The Globally Integrated Enterprise: Developing Enterprise Integration as a Strategic Capability

By Maximilian Chowanetz and Sia Siew Kien

Many large enterprises have embarked on enterprise integration (EI) initiatives in recent years. Below, Maximilian Chowanetz and Sia Siew Kien suggest that while an organisation must plan well and be forceful in driving its EI efforts, it must also work continuously to sharpen the focus of its EI capability.

Dynamic forces such as globalisation, intense competition, and market innovation are driving enterprises towards greater differentiation to focus simultaneously on customers, products, geographies, and functions. But at the same time, such sophisticated differentiations create fragmentations that restrict an organisation’s ability to achieve ‘unity of efforts’ such as leveraging global resources and delivering integrated services to customers. As a response to these issues, many large enterprises have embarked on enterprise integration (EI) initiatives in recent years. For example, IBM is striving towards one globally integrated firm to ‘bring the best of global resources, whether ideas, technology, initiatives, and people, to bear on any customer problem anywhere’.¹ Similarly, UBS is re-establishing itself as an integrated global financial powerhouse with the vision ‘One Firm, One Brand, and One Future’, rather than a conglomerate of multiple brand identities.² More recently, Microsoft executives have also begun a radical transformation through its ‘One Microsoft’ strategy to bring a more coherent and holistic experience across its product lines for its users and developers.³

However, such ambitious EI attempts are fraught with challenges. Our study of EI initiatives (see research methodology over page) reveals that successful enterprise integration requires simultaneous attention to tackle the challenges in systems, operational, and strategic integration. Systems integration provides a consistent, consolidated, and scalable IT infrastructural platform enterprise-wide. Operational integration enables the design of end-to-end process flows along the enterprise value chains. Strategic integration forges cohesion across the disparate business strategies towards greater enterprise synergies.

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Key Challenges in Systems Integration

The need for systems integration arises from the increasing digitisation of global enterprises. Having an integrated system infrastructure facilitates the flow of expertise and knowledge exchange. It involves managing the connectivity and compatibility of data, applications, and infrastructure, often supported by a range of technologies.

Oracle, for example, had to deal with the problems of its autonomous subsidiaries in different countries. It used to have 97 email servers running seven incompatible programs. Each country had its own ERP system and its own website in the local language.⁴ In integrating the enterprise, all emails were consolidated into one standardised, global system using two servers at Oracle’s California HQ. ERP customisations that differed in every country in Europe have been standardised and operated from a single central source.

However, such systems integration efforts are not without challenges. Our interviews with EI champions reveal some common issues:

• Managing infrastructural or systems incompatibility – Even when an organisation is using the same system, incompatibility issues can still arise. For example, a large Asian logistics organisation used SAP system to integrate its enterprise operations. However, the system used by its HR division (SAP 6.0) was different from the version used by its logistics and finance divisions (SAP 4.7). The incompatibilities were due to the different implementation instances and the timing of such implementation.

• Managing data and application heterogeneity – Data and applications from different legacy sources pose significant problems in systems integration, resulting in substantial efforts in rationalising, standardising, mapping, migration, and testing. The legacy systems of one large HR consulting company, for example, comprised a myriad of 52 IT applications. The systems integration through ERP system involved massive efforts, including a separate engagement of its external consultant to develop a rigorous data conversion and migration approach.

• Managing myriads of internal and external connectivity – Despite the fact that ERP systems are already well-integrated, more integration is still needed. These systems do not exist in isolation, but are connected to other internal and external applications. The myriad of system interfaces that need to be dealt with can increase the complexity of systems integration. In the case of a large logistics service provider, the new ERP system implemented (though massive) was just part of a larger technological architecture. There were over 290 interfaces to connect to and various transfer formats that had to be complied with.  Challenges arose when cooperation had to be sought from various parties to test these linkages, resulting in significant project delay.

 

Key Challenges in Operational Integration

Another element of EI relates to the integration of end-to-end business activities. Business processes are redesigned to make multiple units work together. Effective integration is typically facilitated through embracing a customer perspective in streamlining or redesigning the transaction flows for superior process outcomes. The payoffs from such operational integration have been well-documented, for example, in the process management and reengineering literature.

Given that information sharing is at the heart of operational integration, a major development is in embedding integrated processes into IT systems. Tektronix Inc.⁵, for example, embarked on the integration of its worldwide supply chain operations with a global ERP implementation. Similarly, IBM Technology Group⁶ also implemented ERP to support its complicated business operations around the world.

Again, our interviews reveal some common issues in operational integration:

• Rationalising variants in business data – Different business units (BU) along the process chain may have different ideas as to what certain data fields actually mean.  In one of the organisations we studied, for example, the same item was categorised differently by a different BU. A ‘chair’ would be recorded as an asset by one BU and to be tracked until condemned, but to another BU, the chair was simply an expense item. The difference meant that extra work was needed to synchronise the consistent treatment of business data, in order to have shared data that made sense and would be useful to each BU.

