as: What managerial actions lead to successful complex strategic integration? How to
motivate managers when to most of them pursuing complex strategic integration may seem a somewhat
unnatural activity?
A Framework of Complex Strategic Integration
A preliminary conceptual framework for the study of CSI is presented in Figure 2 below.
Figure 2 About Here
Following our earlier discussion, Figure 2 suggests that the skills brought by senior managers to
CSI activities, the resources used to create value through CSI, and the tools used to help achieve CSI
determine the intensity of cooperation between units (scope) and the prospective and creative orientation
19
(stretch) of the strategic integration process. These three determinants of CSI are, in turn, affected by
different forces: (1) Integration skills are often negatively, but sometimes positively, impacted by
delayering, destaffing and downsizing; (2) integration resources are affected by shifts in the basis of
competitive differentiation toward firm-specific knowledge assets, which may facilitate cooperation
between operating managers from different units; and (3) integration tools are affected by innovations in
management systems and information technology, which by freeing-up management time and attention
from tasks of hierarchical integration and control may facilitate CSI.
Further research needs to elucidate the combined effects of these three forces and the
determinants of CSI on a firm's CSI capability. Previous research would seem to suggest that delayering,
destaffing and downsizing are likely to have a debilitating impact on all forms of strategic integration.
However, this is not necessarily the case. Strength (in numbers, at least) at intermediate management
levels does not necessarily correlate with strategic integration capability. Some companies, such as ICI,
may have had large staff groups and multiple layers of management without necessarily achieving nor
even seeking a high level of strategic integration (Goold & Campbell, 1993 ). Also, aggregate data suggest
that blue collar workers bore the brunt of downsizing and that among managers lower levels and
supervisors were most affected (American Management Association, 1996). Actual cuts at senior
management levels, where strategic integration would be expected to take place, may well have been quite
limited (Champy,1996). Whilst some companies did away with integrating subunits, such as business
groups and sectors (e.g., GE), others introduced them recently (e.g., 3M). Also. as noted earlier, the most
critical resources to be integrated may have shifted from tangible resources to intangible resources (jt2mi,
1987; Diezidoc & Cool, 1989; Prahalad & Hamel, 1990), and this may have shifted strategic integration
fiten a zero-sum game to a positive sum game, and from a primarily hierarchical and vertical process to a
more lateral process. Finally, as strategic integration tools have improved (e.g., activity-based accounting,
more precise valuation and performance analysis metrics, and a more effective use of information
technology), managers may be more able to concentrate on integrative tasks.
20
Five Plausible Theoretical Arguments
Te forces and determinants of CSI shown in Figure 2 may thus interact in various ways. While
more empirical research is needed, five plausible theoretical arguments can be put forth. The first two of
these arguments take downsizing, delayering and destaffing as their starting point. The next two
arguments concern changes in the distribution of tasks and roles in the CSI process that could take place
independently of downsizing, delayering and destaffing. The final argument concerns the life cycle of
strategic integration opportunities.
1.The "redundancy" argument. Downsizing companies have lost fat, but not gray matter nor
muscle. Once non value-adding peripheral staff units/ tasks have been shed the integration process is, if
anything, faster, more flexible, and yields better results. Delayering and destaffing forces senior managers
into more direct and intense interactions; face to face rather than ritualistic and via memos and staffers (or
stacks of 6 foils() as IBM was famous for), and in ways where real problems are confronted collectively
rather than covered-up by some and carefully ignored by others as sacred cows (Hoot & Carter, 1996).
This more direct approach to CSI is also more consistent with the lateral integration of knowledge
resources than with the allocation of capital and other tangible resources.
2.The "disruption" argument. The very process of delayering and destaffing has the potential
to trigger adverse effects on CSI: The mere fear of lay-offs and greater management turnover may have a
negative impact on quality of the integration process. Fear for one's future, concern about being on the
line, etc... lead to toxic side effects, and probably to escalation and signal amplification which may affect
integration, and cause more anxiety, and in turn lay-offs. Managers under pressure make poor decisions
and revert to more primitive behaviors, in ways inconsistent with the integration needs and opportunities
of their businesses. Integrators deal in trust and need the self-confidence to step out of organizationally
prescribed roles and relationships to invent new ones. To be effective, they need stability, continuity, and
security, the context of permanent downswing provides for none of that. Anxious and disoriented
managers do not make good integrators, and they are likely to fall back on safer ground than what
21
complex strategic integration requires. In other words, the integrators are still there but they are more or
less paralyzed. Most susceptible to disruption would be companies where informal norms, common values
and other "soft" integration approaches play a key role. Companies relying on formal approaches and
"bard" incentives might suffer less disruption from delayering downsizing and destaffing.
