Contemporary Strategy Analysis, 10th Edition

10Vertical Integration and the Scope of the Firm

Do what you do best and outsource the rest!

—PETER DRUCKER, MANAGEMENT GURU, 1909–2005

Bath Fitter has control of the product from raw material to installation. This control allows them to better guarantee the quality by knowing exactly how it is made, not outsourcing it to someone that could take shortcuts …. Also, they control the measuring, installation, and customer facing representative. By doing this, Bath Fitter would be able to get accurate and fast feedback about how the product is being used, quality issues, or the ease of installation.

—“BATH FITTER HAS VERTICAL INTEGRATION,” HTTP://BEYONDLEAN.WORDPRESS.COM/2011/08/29/

OUTLINE

• Introduction and Objectives
• Transaction Costs and the Scope of the Firm
• The Benefits and Costs of Vertical Integration
  • The Benefits from Vertical Integration
  • The Costs of Vertical Integration
  • Applying the Criteria: Deciding Whether to Make or Buy
• Designing Vertical Relationships
  • Different Types of Vertical Relationship
  • Choosing Among Alternative Vertical Relationships
  • Recent Trends
• Summary
• Self‐Study Questions
• Notes

Introduction and Objectives

Chapter 1 introduced the distinction between corporate strategy and business strategy. Corporate strategy is concerned with where a firm competes; business strategy is concerned with how a firm competes within a particular area of business.¹ So far, the primary focus of the book has been business strategy. In this final part, we shift our ...