Moving Corporate Boundaries: Consequences for Innovative Redesign

Abstract

The latest century has witnessed two major transformations of the business landscape through which the boundaries of firms were modified substantially. The first was the establishment of the large‐scale integrated hierarchies, like the Ford Motor Company, in the beginning of the 20th century. The second was the disintegration of these hierarchies at the end of the same century. In both cases, the objective of the boundary movement was to improve the opportunities for innovative redesign. Because the strategic approaches to achieve this objective were quite different, the interplay between innovative redesign and changes of the boundaries of firms deserves further exploration. This article is based empirically on previous research on these two types of transformations. The information from these studies is used to formulate seven propositions concerning the interplay between innovative redesign and corporate boundaries. Three main findings spring from this study. First, the boundaries of firms are multifaceted. In addition to the ownership boundary, it is demonstrated that influence boundaries and awareness boundaries are central in innovative redesign. Second, corporate boundaries are dynamic. The study shows that sometimes they function as buffers in relation to other firms, while in other situations, they serve as bridges. Third, for the individual firm's boundary setting, two issues appear to be critical: one concerns the trade‐off between specialization and integration, and the other relates to the interaction between the internal capabilities of the firm and those that are accessible from business partners.

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