Beyond the initial toxic effects of delayering/destaffing on managers' mental readiness to engage
in strategic integration, delayering/destaffing companies are likely shift to a financial control mode which,
after a few years drives them into refocus and demerger. These are often unintended strategic
consequences of delayering driven by cost cutting or/and short-sighted customer responsiveness. Although
this process usually starts dressed-up in empowerment, customer responsiveness and entrepreneurial
networks terms, it ends up tearing apart the very fabric of the organization. Managers more focused than
ever on their business unit performance, driven by short term pressures of an internal selection process,
fearing for their job, and still competing for the top jobs, do not engage in the networking processes
expected of them, and the organization misses the opportunities for strategic integration. Empowerment
and accountability demands and downsizing fears, often heightened concurrently, may have added to the
difficulty by reinforcing a culture of every (wo)man for him(her)self, with little cooperation, given job
insecurity and perception of competition for scarce resources, while taking away the slack that would have
allowed cooperation opportunities to be identified, through exploratory networking and the building of
common ground. Strategic integration capability simply disappears with the integrators. Companies where
senior managers, such as the Group VPs in Hewlett Packard, play a pivotal role in strategic integration,
would be most exposed to senior management delayering and destaffing moves.
Both the redundancy and disruption arguments can be valid by hypothesizing a curvilinear
relationship between delayering/ de:staffing and CSI capabilities. This is shown in Figure 3
Insert Figure 3 about here
22
Figure 3 shows that up to a point CSI capabilities are enhanced as companies loose fat; but
beyond that point CSI capabilities are eroded. In other words, the "redundancy" argument holds for the
left half of the carve, and the "disruption" argument applies to the right part of the curve. .
3.The "automation" argument. Information and control systems are much better honed than they
used to be. Hence most of the routine integration tasks that used to consume management time and staff
resources in somewhat sterile planning and budgeting games between corporate and subunit managers are
now automated, freeing key executives to focus on the real value adding strategic integration tasks, where
foresight and imagination, judgment and negotiation, and adaptive leadership skills are needed (Simons,
1994). Hence, most critical capabilities have been protected, and destaffing was selective. What we
observe is the consequence on management of a technological change which makes both the information
technology tools and the business measurement concepts more easily available and routinely applicable in
major companies. On the other hand, to the extent that automation is used to eliminate managerial
positions, there is the potential danger that activities of which the importance was not formally recognized
but which facilitate CSI are no longer available. In addition, automation may focus the attention of
businesss unit managers even more on "making the numbers."
4.The "redistribution" argument. Critical integration tasks are still performed but less visibly in
the absence of dedicated integrators. The vertical integration process takes place directly between the very
top and individual subunit managers and horizontal integration is performed as in a network of
independent companies, perhaps mediated to an extent by integrators who play the same role as strategy
centers in a network. Network regulation replaces managerial and hierarchical integration. But then do
individual stakes in the process alter the quality of integration (good or bad) and does the nature of
integration stay the same? And, who plays what role? In particular, one may fear that the integrated
strategic vision essential to create stretch may not easily come about in such a decentralized network.
Conversely, redistribution may also lead (back) to more centralization with top management assuming the
strategic integration tasks in a pattern reminiscent of entrepreneurial and less-diversified companies such
23
as, for example, Microsoft. In that case, unless the top demonstrates considerable strategic intent, the
disruption argument outlined above may well come true in a second stage, as top management fails at
strategic integration.
Little is known, empirically, about the redistribution of strategic integration activities. A starting
assumption would be that subunit managers, left to their own devices, even if they network between
themselves, may lack the perspective, the vision, and the championing and sponsoring skills and
capabilities to articulate and shepherd through the organization major strategic integration opportunities
that transcend the existing strategic and organizational contexts of their units.
In terms of Figure 3, the effects of "automation" and "redistribution" are ambiguous. On the one
hand, technological and organizational innovations can shift the CSI curve upwards by freeing managers
to devote more of their time and mental energy to CSI rather than to simpler forms of managerial control
and integration. On the other hand, an =anticipated consequence of both automation and redistribution
could be that they reinforce the declining side of the CSI curve (see Figure 3).
5. The "life cycle" argument. Integrators may have a transient role to play: they prime the
integration pump, performing both a cognitive and a social/political role. But, eventually, successful
strategic integration must be performed by business unit managers networking among themselves. Formal
integrator roles will thus disappear after a while, even when they have been very successful ( CIE's sector
executives a few years ago; ABB's Business Area executives in the future?). Indeed, they disappear
because of their very success: naming short of new strategic integration opportunities to discover and
having embedded attention to the identified ones into regular management processes that are now part of
the organizational contexts of subunits they run out of work. Hence, when we notice the thinning down of
staffs and intermediate echelons of management in these companies, we do not necessarily observe short-
sighted and strategically senseless destaffing and delayering but the natural and legitimate attrition of
support functions that have outlived their usefulness.
