73. Integration Zippers

Key Definitions

A business unit is a part of an organization that can potentially be run independently, as a separate business. It generally needs to perform front-office activities that are market-facing (such as marketing and sales), mid-office activities that are product-related (such as production and logistics) and back-office activities that are support-oriented (such as HR and finance).

Leaving business units largely independent allows them to be responsive to their specific market demands. But they can also be partially integrated to realize synergies, such as scale economies and market power (see model 64, Corporate Synergy Typology). Therefore, balancing the level of integration is called the paradox of responsiveness and synergy.

Conceptual Model

The Integration Zippers is a model for thinking about various organizational possibilities between the extremes of total separation and full integration of business units. Using the metaphor of a zipper, the model suggests that business units should be integrated starting from “the bottom” up, at each point considering whether further zipping make strategic sense. The left-hand zipper deals with which activities to integrate, proposing that back-office, then mid-office and finally front-office is the preferable order. The right-hand zipper deals with the manner of integration, advising to first consider only using projects, then to weigh whether ongoing alignment would be better, and then ultimately to even contemplate using full fusion.

Key Elements

The two Integration Zippers consist of the following elements:

1. WHERE of Integration. Not all activities are as easy to integrate, particularly because integration leads to less responsiveness – less ability to differentiate the activity to fit with the specific demands of the market, and less agility to rapidly adapt to market changes. Generally, the further an activity is from the market, the less responsiveness is required, making a potential synergy more attractive. Therefore, the preferred integration order is:
   1. First Back-Office. Support activities such as finance, IT, procurement, research, HR, legal and facility management tend to be less business-specific and therefore easier to share across business units, so they should be considered first.
   2. Then Mid-Office. These are all activities directly contributing to the creation of the product or service, from product development to supply chain, production and delivery, and they can be shared if the creation process is relatively similar.
   3. Finally Front-Office. These are all activities that directly interact with customers and other market actors, including marketing, distribution, sales, and customer service, and can only be shared if the markets are similar. These should be considered last.
2. HOW of Integration. Integration is not a binary choice between “yes” and “no”, but a choice between different levels, from “light” to “tight”, by varying the type of integration mechanism employed – the organizational set-up used to realize the intended synergy. Generally, the tighter the mechanism, the higher the synergy, but also the lower the responsiveness. Therefore, it’s best to start by considering light integration and then evaluate tighter forms:
   1. First Coalition: Synergy by Project. The lightest integration mechanism is to form temporary teams around specific projects, to allow knowledge to be transferred, best practices to be shared or certain customers to be jointly served, all for a limited time.
   2. Then Coordination: Synergy by Alignment. If more permanent collaboration is required, a tighter integration mechanism is to formalize ongoing alignment, to ensure that activities on both sides strengthen to each other, while still staying separate.
   3. Finally Concentration: Synergy by Fusion. If structural coordination is insufficient to achieve the intended synergy, then the tightest integration mechanism will be needed, which is the full fusion of both units’ activities into a merged whole.

Key Insights

• Integration is bringing together business units. When two or more business units give up some of their independence and to work together, this is called integration. Sacrificing their autonomy generally reduces their ability to be responsive to the specific demands of their market but increases synergies. Determining the optimal level of integration depends on finding the preferred balance between responsiveness and synergy.
• Integration has a “where-side” and a “how-side”. Business units need to assess which activities to integrate (the “where” of integration) and in what way to integrate these activities (the “how” of integration).
• Integration can be across three types of activities. “Where to integrate” can be divided into three general categories, based on how far away they are from market demands: Back-office activities (support functions that are often less business-specific), mid-office activities (product-related functions that are more business-specific) and front-office activities (highly business-specific market-facing ones).
• Integration can be at three levels of intensity. “How to integrate” distinguishes three different integration mechanisms: Using coalitions (temporary projects), coordination (continuous alignment) or concentration (permanent fusion).
• Integration should follow the zipper approach. Both “where” and “how” to integrate should be answered by zipping from the bottom up, gradually and thoughtfully considering how far to go to achieve the optimal balance between responsiveness and synergy.