What is Business Integration?
Business integration refers to all the linkages that exist between various activities and processes of a company in such a way that value is added. In a nutshell, business integration models are those management accounting tools that enables business managers to link various activities and processes of an organization for maximum productivity.
A chef for example mixes different ingredients to make delicious meal that we all eat and lick our fingers. Same applies in business settings where business integrator scientifically connects different components of a business into a functional profitable venture.
A lot of people tend to view business integration as all about IT just as many people see Accounting Information System as purely ICT activities. Information technology is only a tool used in the arsenal of tools that helps a business achieve business integration and not an end on its own.
We will be discussing the two most popular business integration models that any enterprise can easily adopt.
Types of Business Integration Model
The two common business integration models are McKinsey’s 7s and Porter’s value chain. These are briefly discussed in the following sections of this write up.
What is McKinsey’s 7s?
McKinsey is a management consulting company that have been around since 1920s. McKinsey’s 7s framework is a management model that was developed by two McKinsey’s employees in late 1970s. For a business to function seamlessly, all 7 components of the 7s must aligned and mutually reinforcing.
The focus of this framework when it was introduced was to boost structure in a firm but events of reality has overtaken this idea and this framework is now more suited to coordinating things which is same as integrating different business processes.
The McKinsey’s 7s provides a framework of linking people, operations, strategy and technology with the sole aim of pushing towards organizational goal. The 7s of McKinsey is classified into two broad groups – The Hard and Soft Factors
Hard factors or elements are those things that are easy to be identified by the management accountant and are easily influenced by the management.
Strategy: a strategy is simply how things are/or should be done in order to achieve competitive advantage. Strategy is made or broken at the operational level. Strategy is a major component of this business integration model; this is so because companies will be floating aimlessly without a proper strategy.
Strategy links to other components of the business integration model is such a way that no one is in doubt of what the strategy of the business is.
Systems: these are formal often documented procedures for performance appraisal including employee reward system. They are tools and technical infrastructures that go a long way in helping employees achieve their potentials. Here, linkages should be established between systems like linking the purchase system with the finance system for example. Good examples of systems are contained in Management Accounting Control Systems. A company can also establish a link between procurement and quality management system.
Structure: this is the organizational and reporting structure of an entry. It deals with how departments are set up to ensure that the business as whole is fully integrated. Reporting should be made in such a way that value is added to the receiving department or individual.
Soft factors are those intangible hard to quantify important facets of the model that must be handles with care in order to achieve desired business integration. Four of such factors are identified within McKinsey’s framework.
Shared value: this is the hub of events that influences all other factors. It is the culture and norms of an organization. Shared values reflect the belief of a company and have a direct link to the mission and vision statement of an organization.
Staff: here, emphasis is on talent management. Staff members have to be optimally motivated. By optimal motivation, we mean not spending too much to get the best out of your staff.
Skills: the organizations ability to do things well. Skills reflect on the overall performance of the going concern. Skills ensure that technology for example is used to crate and add value to the bottom-line of a company.
Style: the way that top officers in the organization chooses to run the business. The nature and industry that a business is in will determine what management style it should adopt. What matters is that whichever management style that is adopted should be able to ensure goal congruence.
What is Value chain model?
Porter’s Value Chain model is a sophisticated model of business integration that aims to reduce non value adding activities. It looks at how business activities and processes are organized with the sole aim of finding and eliminating redundancies. This could be likened to Six Sigma which has proven its worth and has taken the center stage.
The value chain model views a business as series of interlinked activities and processes rather than sets of independent departments. The central theme of Porter’s value chain model is that each activity within an organization should add value (make product as cheap as possible) to products and services passing through it so that positive customer experience will be guaranteed.
Porter categorizes processes into two main groups as: Primary and Secondary.
The primary activities include: Inbound logistics, Operation, Outbound logistics, Sales & Marketing, and after sales service
While the secondary activities are: Procurement (which in my opinion should be a primary activity), Technology development, Human Resource Management, and Firm Infrastructure.
These headings in the value chain model are self explained so I will not make this article longer by explaining them. However, I need to point out that Swim lane that exist between each of these activities should be reduced to the barest minimum so as to ensure seamless integration of things.
How one views a business integration does not really matter. What matters is that business processes are linked in the most effective, efficient and economic way for the sole purpose of achieving organizational goal. When combined with the potency of management accounting control system, business integration model delivers above and beyond results for the organization. Anything short of this is not a business integration model.