As markets and technologies change more and more rapidly, organizations must respond quickly and frequently to strategic moves if they are to sustain competitive advantage. Although corporations have learned to make changes in strategy quickly, their organizations may lack parallel market responsiveness. One major reason for this failure is the conflict between scale economics, which is geared to the expansion and aggregation of resources, and the economics of vertical integration, which links differentiated functions and resources for maximum efficiency in responding to market changes.
The opposing pressures fueling this conflict are both subtle and complex. On one side of the equation are all the forces contributing to the need to reap maximum scale advantage. On the other side of the equation, the accelerated pace of change—environmental, competitive, and technological—drives corporations toward increased flexibility, high levels of internal integration, and smaller operating units.
Although scale advantage has traditionally held high ground, evidence is mounting that highly integrated organizations can increase productive capacity through the efficient coordination of functions and resources while remaining
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