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6
Vertical Integration
WHAT IS CORPORATE STRATEGY?

The six chapters in Part 3 of the book (Chapters 6-11) deal with corporate strategies. It is a
good idea to take a step back and look at the definition of corporate strategy given in
Chapter 1. Corporate (or corporate-level) strategies are actions firms take to gain competitive
advantages by operating in multiple markets or industries simultaneously. Thus, they expand
on business-level strategies, which focus on gaining competitive advantage in a single market
or industry. The instructor can reiterate to students that corporate strategy deals with both
the form (vertical integration, diversification) as well as the means (mergers and acquisitions
and strategic alliances).
 Important Point: Corporate level strategy addresses the question: In which

business(es) should the firm operate? Managers use corporate level strategy to help ensure
that the corporation is composed of the optimal mix of businesses.
Slide 6-2
This slide provides a good overview of this chapter by identifying its place in the strategic
management process.
Students should understand the logic of corporate-level strategy. As the class

discussion transitions from the logic of business-level strategy to that of corporate-level
strategy, it is important that they understand that the move is not just incremental—from
managing one business to managing a set of businesses. Using Slide 6-3, the instructor
should take students through the following key points: corporate-level strategy should create
value for the organization:
• such that the value of the corporate whole increases

• such that businesses forming the corporate whole (i.e., the portfolio) are worth more
than they would be under independent ownership
• that equity investors cannot create through portfolio investing (on their own)
Owning a portfolio of businesses comes with a cost—the costs associated with

running a bureaucracy. The benefits should outweigh the costs for corporate-level strategy
Copyright © 2015 Pearson Education, Inc. publishing as Prentice Hall

134 Chapter 6: Vertical Integration
to make sense. The benefits typically come in the form of synergies. In the case of vertical
integration, the key benefit comes in the form of value chain economies.
Value Chain Economies: Value chain economies are those economies that are
created by integrating a market transaction into the boundaries of the firm. For example, a
firm that buys one of its suppliers may realize an economy by coordinating the production of
the supply with the needs of the parent firm.
Slide 6-3
Use this slide to show students the logic of corporate level strategy in general, and vertical
integration in particular. The slide can also be used to introduce students to the fact that
vertical integration deals with value chain economies. It is important that students
understand this logic because it will be referenced throughout the remainder of the course.
WHAT IS VERTICAL INTEGRATION?

Learning Define Vertical Integration, Forward Vertical Integration, and Backward Vertical Integration
Objective 1
Value chains were first introduced in Chapter 3. To help students get this point clearly, the
instructor can say that the value chain (primary and support activities) of Chapter 3 can be
thought of as the firm’s internal value chain, while the value chain in Figure 6.1 is the
industry value chain. The pizza example in Slide 6.4 is a great one to use because the product
is very familiar to students. After showing the slide, introduce students to Coase’s work on
firm boundaries. Take students through various possibilities – a pizza chain getting into the
business of food distribution (say, Domino’s Pizza acquiring a food service company such as
Sysco) or a cheese producer (Leprino Foods) acquiring or starting a pizza chain.
Slide 6-4
This slide uses the example of Leprino Foods, one of the largest producers of mozzarella
cheese in the U.S., to help explain the concept of vertical integration.
Once students understand the basic concept of vertical integration (increasing a

firm’s boundaries to include multiple value chain activities), the instructor can continue with
the pizza example to differentiate between backward and forward integration. Using
Leprino Foods as the focal firm, point out that backward integration is going back in the
value chain (Leprino Foods buying a dairy producer), while forward integration is moving
forward in the value chain (Leprino Foods getting into the business of food distribution).
Pose this question to students: At present, Leprino Foods buys milk from dairy companies,
makes cheese in its facilities, and sells the cheese to large food distributors such as Sysco and
Gordon Foods, who sell to pizza chains such as Pizza Hut and Domino’s. Does it make
sense for Leprino Foods to expand by owing dairy companies or by getting into food
distribution? Leprino Foods has to look at two metrics in making the decision: cost
reduction and revenue enhancement. Synergies may help in cost containment and the ability
to capture above normal profits helps on the income side.

Chapter 6: Vertical Integration 135
Slides 6-5 and 6-6

These slides will help you introduce the concepts of backward and forward integration using
the pizza example from the previous slide. They also help in providing an overview of the
economic logic of vertical integration. Ask students why Leprino might want to own a
supplier or a distributor. Point out to students that Leprino has become so large that they
now deal directly with some of the national pizza chains rather than going through
distributors. In this regard, Leprino has engaged in a degree of vertical integration.
 Important Point: It is important to reiterate to students that vertical integration

has to be driven by economic concerns. Going back to the logic of corporate-level strategy,
the cost-benefit analysis of owning multiple businesses in the portfolio must be performed.
► Example: Amazon and the Publishing Industry
The book publishing industry traditionally was characterized by a long value

chain. The publisher contracted with authors to write books and entered
into agreements with commercial printers (such as R.R. Donnelley and
Quebecor) to print the books. Books were distributed to bookstores
through wholesalers such as Ingram and Baker & Taylor. The major
problem with this value chain was the amount of unsold books returned by
booksellers. Publishers faced return rates as high as 30 percent, which added
significantly to their costs. Seeing this inefficiency as an opening, Amazon
changed the value chain. By going directly to publishers, Amazon was able
to lower costs by cutting out wholesalers. More importantly, they placed
orders with publishers after customers ordered from their website. This
allowed Amazon to reduce drastically the returns to publishers (from 30% to
3%) and use this to bargain for better prices from them. Amazon backward
integrated by bypassing the wholesaler and going directly to the publisher.
(Laseter, Houston, Wright and Park. “Amazon your industry: Extracting

Value from the Value Chain,” Strategy+ Business, First Quarter 2000)
Class Activity
Divide the class into groups of 4-5 students. Assign 2 groups to each
industry and pick a company for each group. For example, in the personal
care industry the two companies can be Procter and Gamble and Colgate-
Palmolive. Have the group go to the company’s web page to the financials
(in the section of the site marked “Investors.”) Using the formula given in
the book, have them compute the level of vertical integration for their firm.
If the level of vertical integration is markedly different for the two firms in an
industry, have them discuss the merits and demerits of their company’s
stance on this issue.
 Teaching Points

• Use examples to help students clearly understand the concept of vertical

integration.
• Once the concept of vertical integration is clearly understood, explain the
difference between backward and forward integration.
• Encourage students to identify reasons why a firm would consider vertical
integration. The Amazon example should help them get started.
THE VALUE OF VERTICAL INTEGRATION

A company’s decision whether or not to vertically integrate must be based on sound logic.
The VRIO Framework is once again helpful in this regard.
Slide 6-7
This slide reminds students that the VRIO Framework can be applied to a firm’s vertical
integration strategy. A vertical integration strategy will only lead to competitive advantage if
the value chain economies achieved meet the VRIO criteria.
The two extremes in economic exchange are the market and integrated economic
exchange (also called the hierarchy). In the market, the focal firm buys the product or service
from outside players or sells its product to outside intermediaries. In integrated economic
exchange, the firm performs these activities internally. Economic exchange should be
conducted in a way that maximizes value for the focal firm. Integration makes strategic sense
when the focal firm can capture more value than a market exchange provides.
Slide 6-8
Use this slide to introduce the two forms of economic exchange and how the decision
should be made on the value maximization criterion. Refer to the Leprino example to
explain that when Leprino is buying milk from dairy farmers it is conducting that exchange
in a market. If Leprino were to buy several large dairy farms, we would say that the
exchange had been integrated into the hierarchy of Leprino.
Once the overall value maximization logic of vertical integration is discussed, the
focus can shift to specifics. Vertical integration can create value—decrease costs or increase
revenues—in three situations:
▪ to reduce the threat of opportunism

▪ to leverage firm capabilities
▪ to remain flexible (possible with vertical integration under certain conditions)

Vertical Integration and the Threat of Opportunism
Discuss How Vertical Integration Can Create Value By Reducing The Threat Of Opportunism Learning
Objective 2
Opportunism is when a firm is unfairly exploited in an exchange. In other words, one of the
two firms in an exchange holds up the other to the financial benefit of the first firm. The
hold up can occur with regard to price, delivery terms, quality, etc. For the firm that is being
held up, the exchange creates an economic loss. To avoid this, the firm can vertically
integrate. By bringing the activity in-house, the firm controls it and therefore removes the
possibility of opportunistic behavior causing economic losses. The decision to vertically
integrate, though, has to be made by comparing the costs of vertical integration with its
benefits. If the cost of opportunism is less than the cost of vertical integration, then the
decision should be to continue with market exchange.
At this point, students may still be vague about opportunism and why it is likely to
occur in an exchange. Introducing the concept of transaction-specific investment using
examples can help in clarifying this important concept.
A transaction-specific investment is any investment in an exchange that has
significantly more value in the current exchange than it does in alternative exchanges. The
example of the oil refinery in the book is a good one to use because it describes a
transaction-specific investment in visual form and examines its effect on value in numerical
form. Once this example is gone through, the instructor can use a second example (given
below) to reinforce the concept.
If the pipeline laying company is the focal firm in the discussion, look at the issue
from its perspective. It costs money to lay the pipeline but it brings value ($750,000) to the
firm. But the value comes with a catch. The full value ($750,000) is only realized in the
specific context of serving the oil refinery. Because of location issues, the value is
diminished considerably (to around $10,000) if the context is changed. If the two firms agree
on a 5-year contract on terms favorable to the oil pipeline company, then the transaction-
specific investment makes strategic sense for the focal firm. But what happens after the
initial contract runs out? That’s when opportunism (or its possibility) comes into play! In
negotiating the second contract, who has the advantage? Obviously it is the oil refinery.
They can bring down the price of the exchange so that they can profit. But the focal firm
stands to lose because of this opportunism. It is likely, then that the focal firm will not be
motivated to make this investment in the first place. Vertical integration is the recourse for
the oil refinery because it takes care of the opportunism problem.
► Example: Bird’s Eye and the Frozen Foods Industry
Birds Eye, the U.S. frozen foods maker, wanted to expand to the U.K. in the
1950s, attracted by the large market and the absence of a frozen food
industry. One of the first products they sought to introduce in the U.K. was
frozen vegetables. They contracted with farmers to grow vegetables for
them. Their U.S. experience had taught them of the need to process the
vegetables within 90 minutes of harvest. Processing vegetables after 90
minutes typically resulted in the product lacking freshness. Because the
farmlands were on the outskirts of London, there were no processing plants
in existence within the 90 minutes radius. Birds Eye contacted a number of