24
The lifecycle argument, however, may apply only at the level of sets of closely related CSI
opportunities, as they move from being discovered to being implemented. This implies a continued role
for integrators, but their focus of attention moves to new sets of strategic integration opportunities. Each
opportunity set has its own lifecycle. Some opportunities may be bunched in time because of correlations
between technological or/and market developments or because of oscillations in corporate priorities
between renewal and consolidation; but there may not be a meaningful overall lifecycle.
The lifecycle argument raises practical questions: To what extent can the exploitation of strategic
integration opportunities, once their benefits and their feasibility have been demonstrated, become a quasi-
routine process in the organization? And, how can the firm prevent entropy forces from pulling it back
toward single unit opportunities that fit well into the existing organizational and strategic contexts? Little
is empirically known about the experience of companies that have tried to institutionalize a strategic
integration process. Glimpses of individual companies, such as provided by earlier studies on Texas
Instrument (e.g., Jelinek,1979) and some observations concerning companies such as Canon, Sharp and
Toshiba in Japan or 3M and Corning in the U.S. would suggest that institutionalizing strategic integration
into the regular management systems and processes of a firm is extremely difficult Hence, a lifecycle view
of strategic integration, with integrators becoming redundant after a while, may trigger more debilitating
effects than. expected.
CONCLUSION
This paper identifies and concepualizes complex strategic integration (CSI) as an area for
research of relevance to senior executives and strategic management scholars. CSI requires mustering
resources (often of a largely intangible nature) and involving multiple business units for the pursuit of new
opportunities that do not fall squarely within the existing strategic context of the firm. CSI involves
stretching the strategic context of the firm and widening the scope of collaboration between subunits to
allow the recombination of resources and their deployment toward new opportunities. This calls for
25
sophisticated integration skills, resources and tools. It also raises thorny trade-offs and brings to the
surface latent internal contradictions that make complex strategic integration a somewhat unnatural act
for managers to pursue systematically without clear corporate strategic intent and supporting management
systems and culture. More research is needed to conceptualize the processes involved in complex strategic
integration, both for the purpose of enriching the descriptive theory of strategy making and to provide a
foundation for prescription.
The concern with the difficulty of complex strategic integration is, in part, driven by the
possibility that a pp is developing between the strategic ambitions of many firms and their CSI capability.
At the very moment that strategic ambitions call for greater CSI, several forces • from delayering and
destaffing to greater empowerment and personal accountability • may be conspiring to make CSI more
difficult In the last few years many companies have been taking actions that seemed justified from an
operational efficiency standpoint, but may well have had strong "toxic side effects" that are not fully seen,
nor understood yet. Many of the companies whose management professes to pursue strategic integration
have been destaffing and delayering their middle management ranks, doing away with senior managers at
what used to be business group and sector levels, and disbanding their staff support. At the very time that
corporate strategy demands more integrative capabilities, managerial downsizing may have reduced the
rrequisite integration capabilities. On the other hand, some plausible arguments can be made that CSI
capabilities may actually have been strengthened by the wrenching changes many companies have gone
through. It is of course an empirical question whether companies have or have not destroyed the very
capabilities their new value creation logics call for. But, it would be a sad paradox if American and
European companies in their efforts to rise to today's challenge of global competition were jeopardizing
their chances to successfully rise to tomorrow's competitive challenges. Then corporate anorexia might
indeed become the undesirable but unavoidable final condition (Hamel & Prahalad, 1994). Hence, more
research is also needed to understand which of the plausible arguments are likely to be true and why, and
what the consequences are likely to be.
26
Bartlett & Choshal -00.Bower
t ExistingFrontier
BurgelmanNew
Frontier
Creation ofr. New Context
Managerial Skills: Social, Political (Partnerships, Coalitions)
One UnitInvolved
i1■•■••1111011111111.
tr1
.1i5
la
Compliancewith Defined
Contextalh.
MultipleUnits
Involved
Figure 1: The Strategic Integration Challenge
1 SCOPB I
Sketch
Figure 2: Toward a Framework to Assess Strategic Integration Capabilities
DynamicForces
Ilelayering
DestaffingDownsizing
CompetitiveDifferentiators
InformationTechnologyInnovations
Determinantsof CSI
Integration
IntegrationSkills
Activitiesby
Mid-LevelManagers
InbegrationResourcesEmbeddedKnowledge
Assets
IntegrationTools
ControlSystems,Valuation
Techniques
Dimensionsof CS!
Stretch
Scope
Figure 3: CSI and the "3 Ds"
Figure 3a
CSI Capability
Figure 3b
CSI Capability
3D Intensity 3D Intensity
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