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When should your strategy be vertically integrated or when should it be modularized?

If the performance of your product is not good enough, you need to vertically integrate so you can control everything required to deliver an acceptable performance to customers.

If the products or services performance is already good enough, then should modularize and disintegrate. This allows you to focus on the new basis of competition: speed, convenience, customization, flexibility, and low cost. 

Integration required in early years that was necessary to fill performance gaps becomes a liability in the end. Vertically integrated companies can’t compete with efficiencies and margins of modular firms. 

How can you know which value-added activities are important to keep in house vs outsourcing? Managers should ask: what do we need to master today, and what will we need to master in the future? That’s the key question. 

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