processors and asked them to invest in a facility near the farmlands. Birds
Eye could not find a single taker. Why would this happen? Investing near
the farmlands is a transaction-specific investment. Its value would be great
only in the context of serving Birds Eye and nobody else. Why would a
processor make such a transaction-specific investment when the possibility
of opportunistic behavior by Birds Eye is great? After the investment is
made, Birds Eye could take advantage of this sunk cost by paying less to the
processor. Birds Eye was forced to vertically integrate into owning
processing plants because of this problem.
(Collis and Grant, 1992. Birds Eye and the U.K. Frozen Food Industry,
Harvard Business School Case)
Vertical Integration and Firm Capabilities
Learning Discuss How Vertical Integration Can Create Value By Enabling A Firm To Exploit Its Valuable,
Objective 3 Rare, and Costly-To-Imitate Resources And Capabilities
Reducing the threat of opportunism can be seen as a defensive approach to vertical

integration. Leveraging the focal firm’s capabilities, on the other hand, is a proactive
approach to vertical integration. The logic here is simple: a firm should vertically integrate
into those business activities where they possess valuable, rare, and costly-to-imitate
resources and capabilities. This also means that a firm should not vertically integrate into
activities where they do not have the resources to get a competitive advantage.
► Example: Installing Auditorium Seats
A company that manufacturers seats for auditoriums and stadiums faced a

difficult problem. The company manufactured seats to order and delivered
the seats to firms that specialized in installation. The company won plaudits
for the quality of its seats. However, they faced numerous complaints
regarding poor installation. This motivated the company to consider the
possibility of vertically integrating into the installation activity. When they
analyzed the situation, they realized that none of the capabilities that were
valuable in the manufacturing business (design, quality, etc.) created a
competitive advantage in the installation business. Indeed, they had to
develop new capabilities (managing a temporary, unskilled work force to
generate efficiency, for example) to succeed in the installation business. The
company decided against vertical integration!
 Important Point: What if the two motivations for vertical integration provide
contrasting results? In other words, what if the opportunism argument points to vertical
integration while the capabilities argument point to a market exchange? The instructor
should help students confront this problem by using the Wal-Mart example in the text.
In its 2014 10-K SEC filing, Hershey Foods indicated that Wal-Mart accounted for
25.5 percent of total sales in the year 2013 (sales were made to McLane Company, Wal-

Mart’s primary distributor). Wal-Mart was responsible for 14 percent of Procter and
Gamble’s 2013 revenues. It is very likely that similar percentages can be found for many of
Wal-Mart’s leading suppliers. Wal-Mart clearly has tremendous bargaining power over these
companies. Many of these companies have well-staffed offices in Bentonville, Arkansas,
where Wal-Mart’s corporate headquarters is located. These are transaction-specific
investments made by these companies to serve one customer, Wal-Mart. The opportunism
minimization logic would indicate that these firms should forward integrate into retailing to
reduce the possibility of losses due to Wal-Mart’s opportunistic behavior. But, do these
firms have the resources to obtain a competitive advantage in retailing? Not likely. So,
forward integration into retailing does not make sense from a capabilities viewpoint.
Vertical Integration and Flexibility
Discuss How Vertical Integration Can Create Value By Enabling A Firm To Retain Its Flexibility Learning
Objective 4
Flexibility pertains to the cost (and time) of changing the strategic and operational decisions
of an organization. A flexible organization can change its strategic/operational choices
quickly. In other words, such an organization can pivot on a dime! Less flexible
organizations find this change difficult and costly. In general, vertical integration reduces a
firm’s flexibility. Why? A vertically integrated organization has expanded its bureaucracy to
include multiple activities. It has changed its structure, control system, and compensation
practices to reflect this increased bureaucracy. Changing these takes time.
Flexibility is not always a virtue. It is important to be flexible when the future is
uncertain. In such situations, alternatives to vertical integration, particularly strategic
alliances, may be better options.
► Example: Intel Capital
Intel, the chipmaker, has a venture capital arm called Intel Capital. Its
mission is to identify and invest in promising technology companies
worldwide. Founded in 1991, Intel Capital has invested more than $11
billion in approximately 1,340 companies in over 55 countries by early 2014.
These investments help Intel in two ways: it allows Intel to profit when
these companies go public or are acquired by other companies. More
importantly, though, these investments give Intel a first right of refusal on
new technologies without the company having to vertically integrate into any
of these when their future is uncertain.
Intel capital’s website (www.intelcapital.com)
Applying the Theories to the Management of Call Centers
Call centers in the beginning (because of their novelty) required transaction-specific

investments—physical infrastructure, communications technology, training, etc. Vertical
integration made sense at that time. Changes in information technology, benefits of the
learning curve in terms of employee training, and the ability to cater to multiple customers
from one central location ushered in a huge growth in independent call center companies.

This merchant market in call centers meant that firms did not have to vertically integrate into
this activity.
In the early stage, a firm could gain a competitive advantage by operating a call
center. For example, Dell always resonated well with its customers because of the quality of
its customer interaction through its call centers. But, today, almost every company seems to
have one. It is no longer a means to competitive advantage. Besides, companies specializing
in operating call centers developed a number of valuable and costly-to-imitate capabilities. It
made sense for firms to outsource this function.
As communication technology changes rapidly, firms face a lot of uncertainty in this
regard. Investing in one technology to run a call center may put a firm at a disadvantage
because its technology may quickly become obsolete. Outsourcing this function reduces the
uncertainty for firms.
► Example: Call Centers in India
India is a leading player in the call center industry. Companies such as

Chrysler, British Telecom, Citigroup, and American Express all do business
with Indian call center companies. GE has gone a step further. It operates
call centers (serving clients) in India. It provides a variety of services for its
clients: transaction processing, help desks, IT-related queries from U.S.
clients, accounting services, etc. Why does India dominate in this industry?
A key reason is that manpower accounts for 55-60 percent of the cost of
running a call center. In India, manpower (particularly tech-savy, English
speaking labor) is available at a fraction of the cost overseas. In addition, the
Indian government provides various incentives for companies to run call
centers.
Outsource India website (www.outsource2India.com)
 Important Point: It is important for the instructor to reiterate that the three
arguments related to the vertical integration decision may conflict with each other and
confuse decision-making. In other words, the opportunism argument may point to vertical
integration, while the capabilities and the flexibility arguments may point to de-integration.
In such cases, the firm has to look at the trade-offs involved and use cost versus benefits to
make the decision. This is also a good occasion to looks at the ethics of outsourcing
discussed in the ‘Ethics and Strategy” box in the text.
Slide 6-9
Use this slide to take students through the three value considerations in vertical integration.
Emphasize that vertical integration can create value because of any of these issues. A single
vertical integration move could create value for all three reasons.
 Teaching Points

• Ensure that students understand what opportunism is. Use examples to

explain this concept.
• Reiterate to students that leveraging capabilities is a key issue in vertical
integration.
• Point out to students that flexibility is important in today’s business world
and that it may be more vital in some industries than in others.
• At the end of the discussion of this section, take them through a summary of
the three main issues in vertical integration decisions.
• Ask students for examples of vertical integration they have read about in the
business press and use the concepts in this chapter to examine the economic
logic of these moves.
VERTICAL INTEGRATION AND SUSTAINED COMPETITIVE ADVANTAGE

Describe Conditions Under Which Vertical Integration May Be Rare and Costly To Imitate Learning
Objective 5
This is a good time to go back to the VRIO Framework and establish its connection with
vertical integration. In order for vertical integration to be a source of sustained competitive
advantage, it must not only be valuable but also rare and costly to imitate, and the firm must
be organized to implement this strategy.
The Rarity of Vertical Integration
Slide 6-10
Use this slide to look at integration vs. non-integration from a rarity viewpoint. The value
chain economies achieved by a firm through vertical integration may be rare even if many
competitors have vertically integrated. Toyota is a good example of a company that could
have vertically integrated many of its suppliers. However, it has chosen to establish
relationships with suppliers that provide Toyota with many of the value chain economies
that competitors can only get through actually owning suppliers. The point being that the
substance or function of a vertical integration strategy rather than the form of the strategy is
what really matters in terms of rarity.
Rarity in vertical integration may be because of one of two things: a firm is rare in being
able to operate its vertically integrated units very efficiently. Or, it could the one firm in the
industry that is not vertically integrated while all others are.
A firm may be able to create value (more than others in the industry) through vertical
integration because of three reasons:
▪ rare transaction-specific investments need to be made that prompts a firm to

vertically integrate
▪ to leverage specific capabilities that would give it a competitive advantage
▪ ability to resolve uncertainty ahead of others in the industry

