Fending Off Commoditization and Softening Competition Through Strategic Boundary Design

Abstract

Designing a firm’s boundaries can lead to substantial strategic regeneration. But the question is, how? Moving beyond transaction-level analysis, we consider how the design of the firm’s overall boundaries (rather than individual make-vs-buy choices) yield strategic advantages in addition to organizational benefits. We do so through in-depth analysis of a European textile manufacturer that disaggregated its vertical structure without changing its overall scope. We discuss how the change in value proposition from integrated final good provider, to outsourcee delivering a series of intermediate goods and services, yielded real benefit in a saturated market. We highlight the major strategic benefits of this vertical disaggregation, and consider how it changed both strategic prospects and industry dynamics. We show that this new structure allowed the firm to transform its monolithic structure into a vertically agile layout, enabling it to reconfigure the scope of its offerings to customers and, ultimately, to use reconfigurability as a strategic tool to fend off commoditization and segregate markets to soften the effects of competition. We identify the critical role of IT as a factor enabling the new flexible structure. We show that, in contrast to our expectations and the literature, it is architectural technologies such as ERP systems, rather than the technologies linking firms (such as EDI systems), that enable reconfigurable modular structures. We examine the conditions under which such flexible vertical structures may be effective, identifying high maturity and low appropriability in our setting. We conclude with implications for theory and practice.