Vertical Integration in Management Styles

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Table of Contents

Topic 1: Vertical Integration
Topic 2: Principle-Agent Problem
Works Cited

Topic 1: Vertical Integration

Vertical integration as a management style involves integration of the supply chain to accommodate the different products that company deals in line with the market specific demands. Basically, the vertical integration process includes aspect of cost, dependability, speed, quality, and flexibility. These variables determine success or failure in business. These variables are achievable through value delivery, value addition, and creativity within a single production chain.

Reflectively, these concepts are techniques and tools essential in the art of integrating the production and distribution processes. Besides, this process is inclusive of the scientific aspects such as technical process of understanding the operations involved in operations management, their application, and evaluation criteria (Teece 181).

An establishment must have efficient knowledge and experience in uniqueness of products and services in terms of their requirement in order to produce high quality products in its single unit production and distribution system as part of vertical integration. The variables are connected at central point by strategic planning which encompasses costing, speed, quality, flexibility, and dependability to create a smooth continuous operation tracking model that operates like computer from one segment to another.

Therefore, the major part of success puzzle for the integration management delivery operates on the periphery of the soft skills involving the timeless vision of organizational principles, defining value of the business, determining requirements, clarifying the vision, building teams, mitigating task, resolving issues, and providing direction as incorporated in the vertical integration process (Pearce and Robinson 42).

Basically, a quality integration management system performs optimally via integration of appropriate scientific methods and techniques. To enrich artistic managerial talents, scientific techniques come in handy to not only magnify the margins of success, but also to ensure smooth transition of an idea or an event after another.

Besides, to avoid an eminent failure, it is vital for the integration management system to focus on a defined edge since “proper tailoring of techniques and tools assume as an essential part of the regulatory strategy” (Tricker and Tricker 34). Reflectively, the vertical integration management system can improve the supply chain, production, and distribution process when they are centrally stationed and controlled from a central point.

Application of the Concept of Vertical Integration

The article, How Samsung Gets Innovations to Market, discusses the strategies that the Samsung Company uses to market its various products in the local and international markets. The authors note that Samsung Company boasts of a strong vertical integration in its industrial organization.

From a single location, the company controls its designing, manufacturing, distribution and marketing process for its products via the consumer focused innovation team. As a result, it is easy for the company to create marketing strategies and products that are unique to different markets (Wedell-Wedellsborg and Miller par. 3).

In order to successfully execute the consumer centricity strategy, Samsung Company is very proactive in negotiating the expectations from potential customers. The management of the company has focused on increasing their presence across the world. The team has been keen to ensure that the decisions made by the company do not impact on the community negatively, since the company seeks to build a strong relationship with the customers.

Further, the management actively responds to customer needs and expectations across the world. These expectations are incorporated during product development and in the supply chain. This strategy has significantly improved customer loyalty and competitive advantage of the company (Wedell-Wedellsborg and Miller par. 5).

Among other issues identified by the authors as responsible for the success of the Samsung Company in getting its innovations in the market include continuous polices aimed at building trust with ideas considered as low-risk. Besides, the company has developed a system for tracking and balancing the portfolio options. The company has an elaborate formula for managing the evaluation methodology choice in order to remain relevant in the market (Wedell-Wedellsborg and Miller par. 6).

The authors conclude that the Samsung Company has been in the frontline in addressing customers’ concerns through public apologies, improvement of previous versions, and creation of its own app. For instance, unlike the Galaxy S2 model, the company created the EasyPhoneSync application in the Galaxy S3 model.

This application addressed the concerns of customers on the compatibility in importing data from non-Samsung mobile phones. The proactive research and innovation team has made sure that the company’s phones are among the best in the market (Wedell-Wedellsborg and Miller par. 7).

Relating the Article to the Topic

Basically, as highlighted in the vertical integration topic, a quality integration management system performs optimally via integration of appropriate scientific methods and techniques, as is the case with the Samsung Company. To enrich artistic managerial talents, the scientific techniques come in handy to not only magnify the margins of success, but also to ensure smooth transition of ideas or events after another.

