Beyond Make‐Buy: Internalization and Integration of Design and Production

Abstract

Much recent attention in industrial practice has been centered on the question of which activities a manufacturing firm should complete for itself and for which it should rely on outside suppliers. This issue, generally labeled the “make‐buy” decision, has received substantial theoretical and empirical attention. In this paper, we broaden the scope of the make‐buy decision to include product design decisions, as well as production decisions. First, we examine independently the decisions of whether to internalize design and production, and then we consider how design and production organizational decisions are interdependent. The specific research questions we address are: (1) How can design and production sourcing decisions be described in richer terms than “make” and “buy”? (2) Do existing theories of vertical integration apply to product design activities as well as production decisions? (3) What is the relationship between the organization of design and the organization of production? (4) What organizational forms for design and production are seen in practice? After developing theoretical arguments and a conceptual framework, we explore these ideas empirically through an analysis of design and production sourcing decisions for bicycle frames in the U. S. mountain bicycle industry.