In the first case, the firm has developed a special technology or a new approach to
doing business, while others in the industry have not. Because this special
technology/approach to doing business requires transaction-specific investment, the firm is
vertically integrated, while others in the industry are non-integrated.
In the second case, the firm has a valuable capability that allows it to benefit from
vertical integration. Others do not have this capability and hence are not vertically integrated.
In the third reason, the firm has the ability to resolve the uncertainty that all firms in
the industry face. While others may be non-integrated because of this uncertainty, the focal
firm may be vertically integrated.
In all the cases above, the focal firm decides to vertically integrate while others in the
industry do not. But, there may also be a case where others are vertically integrated while
the focal firm benefits from being de-integrated. It creates value for itself by being able to
manage these market economic exchanges efficiently.
The Imitability of Vertical Integration
The ability to create value through vertical integration (or by de-integration) may not be rare
for too long if it can be imitated. Imitation can be through direct duplication or through
substitution.
Direct duplication of a firm’s vertical integration involves two things: copying the
form and copying the value creation potential. While copying the form may not be costly,
copying the value creation potential may be costly because of factors such as historical
uniqueness, causal ambiguity, and social complexity. Imitation may also be difficult if there
are not very many firms to acquire in order to vertically integrate (the small numbers
problem) or where entry barriers are quite high.
Slide 6-11
Use this slide to identify the factors involved in direct duplication of a firm’s vertical
integration strategy. Remind students that the cost of duplicating the actual value chain
economies is a more important consideration than the cost of simply duplicating the form.
An imitator may choose not to directly duplicate the value creation potential of
another firm’s vertical integration strategy. Instead, it may choose substitute modes that give
it the same benefit. Internal development and strategic alliances are two important substitute
modes.
Slide 6-12
Remind students that the logic of vertical integration is to choose the most efficient form of
exchange. Firms can choose from the market (no vertical integration), an acquisition (fully
integrated), internal development (fully integrated), or a strategic alliance (partial vertical
integration). Of course, the specific conditions of any given situation dictate which form is
most appropriate.

 Teaching Points
• Reiterate the importance of using the VRIO Framework to evaluate the

strategy of vertical integration.
• Encourage students to examine the rarity and imitability questions relative to
the value chain economies achieved by firms rather than relative to the form
of the exchange per se.
• Emphasize that in analyzing a firm’s vertical integration strategy, one would
want to ask the question: Can competitors imitate the value chain economies
of the firm through alternate vertical integration strategies?
ORGANIZING TO IMPLEMENT VERTICAL INTEGRATION

Describe How The Functional Organization Structure, Management Controls, and Compensation Policies Learning
Are Used To Implement Vertical Integration Objective 6
Organizing to implement a vertical integration strategy is the last step, the “O” in the VRIO
Framework that looks at how vertical integration can create a sustained competitive
advantage. A firm must have the appropriate infrastructure—organizational structure,
management controls, and compensation policies to successfully implement a vertical
integration strategy.
Organizational Structure and Implementing Vertical Integration
The functional or U-form structure allows the firm to implement a strategy of vertical
integration.
Slide 6-13
Explain that the CEO’s responsibilities usually become much more complex as a result of
vertical integration. The functions of the new business must be integrated with the
functions of the existing business. Point out that the achievement of the desired value chain
economies depends on the ability of the CEO and other managers to integrate the functions
of the new and existing businesses.
As the slide indicates, the function brought within the firm’s boundaries because of
vertical integration is “folded in” to the same function already existing in the organization.
For example, if a company manufacturing a consumer product vertically integrates into
manufacturing its packaging products, the packaging product’s manufacturing function is
folded in with the consumer product’s manufacturing function.
The CEO in this vertically integrated U-form has the same responsibilities as
identified in Chapter 4: strategy formulation and strategy implementation. An added
dimension in a vertically integrated firm is to continually assess the value creation potential
of vertical integration. In addition, the CEO has also to resolve conflicts arising among the
various functions.
Since each function in a U-form organization functions in a silo, their perspective is
likely to be very narrow. This could lead to conflicts among functions. This is a good time

for the instructor to point out to students that, depending on their major, they are likely to
view an organization from different perspectives. Accountants typically are obsessive about
cost control, while marketers and R&D people may not have the same attention to cost
control. Sales and manufacturing always seem to have conflicts – manufacturing blaming
sales for poor sales forecasts that leaves a lot of unsold goods in inventory and so on. It is
important for the instructor to go back to Slide 6-13 and point out that the CEO’s job
involves facilitating cooperation among functions and minimizing the ill effects of conflicts
among these functions.
Management Controls and Implementing Vertical Integration
As indicated above, vertical integration strategies typically require that one business be
integrated with an existing business (in the case of acquisition). Such integration presents
some potentially challenging management issues. These issues revolve around aligning the
interests of managers, new and existing, with the interests of the newly combined firm.
Slide 6-14
This slide provides some context for a discussion of management controls. Emphasize that
the need for management controls arises because the achievement of value chain economies
depends on managers behaving in certain ways. Managers from the new business and
managers from the existing business must be able to get along with each other. Managers
usually need to be given incentives to adopt a long-term focus so that the integrated firm can
achieve value chain economies over the long run.
Once the U-form structure’s importance in implementing a vertical integration

strategy is established, the discussion should turn to management control processes. Two
key ones need to be addressed here:
▪ budgets
▪ management committees
Budgets help in the control process by identifying the metrics by which performance
is to be measured. A vertically integrated firm may develop budgets in a variety of areas:
sales, costs, etc. Typically budgets are tied into the compensation process, in that managers
may receive bonuses depending on how close they are to their budget. While budgets help
in the control process, they may have serious downsides. Primary among them is the fact
that budgets are likely to promote short-term behavior (controlling expenses today to meet
budget but not preparing for the future) at the cost of long-term actions. Involving
managers in the budgeting process and using qualitative measures in addition to quantitative
ones can help in this regard.
Internal management committees that meet periodically also help in the control
process. Two common ones (though they may go by different names in organizations) are:
▪ the executive committee

▪ the operations committee

The difference between the two types of committees is essentially in their focus: the
executive committee tends to focus on short-term firm performance, while the operations
committee has a long-term view of firm performance. Both committees are staffed by the
CEO and key functional area managers. They meet regularly (typically, weekly for the
executive committee and monthly for the operations committee) to identify problems and
come up with solutions. Such committees also help in reducing the conflicts among
departments.
Slide 6-15
Explain that strategic budgets are used to encourage investment that will benefit the firm in
the long run. For example, a strategic budget may set aside capital to be invested in a new
plant or for the hiring of new R&D engineers. The purpose of a strategic budget is to
separate strategic investment from normal operating spending. This is one way to remove
the incentive for managers to curtail strategic investment so that they can meet short-term
financial targets. A strategic budget is concerned with the inputs, i.e. spending on strategic
initiatives, and outputs, i.e. performance of the investment. Operational budgets cover
normal operations. Point out that board committees may also play a role in helping to focus
management attention on the issues necessary to achieve the desired value chain economies.
Compensation in Implementing Vertical Integration Strategies
Compensation is the third piece of the “Organizing” puzzle. As such it complements both
structure and control systems and helps guide behavior toward desired ends. The three
explanations for vertical integration (opportunism, capabilities, and flexibility) have
important compensation implications. The instructor should structure this discussion
around this idea.
Very often employees make firm-specific investments of their own. They expend
energy cultivating skills valuable to the organization, imbibe the organizational culture and
establish contacts within and outside the firm. Such investments are valuable only in the
context of the firm, in that, once the employee leaves the firm, much of the investment
declines in value. Employees know that if they make such firm-specific investments, they are
vulnerable because the firm can treat them badly without worrying that the employee will
seek employment elsewhere. So how should an organization encourage its employees to
invest in firm-specific skills in light of this possibility? They should do it by providing
incentives as part of their compensation.
While the previous paragraph talked about providing incentives for individuals to
invest in firm-specific skills, there is also the fact that groups of employees make firm-
specific investments. Very often, it is the tacit collective knowledge of these groups of
employees that give the firm valuable costly-to-imitate capabilities. The firm’s compensation
policy must encourage such collective firm-specific investment.
Compensation practices must also take into account the importance of flexibility.
Employees must be encouraged to engage in activities that allow the firm to be flexible in
order to take advantage of opportunities.
Table 6.1 in the text portrays the various aspects of compensation aligned with the
three explanations for vertical integration. The instructor should use this table to tie the
compensation challenges in vertical integration with specific alternatives. It is important to
reiterate that the opportunism explanation calls for individual rewards – salary, cash bonus

for individual performance, and stock grants for individual performance – while the
capabilities explanation suggests group-based rewards. The flexibility explanation suggests
covering the downside risk for employees but provide stock grants for upside potential.
Slide 6-16
This slide depicts how various compensation alternatives can be used in an effort to achieve
value chain economies by aligning the interests of managers with the interests of the
organization. Point out that how people are compensated can change their incentives to
work together with others, to focus on the long-term versus the short-term, etc.
 Teaching Points
• Explain that organization is a vital part of a successful vertical integration

strategy.
• Reiterate the importance of the three explanations for vertical integration by
tying them to the discussion on organization.
• Use Table 6.1 to summarize this section by taking students through the
various compensation options as they relate to the three explanations for
vertical integration.
SUMMARY OF VERTICAL INTEGRATION
It is a good idea to summarize the discussion on vertical integration by stating this:

historically, the default was vertical integration. That is, firms were vertically integrated into
performing multiple value chain activities unless there were compelling reasons not to do so.
Gigantic oil companies such as Standard Oil and Exxon (now ExxonMobil) were almost
fully vertically integrated. Today, the pendulum has shifted to the opposite side. Firms are
typically non-integrated unless there is a compelling reason to be vertically integrated.
Reiterating the conditions under which vertical integration makes sense is important
at this point. Reducing/preventing opportunism, leveraging capabilities, and increasing
flexibility are good reasons under certain conditions for vertical integration.
Slide 6-17
Use this slide to remind students that vertical integration makes sense under certain
conditions. Call attention to the fact that a vertical integration strategy is a matter of
deciding which form of economic exchange is the most efficient. Point out that a vertical
integration strategy that is not valuable, rare, and costly-to-imitate is unlikely to generate
competitive advantage.
The instructor should close this chapter by pointing the important caveat with
respect to vertical integration—it is costly and so it is necessary to weigh the costs and
benefits before making the decision.
Slide 6-18

