STRATEGIC CHOICE ALONG THE VERTICAL COORDINATION CONTINUUM

Starting from the generalized notion of a vertical coordination continuum introduced by Williamson and others, the article more specifically defines the nature of the continuum, especially the array of hybrid strategies. The continuum as presented includes five distinct groups of strategy – spot markets, specification contracts, relation-based alliances, equity-based alliances, and vertical integration. The article then presents a decision making framework that can be used by firms to determine which place on the continuum makes the most sense for a particular transaction. The framework suggests that five assessments are critical to adopting a specific change in coordination strategy: (1) Is the current strategy too costly?; (2) Would an alternative strategy reduce the cost?; (3) Is an alternative programmable?; (4) Is an alternative implementable?; (5) Is the risk/return tradeoff acceptable? If the answers to all five assessments are “yes,” then a change in strategy would be expected to occur.