Horizontal & vertical integration strategy: Meaning Types Examples

Companies often pursue acquisitions in an attempt to get something specific. For example, Microsoft specifically wanted to enhance its presence in the video game market. This example of an acquisition shows an often deliberate strategy for a specific sector in which a company wants to achieve a very specific goal. When two companies merge, two separate entities create a new, joint organization. The brand of one of those two companies is usually retained, though the composition of operations and personnel is shared between both of the former individual companies.

  1. All these types of mergers and acquisitions allow companies to take advantage of the economy of scale due to the transfer that is achieved of resources and skills.
  2. The acquired and merging business should be suitable to market and customers’ expectations.
  3. Buyers that fail to successfully integrate companies quickly and efficiently will struggle, especially in a slow economic recovery.

And his field study of Hewlett-Packard highlighted the difficulty of scope-driven strategic integration in a highly fragmented company. The study of the first nine months of Carly Fiorina’s tenure as HP’s new CEO (July 1999 to April 2000) focused on her efforts to create a CSI capability. When a business takes over the distribution system and sells its products/services directly to the customers. For instance, an automotive and mobile brand opens up its retail showrooms to sell vehicles and mobile phones directly to the end consumers.

Strategic integration is the gradual combination and transformation of independent components of business organizations into cohesive and synergistic entities. Strategic integration is an important element in the process of improving organizational performance because it facilitates the continuous alignment of business strategies within the ever changing business environment. Firms use strategic integration to confront the consequences of both predictable transitions and unpredictable challenges that are bound to occur at different levels of business operations. Business strategies, corporate strategies, and functional strategies are the three main levels of strategies that organizations seeking systematic integration adopt for purposes of creating sustainable competitiveness. A horizontal integration strategy provides value to an organization through mergers and acquisitions.

Horizontal Integration

By checking out the pros and cons of each solution, you can make a smart choice that fits your needs and sets the stage for a smooth integration. It’s like having a solid game plan that helps different parts of your business work together smoothly. This coordination is crucial because it makes things efficient and saves time and money. Netflix is one of the world’s largest paid online video streaming companies. The company follows the forward vertical integration by controlling the distribution of its video content.

Forward integration can improve distribution efficiency and customer service but might also alienate independent distributors. Backward integration can ensure a more reliable or cost-effective supply of inputs but also involve significant capital expenses and management challenges. An integration strategy aims to ensure that the two companies’ operations, cultures, systems, and processes are successfully combined to realize the benefits of the merger or acquisition. These benefits include cost savings, increased market share, access to new markets, or improved capabilities. Gone are the days when a company’s technology suite was centrally owned by IT. Today, companies – and separate departments within those companies – are free to choose the technologies they need to execute their own, often siloed, business strategies.

Account-Based Marketing Strategy & Approach Examples

In other words, horizontal integration in similar businesses is when a fast-food brand merges with the chain of the related business in the other country and foreign market. Integration strategy also goes by the name of the management control https://1investing.in/ strategy. As the name implies, it provides the business an option to have control over various processes like competitors, suppliers, or distributors. Any successful business person wants to be in charge of its business operations.

This is in contrast to vertical integration, where firms expand into upstream or downstream activities, which are at different stages of production. An acquisition is an example of vertical integration if it results in the company's direct control over a key piece of its production or distribution process that had previously been outsourced. Companies may sometimes find themselves at the whim of suppliers who have market power.

Digital transformation is a journey, and, like all journeys, the path from one destination (your present state) to another (your ideal or target state) won’t be a straight line. Along the road will be a number of intermediate states your organization will achieve as it progresses, and these milestones should be outlined on your digital transformation roadmap. They will serve as an invaluable reference to ensure that you are remaining on-course, as well as a means of measuring progress. Navvia highlights that although the details of each company’s roadmap will naturally be different, there are a few core elements that every digital transformation roadmap should include.

Why You Need an IT Integration Strategy

This also includes heavy upfront capital expenditure requirements to acquire the proper company, integrate new and existing systems, and ensure that staff is trained across the entire manufacturing process. A clothing manufacturer can sell its finished products to a middleman, who then sells them in smaller batches to individual retailers. If the clothing manufacturer were to experience forward vertical integration, the manufacturer would join a retailer and be able to open its own stores.

Tools that prioritize in-person or remote service or offer stripped-down features to one cohort of users can leave customers feeling like they’re getting less than what they paid for and are less likely to return. Before our world was as interconnected as it is today, businesses could get by with a mix of digital tools and analog systems, or small stacks integration strategy meaning or constellations of tools that performed a few crucial functions like email and bookkeeping. In addition to those potential obstacles, creating a larger company may result in increased bureaucracy and reduced flexibility. There is also a significant chance of failure if there isn't synergistic energy between the two companies and their cultures clash.

Why You Need a Digital Transformation Roadmap

Vertical integration is the practice of acquiring different pieces along a supply chain that a company does not currently manage. Horizontal integration is the practice of acquiring similar companies to further master what it already does. Vertical integration makes a company broader while horizontal integration may help it penetrate a specific market further. A successful integration strategy involves looking across the entirety of both companies involved in a deal and converting the acquisition strategy into specific strategies for all areas of the organization. In this sense, there’s no one-size-fits-all for each part of the new enterprise or even for each deal. The degree of speed, consolidation and other aspects of an integration strategy can and often does vary, and some areas may not be integrated at all.

This typically happens after a merger or acquisition but could also occur when forming a strategic alliance or joint venture. Horizontal integration and vertical integration are two different growth strategies that can help companies expand their business. Although the ultimate goals may be the same, there are important differences between the two strategies. Horizontal and vertical integration also have potential downsides that companies need to consider before embarking on either of them. Horizontal integration also allows companies to cut down on their costs by sharing technology, marketing efforts, research and development (R&D), production, and distribution. So, ideally, the expanded department store chain would be more profitable than the two chains were when they operated separately.

Internal Expansion

Sometimes, a businessman has to play a leading role in order to get things in line. Integrations strategy is also about taking control over your business operations. Mobile apps, CRM systems, ERP systems, security systems, IoT, enterprise SaaS applications, the cloud – today’s organizations are brimming with technology. Depending on the size of the organization, its age, culture, and industry, the number of applications the business relies on to complete critical daily tasks can run into the hundreds.

Strategic integration aims at achieving synergy through creation of compatibility and interdependence across varied organizational groups, processes, and activities that are autonomous in nature. Therefore, strategic management can be perceived as a component of strategic integration. This form of vertical integration is aptly named as a company often strives to acquire a raw material distributor or provider towards the beginning of a supply chain. The companies towards the start of the supply chain are often specialized in their distinct step in the process (i.e. a wood distributor to a furniture manufacturer). In an attempt to streamline processes, the furniture manufacturer would try to bring the wood sourcing in-house.

In horizontal integration, a business grows by purchasing related businesses—namely, its competitors. In vertical integration, on the other hand, a business acquires another company to give it greater control over the stages in its supply or distribution chain. Horizontal integration and vertical integration are growth strategies that companies use to consolidate their positions and set themselves apart from their competitors. While both involve acquiring other businesses, either approach can help companies expand. As the name implies, balanced integration is a combination of forward integration and backward integration.

Next, the company controls the railroads to support the distribution of raw material and final products. That’s how Carnegie Steele Company manufactures cheap steel and controls the steel market. Your roadmap will also enable different teams to work on different parts of the transformation, yet still stay aligned. What’s more, your IT integration strategy should also include a plan for how you will train employees to use the new technology, and how they will transition into this new phase of your business.

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