Remind students that vertical integration is an element of corporate level strategy. As such,
a vertical integration strategy should create value according to the logic of corporate level
strategy. Use this slide to reiterate that ownership comes with a price and so caution must
be applied in making the decision to vertically integrate.
CHALLENGE QUESTIONS
6.1. Some firms have engaged in backward vertical integration strategies in order to
appropriate the economic profits that would have been earned by suppliers selling to
them. How is this motivation for backward vertical integration related to the
opportunism logic for vertical integration described in this chapter? (Hint: Compare
the competitive conditions under which firms may earn economic profits to the
competitive conditions under which firms will be motivated to avoid opportunism
through vertical integration.)
Take the case of an auto manufacturer who is currently sourcing, say, rear-
view mirrors from an outside supplier. It is clear to the manufacturer that the
mirror supplier is making enormous profits in this transaction. Now, let’s say
that the manufacturer is making a new type of vehicle that calls for a
significantly new type of mirror. The mirror manufacturer has to make
significant transaction-specific investment for this deal. The auto
manufacturer is unlikely to get the mirror manufacturer to make the
investment for fear of opportunistic behavior by the auto manufacturer. The
auto manufacturer can now avoid opportunism and increase its profits by
vertically integrating into making its own mirrors. However, the other
explanations for vertical integration (capabilities and flexibility) must also be
factored into this decision.
6.2. You are about to purchase a used car. What kinds of threats do you face in this
purchase?
The principal threat that the buyer of a used car faces is with regards to the
quality of the car. A new car comes with a warranty, while a used car (other
than one bought from a dealer) bought from a private seller does not. There
is also the price issue. It is possible to get an idea of the price of a new car by
comparing various dealers’ price for a specific car. It is much more difficult
for a used car because the comparable variables (number of years used,
mileage, etc.) could be different.
6.3. You are about to purchase a used car. What can you do to protect yourself from the
threats in this situation?
If the buyer wants to protect himself/herself from the possibility of buying a

lemon, the dealership route is more attractive because the dealer is likely to
offer a limited warranty and there is somebody to go to and demand answers

from if the car has problems. Not so in the case of the individual seller, who
will offer no warranty and is not likely to answer questions after the sale.
6.4. How is buying a car like and unlike vertical integration decisions?
One can buy a used car by transacting directly with a seller or by buying it
from a dealer. Transacting directly with a seller requires the buyer to do a lot
more work (in a sense vertically integrate) than the dealership route. The
buyer has to get the car tested (at an independent repair shop) and get the
paperwork done at the government office that deals with car registrations.
The amount of time spent is greater as is the amount of responsibility
undertaken by the buyer.
6.5. What are the competitive implications for firms if they assume that all potential
exchange partners cannot be trusted?
The principal option for such a firm is to vertically integrate into all activities
of the value chain. This way they do not have to work with outside partners
and thereby completely avoid the trust issue. The other option is to write
ironclad contracts for lengthy periods of time. Such contracts cover every
possible contingency so that the firm is protected from adverse actions of
exchange partners.
6.6. Common conflicts between sales and manufacturing are mentioned in the text.
What conflicts might exist between other functional areas? Consider the following
pairings: research and development and manufacturing; finance and manufacturing;
marketing and sales; accounting and everyone else?
R&D may develop a product without any regard to the difficulties in the
manufacturing process. For example, R&D may design a product with
tremendously low tolerances for some of the components. This may be
difficult to manufacture. Manufacturing may demand improvements in their
plants or the construction of new plants to take care of capacity issues.
Finance may balk at these proposals because organizational capital may be
limited and there are other demands on it. Marketing and sales may have
conflict over any of the 4 Ps – product, pricing, promotion, and place
(distribution). As salespeople, they may want lower prices to meet their sales
quotas and additional marketing; the marketing function may insist on
sticking to their original marketing plan. Accountants are record keepers;
they love paper trails because it protects them during audits. The other
functions may not pay as much attention to records. Accountants may also
insist on cutting costs and staying within budgets; the other functions may
chafe at this close monitoring. The CEO can resolve these conflicts by
stating clearly his/her expectations for each function and by promoting the
well being of the organization as a whole as the paramount goal. Insisting on
regular cross-functional meetings also helps. Finally, having liaisons that act
as internal boundary spanners and coordinate activities between functions
can help everybody see the same big picture.

6.7. What could a CEO do to help resolve the conflicts found between functional areas
of the organization?
The CEO can resolve these conflicts by stating clearly his/her expectations
for each function and by promoting the well being of the organization as a
whole as the paramount goal. Insisting on regular cross-functional meetings
also helps. Finally, having liaisons that act as internal boundary spanners and
coordinate activities between functions can help everybody see the same big
picture.
6.8. Under what conditions would you accept a lower-paying job instead of a higher-
paying job?
One would accept a lower paying job over a higher paying job if the lower
paying job has tremendous upside to it. In other words, if the job is more
challenging and rewarding in a non-monetary way. Also, if the higher paying
job requires the employee to invest a tremendous amount of time in learning
skills specific to this employer (transaction-specific investment), the
employee may fear opportunistic behavior by the employer in terms of future
compensation.
6.9. What implications does your accepting a lower-paying job over a higher-paying one
have for your potential employer’s compensation policy?
The organization’s compensation policy must take these issues into

consideration to attract capable employees. This means that HR has to work
closely with the hiring unit in question to ensure that a lower-paying job has
other non-monetary rewards.
Problem Set
6.10 Which of the following two firms is more vertically integrated? How can you tell?
a. Firm A has included manufacturing, sales, finance, and human resources within
its boundaries and has outsourced legal and customer service.
b. Firm B has included manufacturing, sales, legal, and customer service within its
boundaries and has outsourced finance and human resources.
6.11 What is the level of transaction specific investment for each firm in the following
transactions? Who in these transactions is a greater risk of being taken unfair
advantage of?
a. Firm I has built a plant right next door to Firm II. Firm I’s plant is worth $5
million if it supplies Firm II. It is worth $200,000 if it does not supply Firm II.
Firm II has three alternative suppliers. If it receives supplies from Firm I, it is
worth $10 million. If it does not receive supplies from Firm I, it is worth $9.8
million.

b. Firm A has just purchased a new computer system that is only available from
Firm B. Firm A has redesigned its entire production process around this new
computer system. The old production process is worth $1 million; the new
process is worth $12 million. Firm B has several hundred customers for its new
computer system.
c. Firm Alpha, a fast food restaurant company, has a contract with Firm Beta, a
movie studio. After negotiating with several other potential partners, Firm Alpha
agreed to a contract that requires Firm Alpha to pay Firm Beta $5 million per
year for the right to use characters from Firm Beta’s movies in its packaged
meals for children. Demand for children’s movies has recently dropped.
d. Firm I owns and runs a printing press. Firm J uses the services of a printing
press. Historically, Firm I has sold its services to many customers. However, it
was recently approached by Firm J to become its exclusive supplier of printing
press services. Currently, Firm I is worth $1 million. If it became the sole
supplier to Firm J, it would be worth $8 million. To complete this deal, Firm I
would have to stop supplying its current customers and modify its machines to
meet Firm J’s needs. No other firm needs the same services as Firm J. Before
deciding to propose this arrangement with Firm I, Firm J contacted several other
suppliers who said they would be willing to become a sole supplier for Firm J.
6.12 What recommendation would you make in each of these situations, vertical
integration or not vertical integration and why?
a. Firm A needs a new and unique technology for its product line. There are no
substitute technologies. Should Firm A make this technology or buy it?
b. Firm I has been selling its products through a distributor for some time. It has
become the market share leader. Unfortunately, this distributor has not been
able to keep up with the evolving technology and customers are complaining.
There are no alternative distributors available. Should Firm I keep its current
distributor or should it begin distribution on its own?
c. Firm Alpha has manufactured its own products for years. Recently, however,
one of these products has become more and more like a commodity. Several
firms are now able to manufacture this product at the same price and quality as
Firm Alpha. However, they do not have Firm Alpha’s brand name in the market
place. Should Firm Alpha continue to manufacture this product or should it out-
source it to one of these other firms?
d. Firm I is convinced that a certain class of technologies holds real economic

potential. However, it does not know, for sure, which particular version of this
technology is going to dominate the market. There are eight competing versions
of this technology currently, but ultimately, only one will dominate the market.
Should Firm I invest in all eight of these technologies itself? Should it invest in

just one of these technologies? Should it partner with other firms that are
investing in these different technologies?
Answer 6.10
Firm A appears to be more vertically integrated. Students should provide an analysis that
examines the level of vertical integration from both a backward and forward perspective. In
the backward vertical integration situation, the firm has integrated aspects of its value chain
that are closer to the supplier side; in the forward vertical integration situation, the firm has
integrated aspects of its value chain that are closer to its customers.
Answer 6.11
The level of transaction specific investment is higher for Firm I than it is for Firm II.
Firm I is the party that has a greater risk of being taken unfair advantage of.
Firm A has the higher level of transaction specific investment. Firm B has the lower
transaction specific investment given the many customers. Firm A has the greater risk.
Due to the decrease in demand for children’s movies, it could be argued that Firm Beta
has the higher level of transaction specific investment.
Firm I clearly has the higher level of transaction specific investment risk. Firm I will be
the exclusive supplier for Firm J and for no other firms. Firm J has already
contacted other potential sources for its supplies.
Answer 6.12
a. Firm A could consider vertically integrating by purchasing the technology. This

would fall under “firm capabilities” where the technology is rare and costly to
imitate.
It could decide to forwardly integrate by developing distribution capabilities. However,

the flexibility here is rather low (costs are high). One would have to weigh the
relative “costs” associated with customer dissatisfaction and whether or not there are
substitute products/services that its existing customers could pursue.
If Firm Alpha continues to have strong presence in the market and holds the dominant
market position, it should continue to manufacture the product with its own brand.
There does not appear to be any cost advantage to outsourcing as the other firms
have the same capabilities.
It would probably be more cost effective to partner, in the short-term, with other firms
that are investing in the different technologies.
Note to Instructor: In each of the above cases, you may wish to ask students to provide a
value-chain projection to support their analyses.

