When we talk about vertical integration in product production, it tends to be in the context of physical supply chains. We think of a vertically integrated company as one that controls its product from source to distribution. There are, however, other types of supply chains that can benefit from vertical integration, such as the supply of human labor and intellectual capital. To understand how those benefits apply, let's first take a look at the concept of vertical integration and what it means at a fundamental level.
Vertical Integration, ExplainedVertical integration is not about control for the sake of control. Instead, it is about achieving the most efficient and reliable means of production. It minimizes lateral movement, assembling the flow of resources into as efficient a stream as possible. Perhaps the most famous example of a company embodying this principle is Apple.
From its very inception, Apple has carefully curated the manufacturing and distribution of its products, eventually building its own brick-and-mortar stores to oversee even that last mile of putting products into customers' hands. The fact that Apple was also the first company to reach a trillion-dollar valuation is probably no coincidence.
Another powerful example of vertical integration lies at the core of Netflix's story. For the first several years of its existence, Netflix was an innovative company with a disruptive business model but far from the household staple it is today. That transition can largely be credited to the company's decision to begin making and distributing its own products rather than relying on outside content creators. Netflix's original content is a vital part of its business model, transforming ..