Professional Documents
Culture Documents
Vertical Integration
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Mission
Objectives
Strategy Implementation
Competitive Advantage
Internal Analysis
Vertical Integration
Copyright 2012 Pearson Education, Inc. publishing as Prentice Hall. Strategic Management & Competitive
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2) such that businesses forming the corporate whole are worth more than they would be under independent ownership
3) that equity holders cannot create through portfolio investing
a corporate level strategy should create synergies that are not available in equity markets vertical integration = value chain economies
Copyright 2012 Pearson Education, Inc. publishing as Prentice Hall. Strategic Management & Competitive
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Seed Companies
(Alfalfa & Corn)
Crop Farmers
(Alfalfa & Corn)
End Consumer
Food Distributors
Copyright 2012 Pearson Education, Inc. publishing as Prentice Hall. Strategic Management & Competitive
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Dairy Farmers
(milk)
Seed Companies
(Alfalfa & Corn)
Crop Farmers
(Alfalfa & Corn)
End Consumer
Food Distributors
Copyright 2012 Pearson Education, Inc. publishing as Prentice Hall. Strategic Management & Competitive
Leprino Foods
(Mozzarella Cheese)
Food Distributors
Competitive Advantage
If a vertical integration strategy meets the VRIO criteria Is it Valuable? Is it Rare? Is it costly to Imitate? Is the firm Organized to exploit it?
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Integration makes sense when the focal firm can capture more value than a market exchange provides
Copyright 2012 Pearson Education, Inc. publishing as Prentice Hall. Strategic Management & Competitive
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flexibility is prized when internalizing must if not, then dont uncertainty is be less costly than integrate exchange high opportunism
Copyright 2012 Pearson Education, Inc. publishing as Prentice Hall. Strategic Management & Competitive
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Cooperation
Conflict
Original Business
Original Business
Original Business
Original Business
Original Business
New Business
New Business
New Business
New Business
New Business
Conflict
Copyright 2012 Pearson Education, Inc. publishing as Prentice Hall. Strategic Management & Competitive
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Board Committees
provide oversight and direction to managers
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Integration Opportunism
Cash Bonus: Individual Stock Grants: Individual
Leveraging Capabilities
Cash Bonus: Group Stock Grants: Group Stock Options: Individual Stock Options: Group
Cooperation
Exploiting Flexibility
Time Horizon
Copyright 2012 Pearson Education, Inc. publishing as Prentice Hall. Strategic Management & Competitive
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Summary
Vertical Integration makes sense when value chain economies can be created and captured
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Summary
Vertical Integration is an important consideration in the decision to expand internationally (range of possibilities)
makes sense when done for the right reasons, under the right circumstances
can be a costly mistake if done wrong Ownership is costlyintegrate only when the benefits outweigh the costs of integration!
Copyright 2012 Pearson Education, Inc. publishing as Prentice Hall. Strategic Management & Competitive
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