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Era la primera volta que l’Adela sentía aquest llenguatje; la primera
volta que sa imaginació acostumada á esplayarse ab los esplendors
de la riquesa, entreveya altres celistias que no tenian per única base’l
diner; los horitzons que en Félix li descubria, li eran completament
nous; era un pais verge, que jamay havia somniat que existis. Mes, en
un moment no s’enderrocan las obras aixecadas ab l’escarpra del
temps, y més quan aquestas sostenen ab més ó menos forsa un fondo
de rahó; per lo que la pobra noya, entremitj del nou oassis que
acabava de descubrir, hi sentia ressonar la veu del seu pare, dientli:
¡Il·lusions de poeta! ¡Cuentos de color de rosa! ¡Flors que s’esfullan

al cullirlas! ¡Papallonas que perden sas alas al agafarlas! La veritat
certa, positiva, única, son diners, diners y diners…
L’ Adela era bon tros criatura y estava massa enamorada, pera

resistir impunement la lluyta comensada entre’l cor y’l cap. Lo nú,
que feya estona li oprimia la gola, esclatá en un mitj comprimit
sanglot é incapacitada de parlar, deixá que dos enfilalls de llágrimas
rodolessen per sobre las esgroguehidas rosas de sas galtas.
—¿Plora? —esclamá fora de sí l’Arenas. ¿Llavors es que m’estima,

com jo l’estimo, ab la diferencia de que jo soch un infame, un
salvatje, un egoista, que sols penso ab la meua felicitat, sens atendre
á la de vosté, que está acostumada á lo que jo, infelis de mí, no puch
oferirli? Pero jo faré lo que dech: jo aniré á cercarli lo que no tinch y
es indispensable per la seua manera de ser. A Cienfuegos hi ha uns
germans de la mamá, que tractan ab los géneros de casa y cent
vegadas m’han proposat d’anarhi, assegurantme ferhi un capital en
pochs anys: prometim que vosté m’esperará, y jo aniré á ferlo.
Es impossible imaginar l’efecte que aquestas paraulas causaren á
l’Adela. Si trobantse en mitj de las més espantosas tenebras, hagués
vist baixar un ángel del cel, que, trencant la pahorosa negror, li
mostrés ab tot son esclat los resplandors de la gloria, no li hauria
pogut causar ni més bell, ni més rialler efecte que’l que ab sas
paraulas acabava de obrar l’Arenas en aquell cor tan inespert, com
enamorat.
L’ Adela, no pensá en enfermetats ni perills, ni tan sols en la facilitat

del oblit, sols comprengué que per un miracle inesperat, per un
prodigi del que no sabia donarse compte, se li trencava la argolla de
ferro que l’empresonava y oprimia. Aquell horitzont tancat, negre,
del cel de sos contrariats amors, se li obria en un moment, mostrantli
lo que fins allavors ho havia cregut impossible. ¡Realisar los somnis
de son cor enamorat, á gust del seu pare, que tant l’estimava; que per
véurela felissa, desitjava per ella un marit ab los dots de la fortuna…
Y l’Arenas podia esser rich… molt rich… tal volta tan com en Cuberta,
qual matrimoni ab la Teresina, tan joyosos feya als seus pares!…
Ab mágica rapidesa invadiren aquestos pensaments l’imaginació de

la noya, que, girantse de sopte envers l’Arenas y agafant
inconscienment entre sas duas mans, la que aquest portava cayguda
al seu costat, esclamá ab indescriptible alegria:
—¡Vagi! ¡vagi! y torni rich pera casarse ab mí y jo li prometo —afegí

redressantse, ab una solemnitat que contrastava ab l’infantil alegria
ab que pronunciá sas primeras paraulas— que jo l’esperaré soltera
cinch anys, deu, vint, tota ma vida, fins que vosté torni pera
portarme á l’altar, á cumplir lo jurament que d’esperarlo y casarme
ab vosté li faig en aquest moment.
L’ Arenas sentí, tan com la promesa de l’Adela, lo contacte d’aquellas

mans finas, delicadas, ardorosas, que apassionadament estrenyian la
seua gelada per la emoció, y un estremiment eléctrich recorregué tots
los seus nervis, refluhint al mitj de son cor, quals bategadas
aixecavan per dessobre de son pit la brunyida petxera de piqué que
ab sa blancor feya més resaltar lo brill de sos ulls negres que,
clavantse en los de la Adela, foren per abdós com lo xoch d’una
corrent magnética.
L’ Arenas, perdé de vista tot lo que’l rodejava: sas orellas s’aislaren

dels remors de las conversas y riallas, que’s sentian devora seu, y
pareixentli los escassos pams de terra que en aquells moments
trepitxava las dilatadas boscurias del paradís, ahont Adam, sol ab sa
enamorada Eva, gosá las delitansas dels primers amors que niaren á
l’univers, aixecá fins á sos llavis una de las blancas mans de la Adela
é imprimí un bés foll, apassionat, en lo que semblá que hi depositava
tota la seua ánima. Las ombras del capvespre, que s’estenian
melangiosament per serras y clotadas, aparegueren en aquell
moment á sos ulls ab més espléndits colors que’ls virolats celatjes de
la aubada: tan sols en mitj d’aquell esclat d’enlluhernadoras tintas, li
semblá divisar en lo cim d’un núvol negre, la bella fesomia de sa
tendra mare, trista, trista com la d’una Dolorosa de Paul Delaroche…
La Montserrat.
Era ja fosca nit quan los escursionistas arribaren á Larrua. L’
animació distava molt de tenir l’aspecte bulliciós de la surtida; los
més venian cansats, desitjosos de treures la pols, de trobarse á casa
seua, y sobre tot, de véures sols ab los de sa familia pera cambiar
impresions y comentar alguna excentricitat descoberta en algun
amich ó amiga entre las francas espansions de la berenada. Eran
pocas las noyas á las que la realitat de la diversió, hagués fet gosar lo
que al anarhi havian presumit, y més d’una tornava ab una decepció
amorosa ó ab una renyina, deguda á qualque galanteria, que’ls gelos
presentavan á sos ulls ab los negres colors de una infidelitat. Los
joves, esceptuant los qui en la comitiva hi tenian á la dama de sos
pensaments, venian també desitjosos de trobarse deslligats de las
trabas y cumpliments, que la presencia de las senyoras imposa.
En Cuberta que, acostumat á América á fer vida de negoci, poch ó

casi cap tracte havia conreuat ab senyoras y senyoretas, aquella
tarde, en que havia tingut de esforsarse en ésser amable ab tothom, y
en trobar una frase adecuada á cada mamá y á cada filla, que més ó
menos afectuosament li havian dedicat sos obsequis, tenia majors
desitjos de trobarse ab completa llibertat; per lo que al invitarlo D.
Joaquim, pera que’s quedés á sopar ab la familia, D. Francisco
s’escusá, demanantli com especial mercé que’l deixés anar á son
allotjament, ahont se feya compte de pendre una sopa y anarsen á
descansar. En Cuberta esplayá tant manifestament la seua resolució
que, contra la costum que’s venia seguint ab ell, D. Joaquim se
resigná á no acompanyarlo á la fonda aquella nit, y á D. Francisco li
paregué que’s treya un pes de sobre, quan després d’haver sentit
tancar darrera seu lo macís reixat de ferro del luxós chalet de la
familia Bach, se trobá sol y completament á las foscas, á l’estret
carrer dels Avellaners.
Com lo calendari marcava que era época de lluna, apesar de que

aquesta no fos aquella nit visible fins á las deu, los fanals no s’havian
encés, lo que entussiasmá al bon senyor, pensant que la falta de llum
lo lliuraria de que’l vejés algun dels moltíssims forasters que en lo
poch temps de estar á Larrua se disputavan pera brindarli la seua
amistat y trobantlo sol, s’empenyessen en ferli companyia. Gosant,
donchs, de la dolsa satisfacció de sa llibertat, acabá lo carrer dels
Avellaners y entrá en la espayosa plassa de la Esglesia, que apesar de
no tenir major il·luminació que la dels carrers que á ella
desembocavan, tenia la vesllum que li feyan los raigs dels encesos
quinqués de petroli, de las botigas del barber, de la revenderia, del
sastre, de la fleca, del apotecari y del sabater, encara obertas. En
alguna, s’hi veya en lo llindar homes ó donas que gronxantse ab la
cadira apoyada en la paret, prenian la fresca tot conversant; en altres
la soletat en que estavan, feya presumir que á la rebotiga s’hi feya la
quotidiana feyna del sopar. En Cuberta, atravessá la plassa á la
esbiaxada y se detingué en mitj d’ella al sentir tocar tres quarts de
vuyt en lo relotje de la Parroquia. Lo só de la campana li feu aixecar
lo cap y fixar la vista en la alterosa y ennegrida fatxada de l’esglesia,
per quina xica portella entravan en aquell instant una dona del poble
y una noya d’uns deu ó dotze anys. Sens saber per qué, en Cuberta
sentí com desitjos de veure’l temple parroquial, al que no havia
entrat encara, y en lloch de seguir envers lo carrer de Sant Antoni,
s’encaminá de dret, cap á la portella que acabava de tancarse darrera
de las duas donas.
L’ esglesia estava poch més il·luminada que’ls carrers que la

