Pattern description

An integrator is in command of the bulk of the steps in a value-adding process. The control of all resources and capabilities in terms of value creation lies with the company. Efficiency gains, economies of scope, and lower dependencies from suppliers result in a decrease in costs and can increase the stability of value creation.

Inventive problems

Application examples

US-based Carnegie Steel, founded by Andrew Carnegie in 1870, was an early pioneer of the Integrator model. His company became the second largest steel mill in the world by gaining access both to strategically important iron ore mines and the steel industry’s entire value chain. In addition to buying coal mines and furnaces, which were necessary to produce steel, Carnegie Steel built an entire proprietary railway network to support its operations. In 1901 Carnegie Steel was sold to the United States Steel Corporation for US $400 million (equivalent to around US $10–11 billion in 2014), which allowed the latter company – again with a heavily vertically integrated value chain – to become the global steel market leader.

The Ford Motor Company popularised integration in the automotive industry, which is better known for a very shallow range of manufacture today. Early in the twentieth century Ford began to manufacture many of the components it had previously sourced externally, in order to mass produce its vehicles more efficiently than before. Acquisition of a steel mill integrated steel production directly into the company.

Spanish fashion retailer Zara also employs the Integrator business model. Unlike most of its competitors, Zara decided not to outsource production to garment suppliers in Asia and other emerging economies. Instead the company designs and produces the vast majority of its apparel and accessories in Zara-owned factories in Spain and other European countries. This allows the company to respond to changing fashions and varying demand extremely quickly. In effect Zara is able to bring a new collection from the drawing board into shop windows within a mere two to three weeks. While competitors who produce almost all their clothes in China benefit from a lower cost than Zara, they must do so at considerably slower speed: ocean freight from China to shops around the world alone can take several weeks. If a new collection fails to meet customer expectations, Zara is equipped to make adjustments within a very short time-frame or even stop production entirely. This business model has made Zara one of the most innovative and successful companies in the fashion industry.

References

The Business Model Navigator: 55 Models That Will Revolutionise Your Business