The Co-evolution of Organizational and Vertical Architecture: the Mediating Role of Organizational Capabilities

How do corporate legal departments and law firms make decisions about ‘making’ or ‘buying’ legal services? In what ways are their decisions governed by the usual criteria and factors identified in economic and managerial theories of the firm? And to what extent are lawyers’ make‐or‐buy decisions affected by professionalism and partnerships that govern the legal profession? This paper addresses these questions by generating five propositions arising out of various theories, concerning(1) the link between task modularity and organizational modularity,(2) knowledge interdependence complicating this link,(3) rent‐seeking, property‐rights, incentive‐alignment,and decision‐making adaptation motives for make‐or‐buy decisions,(4) the impact of managerial hierarchy on make‐or‐buy decision, and (5) the industry‐level distribution of capabilities affecting value chain disintegration. The paper discusses some evidence in legal services in support of these propositions, and raise questions for further research.