Horizontal vs. Vertical Integration in Business

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Probably, one of the best examples of an organization that practices horizontal expansion can be the Walt Disney Company. For instance, between 2005 and 2020, the company acquired such major brands as Pixar (2006), Marvel (2009), Lucasfilm (2012), and 20th Century Fox (2019) (Maddison, 2021). As a result, the business’s organizational structure is quite complex and combines decentralization and centralization at the same time. On the one hand, the subsidiary brands operate relatively independently from the parent company. On the other hand, the company’s functionality is centralized and has a clear structure. For example, Kareem Daniel – the chairman of Disney Media and Entertainment Distribution – is responsible for the distribution of all the content produced by the Walt Disney Company and its subsidiaries (The Walt Disney Company, n.d.). Next, Machal Paull – the Disney Streaming president responsible for Disney+, Hulu, ESPN+ and Star+ – reports to Kareem Daniel (The Walt Disney Company, 2022). In turn, the presidents of the latter streaming platforms report to Paull.

On the contrary, IKEA is considered a company that practices vertical expansion. As such, the organization purchases forests around the globe in order to ensure greater control over resources, lower costs, and higher sustainability of its supply chain (McCarthy, 2021). In order to ensure good coordination between all the company parts, the company practices a hierarchical structure. In this regard, Inter IKEA Holding B.V. integrates a group of companies such as Inter IKEA Systems B.V. (franchise), IKEA Supply AG (supply), and IKEA Industry Holding B.V. (production). The parent company sets the main goals for the whole business and defines overall strategies.

In my opinion, the Walt Disney Company would be a better organization from the perspective of opportunities for worker improvement. The relative decentralization of the organizational structure implies that the workers would have more opportunities to express themselves and assume more responsibilities for their decisions. I think those two components are crucial determinants of employee development.

Probably, my decision concerning the business structure would primarily be based on the industry. If it is the company that produces intangible goods, I would prefer horizontal integration, whereas if it is the entity that produces tangible goods, I will opt for vertical integration. Although, as mentioned above, decentralization is better for employee development and generally for the company, managing supply, production, and retail functions in such a manner would lead to a lack of coordination.