The choice of organizational form: vertical financial ownership versus other methods of vertical integration
Article Abstract:
Vertical financial ownership (VFO) is contrasted with vertical contracting (VC) using the efficiency perspectives of agency theory and transactions costs. Both are forms of vertical integration, the linkage of firms whose outputs are inputs to a complete production process, for strategic, price, risk and transaction costs considerations. VFO involves mergers that result in a hierarchy of firms, whereas VC involves the franchising of essential processes to external suppliers. While VFO may provide savings in terms of coordination, audit and information costs, it suffers from non-competitive disadvantages, such as increased red tape, reduced market exposure and inefficent contracting risks. VC is a viable alternative to the former in the absence of transactions costs. The choice between the two depends on the team effort required, asset specificity and task programmability within the firm.
Publication Name: Strategic Management Journal
Subject: Business
ISSN: 0143-2095
Year: 1992
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Transaction cost analysis of strategy-structure choice
Article Abstract:
The association between structure, strategy, and organizational performance is examined by means of a transaction cost approach. Three related questions are addressed: what factor limits growth for a company pursing a given strategy; what motivates a firm to follow various growth strategies; and what influences changes in strategy and structure used by the company over time. The analysis is designed to integrate previous work in strategic management and offers a framework for examining corporate strategy selection.
Publication Name: Strategic Management Journal
Subject: Business
ISSN: 0143-2095
Year: 1988
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