Business Integration
Integration is a process of combining various parts or elements into a more harmonious, effective, and productive unit, and by this process, somehow make the whole greater than the sum of its parts. An integrated team, whether in sport or business, usually performs its tasks, whether winning games or launching a new product, more efficiently and effectively than one that is weighed down by conflict and disunity (Salacuse, J. 2004).
This chapter looks at the issue of integration in a business context. Integration between business functions is discussed, as are the benefits of integrations and mechanisms for achieving integration. The topic of external integration is briefly outlined. The final section of the chapter describes how information systems can be used to facilitate integration
INTER-RELATIONSHIP BETWEEN BUSINESS FUNCTIONS
Integration describes “the quality of the state of collaboration that exists among departments that are required to achieve unity of effort by demands of the environment”. It is the degree of co-ordination and co-operation between different departments with independent tasks.
Problems associated with Functional Structures
When an organisation is structured around functions, each function tends to view itself as an autonomous unit and to ignore or even compete with other units for resources and influence. They also tend not to understand the goals and concerns of the other units, and they blame each other when problems occur. Examples of the problems associated with poor integration are where marketing does not understand why production cannot deliver enough products and sales promises new innovative features that R&D cannot deliver.
Benefits of Integration
The benefits of integration include:
- Reduced costs through more efficient and effective operations
- Improved productivity
- Reduced time to market with new products
- Improved quality of products and services
- Improved customer service
- Reduced cost of inventory
- Greater flexibility
- Improved access to information for operational staff and management
Mechanisms for achieving better Integration
How to achieve greater levels of integration is a major strategic issue facing most organisations today; whether internal integration of business processes and functions or external integration with suppliers and business customers.
The mechanisms used to achieve integration depend on the amount of integration required and the difficulty in achieving it. The following are some methods that can be used:
- Encouraging direct contact between functions: Regular meetings between managers of the different functions can encourage a sharing of ideas and information and can lead to collaboration between functions.
- Policies, rules and procedures: Firms also integrate their business functions by formalising the ways in which functional activities are performed across functions and business units. This integrating approach relies on standardised work procedures, rules, policies, and manuals.
- Move People between functions: The moving of people from one functional area or one business to another can help broaden their skills. Such movement does not guarantee integration, but it does mean that many people in one functional area or business will have a good understanding of other areas, which improves their potential for cooperative effort when needed.
- Teamwork: Integration may be attempted through teamwork and mutual co-operation
- Product teams: One now widely used and successful method of integrating functions is the use of product teams. All relevant functions are represented on the team, and they coordinate their activities from the outset so that the functions mesh. For example, engineering and manufacturing will cooperate in the design of the product to ensure low cost and high product quality. Both will cooperate with marketing to ensure customer acceptance and satisfaction. This approach is particularly suited to manufacturing organisations.
- Project teams: As the requirements for the amount of integration increases additional methods may be adopted such as formal lateral (horizontal or cross functional) relations, committees and project teams. Project teams can be used successfully in both manufacturing and service organisations.
- Integrators: The use of “integrators” may be useful in organisations where there is a high level of differentiation between departments. Because they are not dominated by any particular perspective, these integrators can help resolve problems of co-ordination and work programming between different departments.
- Organisational structure: Structuring is perhaps the most obvious method of integration. A matrix organisational structure can be used to achieve integration between functions. The matrix structure is described in chapter 3.3.
- Integrating Business Processes: Operating in a global environment requires an organisation to focus on the efficient execution of its processes, customer service, and speed to market. To accomplish these goals, the organisation must exchange valuable information across different functions, levels, and business units. By integrating its processes, the organisation can more efficiently exchange information among its functional areas, business units, suppliers, and customers.
- Information systems: The use of information systems provides another method for integrating business functions. The key information systems that can be used to integrate business are discussed in section 13.3 of this chapter.
It is important to achieve the right balance of integration. Too high a level of integration may involve costs that are likely to exceed possible benefits. Too low a level of integration is likely to result in departments “doing their own thing”, poorer quality decisions and a failure to make the best use of resources.
Sources: Mullins, L, 2004 and Locke, E, 2002
OTHER TYPES OF INTEGRATION
Integration of Business Units within a Corporation
Corporations are large organisations that are composed of many different business units often located in different countries. Corporations strive to integrate these business units to gain synergies such as sharing logistics, purchasing or sales functions.
A recurring issue with corporations involves the number of business units a company will have. The problem with too many units is that they cannot be understood as a whole and thus cannot be coordinated. For example, when Jack Welch took over General Electrical in 1981, it consisted of 350 separate businesses and a much greater number of product lines. After selling off the weak product lines, he combined the remaining units into 15 business units.
This made the task of integrating the business units more manageable.
Integration of New Acquisitions or Merged Businesses
When an organisation acquires or mergers with another organisation they will often struggle to integrate the two businesses and the success of the acquired or merged business will often depend on how well it can be integrated with the existing business.
Collaboration with Other Businesses
The trend in many industries is for companies to work closely with small numbers of preferred suppliers and customers. The relationship between these businesses has become one of partnership and collaboration.
The main pressures on companies are reduced delivery times, prices, costs, stocks, and product lifecycles and increased customisation and flexibility. To respond to these pressures companies have integrated their supply chains leading to greater information and cost sharing, coordination, joint forecasting and planning. Also by sharing information organisations and their suppliers can react more quickly to changes in demand.
INFORMATION SYSTEMS FACILITATING INTEGRATION
For many organisations, the key to improved productivity and decision-making is the expanded use of information systems. Such systems can help to improve the integration of business functions and processes.
