Many of the world's leading firms are developing a new model of industrial organization based on systems integration. Rather than performing all productive tasks in-house, companies are building the capabilities to design and integrate systems, while managing networks of component and subsystem suppliers. This article illustrates how systems integration evolved from its military, engineering-based, origins in the 1940s and 1950s to a modern-day strategic capability across a wide variety of sectors. Taking a resource-based view of the firm, the article shows how systems integration capabilities underpin the way high-technology companies compete by moving selectively up-and downstream in the marketplace through the simultaneous "twin" processes of vertical integration and disintegration. Systems integrators of capital goods move downstream into service-intensive offerings to expand revenue streams and increase profitability. By contrast, producers of high-volume components and consumer goods use systems integration capabilities to exploit upstream relationships with input suppliers. In both cases, strategic options and capabilities are shaped by the life cycle of each product. The article develops a clearer understanding of systems integration, arguing that it now represents a core capability of the modern high-technology corporation.
M. Hobday, A. Davies, and A. Prencipe
Recent research shows that both faces of systems integration have taken on a more strategic character and that systems integration is a capability central to the competitive advantages of prime contractors such as General Electric, ABB, Dell, Ford, IBM, Hewlett-Packard, BAE Systems, Cable & Wireless, Siemens, Nokia, Rolls-Royce, McDonell, and Thales. As industry leaders, one of their main tasks is to integrate together various kinds of technology, knowledge, and hardware supplied by other organizations involved in production. Although these arguments are often put forward by major firms themselves, 2 there is little study of the nature and importance of systems integration in practice. The article therefore provides an assessment of the historical literature and an analysis of recent research on the subject. 3 This evidence shows that systems integration rapidly developed in the 1940s and 1950s in the military arena, and then spread to other capital goods and high-volume industries. Evolving from an engineering practice (as part of the wider discipline of systems engineering) to a strategic business activity, systems integration has become increasingly important for organizing networks of production both within and across many high-technology firms. We argue that systems integration has evolved beyond its original technical and operational tasks to encompass a strategic business dimension becoming, therefore, a core capability of many high-technology corporations.In its broadest sense, systems integration can be defined as the capabilities which enable firms, government agencies, regulators, and a range of other actors to define and combine together all the necessary inputs for a system and agree on a path of future systems development. In the narrower sense of firm capability, systems integration is concerned with the way in which firms and other agents bring together hightechnology components, subsystems, software, skills, knowledge, engineers, managers, and technicians to produce a product in competition with other suppliers. The more complex, high technology, and high cost the product, the more significant systems integration becomes to the productive activity of the firm.In order to better understand systems integration from the perspective of the competing suppliers, the article adopts the resource-based view of the firm in its more recent incarnation proposed by Teece and Pisano (1994) and Teece et al. (1994), labeled dynamic capabilities. 4 We argue that systems integration is an empirical instantiation of a firm's dynamic capabilities, and therefore key to the broader competitive strategy of the firm and the particular position a firm takes within the value stream of an industry at any given time. 5 Systems