Strategy and Entrepreneurship
Authors / Editors
Brahm F; Parmigiani A; Tarzijan J
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.
Firm scope; Diversification; Vertical integration; Capabilities; Corporate strategy