Besides, to avoid an eminent failure, it is vital for the integration management system, such as the case for the Samsung Company, to focus on innovation and consumer centricity strategies as highlighted in the vertical integration topic. From the discussion in the article, it is apparent that the Samsung Company has adopted the strategies of product proliferation, corporate culture, foresight, and product development to not only achieve the goal of internationalization but also to maintain its competitiveness as highlighted in the vertical integration topic.

Topic 2: Principle-Agent Problem

Principle-agent problem often occurs in the management of labor as a factor of production. Irrespective of the market environment or industry, this problem occurs as a result of conflict on how wages should be paid since the principle (manager/owner of business) will always want to optimize labor at the lowest possible cost, while the agent (employee) will always want to get the maximum possible wages from the labor services he or she renders to the principle.

Presence of unions offers solace to workers on bargaining for wages. Adopting efficient contract model, labor unions offer collective bargain opportunity for the two parties over employment level and wage rates. Since it is a flexible model, both the principle and the agent are given an opportunity to balance their offers before striking a compromise deal. For instance, the union can lower supply of labor, increase demand for labor, and negotiate an equilibrium wage bargain for its members (Deloitte Development LLC par. 7).

In the ideal scenario, when there is a decisive crisis involving the review of wages in a production line, a rational employer would opt for increasing wages paid to highly skilled workers as employee retention strategy. The rate of wage increase will be higher for the highly skilled employers than what the low skilled counterparts eventually get. Efficiency of wage theories offers a better explanation of the above scenario.

These theories are based on the same notion that high turnover of labor unit translates into high wages paid, even though the ratio may not be proportional in perfect and imperfect labor markets. Besides, labor environments with limited quantifiable variables for reviewing performance are a recipe for high wages given to employees since the principal may not be in a position to measure efficiency of each labor unit against wage compensation (Teece 179).

In summary, wage differences exist across employment due to job characteristics, such as compensating wage differentials, human capital, labor market discrimination, labor union, and incentive pay. The main solutions to the principle-agent problem include profit sharing, revenue sharing, piece rates, and spot checks. These elements are significant in balancing the expectation of the principle and the agent to create a middle ground for mutual benefit between the employer and the employee in managing labor as a factor of product (Monks and Minow 56).

Application of the Concept of Principle-Agent Problem

The article, CEO Pay Ratio Disclosure: What Would it Take to Implement the SEC Proposal, discusses the principle-agent problem by proposing the CEO pay ratio disclosure as a strategy for addressing the issue. Since the pay ratio rule is part of the proposed CEO-to-Worker Pay-Ratio Disclosure, the corporate governance structure of companies should have system for promoting the elements such as profit sharing, revenue sharing, piece rates, and spot checks.

Therefore, the CEO and the corporate governance board may be in a position to ensure that a company is compliant with different regulatory obligations on compensation. The board may allocate different teams the responsibility of full material disclosure, governance, and direct engagement in creating and managing the compensation system through the proposed CEO-to-Worker Pay-Ratio Disclosure. Companies will be committed to compliance and adoption of standard business practices since the benefits outweighs the cost implications (Deloitte Development LLC par. 14).

Works Cited

Deloitte Development LLC, CEO Pay Ratio Disclosure: What Would it Take to Implement the SEC Proposal. 2014. Web.

Monks, Roberts and N. Minow. Corporate Governance, New York, NY: John Wiley & Sons, 2012. Print.

Pearce, John and K. Robinson. Strategic Management: Formulation, Implementation, and Control, New York, NY: McGraw-Hill, 2009. Print.

Teece, David. “Business Models, Business Strategy, and Innovation.”Long Range Planning 43.1 (2010): 172-194. Print.

Tricker, Bob and R. Tricker. Corporate Governance: Principles, Policies And Practices, London, UK: Oxford University Press, 2012. Print.

Wedell-Wedellsborg, Thomas and Paul Miller. How Samsung Gets Innovations to Market. 2014. Web.

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