Achieving successful business integration is key for organisational growth and prosperity. Sukhvinder Dhat and Gary Ashton examine the risks and the benefits

Today’s CEOs often risk getting so caught up in the day-to-day running of the business, that they often lose sight of the more strategic issues, such as planning for business growth. More often than not, their time is spent on smoothing out internal frictions than focusing on customers, markets and competitors, and
reorganising or integrating the business for future growth. This can have a detrimental affect on business performance. A survey carried out by PricewaterhouseCoopers in 2000 revealed that 32% of CEOs believed that their inability to reorganise their business could be ‘an impediment to competitiveness’. That figure rose to 41% in 2003.

The pressure to reorganise may come from a requirement to build new infrastructure during phases of rapid growth, respond to new competitive threats, or pursue extra value though merging or acquiring other businesses (local or global). This change can often be seen as oscillating between seeking the drive for
market differentiation, and then seeking the benefits of integration, as Paul Strebel describes in Trajectory Management (see Diagram 1). Each stage of creating market differentiation requires an underpinning of value chain efficiency upon which it can build its differentiation. Hence in most industries, there is the need for some form of business integration at some point or another; and as the market matures, the form of integration becomes ever more advanced.

This is not solely limited to the private sector. In the public sector too, the drive to deliver has forced departments and agencies to join up and where possible, to integrate. Recent examples include the proposal to create a single equality body, the bringing together of the Inland Revenue and Customs & Excise, and the merger of Prisons & Probation Services. In both sectors, the potential rewards they seek can come from areas such as extracting cost savings, building on common skill sets, or re-aligning the organisation behind common customers or markets.

Managing the risks of integration

However, in reality, too many companies fail to successfully achieve their objectives because they do not recognise and manage the risks in delivering a
successful organisation. In particular, the opportunities to extract further value through business integration carries with it a stream of risks. With technology enabling ever-greater degrees of business integration, ER Consultants’ experience has revealed a tendency among business leaders to overlook the human risks associated with its implementation. These include:

Commitment risk: The CEO may have the vision for an integrated organisation, but his top team, with their personal vested interests, may not be so keen, as all they see is an erosion of their own power. If they are not aligned to the future organisation, senior managers are highly adept at operating guerrilla warfare post-integration that can disrupt the delivery of the planned synergies. For example, in globalisation programmes where the business integration across nations is building global functional centres, the country CEO is seeing their power diminishing, even though they are still held P&L accountable. Consequently, tension arises between the central drive for global efficiency and cost savings, versus the decreasing ability of the country CEO to exercise control.

Identity risk: The management and staff of the current organisations may well have a strong sense of identity and loyalty to the existing business. Deconstructing this business and creating a new one can destroy any sense of  loyalty your people had, and so put the delivery of  your benefits at risk.

Meaning risk: One of the biggest causes for failed integration projects has been that the operational management have not understood how the new business is supposed to work. This can lead to confusion and unforeseen errors in execution.

Reputational risk: Equally, your customers could re-evaluate the value of your new business. Anticipating how your customers will respond, and proactively managing the situation can prevent any potential damage that could occur to you and your customers.

People capability risk: Do you have the management capability to lead the transition, and then to operate the new business model? Often,        business integration creates a greater need to collaborate amongst functions and business units that was not needed in the old regime. Leaders used to greater levels of control may find the new regime difficult and unwelcome to operate in.

Systems risk: There will be a need for a new or adapted information system that provides the appropriate decision support to enable the management of the business. Implementing the new organisation ahead of the decision support systems gives you a business without any navigational equipment. Yet waiting for the design and implementation of any new system can slow down to a snails pace, and lose the initiative.

Competitive risk: Could your competitors benefit from the overly internal focus that your management team will have during the transition? For example, businesses moving from a country to global business carry this risk, when the delivery of a product to a local market is slowed down in order to design the product for a global market.

Implementation risk: The creation of an integrated business will require getting the right balance     between being too hasty in delivering the integration and overly specifying the new organisation before starting, which can lead to a loss of impetus.

Delivering successful business integration.

These risks need to be evaluated and managed properly to ensure the planned rewards are delivered. Integration of previously separate businesses requires a combination of hard wiring the structural change with building a commitment for behavioural change necessary to operate the new business.

A well integrated and designed organisation empowers and enables employees to work in highly interdependent, team orientated environments that typify today’s
business marketplace. In addition, the greater the clarity and rationale of the design, the quicker the business is able to operate.

Diagram 1: Oscillating between Convergence and Divergence

Critical to this is the ability to design a dynamic, re-configurable organisational model that recognises and responds to rapid change. Organisations only exist to execute strategies and those strategies can only be executed by the organisation. Success formulas are quickly copied or even surpassed by competitors.

Our approach ensures the effective alignment of strategy, structure, processes, people capability and performance management. This involves:

Step 1: Building an integrated business model

The creation of an integrated business carries with it the challenge of defining how the integrated functions will interface with the differentiated market facing parts of the business. To tackle this, we build and evaluate different business model options that could deliver your integration aspirations. By business model we mean how the components of the new business will inter-connect, how decisions are made between these components, and how the income, costs and profit flows through the organisation.

Step 2: Alignment of structure to process

From the business model, we craft the primary business processes, to define the information flows, decisions and measures, from which the structure and roles are created. In this way we ensure that all roles fit into
a cohesive whole within and between functions, and create a clarity as to how they interconnect.

Step 3: Establishing ownership and commitment through implementation

We cascade the newly integrated organisation down the line, one level at a time, to ensure that each level understands how the new organisation will operate, and owns the creation of their respective departments, and selection of their new teams.

Step 4: Communication and strong change management to build understanding and commitment

Crucial to ensuring successful change is to build understanding and commitment early in the process by getting people both to participate in decision making and feel ownership for a commitment to the new organisation.

Success stories

ER Consultants has helped several companies achieve successful integration using this approach. Examples include:

• Leading the integration of four separate operating companies into a set of market-facing business units, all supported by an integrated supply chain. The process required heavy facilitation of the OpCo MDs to gain a common sense of how the new business would deliver greater benefits than maintaining the focus of the separate businesses.

• Building an integrated business model for a Global R&D function that enabled the delivery of more than the sum of its individual centres, without destroying their individual innovative strengths. We led the leadership team to defining how the centres could be re-configured to have differential focus that added up to a cohesive whole.

• Guiding the integration of multiple supply chains to create a future-proof supply chain management structure and process, flexible for additional channels and products, adaptable to changing customer demands and linking to the growing European supply chain organisation.

• Navigating the creation of a single European organisation with six profit and loss accountable areas, from 18 separate country companies. The new European structure is in place and the employees are operating in the new consultancy-based work-style. This has led to impressive gains in profitability and substantial improvements in new business wins and client retention. Despite the continuing changes, employee satisfaction has increased by at least 16%. And equally important, the business experienced no period of weak performance or compromised client service throughout the programme.