Can firms be both broad and deep? Exploring the interdependencies between horizontal and vertical firm scope

Subject

Strategy and Entrepreneurship

Publishing details

Working Paper

Authors / Editors

Brahm F; Parmigiani A; Tarzijan J

Biographies

Publication Year

2019

Abstract

Firms can be horizontally diversified, with considerable breadth, or vertically integrated, with great depth. This study explores how breadth and depth affect each other as influenced by capability requirements and coordination demands. Using construction industry data, we assess the interdependence between contractors’ portfolios of building types (horizontal scope) and the extent of integration of the activities needed to complete each project (vertical scope). We find that vertical and horizontal scope have a negative interdependency only when contractors face managerial constraints due to coordination challenges. Without these constraints, horizontal and vertical scope are independent. This highlights the role of managerial capacity as an important bottleneck for firms attempting to be both broad and deep.

Keywords

Firm scope; Diversification; Vertical integration; Capabilities; Corporate strategy

Series

Working Paper