Vertical Integration, Outsourcing, and Corporate Strategy Vertical Integration, Outsourcing, and Corporate Strategy
By Kathryn Rudie Harrigan
2003/09 - Beard Books
1587981904 - Paperback - Reprint - 390  pp.

"Few studies of business practice are based on such a rich array of clinical material…This book will become a basic guide for scholars and practitioners."

-William H. Newman

Publisher Comments

Category: Banking and Finance

This title is part of the Smart Management list.

Of Interest:

Declining Demand, Divestiture, and Corporate Strategy

Joint Ventures, Alliances, and Corporate Strategy

When this book appeared in 1983, it was the most comprehensive study of vertical integration written at that point. Presenting a conceptual model based on four dimensions: breadth, stages, degree, and form, it proposes diverse solutions for vertical integration, focusing on the major forces affecting strategy choices. Professor Harrigan analyzes data from 16 industries and examines the integration actions of 192 companies and the reasons for their actions. A key finding of this study is: "Different types of vertical-integration strategies are more appropriate at different times and in light of various factors that can be changed." One corollary of this theory is that, in declining and unstable companies, less integration may be better and may bolster a company's competitive posture. Harrigan's findings are as true today as they were in 1983.

From the back cover blurb:

The analysis shows that joint ventures are typically an unstable form of organization. Such instability does not mean that the joint venture was unwise. During its life it may have been very useful. But, research indicates that joint ventures are usually transitional arrangements, at least in the domestic arena.

Professor Harrigan tested her analytical framework in different industries, examining the background and success of 492 specific joint ventures and 392 other cooperative arrangements and expounding many other concepts and insights. She explains why certain patterns of cooperative strategies have been more prevalent within some U.S. industries than within others and suggests which joint venture strategies are inappropriate with certain corporate and competitive contexts. 

From Henry Berry, Turnarounds and Workouts, May 15, 2006:

The original title of Vertical Integration, Outsourcing, and Corporate Strategy, first published in 1983, was Strategies for Vertical Integration. The updated title reflects the topic of outsourcing that was discussed in the original material. By the early 1980s, when the book first appeared, the "old image of vertical integration [was] outmoded," says the author. The old image saw vertical integration as "operations that are 100 percent owned and physically interconnected and that supply 100 percent of the firm's needs." But this image of vertical integration rarely fulfilled the expectations of a generation of business leaders. Vertical integration was not only undesirable, it also could be deceptive and shortsighted. Vertical integration made many companies too narrowly focused, complex, and inflexible and burdensome to operate. These are especially undesirable traits in today's economy, which is characterized by market-share fluctuations, lower start-up costs, fickle consumers, competition from foreign corporations, the enhanced role of advertising and marketing, and rapid technological developments affecting corporate communication and distribution.

While vertical integration has become a much more risky aim in today's diversified, decentralized economy, it nonetheless continues to embody classic favorable business principles and undisputed competitive advantages. "The principle benefits of vertical integration are economies of integration and cost reduction made possible by improved coordination of activities," says the author. But as Harrigan soon discovered from her research, "firms sometimes undertake a more costly degree of integration than may be required to cut costs."

Harrigan's text provides case studies of how companies have implemented strategies for vertical integration. These strategies, which have ranged from the successful to the unfortunate, cover sixteen business sectors, including petroleum refining, pharmaceuticals, genetic engineering, personal microcomputers, and the tailored-suits field of the clothing industry. The author looks at nearly two hundred companies within these industries for guidance and lessons they offer.

In today's global economy, monopolies are discouraged by government policies. Thus, there are many more players, single sources of raw materials can be unreliable, and corporations are finding that it is more important to be responsive to changing markets than to have a permanent identity or unvarying products. As a corporate strategy, vertical integration can be successful if implemented properly. There is no monolithic model for vertical integration; there is a large universe of possibilities with respect to breadth, depth, and form. With its expert analyses, Harrigan's book is invaluable for high-stakes corporate decision-makers who will sooner or later be faced with the question of whether vertical integration is an appropriate corporate strategy.