voltavan. A palpentas tenia de buscarse la pica de l’aygua beneyta,
situada en la part esquerra de la entrada; puig sols després de
haverse internat fins á una quarta part de la nau, no donavan un xich
de llum los dos ciris que cremavan enfront d’una Verge del Roser,
posada en un petit altaret que seguia al de Sant Joan, col·locat á la
part del evangeli.
Devant del encés altar, l’escolá major resava las últimas denas del
Rosari, ab lo reduhit acompanyament de deu ó dotze donas, alguna
criatura y un sol home, que per sas encorvadas espatllas, se veya
clarament lo feix d’anys que havia fer torce sa espina dorsal. Al esser
aprop del altar major, se deixava veure que al temple hi havia més
il·luminació de la que de primer moment se descubria, com era la de
una llántia que cremava devant d’un alt Sant Crist, col·locat devora
de la porta xica de l’esglesia, y la de una altra que, espeternegant per
falta d’oli, donava sas darreras guspiras, penjada á la esquerra del
altar del Santíssim, enclavat en la part de la nau, que sustentava la
esbelta y esculpturada trona de noguera, que acusava la má d’obra de
las darrerias del sigle XVII.
Don Francisco arribá fins al peu del presbiteri ab lo barret á la má;

passejá indiferentment la vista per l’hermós retaule del altar major
d’estil gótich, dividit en diferents quadros, que la falta de llum,
impedia veure los assumptos que representavan; doná una segona
mirada als altars de las parets laterals, mostruari de diversas épocas
y més diferents estils; y ja satisfeta sa curiositat, puig que no eran las
aficions artísticas y arquitectónicas, las que més predominavan en
éll, se dirigí envers la porta, per la que feya pochs moments acabava
d’entrar. Mes al ésser á la pica de l’aygua beneyta, una estranya
impressió lo feu detenir en ella.
Acabat lo Rosari, l’escolá major havia comensat lo res de la Lletanía

Lauretana, á la que las pocas personas congregadas al peu del altar,
contestavan ab l’obligada repetició de ¡Ora pro nobis! ¡Ora pro
nobis!
Lo ritme monótono y precipitat d’eixa pregaria, que D. Francisco no

havia tornat á sentir desde que, noy encara, havia sortit del port de
Rosas, portá en un moment á sa imaginació un mon de recorts.
Aquella esglesia fosca, casi solitaria, tenia molts punts de semblansa

ab la que la sua mare’l portava de petit en las vetllas d’hivern, pera
fer los resos que en aquell instant arribavan á sas orellas, ab lo
mateix llenguatje, ab la mateixa cantarella y forma de trenta anys
enrera. Fins las veus li semblavan las mateixas; fins l’escolá tenia la
veu enrrogullada y la dicció ininteligible del escolá que resava’l
Rosari á l’esglesia del seu poble.
Don Francisco sentí que una mena d’agredols invadia son cor de
trenta vuyt anys, y desitjós de conservarli per una estona més, torná
enrera y se dirigí envers un banch de fusta, col·locat entre dos altars
de la paret de la dreta, ahont s’assentá y clogué’ls ulls pera que la
il·lusió fos més acabada. Allavors, entre’l ritme del Ora pro nobis, li
semblá veure las vellas parets de la casa, ahont havia nascut; lo llit al
que’l seu avi l’havia acompanyat pera besar la má al cadavre del seu
pare; la fesomia trista de sa bona mare vestida de negre; més tart las
taulas de la escola; las caras rodonas, vermellas y alegres dels
companys de la seua edat; las berenadas á la vinya; los cups plens de
rahim; las revolcadas y tomballons á la sorra de la platja, cremosa de
l’escalfor del sol; los capbussons dins las onadas, los crits dels
pescadors al treure las xarxas; després un barco de vela mar endins;
després… després en Cuberta, no pogué continuar la peregrinació de
sos recorts: lo sonido d’una improvisació d’acorts arpegiats en un
armonium, li feu obrir los ulls y tornar a la realitat de sa existencia
actual. En lo breu temps que sa imaginació havia navegat per los
mars dels recorts de sa infantesa, los resos havian finit y l’esglesia
havia quedat completament deserta. Sols en lo chor s’hi veya un llum
y se sentian acompanyadas per l’armonium las primeras notas del
Ave María de Gounod, cantadas á mitja forsa per una veu de mezzo
soprano poch voluminosa, pero agradablement timbrada y d’una
dolsor y ductilitat incomparables. Als pochs moments D. Francisco
pogué convencers que la persona que cantava en lo chor, hi era sols
per ensajar, ja que al ésser al mi del Gratia plena, allargant la nota,
trencava la frase, per mancarli fiatto pe’l la, si, la, del compás segon.
La veu repetí per tres ó quatre voltas l’ensaig y ja segura de la
correcció, seguí ab facilitat fins al re, si, del Sancta, quinas notas no li
sortian prou lligadas; corretjit altra volta’l defecte, seguí sens
interrupció, fins al si del Ora mortis, que repetí també duas ó tres
vegadas, per semblarli, sens dubte, que li eixia massa oberta la nota.
Després altre colp ressonaren per una estona los acorts arpegiats y
tot seguit se sentí lo soroll de la tapa cayent sobre’l teclat, lo remor
d’una cadira al rascar demunt dels rajols y’s vejé la claror de la llum
passant desde’l centre del chor á la part esquerra, y després d’un
instant de desapareixer, tornar á reeixir, dalt del tram de grahons
d’una escala, que la foscor de la esglesia no li havia deixat veure fins
aquell instant, al costat de la capella, que s’esqueya devant per
devant del lloch ahont estava assegut en Cuberta.
Ab tota facilitat pogué, donchs, en aquell moment contemplar á la

persona, que durant la mitja hora que havia durat l’ensaig, havia
lluytat per distingir entre’ls reixats de pedra de la barana del chor. Lo
tros de ciri encés que en un candeler de llautó ennegrit pel temps
portava á la má dreta y qual flama cubria ab l’esquerra pera privar de
que’l vent li apagués, deixava en la fosca á la part inferior de la figura,
il·luminant de plé, un cap de noya d’una bellesa ideal, extraordinaria,
com no recordava en Cuberta haver vist igual en cap dels pahissos
que havia recorregut en sos viatjes; tal era la perfecció de líneas de sa
cara, la brillantor que eixia de sos ulls grossos y espressius y lo
magnífich cabell ros que, graciosament ondejat, queya en petits
rinxets dessobre de son nevat front.
Quan baixat lo darrer grahó de la escala, tragué d’enfront del ciri, la

má que’l preservava de l’ayre, los raigs de llum, estenentse per son
entorn, deixaren veure la figura vestida de negre, alta, esbelta y
agraciada, de una joveneta d’uns vint á vint y dos anys que, caminant
ab la magestat d’una reyna, atravessá l’esglesia, s’ajonollá un
moment devant del Sant Crist del costat de la porta xica y,
retrocedint altre volta fins á ésser davant del presbiteri, pujá los tres
esgrahons de pedra, y fent una reverent inclinació enfront del altar
major, sortí per la porta de la sagristia.
Don Francisco la vejé desapareixer com una visió sobrenatural, sense
sapiguer donarse compte de la impressió que acabava de soptarlo.
Home rich y espléndit, si era la primera volta que tornava al seu pais,
no ho era de sa tornada á Europa: dos hiverns seguits havia estat á
París y á Londres, ahont hi havia sentit los refilets de la Nilson y las
passadas de rossinyol de la Patti, y no obstant, las veus d’aquellas
notabilitats artísticas emesas entremitg de las coloraynas de las
bambalinas, dels raigs potents de la llum artificial, dels reflexos
enlluernadors de perlas y brillants escampats arreu en palcos y
butacas, si be l’havian deleytat, no li havian arrivat al cor, com las
notas d’aquell ensaig á mitja veu, sentit entre las foscors d’una
esglesia de poble.
En Cuberta no havia tornat en sí de la seua impressió y estava encara

preguntantse com era possible que en los dias que feya de sa estada á
Larrua ni l’hagués vista en cap part ni hagués sentit parlar d’aquella
noya, quan vejé que la porta per la qual havia desaparescut tornava á
obrirse; sols que en lloch de la hermosa donzella, n’eixia mitg
fregantse’ls ulls, que sens dubte fins á aquell moment havian estat
tancats baix la dolsa pressió de la son, un bordegás de catorse ó
quinse anys, que ab un feix de claus á la má tancá l’altar del
Santíssim, doná de correguda una mirada als recons de l’esglesia y,
dirigintse á en Cuberta que permaneixia encara dret en mitj del
temple, li digué sacsejant las claus, ab malhumorada expresió:
—¡Vaja, que ja es hora de tancar!
Don Francisco, tot seguint al xicot, que s’havia posat á caminar

devant d’ell, se tragué de sa bossa de malla de plata una pesseta
isabelina y, posantla á la má del bordegás, que ja aguantava oberta la
portella de la entrada de la plassa, li digué:
—Escolta: ¿Quí es aquesta noya, que cantava en lo chor y que s’ha

ficat á la sagristia?
Lo xicot tot estrenyent en sa má la moneda que acabava de rebre,

entre ensomniat y sorprés, mirá de dalt á baix la sapada figura del
americá de Rosas y empenyentlo suaument cap en fora, exclamá tot
tancantli la porta:
—¿Qui es?… ¡Ay ay! ¡La Montserrat!