• Rationalising variants in business processes – Differences can also arise due to disagreement on whose business process is to be deployed as the standard process template. In the case of a large logistics service provider, the engineering maintenance process for Land BU (e.g., truck maintenance) was less complex compared to the same process for Air BU (e.g., helicopter maintenance). Air BU thus had more complex requirements (e.g., with maintenance process configured at the sub-component level) while such details were not necessary and deemed cumbersome for other BUs. Resolving such differences took substantial efforts as the respective BUs tended to protect their own interests.

• Redistributing work in end-to-end process redesign – Operational integration may also require radical process redesign that redistributes the workloads among workers in the process chains. For example, some data entry work may be done locally, while other analysis or approval tasks are consolidated in regional centers. The costs and benefit of EI may fall disproportionately on different stakeholders. In one of the organisations we studied, the redesign of its enterprise procurement process led to the debate of who should perform the laborious data input for detailed asset reporting.

 

Key Challenges in Strategic Integration

Beyond just focusing on system fragmentations or operating interdependencies, the next element of EI relates to the notion of strategic integration. Strategic integration seeks to forge greater cohesion across the disparate business strategies within the enterprise. It balances the tension between reinforcing the core strategy and redirecting strategy to exploit growth.⁷ Effective strategic integration enhances the coherence in enterprise vision, clarifies its strategic prioritisation, and facilitates individual sense-making of apparent organisational contradictions. To facilitate strategic integration, new structural units may need to be established, existing reporting relationships realigned, and incentive system redefined.

Such strategic integration efforts are often the most challenging as they involve contentious debates with direct resourcing implications. Our interviews reveal some common issues:

• Lack in strategic clarity for EI – Even as organisations embark on EI, the clarity of EI as an enterprise strategic thrust may remain vague. It is often unclear how EI relates to the other strategic initiatives within the enterprise. Sometimes, incompatible artifacts of old or other strategies are not removed. One public sector organisation in our study was seeking to leverage the new visibility in EI to embark on a New Financial Paradigm whereby BU managers would be empowered to manage their own budgets. Despite the intended financial empowerment, little had changed since the old practice of discretionary budget (re)allocation by senior management still prevailed.   Yet, at other times, artifacts of new strategies are not sufficiently institutionalised. An IT executive of a large automotive manufacturer noted the omission in realigning incentive systems in its EI initiative. The intended global, enterprise-wide orientation would never be fully internalised by the BUs, given the continuation of its predominantly local incentive system.

“Management should adopt a holistic perspective towards EI, paying close attention to key challenges in systems, operational, and strategic integration.”

• Lack of coherence across multiple business strategies – The challenge in strategic integration is not just about removing old barriers and building new EI artifacts, it is also about developing coherence across multiple business strategies within an enterprise. For example, how should different autonomous BUs operate together now? Can EI and these BU strategies operate complementarily? One organisation in our study did exactly that. For greater market responsiveness, it chose to keep its BUs operating independently. However, the organisation was still able to tap on the benefits of EI by actively identifying and defining areas of cross-BU synergies. Cross-BU collaborations were spelt out for specific sections of the business processes, e.g., integrated procurement and integrated maintenance where enterprise economies of scale could be tapped, integrated service provision where it was crucial to present one consistent face to the customers.

• Sustaining the strategic vision of EI – Another common challenge in strategic integration relates to the turnover of key EI champions. Given the enterprise scale of EI, it is necessarily a long-term 3-5 year strategy. However, due to various reasons (e.g., burnout, promotion, replacement), the turnover of key management personnel is often high. Consequently, the grand EI vision tends to slip into the background after the initial 1-2 years. Many organisations in our study faced such issue. In one organisation, its key project sponsor left after two years. Subsequent replacement was a director at a lower management rank. The rationale of EI had to be re-sold to the new director, who seemed to prioritise other initiatives. The dilution of senior management’s commitment seriously jeopardised the EI efforts.

 

Key Insights for Enterprise Integration

The analysis of our findings reveals the complexities of enterprise integration efforts:

1. Enterprise integration requires the simultaneous tackling of various challenges in systems, operational, and strategic integration

Management should adopt a holistic perspective towards EI, paying close attention to key challenges in systems, operational, and strategic integration. Part of the EI problem we observed is indeed an overly narrow focus of EI. Be it systems, operational, or strategic integration, the challenges are not trivial and can surface at different stages of EI. The hardest issues surround the building of consensus across the enterprise, i.e., how best to reconcile the interests of multiple stakeholders. The different BUs in a large steel manufacturer, for example, came up with extraordinary numbers of ‘vital’ requirements – which, as it turned out later, was mostly motivated by the underlying competition among BUs to secure more resources. Thus, there is a need to establish credible collaborative platforms to facilitate constructive engagement across the enterprise. Otherwise, the process is prone to political bickering, ‘loudest win’ negotiations, and unproductive deadlocks.