Systems Integration
The use of functional systems can impact negatively on the effectiveness of today’s organisations. Functional systems may prevent different departments communicating efficiently with each other. For example, account numbers in information systems developed along department lines may not be logically related and so cannot be used for crossreferencing a customer’s accounts. It can also be difficult to integrate the information needed for decision-making. In some cases crucial sales, inventory, and production data often have to be painstakingly entered manually into separate systems every time they need to be processed together. In many cases employees simply do not get the information they need, or they get it too late. For optimal use of information, integration should cross not only department boundaries, but also organisational ones, reaching suppliers and customers. The following are some of the benefits of system integration:
- Tangible Benefits: Inventory reduction, personnel reduction, productivity improvements, order management improvements, IT cost reduction, cash management improvements, revenue/profit improvements, reduction in transport and logistics cost, maintenance reduction and on-time delivery improvements.
- Intangible Benefits: Information visibility, new and improved processes, improved customer responsiveness, standardisation and flexibility. (Source: Turban, Rainer & Potter: 2003)
Two approaches to integration systems are:
- Integrate functional systems
- Cross functional systems
Integrated Functional Systems
Functional systems such as Sales Order Processing, Payroll, Accounts Payable and Inventory systems were traditionally stand-alone systems with no interface between them. If information needed to be transferred between systems it had to be printed on one system and typed into the other system.
One approach to integrating these functional systems is to build interfaces between them allowing data to transfer electronically from one system to the others. This is a complex process as the systems are generally developed by different companies and have different data structures.
A second approach is where software vendors develop integrated software packages. Examples of these integrated packages are Integrated Accounting Packages and Computer Integrated Manufacturing (CIM) Systems.
While these types of systems are more efficient than stand alone systems, they are limited by the fact that they tend to focus on one particular functional area.
Cross Functional Systems
Many organisations are using information technology to develop integrated cross-functional enterprise systems that cross the boundaries of the traditional business functions. These systems can be used to share information and improve the efficiency and effectiveness of business processes and to develop strategic relationship with customers, suppliers and business partners. The main cross-functional enterprise systems are:
- Customer Relationship Management (CRM) Systems
- Supply Chain Management (SCM) Systems
- Enterprise Resource Planning (ERP) Systems
Customer Relationship Management (CRM) systems
Customer relationship management involves the use of information systems to coordinate all of the business processes surrounding the firm’s interaction with its customers in sales, marketing, and service.
CRM systems are designed to provide information and tools to deliver superior customer experience and to maximise customer lifetime value to the business. CRM systems integrate customer data from all over the organisation to provide a single enterprise view of the customer that can be used for improving both sales and customer service. CRM systems can also provide customers with a single view of the company.
See Chapter 10 for more details on Customer Relationship Management and CRM Systems.
Supply Chain Management (SCM)
A supply chain refers to the flow of material, information, payments, and services from suppliers through factories & warehouses to end customers A supply chain also includes the organisation and its processes. The function of Supply Chain Management is to plan, organise, coordinate & control supply chain tasks. SCM uses Information technology to support & manage the links between a company’s key business processes & those of suppliers, customers, & business partners
SCM systems are cross-functional computer systems that attempt to integrate the processes involved in Procurement, Logistics and Manufacturing in order to ensure that customers are supplied with goods and services in a timely and efficient manner. SCM systems seek to overcome traditional problems caused by demarcation lines and lack of communication between business functions that need to collaborate to ensure satisfactory fulfilment of customer orders.
SCM seeks to simplify and accelerate operations that deal with how customer orders are processed through the system and filled. The goal of SCM is to create a fast, efficient, and low-cost network of business relationships, or supply chains.
The benefits of SCM include: o Faster, more accurate order processing
- Reductions in inventory levels and quicker time to market o Lower transaction and materials costs
- Companies that are more flexible & responsive to customer demands
Note: Both CRM and SCM systems can be difficult to implement because of the complexity of the systems and the need for buy-in by the different departments and functions.
Enterprise Resource Planning (ERP) Systems (ERPS)
Enterprise Resource Planning (ERP) is a process of managing all resources and their use in the entire enterprise in a co-ordinated manner. The main objective of ERP is to integrate all departments and functions across a company onto a single information system that can serve all of the enterprise’s needs. For example improved order entry allows immediate access to inventory, product data, customer credit history, and prior order information. This availability of information raises productivity, quality, and profitability, and increases customer satisfaction. The implementation of ERP is done by commercial software available from companies such as SAP and Oracle.
Main Features of ERP Systems (ERPS)
The Main features of a typical ERP system are:
- They attempt to provide a total solution to an organisation’s information systems needs
- An ERP System consist of a core module and a number of integrated modules which cover the common business functions such as Marketing, Sales, Production, Accounting, HR etc. (figure 13.1)
- They adopt an integrated approach within functions and between functions.
- The modules can be configured to suit individual needs of particular organisations
- They are very expensive to purchase and implement, and therefore tended to be used by only the larger organisations that could afford them.
Some companies are now offering less expensive ERP systems that are tailored to the needs of smaller organisations.
Group Interworking
Groupware is an information system that enables groups to work together electronically. Groupware provides capabilities for supporting organisation-wide communication and collaborative work. Individuals, teams, and workgroups at different locations in the organisation can use groupware for the following activities:
- Writing and commenting on group projects
- Sharing ideas and documents
- Conducting electronic meetings
- Tracking the status of tasks and projects
- Scheduling meetings and activities
- Sending e-mails.
Any group member can review the ideas of other group members at any time and add to them, or individuals can post a document for others to comment or edit. Many Groupware systems have been enhanced to integrate with the Internet or private intranets (Loudon and Loudon, 2004).
Lotus Notes and Microsoft Exchange are examples of Groupware Systems