Mossen Jaume.
La fatxada principal de l’esglesia de Larrua tenia per un costat lo
carrer dels Trinitaris, compost de la llarga paret de la Parroquia y de
set ó vuyt casas ab sas corresponents botigas destinadas á la venda
de robas y objectes de quincalla, y per l’altra part un antiquíssim
edifici de baixos y primer pis, ab duas reixas corresponents á la
planta baixa y un hort enmurallat d’uns xeixanta pams de longitut,
que s’escorría al llarch del carrer de las Rosas, tenint son acabament
en lo del Avellaners. Aquest edifici que no perteneixía á cap estil
determinat, ja que cada obertura acusava la construcció d’una época
distinta, vejentse al costat d’una finestra que despertava recorts del
sigle XVI, un balcó obert dos pams més amunt ab barana de ferros
caragolats y macissos poms de llautó, que transportavan á la
decayguda época de Carlos IV, anomalía que també’s deixava veure
entre’ls esculturals finestrals que donavan á la plassa y las mesquinas
reixas del carrer de las Rosas, estava destinat pera casa rectoral y era
indubtable que, segons los diners y las necessitats de cada rector
s’havia anat aixamplant y recomponent, sens atendre més que al
desembrás y comoditat de la part interna. Per dos grahons de pedra
se pujava al macís cancell, que s’obría pera donar pas á una ampla
sala de rebre, sens altre adorno que un deteriorat quadro de la
Anunciació y un banch de fusta que, per lo molt escarbotat del
respatller y brassos, se deixava veure lo tranquilament que’ls corchs
hi feyan sa niuhada.
A la dreta y enfront d’una escala de pedra, per la que’s pujava á las
cambras del pis primer, hi havia lo quarto del despaig de espedients
parroquials, habitualment ocupat per lo vicari. La part de darrera se
componía d’un espayós menjador ab finestra y sortida al hort, cuyna
á la dreta y dos quartos á la esquerra. Lo més inmediat á la porta
d’entrada, a més de servir pera los de la casa de passadís pera
comunicar ab la sagristía, feya també de depósit de fustas, de banchs,
candeleros y dossers mitj romputs, que espolsats y arregladets,
resistían encara en peu algunas horas en dias de grans solemnitats
religiosas.
Lo del costat era lo despaig particular ó mellor dit, sala d’estudi y de

rebre de Mossen Jaume Villadó, rector feya divuyt anys, del poble de
Larrua. Aquesta cambra, que abundosament rebia la llum per un
gran finestral ab reixa, per quins barrots de ferro s’enfilava fent
primors d’esbeltesa una fornida passionera del hort, era de parets
emblanquinadas, trespol ab revoltons y enrajolat de llosas, sens més
adornos que un gran quadro d’estil gótich de Jesús crucificat, del
que’l temps acabava d’esborrar las figuras de la Verge, de Sant Joan y
de la Magdalena; una llibrería de moderna construcció y altra que
portava sa honorable vellesa escrita en sos prestatjes sense vidres y
en las moltas recomposicions fetas en sos muntants de fusta de
cirerer. Un sofá de boga, colocat dessota del quadro, quatre cadiras
de igual classe, una taula escriptori y un antich silló de baqueta
clavetejat, era lo mobiliari del quarto en que habitualment passava
Mossen Jaume las horas que sos debers y l’afició al conreu del seu
hort lo deixavan en llibertat.
Lo rector de Larrua era lo primogénit d’una distingida familia de
Barcelona, á la que la guerra carlista havia deixat ab més deutes que
diners pera sostenir los pergamins de sos antepassats. Tal volta si,
com era voluntat de la familia, hagués seguit la carrera d’advocat al
ésser mort lo seu pare que havia passat la vida ficat dins la política
activa, hauría pogut ab mellors condicions restablir algun xich
l’hipotecat patrimoni; pero Mossen Jaume, que desde criatura havia
mostrat decidida vocació pera la carrera eclesiástica, l’abrassá
definitivament als divuyt anys, sens preocuparse poch ni molt del
mellor profit dels seus interessos, recullint á la mort de la seua mare
una migrada herencia que voluntariament partí ab sa germana
Teresa, puig que aquesta havia ja al casarse cobrat lo seu dot.
Per altra part Mossen Jaume, apesar d’haver nascut de una familia
rica y poguér firmar de Villadó, de Llinás y de Mascorp, era senzill
com un modest menestral; la seua vocació religiosa y un decidit
entussiasme per l’estudi d’humanitats y escorcollament de las obras
dels autors clássichs llatins, l’havia fet mirar ab certa indiferencia tot
lo que’s relacionava ab los bens materials. Son luxo, en sa jovenesa
havia estat en la seua biblioteca, ahont entre diversas edicions de la
Biblia, de la Summa de Sant Tomás y de las obras de Sant Agustí, s’hi
veyan escampadas, ab verdadera profusió, las creacions d’Horaci y
de Virgili, las obras filosóficas de Aristóteles, las del sever Tito Livi,
las del retórich Quintiliá; y en fí, tot lo brillant estol de las lletras
llatinas, en tota la riquesa de sas diversas manifestacions. Mes feya
deu ó dotze anys que eixas obras, delectansa de sa pensa jovenil, no
s’havian tret del prestatje de sa vella llibrería; la obra del immortal
Pare Kempis, las meditacions del Pare Lapuente y’l Croisset,
escampadas sobre sa taula d’escriure, eran las únicas que gosavan lo
privilegi d’ésser llegidas per Mossen Jaume; las primeras, pera
confortació de son esperit, las altras pera revivar son zel, que en sa
delicada susceptibilitat, creya sempre esmortuhit, en pró de las
ovellas á sa custodia encomanadas ó pera cercar material pera
amenisar ab la historia dels Sants, que l’esglesia conmemora durant
la setmana, la plática que endressava als fidels los dias festius. A las
obras dels sabis seglars, es á dir, las purament literarias ó filosóficas,
feya alguns anys que’l bon rector de Larrua’ls havia declarat poch
menos que la guerra; y si no havia resolt ferne un foch era perque
apesar seu las estimava; cada una li enclohía’l recort d’una diferenta
época de sa existencia; totas havian estat sas amigas; ab totas havia
disfrutat y viscut; li semblava que á cada una li debia un tros de son
pensament y fins un bossí de son cor, per aixó no havia determinat sa
exterminació, pero deixava indiferentment que’ls corchs y la pols las
roseguessin. ¿Qué n’havia tret de la ciencia, de las máximas, de la
sabiduría ab ellas adquirida, si no havia sapigut trobar paraulas y
rahons de prou virtut, de prou eficacia pera dissuadir á duas
dotzenas de visionaris de Larrua que se’ls havian pujat al cervell las
doctrinas de Allan Kardech, creyentse com article de fé los falsos
prodigis atribuhits al mon dels esperits? Mossen Jaume comprenía
ab més ó menos pena de son cor cristiá, que hi haguessen esperitistas
en la vella Alemania, en la Inglaterra, en los Estats-Units, fins en sa
estimada patria Barcelona; pero ¡que n’hi haguessin á Larrua, y que
hagués brotat aquesta filoxera d’ánimas essenthi ell de Pastor, y que
no sols anás aumentant lo número, si no que’l error invadís lo camp
femení arrivant fins á las mares de familia!… Pera’l bon rector aixó
era’l máxim de la desesperació; los ateos, los lliure-pensadors, que de
tot desgraciadament hi havia en aquell reconet de costa catalana, li
inspiravan la pena que causa al metje la vista del malalt incurable;
pero aquestos, á més d’ésser pochs eran pera las donas objecte de
repulsió sas doctrinas materialistas despossehidas de tota idea
d’ultra tomba; la negació desapiadada de las hermosas y
consoladoras veritats del cristianisme, distava molt de fer adeptes
entre ellas; pero l’esperitisme, ab sos punts de maravellós, ab sas
máximas de caritat y amor al próxim, que tantas y tantas voltas
havian sentit en la mateixa doctrina cristiana, no’ls inspirava recels;
l’huracá seguia sa devastadora carrera y l’apesarat rector devant de la
inutilitat de las seuas tentativas y de lo poch ó gens profitosa que
havia estat per ell l’estudi de la ciencia terrena, fondament
descoratjat de las forsas de la seua inteligencia, ab pany y clau tancá
per sempre més los llibres d’aquells ingenis que tantas cosas sabian,
que tan gran coneixement entranyavan de la humanitat, que tantas
reglas de conducta donavan als pobles y ab tants concells il·lustravan
als Céssars; y que á ell no havian sapigut donarli de sa ciencia de la
vida humana una llum, un camí, un remey, pera acabar ab aquella
pérdua d’ovellas que tan fondament l’aclaparava.
Sa resolució estava presa: desde aquell moment fins procuraría

