Towards an Organizational Approach to Firm Boundaries

In economic and management theories, vertical scope is the predominant aspect of firm boundaries. Yet, as recent research indicates, firms make and buy, engage in concurrent sourcing, or make their boundaries permeable: vertical scope is not the only and, perhaps, not the main lens for understanding firms' boundaries, in particular as firms redesign them today. This paper draws on a longitudinal qualitative case study of FIAT Auto in order to contribute to understanding how boundary design can go beyond vertical scope, what that means for conceptualizations of the design of firm boundaries, and how firms can use these additional means of boundary design in order to generate positive performance consequences. The empirical findings highlight that in designing their boundaries firms can also leverage purely organizational solutions regarding intra and inter firm structures and processes rather than acting on vertical scope. The paper argues that the extant empirical focus on transactions and the ownership of vertically related activities in boundary design decisions should be complemented by an explicit attention to organizational design variables.