Research and teaching

Giacomo Negro and Olav Sorenson

We investigate the competitive consequence of vertical integration on organizational performance using a comprehensive dataset of U.S. motion picture production companies, which includes information on their vertical scope and competitive overlaps. Vertical integration appears to change the dynamics of competition in two ways: (i) it buffers the vertically integrated firms from environmental dependence and (ii) it intensifies competition among non-integrated organizations. In contrast to the existing literature, our results suggest that vertical integration has implications well beyond both the level of the individual transaction and even the internal efficiency of the integrated firm.

Advances in Strategic Management, 23 (2006): 367-403

Olav Sorenson

A growing body of research documents the role that organizational learning plays in improving firm performance over time. To date, however, this literature has given limited attention to the effect that the internal structure of the firm can have on generating differences in these learning rates. This paper focuses on the degree to which interdependence—and in particular one structural characteristic that generates interdependence, vertical integration—affects organizational learning. Firms face a trade-off. In stable environments, vertically integrating severely limits the organization’s ability to learn by doing because boundedly rational managers find the optimization of operations difficult when making highly interdependent choices. As the volatility of the environment increases though, integration can facilitate learning-by-doing by buffering activities within the firm from instability in the external environment. Thus, firms with a high degree of interdependence suffer less in these environments. Tests of these hypotheses on the growth and exit rates of computer workstation manufacturers support this thesis.

Management Science, 49 (2003): 446-463

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