Vertical integration and economic performance: a managerial capability framework

Despite the indeterminate economic outcomes of vertical integration, several managers and researchers have questioned its viability. The article proposes that a better understanding of the relationship between vertical integration and economic performance may be made by considering the role of managerial capabilities in directing integration. It is argued that a lack of understanding of non‐core businesses and the managerial approach necessary for managing integrated activities contributes to poor integration outcomes. The magnitude of these knowledge deficiencies will be dependent on how far the company moves from its strategic core and on whether corporate managers can abate these deficiencies through knowledge acquisition. Through synthesis of the complex vertical integration literature, a managerial capability framework presents the issues and environmental contingencies involved in the success of the vertical integration effort.