Chapter 4 –Power of Principles: Historical Perspective
Infrastructure: includes those assets that assist in the production or distribution of goods and services that the firm
itself cannot easily provide. It consists of following main factors: transportation, communication, financing, basic
research (R&D) and government (which intervenes/regulates certain economic activities and supplies some
Vertical integration: If a firm chooses to perform more of the steps in the vertical chain itself then such a firm is
referred to as (more) vertically integrated. The process of undertaking more of the production steps in the vertical
chain (i.e. becoming more vertically integrated) is referred to as vertical integration.
Horizontal Integration: Organizations are said to be horizontally integrated if they have adopted a strategy to be
large in the product (output) market. They can choose large either in terms of physical quantity of a single product
(large volume/output - integration based on scale economies) or in terms of the variety of output (integration based on
Economies of scope: Cost savings that the firm achieves as it increases the variety of
activities it performs, such as the variety of goods its produces.
This implies TC (Q ,X ) Y TC(Q ,0)X+ TC(0,Q ), fYr fixed levels of
production of goods X & Y.
Economies of scale: Indicates that average costs decrease as output increases
Throughput: The movement of inputs and outputs through a production process.
Path Dependence: A process shows path-dependence if past circumstances could exclude
certain evolutions in the future.
Multi-Divisional Form: An organizational form that is comprised of a set of autonomous
divisions led by a
corporate headquarters office, assisted by a corporate stag that provides information about
the internal and external
business environment. Rather than organizing by function or by task, a multidivisional
structure organizes by
product line, related business units, or customer type. In this form of organization, managers
who control individual
divisions and are held responsible for their performance report to higher-level managers, who
coordinate activities, and plan the firm’s strategy.
Multi-Product Firm: It became possible to include more and more activities within the
domain of a single firm.
For example, Du Pont, initially an explosives manufacturer, diversified into the manufacture of
and introduced new fibres like nylon and other chemistry-based products.
Network Structure: An organization form in which work groups may be organized by
function, geography, or
customer base, but where relationships between work groups are governed more by often-
changing implicit andexplicit requirements of common tasks than by the formal lines of authority that characterize
Chapter 2- Economies of Scale/Scope &
Chapter 5- Vertical Boundaries of the
Core competencies: These are the functions that an organizations does best (either in terms of highest
profit margin or highest value-added). Such activities might have lower agency and influence costs and can be
tied to special internal proprietary information (trade secrets) or relationship specific assets.
Learning economies: The idea that refers to the cost advantages (saving) that flow from
(past) experience and know-how. Indicates that average costs decreases as past output
Conflicting out: When a potential client approaches a professional s