Vertical integration: much more than just an add-on

The forward or backward integration within the value creation chain offers better planning security, speed and flexibility for enterprises. Indirectly this results in additional cost saving potentials, margin scopes and hence a clearly higher competitiveness. For industries with verticals already established in the market these advantages are absolutely necessary to ensure the proper competitiveness, this at least is the theory.

However, in fact the advantages merely result from the fact that former uncertainties in the co-ordination with external partners have been solved by insourcing external areas. Hence the formerly externally dominated co-ordination demand via market mechanisms is now to be managed internally. The consequence is a high additional steering and co-ordination effort via a now extended value creation chain. Additionally, brand retailers experience during their forward integration withdrawal tendencies of long-standing wholesale customers. The connected margin losses have to be overcompensated by the new retail business and the value creation chain in total.

Vertical integration can consequently not be an easy add-on, correspondingly, the expectations are high for the management. Likewise the axioms for the company management/controlling change: The success result will in the future result less from the performance of single functions and market segments than from the collaboration beyond borders and over the whole value creation chain. Product groups and the design of interfaces between the different value creation levels gather increasing importance.