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

4

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

9

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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