Vertically Integrated or Virtual Organisation

An organisation might decide not to source goods or services externally but to own the supplier company itself. For instance a media company may also own or part own a publishing house or a paper mill or a distribution company. This is known as vertical integration. There are considerable difficulties with vertical integration as it expands the breadth of competencies required by an organisation. This is very much in the opposite direction to the business excellence - operational strategy.

The alternative is horizontal integration with chains of suppliers working in harmony to create a virtual organisation. This kind of organisation may manage to supply markets which individual companies working alone could probably not achieve. It can be a long- term relationship. However, the life cycle of virtual organisations may also be brief as they serve markets where change and fluidity are common features. Their alliances form and reform to adapt to changing market behaviour. This kind of organisation may be very efficient by achieving agile and lean performance with low capital investment. There is one further strategy which operates in Japan. Keiretsu is a coalition of vertical and horizontal integration as groups of companies operate in close co-operation. These groups often incorporate their own banks and distribution network. This approach however is limited to Japan.