Firm boundary decisions in solution business: examining internal vs. external resource integration

Abstract

<p> This paper examines the drivers that lead manufacturers to choose between an internal versus external resource integration approach as they transition to solution-based business. We emphasize product-based resources and examine drivers for the choice of resource integration approach through four distinct firm boundary conceptions – identity, competence, efficiency, and power. These boundary conceptions are applied to an empirical investigation of two global manufacturers, Wärtsilä and Kone, which have chosen opposite strategies to integrate product-based resources in transitioning to solution business: one opted to internalize the required resources, while the other works with a network of external partners. We develop research propositions to explicate how internal vs. external resource integration approaches in solution business represent distinct paths for manufacturers to grow their underlying product businesses; derive value from integrated resources; manage interdependence between solution components; and position themselves as central integrators of complex solutions. This paper contributes to the existing research by providing a systematic and theoretically inclusive analysis of alternative approaches to organizing solution provision. Previous contributions on these issues are very few and predominantly focus on examining manufacturers’ organization of service provision. This paper provides a complementary view focusing on product-based resources and incorporates a wider range of explanatory theories.</p>