Background Note | HBS Case Collection | March 1995 (Revised April 1995)

Scope of the Corporation, The

by David J. Collis

Abstract

Describes analyses that determine the appropriate limit to the scope of the firm. Examines both the production cost justification for firm diversification--economies of scope and shared resources, and the governance cost justification for including transactions inside the hierarchy rather than contracting for them on the market--transaction costs and agency theory. Concludes by identifying the line between corporate strategy and firm scope.

Keywords: Cost; Agency Theory; Corporate Strategy; Diversification; Expansion;

Citation:

Collis, David J. "Scope of the Corporation, The ." Harvard Business School Background Note 795-139, March 1995. (Revised April 1995.)