oblidar lo que ab ells havia aprés. Jesús havia dit: Fins que vos
tornareu com aquest infant, no entrareu en lo regne del cel; donchs
ell aprofitaría la llissó; la inutilitat de sos afanys li havia fet veure la
seua insuficiencia, tal volta la seua superbia: s’humiliaría més,
abrassaría sa creu y resignadament la portaría. Y ab l’ajuda de Deu,
que tot ho pot, lo temps que tot ho acaba y lo decahiment produhit
per una anémia nerviosa, complicada ab los comensaments d’una
enfermetat de cor, Mossen Jaume lográ per fi deixar de atormentarse
com ho havia fet fins allavoras, y sens desistir en la tasca de retornar
á la llum evangélica á aquellas ánimas esgarriadas, se conformá ab la
voluntat del Senyor que á aytals probas lo sometia y com en los
primers anys del exercici de son ministeri, cercá esbarjo á son esperit
en ésser conhort dels pobres, de sos feligresos y de las duas únicas
brancas que li restavan de tota sa familia: la seua germana y sa
nevoda Montserrat, á la qui estimava com á un pare; y tal volta ab
més tendresa desde que per la mort de la seua mare la veya sens més
amparo que’l de un pobre sacerdot sense salut.
Tal era la personalitat moral, plena de zel, de bondat y senzillesa

cristiana del rector de Larrua, en qual despaig aném á introduhir als
nostres llegidors quinze dias després de la vetlla en que D. Francisco
Cuberta havia conegut en l’esglesia parroquial, á la seua nevoda.
Feya llarga estona que Mossen Jaume havia enviat á la criada á

cercar en las habitacions del pis primer á la Montserrat, quan
aquesta entrá en lo quarto. La llum del sol, passant ab tota sa forsa
per la oberta finestra, no disminuhía en res la esculptural bellesa que
havia tant sorprés al pretengut americano. Ab l’esclat de la claror
brillava ab major forsa lo blau fosch, com lo d’una nit estrellada, de
sos ulls, moventse plens de vida, devall de sas parpellas vorejadas de
llarguíssimas pestanyas; com adquiría major reals la puresa de sas
líneas de estátua grega y la esplendent bellesa de sa cabellera,
ondejada y rossa, com la d’un infant de las fredas terras del Nort. Sa
figura de vestal y una distinció de princesa, que pareixía que
s’exhalava de son caminar, de sos moviments y fins de son
senzillíssim trajo de dol, haurían fet de la Montserrat la
personificació á la terra de la hermosura ab que’ns pintan al arcángel
Sant Gabriel, si un xich de tinta carminosa hagués envermellit sas
galtas completament esgroguehidas, y hagués estat possible
arrebassar de tota sa persona cert ayre de desdenyosa altivesa, que
en determinats moments enduria la espressió de son rostre.
Mes en honra á la veritat devém dir que las faccions de la noya

perderen sa estirada regidés, al dir afectuosament á Mossen Jaume:
—L’ he fet esperar sense volguer… Tenia á dalt á Da. Rosalía que no
acabava may de despedirse… Per fí ja n’estich lliure. ¿Qué’m vol?
Feya un bon rato que Mossen Jaume tenia devant dels ulls una carta
que ja no llegía y que deixá demunt la taula pera dir á la seua nevoda
ab certa solemnitat que no passá desapercebuda á la noya:
—Mira, acóstat aquella cadira baixeta y vina aquí… aprop meu…

Tením de parlar llarga estona y de cosas bon xich importants…
molt… molt…
—Casi m’espantaría ab aquesta serietat…
Mossen Jaume endolsí encara més son accent y agafant entre’ls seus
dits ossosos la aristocrática má de la Montserrat, digué colpejantli
carinyosament:
—Alguna volta ¿t’has detingut á pensar en la soletat en que restarás,

lo jorn que jo mori?
—Vaja, vaja, oncle, ¡quínas cosas de dir! Potser me moriré jo primer

que vosté…
Lo rector de Larrua deixá la má de la noya y aixecant las seuas á
l’alsada de sos ulls, aixamplá los dits, posant de manifest
l’encreuament de venas y nervis, que’s deixava veure per dessota de
sa pell groga y enmorenida y que per sa trasparencia pareixía feta
aposta per un estudi anatómich, y digué:
—No hi ha que ferse il·lusions filla; jo tinch la mateixa malaltía que

matá á la teua mare, que jovenets se’n endugué á los dos altres
germans meus… que los darrers anys de la vida de la teua pobre avia,
m’obligá á deixarla sola en sa vellesa, pera portar pels mars aquesta
feble naturalesa meua, que no ha pogut enrobustirse may… Puch
viure dos anys, quatre, potser arrivi á sis ó set… pero l’enemich lo
porto á dins y ab més motius que’ls que están sans, tinch d’estar ab la
llántia encesa com las donzellas de que’ns parlan las sagradas
escripturas… ¡Vaja, no posis aquesta cara tan fosca! Si no vull
entristirte… ¡Al contrari! Vull parlarte d’una gran mercé que Deu te
vol fer… Res, lo que jo ’t deya, que Nostre Senyor nos estima molt
més de lo que nosaltres ab lo nostre pobre enteniment podém
compendre; y vetaquí que quan jo tant m’amohinava pensant ab la
soletat en que quedarías lo jorn que jo ’t faltés, la Providencia ha
volgut que vingués á Larrua un ricatxo d’América, una mena de
nabab que tothom se disputa… Mira; fá deu dias que jo ni sabia que
fos al poble, pero apenas m’he volgut enterar, prou me n’han contat
de cosas… ¡Més ne sabessen!… Donchs es lo cás que aquest senyor,
que diuhen que es molt bona persona y no sols la gent d’aquí; jo no
t’he volgut parlar que no sapigués lo terreno que trepitjo… Quan t’he
cridat acabava de rebre aquesta carta del rector de Rosas, la població
d’hont ell es fill y ahont hi té encara familia… Los informes no poden
ésser mellors… Aixó no vol dir que jo no cerqui també la manera de
tenir bonas referencias d’América… ¡Oh, devegadas passan unas
cosas ab la gent que vé de lluny!… Y es precís mirarho molt… Los
diners no es pas lo primer que s’ha de cercar en un home…
—Pero oncle —va interrompre la noya admirada de la animació de

Mossen Jaume— á nosaltres…
—¡Déixam parlar, dona! Després ja hi dirás tú lo teu parer! Per ço

t’ho consulto; t’ho parlo. Jo no vull ferte pressió de cap mena… ¡Deu
me’n guard! Pero la cosa es massa gran perque no m’hagi omplert
d’agrahiment á Deu, al veure la consolació que m’envia de poguerte
deixar colocada ¡y de quina manera! També ho he escrit á Barcelona,
á en Valls, lo teu tutor, que també, li apar, una gran sort pera tú…
—Pero’s pot sapiguer…
—Ja veurás, ja veurás; es que aquest bon senyor que, segons m’han
contat, tots los pares de la colonia forastera se’l disputan per las
seuas fillas, los ha donat mitja volta á l’esquerra y ha vingut á
cercarte á tú. A tú, la més pobreta de totas; ¡á tú que ningú ’t veu en
forat ni en finestra! Res ¡com lo del qüento de la Cendrereta! ó
mellor dit, quan Nostre Senyor té una cosa destinada…
—Pero oncle, si jo…
—Si sabesses —prosseguí Mossen Jaume sens fer esment de las

interrupcions de la noya— quantas voltas després de lo d’en Felip
¡que Deu lo fassa bó! m’ha preocupat lo teu pervindre!… Perque’ls
casaments cada dia son més difícils… y á tú, jo ’t conech prou pera
sapiguer que no t’hauría satisfet un qualsevulla! ¡Y ab lo teu modo de

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Strategic Management and Competitive

Advantage 5th Edition Barney

Strategic Management and Competitive Advantage 5th

Strategic Management and Competitive Advantage 6th

Strategic Management and Competitive Advantage 6th

Strategic Management and Competitive Advantage 4th

Strategic Management A Competitive Advantage Approach

Strategic Management A Competitive Advantage Approach

Strategic Management A Competitive Advantage Approach

Strategic Management A Competitive Advantage Approach

WHAT IS CORPORATE STRATEGY?

 Important Point: Corporate level strategy addresses the question: In which

Students should understand the logic of corporate-level strategy. As the class

• such that the value of the corporate whole increases

Owning a portfolio of businesses comes with a cost—the costs associated with

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WHAT IS VERTICAL INTEGRATION?

Once students understand the basic concept of vertical integration (increasing a

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Slides 6-5 and 6-6

 Important Point: It is important to reiterate to students that vertical integration

► Example: Amazon and the Publishing Industry

The book publishing industry traditionally was characterized by a long value

(Laseter, Houston, Wright and Park. “Amazon your industry: Extracting

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• Use examples to help students clearly understand the concept of vertical

THE VALUE OF VERTICAL INTEGRATION

▪ to reduce the threat of opportunism

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Vertical Integration and the Threat of Opportunism

► Example: Bird’s Eye and the Frozen Foods Industry

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Vertical Integration and Firm Capabilities

Reducing the threat of opportunism can be seen as a defensive approach to vertical

► Example: Installing Auditorium Seats

A company that manufacturers seats for auditoriums and stadiums faced a

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Vertical Integration and Flexibility

► Example: Intel Capital

Intel capital’s website (www.intelcapital.com)

Applying the Theories to the Management of Call Centers

Call centers in the beginning (because of their novelty) required transaction-specific

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► Example: Call Centers in India

India is a leading player in the call center industry. Companies such as

Outsource India website (www.outsource2India.com)

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• Ensure that students understand what opportunism is. Use examples to

VERTICAL INTEGRATION AND SUSTAINED COMPETITIVE ADVANTAGE

The Rarity of Vertical Integration

▪ rare transaction-specific investments need to be made that prompts a firm to

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The Imitability of Vertical Integration

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• Reiterate the importance of using the VRIO Framework to evaluate the

ORGANIZING TO IMPLEMENT VERTICAL INTEGRATION

Organizational Structure and Implementing Vertical Integration

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Management Controls and Implementing Vertical Integration

Once the U-form structure’s importance in implementing a vertical integration

▪ the executive committee

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Compensation in Implementing Vertical Integration Strategies

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