Evidence on the role of firm capabilities in vertical integration decisions

Article Abstract:

The capabilities approach and the contracting approach to strategic management are compared by analyzing quantitative data on make-or-buy decisions of a major corporation. The capabilities model holds that organizations vertically integrate activities which they can do better than potential suppliers. In contrast, the contracting approach proposes that the vertical integration decisions are influenced by high asset specificity. The study tests that hypothesis that, all else being constant, companies decide to integrate vertically those activities for which they have superior skills and experience than potential vendors, and to subcontract activities for which they have insufficient capabilities, except when long-term decisions are made to assume the financial burden of developing capabilities in-house. The results are discussed.

Business planning, Vertical integration, Outsourcing

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Rational decision-making and firm performance: the moderating role of environment

Article Abstract:

A study was conducted to examine the moderating role of environmental munificence, the moderating role of environmental dynamism and the shared influence of munificence and dynamism in the association between rationality in strategic decision processes and organizational performance. This research focused on 62 manufacturing companies that were single or dominant businesses. Findings revealed that environmental munificence and dynamism influence the relationship between rationality and performance. In addition, it was found that rationality is significantly linked to performance in environments characterized by a high level of munificence and dynamism. Implications are discussed.

Performance

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