BUS 800 Study Guide - Final Guide: John Wiley & Sons, Vertical Integration, Horizontal Integration
Document Summary
Economies of scope provide cost savings from sharing and transferring resources and capabilities, but those cost savings can be achieved by simply selling or licensing the use of resources and capabilities to other companies. Entering into market contracts results in firms incurring transaction costs. On the other hand, internalizing transactions involves the firm in administrative costs. We would expect profit-seeking firms to seek the least-cost options and for the boundaries of the firm to reflect this. In recent years the dominant trend in product scope has been refocusing on the core business. Many large diversified conglomerates have been broken up. The picture with regard to vertical scope has been more complex with a trend toward more hybrid collaborative arrangements. Ge/mckinsey matrix, the bcg matrix, and the ashridge portfolio display. All three approaches assist managers to make sense of complex multi-business activities but all require some element of subjective judgement and insight into the fundamental strategic characteristics of the businesses.
