The strategic management process provides an organization with a specific framework within which decisions are made. The goal of strategic management is to align the day-to-day activities of the organization with its mission statement. Integration in the strategic management process is a common issue for corporations that own more than one business. Strategic integration consists of incorporating the strategies of a corporation’s various business units to share resources and provide greater return on investment for the organization as a whole.
The strategic management process begins with a mission statement that articulates the organization’s reason for existing. Organizational leaders then develop objectives and strategies designed to drive the business toward achieving this mission. Strategies are typically implemented in the form of programs, policies and procedures. This seemingly simple, step-by-step process becomes complicated for organizations that own multiple businesses that may either compete with one another or supply goods for one another.
Vertical integration refers to the degree with which a business unit is integrated with its suppliers and buyers. Suppliers are typically referred to as existing “upstream” from the organization, while buyers are considered “downstream.” Vertical integration strategies in strategic management are typically used when organizational leaders have identified a need or desire to expand into new industries. For example, the vertical integration strategies of a fast food chain might include the purchase of a cup factory or a bun factory in order to cut the costs of those supplies. Benefits of vertical integration strategies include enhanced product quality and increased profitability.
Horizontal integration in strategic management is typically a single-industry strategy. Horizontal integration often includes the practice of acquiring and/or merging with other businesses within the same industry to achieve organizational objectives. For example, a shoe company may decide to acquire a competitor in order to obtain a greater share of the market. Some of the benefits of horizontal integration strategies include a lower cost structure, reduced industry rivalry and increased product differentiation.
The strategic management of integrative strategies is essential for identifying all possible factors which may contribute to or hinder the success of the multi-business corporation. Organizational leaders must consider a variety of factors when choosing the appropriate strategies for their individual situation. For example, while a horizontal integration strategy might improve the corporation’s market share, too much horizontal integration may lead to anti-trust issues. The strategic management process is designed to identify such issues in advance through the use of such tools as the PEST analysis, which identifies the political, economical, societal and technological factors that impact the organization as a whole.