Transformation of Vertical Industries into Horizontal Ones
The traditional formation of corporations has been under the architecture of vertical formation. For many years now, many of the corporations have been adopting a hierarchical model that has been designed to transfer resources and corporate activities from a central point to a lesser involving position at the base of the hierarchy. This approach has however been affected by massive competition from different corporations which have emerged at the onset of globalization. Globalization has witnessed the introduction of enfranchisement as well as outsourcing in a bid to expand the market capabilities as well as maximize the available profits through increase of customers. The issue of business success has been made effective by the implementation of horizontal architecture.
The transformation of vertical architecture into a horizontal architecture is characterized by the change of the initial model of hierarchical model into a chain of outlets. One of the major initiatives that have been taken by corporations in order to change the business structure from a vertical architecture into a horizontal one has been through expansion of outlet chains for increased output. While this bridges the gap between the vertical and horizontal architecture, there are several methods that are used to make this initiative a success.
One of these strategies is by reducing the operating costs within these corporations in order to increase the output. Operating costs have for long been perceived as challenges in the hierarchical or vertical architecture. This is because corporations have been embarking on step-by-step production criteria instead of embarking on production, directly to sales through the outlet chains developed. The reduction in the phases of production as well as the phases between productions to sales, the corporations have succeeded in reducing some of the costs and these expenses have then been used in the increasing of output chains. Since the sales determine the corporate profits, companies that embarked on change of architectural strategy have managed to reduce the operating costs for the benefit of sales.
The other approach that has been plausible in the transformation of corporate architecture from a vertical one to a horizontal one is the aspect of reimaging the manufacturing strategies. The approach by the horizontal architecture is founded on the fact that size may not matter in the same manner as the sales may. This has thus called for the reinvention of scale for the manufacturing industries. The reinvention of scale is centered on strategic sourcing and development of supply chain management. The aspect of strategic sourcing breaks the norms of having a single company acting as the source to multiple ones which can be integrated through their operations into forming a diversified chain of outputs. For this reason, the companies that hitherto depended on a single source develop various sources in order to increase their outputs. Through increased outputs, the aspect of competition is reduced and companies develop a more monopolistic status, which propels them beyond their competitors.
Supply chain management is another way in reimaging manufacturing that has enabled the hitherto vertically structured businesses to acquire a broader base for the benefit of their customers. Supply chain management looks at all the elements involved in a business transaction from the manufacturer, down to the retailer and finally to the consumer. There are thus chains that are developed for use by each of these arms of business and they have ensured that there is distribution of tasks and activities, an aspect that has influenced increased sales.
Through reimaging manufacturing for the sake of business success, the horizontal transformation has made use of the dependant relationships between the corporation and its strategic suppliers and partners. Unlike in the vertical structure where the flow of operations is simple and hierarchically arranged, the horizontal transformation ensures that these relationships develop into more complex segmented branches that have no specific flow, but whose activities are equally many (Wiggins & Ruefli 2002). This strategy thus reinvents scale and forms a network through which business activities are interchanged without the binary thinking concept available in vertical structure.
The strategies that have been adopted by the corporations transforming from vertical to horizontal structures are those on innovation streams. Although there are different innovations depending on a particular company, the goals are centered on extending the existing market products coupled with the development either one or more non-incremental innovations in order to capture the customers’ attention. They utilize the technological and market dimensions in order to expand the sales and maximize the market leverage.
The innovations may either be centered on marketing, production, supply or retailing. Since the vertical structure consisted of a stiff model that had pre-set formulas of conducting the business activities, the horizontal transformation created more routes and relieved off the pressure from a specific locus to different segments that were equally productive. In order to establish an effective supply and output chain, some concepts of communication must be enhanced. This is meant to ensure that the information from the customers is well understood and customer-oriented services are provided. This is unlike the vertical model which is more concerned with the corporate operations.
The dynamic capabilities of a particular product produced by a certain corporation are influenced by the ability of the firm to make use of any available space in the market. There are therefore different cells in innovation space that are concerned with the varying corporate tasks and environmental contingencies.
The innovation streams have also embarked on the development of dynamic capabilities present in the horizontal setting through the ambidextrous organizational design (Wiggins & Ruefli 2002). An ambidextrous organizational design is that which is focused on creating distinct units with unique processes and cultures. The structures that are developed through these designs are involved with many innovation teams which extend the functions of the various branched within the parent organization. These designs are focused on the integration of the senior management while disintegrating the lower levels of the business structure.
The ambidextrous designs make the use of output chain development and management. This innovation strategy makes use of exploration and exploitation simultaneously rather than addressing each independently. As a result of this approach, the organizations that have taken the transformation from the vertical to the horizontal architecture have had to first conduct a market research in order to understand the customers’ needs.
Without an understanding of the customers’ needs, it becomes hard for corporations to determine the appropriate sales strategies to follow in order to increase the supply and break the tight design. These transformation forms are therefore more oriented towards increasing the corporate subunits, some of which are designed to operate independently.
Vertical-to-horizontal transformation of corporate businesses has also been made possible by the increase in sales of the same product. Through increased market innovations like enfranchisement, the corporations have been in a position of acquiring more market command as well as increased sales since the franchise outlets serve as more chains linked to the parent company. Another transformation criterion is through expansion of the production units through opening more manufacturing firms in foreign markets rather than getting directly involved in international trade.
Through the ambidextrous designs, corporations are in a position to explore the markets while still being in a position of exploiting the discovered market and technological requirements. Innovation streams, which focus on the creation of portfolios to match the current market and technological trajectories, therefore serve as the main way of transforming a business from a vertical structure to a horizontal one. Creation of corporate subsidiaries assist in the distribution and supply of market products and these can be described under the innovation streams (Wiggins & Ruefli 2002). By exploring the customers’ needs, this approach makes use of all the possible management strategies in order to satisfy their needs. Expansion of subsidiaries as well as the technological trajectories to match the currently existing one removes the stiff corporate structure and replaces it with a more flexible but complex approach which enhances the sales as well as the corporate operations’ flow.
A good example of a company that has experienced the transformation from a vertical structure to a horizontal structure is the film industry (Wiggins and Ruefli, 2002). The innovation streams in operation have ensured that the products manufactured by the film companies are used by the same companies. This is mainly through the establishment of a chain of theaters to feature and show the movies produced in the corporate studio. For this reason, the structure is distorted with the introduction of subdivisions but the influence on sales and revenue is immense. Chain of theaters owned by movie production companies can be categorized as both market and technological innovations, both of which are aimed at ensuring that the sales increase and the products vary. The services offered in theater are different from the products generated from a movie production company. Although they may appear related, there is application of innovation streams to the film industry in a bid to increase sales and develop increased customers’ contributions.
Wiggins, R & Ruefli, T 2002, “Sustained Competitive Advantage: Temporal Dynamics and the Persistence of Superior Economic Performance”, Organization Science, vol. 13, no. 1, pp. 81-105.