 

2. Enterprise Integration Requires the Continuous Alignment among Systems, Operational, and Strategic Integration

Beyond the need to ensure enterprise-wide coordination, it is also critical that systems, operational and strategic integration are properly and continuously aligned. Traditionally, each is driven by different management executives: systems integration is driven by CIOs; operational integration is driven by COOs/CFOs while strategic integration is driven by CEOs and BU managers. The different drivers may have different agendas and different levels of urgency. Inadequate alignment constrains the realisation of benefits for EI. For example, even when there is significant progress in systems integration and operational integration, the lack of strategic integration (as manifested in the conflicts among corporate strategies) can lead to a gradual loss and the eventual abandonment of the EI vision. Again, there is a need for a collective forum to ensure sufficient dialogue in aligning systems, operational, and strategic integration. However, unlike the earlier forums that span the enterprise, the new forums (e.g., a strong executive team) should facilitate the interaction among the CIO, COO/CFO, CEO and BU managers.

 

3. Such Challenges of EI Continue after Implementation

Moreover, our analysis also reveals that these challenges are not just restricted to the EI implementation phase, but continue to persist even after implementation. There is thus a need to ensure sufficient institution of EI governance. We saw how formal enterprise-level governance mechanisms were gradually instituted to guard against the continuous pressure to diverge, e.g., through the establishment of the enterprise architecture group, systematic business process management, and the appointment of business process owners. An automotive supplier also emphasised the need for an executive-level ‘integration office’ to continuously define, enforce, update, and renew the EI strategies and to resolve conflicts arising out of those strategies.

Sometimes, due to years of decentralised and silo thinking, there is also a need to institutionalise new learning in discovering the potential synergies from EI. The large Asian logistics service provider, for example, established three strategic committees which actively engage multiple stakeholders to define collaborative relationships, clarify strategic outcomes, and measure the related business value of EI. Such emergent learning is necessary as organisations take time to see new possibilities for the new EI scenarios.

 

4. Active Anticipation of New Integration Opportunities or Disintegration Possibilities

Finally, the frequent encountering of business dynamism (e.g., many instances of merger and acquisition that directly hampered the EI efforts in our interviews) suggests the need for a more agile approach towards EI. EI as a business strategy should be continuously scrutinised. The frequent acquisitions and disposals necessitate building organisational capabilities not just to integrate but also to ‘disintegrate’ – ‘quick connect and quick disconnect’.⁸ Finding the sweet-spot for EI is a process of learning and discovery. Enterprises need to find the most sensible way of integrating various enterprise components – which should be tightly integrated, which should be loosely integrated, and which should not even be integrated. For example, instead of going with the development of a comprehensive core banking system for tight systems integration, a large Bank decided to employ a looser ‘GUI integration’ as a first step to cope with complexity of applications and interfaces, i.e., with one web portal integrating 30-40 underlying applications.

In another case, a leading automotive supplier had originally pursued a strategy of integration for years. Recently, it became apparent that an increasing number of key functional areas suffered from a lack of flexibility and functionalities after ‘being integrated’. After intense internal debates, a management decision was made to step back from the aspiring strategy of ‘full integration’ and allow for critical functional areas (e.g., R&D, engineering) to remain with their respective business units.

The process of enterprise integration is thus highly complex and dynamic. The interdependencies designed into enterprise integration may just be inappropriate, too costly, or vary over time, depending on the strategic shifts of an organisation. While an organisation must plan well and be forceful in driving its EI efforts, at the same time, it must remain open and work continuously to sharpen the focus of its EI capability.

About the Authors

Sia Siew Kien is an Associate Professor and the Director of the Information Management Research Centre at Nanyang Business School, Nanyang Technological University. His research and consulting experience focus on process redesign, enterprise systems, enterprise integration, complex IT organisation design, and digital capabilities in global enterprises.

Maximilian Chowanetz is a PhD Student and Research Assistant at the Department of Information Systems Engineering, University of Würzburg. His research focus is on enterprise integration and he has conducted many field studies investigating its antecedents, moderating factors and impacts.

 

 

References

1. Rosabeth Moss Kanter, “IBM in the 21st Century: The Coming of the Globally Integrated Enterprise” Harvard Business School, 2009 Case No. 9-308-105.

2. Rajiv Lal, Nitin Nohria, and Carin-Isabel Knoop, “UBS: Towards the Integrated Firm,” Harvard Business School, 2007 Case No. 9-506-026.

3. ZDNet, 20/09/2013

4. Sumantra Ghoshal and Lynda Gratton, “Integrating the Enterprise,” MIT Sloan Management Review, 2002 Vol. 44 No. 1, pp. 31-38.

5. Robert Austin, Richard Nolan, George Westerman, Mark Cotteleer, “Tektronix, Inc.: Global ERP Implementation,” Harvard Business School, 1999 Case No. 9-699-043.

6. Andrew McAfee and Kerry Herman, “IBM Technology Group,” Harvard Business School, 2003 Case No. 9-600-010.

7. Robert Burgelman and Yves Doz, “The Power of Strategic Integration,” MIT Sloan Management Review, 2001 Vol. 42. No. 3, pp. 28-38.

8. M. Lynne Markus, “Paradigm Shifts: E-Business and Business/Systems Integration,” Communication of the AIS, 2000 Vol. 4, Article 10.

 

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