Kathryn Rudie Harrigan has received fellowships and other honors and recognition for her business leadership, membership on boards of directors, and scholarly work in the field of business. She has written several other books and numerous articles.

Kathryn Rudie Harrigan is the Henry Kravis Professor of Business Leadership at Columbia University, where she teaches the "Corporate Growth and Development" course as well as other strategy electives and core courses. She is the author of several books and numerous articles. A business leader, corporate director, and respected scholar, she has received many honors including the Columbia Business School's Schoenheimer Award for Excellence, an IBM Research Fellowship in Business Administration, and a Division of Research Fellowship from Harvard Business School, were she also earned a D.B.A.

Other Beard Books by Kathryn Rudie Harrigan

Figures ix
Tables xi
Foreword xiii
William H. Newman
Preface xv
Acknowledgments xvii
Chapter 1. Issues of Vertical-Integration Strategy 1
The Benefits of Vertical Integration 3
Motives for Vertical Integration: Where Previous Studies Fail 6
The Research Problem 9
Chapter 2. The Model of Vertical-Integration Strategy: The Conceptual Framework 15
What are the Alternatives? 15
Predictive Variables for Vertical-Integration Strategies 22
A Simplified Strategy Framework 43
Chapter 3. Methodology of the Research into Vertical-Integration Strategies 53
Selection of the Sample 53
Field Research Procedures 55
A Description of the Data 57
Limitation of the Data 58
Advantages of Research Methodology 58
Chapter 4. Strategies for Vertical Integration in Declining Industries 61
Overview of the Declining-Business Study 61
Comparison of Findings in the Declining-Business Study with the Strategy Matrix's Predictions 69
Overview of the Industry Studies and Strategies for Vertical Integration 72
Chapter 5. Strategies for Vertical Integration in the Petroleum-Refining Industry 73
A Description of the U.S. Petroleum-Refining Industry 73
Key Events in the Refining Industry 87
Analysis of Strategies for Vertical Integration in Refining 103
Chapter 6. Strategies for Vertical Integration in the Whiskey Industry 115
A Description of the Whiskey Industry 115
Key Events in the Whiskey  Industry 124
Analysis of Strategies for Vertical Integration in the Whiskey Industry 136
Chapter 7. Strategies for Vertical Integration in the Tailored-Suits Industry 147
A Description of the Tailored-Suits Industry 147
Key Events in the Tailored-Suits  Industry 155
Analysis of Strategies for Vertical Integration in the Tailored-Suits Industry 166
Chapter 8. Strategies for Vertical Integration in the Ethical-Pharmaceuticals Industry 177
A Description of the Ethical-Pharmaceuticals Industry 177
Key Events in the Pharmaceuticals Industry 189
Analysis of Strategies for Vertical Integration in Pharmaceuticals Industry 199
Chapter 9. Strategies for Vertical Integration in the Genetic Engineering Industry 209
A Description of the Genetic Engineering Industry 209
Key Events in the Genetic Engineering Industry 223
Analysis of Strategies for Vertical Integration in the Genetic Engineering Industry 232
Chapter 10. Strategies for Vertical Integration in the Personal Microcomputer Industry 243
A Description of the Personal Microcomputer Industry 243
Key Events in the Personal Microcomputer Industry 255
Analysis of Strategies for Vertical Integration in the Personal Microcomputer Industry 266
Chapter 11. Strategies for Vertical Integration in the Embryonic Energy Industry 277
A Description of the  Embryonic Energy Industry in 1981 277
Key Events in Coal Gasification and Residential Solar Heating 290
Analysis of Strategies for Vertical Integration in the Embryonic Energy Industry 301
Chapter 12. Generalization concerning Strategies for Vertical Integration 315
A Restatement of Hypotheses 315
Findings Regarding the Research Questions 316
Analysis of the Findings
Chapter 13. Policy Implications of the Study of Vertical Strategies 339
Insights and Questions Raised by Research Results 339
Summary of Findings 341
Implications for Business Strategies 342
Implications for Academic Research 344
Areas of Further Research 345
Implications for Public Policymakers 345
Bibliography 349
Index 367
About the Author 373

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