Innovation and Vertical Integration
Innovation is essential to any growing business as it increases competitiveness that can be included in the strategic planning procedures (Heok Lee, 2018). It also helps in improving productivity, cost reduction, and becomes profitable. Mid-sized and small companies are not capable of benefitting from economies than big companies, as the ability to innovate becomes more critical. Innovation is not a duty for everyone, especially in medium and small-sized organizations. In companies where no one is responsible for the change, it may not be treated or seen as a priority. Also, small organizations may decide not to prioritize innovation. They have few and scarce resources at their disposal compared to their counterparts in large organizations that may have different innovation labs and units. The innovation nature is described as unclear as it is difficult to which ideas might be most profitable. These profits can also take a while before they materialize; thus, companies with few resources decide to invest in initiatives perceived to be less risky and capable of generating faster outcomes.
Innovation should not be outsourced and should originate from an organization. Mid-sized and small organizations innovate by making small changes that can help in making changes in improving their operations (Labrouche & Kechidi, 2016). Organizations that can make innovations a continuous practice integrating it too has a better succeeding chance now and in the future. Innovation alignment with your structure might not be an easy task. The following aspects can help in making the innovation strategy part and working ways that can help include;
Goal choice. The integration of innovation with your processes and strategy begins with the definition of long term goals and breaks them into smaller ones. Once you identify what you want to achieve, it becomes easier to align the short term innovation goals that can support an organization’s vision.
Process building. Seamless integration is essential as it ensures that things run smoothly. Building processes can be achieved through the management of ideas. Proper management of idea processes must be included in all phases, from the generation of ideas, development to execution. This should support all the already existing business processes and focus on the essentials.
Measure systematically. Measuring the desired behavior is the best way to encourage it. Always start simply by selecting a few metrics that are supporting an individual and company’s levels. Innovation metrics alignment with the big picture ensures that one is doing the right things instead of occasional campaigns as constant progress measurement helps make innovation continuous.
Vertical integration is a strategic structure in which an organization owns its product’s supply chain as it is composed of one or more companies involved in different production stages (Yang, 2017). Those supply chains incorporate all the steps from taking raw materials, making a product, and selling it. This means that vertically integrated companies own various parts for their supply chain. Organizations that pursue vertical integration have their advantages as they offer greater control over the chain supply and offer lower prices as they increase market control. Regardless of the product, most vertically integrated organizations experience competition as they can provide high quality or lower-cost products to their consumers. Vertically integrated benefits include;
Supplier’s independence. Vertical integration is no longer dependent on the suppliers as unpredictability and cost come with them. This helps an organization to increase sufficiency be ensuring that it streamlines the process of obtaining supplies for their product by manufacturing and selling it. Vertically integrated companies are more efficient and have shorter times in turnaround. Organizations that are independent of their external suppliers have a strong immunity to supply disruptions such as bad management or labor strikes of a supplier. This helps the process to be smoother and eliminates and provide hiccups possibility.
Control of cost. Vertical integration aids in the manufacturers’ and retailer’s ability in controlling prices is a vast conglomerates asset who would have to set prices to match with their supply chain. When organizations integrate vertically, they monitor costs closely and can offer lower prices. The companies are also able to manage how their products are presented and marketed.
Create scale economies. Vertical integration helps in the creation of economic scales in an organization. The economy of scale is defined as a reduction of cost during production, especially when production facilities are increased by size. The larger s company gets, the more cost-effective it is when producing goods. By consolidating the management, overheads and other costs are lower.
References
Heok Lee, Y. (2018). Vertical integration and technological innovation in the U.S. electronics industry. Vertical Integration and Technological Innovation, 42-103. doi:10.4324/9780429456589-4
Labrouche, G., & Kechidi, M. (2016). Competitive advantage, open innovation, and dynamic capabilities. Handbook of Research on Driving Competitive Advantage through Sustainable, Lean, and Disruptive Innovation, 140-164. doi:10.4018/978-1-5225-0135-0.ch006
Yang, C. (2017). Could vertical integration increase innovation? SSRN Electronic Journal. doi:10.2139/ssrn.2930780
