Vertical integration is a phrase business people like to toss around. Properly pitched, it makes others nod their heads in agreement, or feel a gentle mist settle over their brains. It portrays managers as empire builders or captains of their particular industry, or helps create the illusion that some high science informs the buying and selling and shuffling they do.
An industrialist like Andrew Carnegie, who controlled his steel operations from ore to coke to mill, was vertically integrating but probably didn’t call it that. The phrase comes into vogue in later decades: the first instance recorded by the Oxford English Dictionary is from a 1933 article in The Baltimore Sun, specifying “the logical labor organization” for an “industry organized vertically.” The crucial period for development of the idea is the post-war era, as MIT economist Paul Joskow notes. No surprise that this is also the heyday of management theory.
Joskow’s paper helps to frame vertical integration as an artifact of twentieth-century industrial culture, as much a linguistic and intellectual artifact as red scare or Ponzi scheme (or even management consulting). So it’s not really surprising to find the phrase in discussions ranging from American industrial monopolies to Poulantza’s economic remarks in his book, Fascism and Dictatorship. The phrase carries the story of the century that produced it.
Of course history has never really been a discipline of management theory; there’s no philology of commerce. With a few notable exceptions, Peter Drucker being the most eminent, those who theorize about organizations tend to suffer from historical myopia, or regard history as an insufferable drag on future opportunity. But history has a way of asserting itself: Frances Fukuyama thought he was announcing the end of history but he didn’t see the beginning of an international jihad. So (on a much more modest level) the language that management theorists wield against the unarmed reading public is often betrayed, or at least seriously compromised, by the very history they are doing their best to ignore.
In 1933, for example, it may have appeared “logical” to a writer in The Baltimore Sun and his reading public that the vertically integrated industry would exploit a vertical labor organization, a rank and file hierarchy in which labor is strictly subordinate to management, with a cigar-smoking industrialist at the top. Nowadays, we are more likely to see the potential weaknesses of such an arrangement: it’s far too rigid. It stifles creativity and encourages adversarial relations with the people who work for you. Too much verticality on the labor front and you can stop the flow of knowledge around your organization; too much on the operations front and you leave yourself shut off to the advantages of the global marketplace or innovative ways of thinking about your supply chain.
That’s why today many companies that talk about being vertically integrated are in reality more likely than not hybrid organizations, as Joskow points out; their survival depends on going a little horizontal, sometimes in spite of their business plan. They find themselves at a loss for words but do what they need to do. Some must wonder, in private, whether being integrated (vertically or horizontally or otherwise) is really all it’s cracked up to be.
Everywhere you look, the language of business and practical affairs comes up short of new realities or consists in stop gap measures. That we still fall into talk of vertical and horizontal organizations, that we still carelessly invoke the spectre of that cigar-chomping patriarch with his fantasy of industrial monopoly, suggests just how far indeed we are from developing a vocabulary, a language, a conversation that will help us understand the way people — and things — can and should and must really work together now.