Proceedings of the 12th European Conference on Knowledge ...

Anna Maria Costanza Rinaldi
Let us look at <strong>the</strong> i-th group example. The main economic activity <strong>of</strong> <strong>the</strong> group enterprise is footwear
manufacturing, which can be divided into three distinct phases: cut and sewing, upper preparation,
and final product assembly (Figure 1). Each phase corresponds to a legally separate enterprise, while
<strong>the</strong> holding performs procurement and logistics, as well as financial and administrative functions. In
figure 1 <strong>the</strong> solid line represents <strong>the</strong> production process latu senso that is knowledge that creates
fur<strong>the</strong>r knowledge, whose direction is shown. The functions <strong>of</strong> <strong>the</strong> holding company (finance,
administration, procurement and logistics) are auxiliary to <strong>the</strong> production process strictu senso, <strong>of</strong>
manufacturing footwear. The direction <strong>of</strong> funds and flows (Georgesu-Roegen, 1970) <strong>of</strong> production
related to <strong>the</strong> aforementioned functions is from <strong>the</strong> holding to <strong>the</strong> subsidiaries. In a restricted sense
funds and flows <strong>of</strong> <strong>the</strong> footwear production move from <strong>the</strong> holding, that buys raw materials to
subsidiary n. 1, that is in charge <strong>of</strong> cut and sewing; from subsidiary n.1 to subsidiary n.2 that works on
upper preparation; from subsidiaries 1 and 2 to subsidiary n. 3, that assembles <strong>the</strong> finished product;
and from subsidiary 3 to <strong>the</strong> holding that is in charge <strong>of</strong> <strong>the</strong> logistic function and deals with <strong>the</strong>
delivery <strong>of</strong> <strong>the</strong> finished product to <strong>the</strong> client, a well-known brand <strong>of</strong> <strong>the</strong> Italian fashion industry. The
flow <strong>of</strong> detailed information about <strong>the</strong> production process is from each subsidiary, individually, to <strong>the</strong>
holding. The decisions flow follows <strong>the</strong> opposite direction from <strong>the</strong> holding to each single subsidiary.
These flows must be seen in <strong>the</strong> dynamic perspective <strong>of</strong> an adaptive process, that decisions taken by
<strong>the</strong> holding company are corrected on <strong>the</strong> basis <strong>of</strong> information received by subsidiaries from time to
time. It is thus that <strong>the</strong> production process strictu senso becomes <strong>the</strong> production process latu senso,
ie knowledge creation, which begets o<strong>the</strong>r knowledge. It is interesting to note that this osmosis <strong>of</strong>
knowledge takes place among legally separate units. Also from a legal standpoint, <strong>the</strong> group
facilitates <strong>the</strong> process <strong>of</strong> knowledge creation and upgrading <strong>of</strong> production process.
The o<strong>the</strong>r examples below confirm <strong>the</strong>se findings. Let us consider <strong>the</strong> j-th group, whose main
economic activity consists in <strong>the</strong> production <strong>of</strong> medical gases. This legal architecture turns out to be a
direct consequence <strong>of</strong> <strong>the</strong> production process structure. In this case, <strong>the</strong> production process can be
subdivided into three phases defined as primary, secondary, and improper secondary following a
radial schema (Figure 2). In <strong>the</strong> first phase, <strong>the</strong> main plant, which corresponds to one <strong>of</strong> <strong>the</strong>
companies <strong>of</strong> <strong>the</strong> group, isolates oxygen from air. This company acts as <strong>the</strong> production fulcrum
serving all companies <strong>of</strong> <strong>the</strong> group responsible for <strong>the</strong> secondary production. In <strong>the</strong> second phase, in
more production sites, corresponding to equal legal entities, <strong>the</strong> oxygen is transformed from a liquid to
a gaseous state. In <strong>the</strong> third phase, <strong>the</strong> tanks are filled with gas and shipped on <strong>the</strong> market. The first
and second phase are linked by <strong>the</strong> transportation process, internal to <strong>the</strong> group, corresponding to
ano<strong>the</strong>r company, while <strong>the</strong> second and third phase are performed in <strong>the</strong> plant itself, and represents
<strong>the</strong> economical activity <strong>of</strong> <strong>the</strong> same company (legal). From this perspective, <strong>the</strong> group is a production
“muscle”, not a financial instrument, as demonstrated from <strong>the</strong> spreading horizontal structures. This is
consistent with Brioschi and Cainelli (2001) and with Iacobucci (2002) on small groups. As one can
observe in figure 2 <strong>the</strong> decisions flow goes from <strong>the</strong> holding company to each subsidiary; while
knowledge flow goes from all <strong>the</strong> subsidiaries to <strong>the</strong> holding company: in this way <strong>the</strong> holding returns
a fur<strong>the</strong>r flow <strong>of</strong> decisions correct and more adequate for production.
So far we have described two group structures, both horizontal and vertically integrated. As previously
stated, <strong>the</strong> subdivision in several companies <strong>of</strong> <strong>the</strong> group is based mainly on <strong>the</strong> production process
phases. When <strong>the</strong> legal and quantitative level <strong>of</strong> complexity <strong>of</strong> <strong>the</strong>se organizational structures
increases, <strong>the</strong> subdivision between subsidiaries is also based on functions.
As an example, let us consider <strong>the</strong> k-th, a vertical structure that manufactures lea<strong>the</strong>r furniture. At this
level, <strong>the</strong> group different subsidiaries will correspond to operative functions not necessarily <strong>of</strong> a
manufacturing nature. Opposite to <strong>the</strong> preceding examples, in <strong>the</strong> k-th group some subsidiaries will
perform <strong>the</strong> elementary processes derived from <strong>the</strong> subdivision <strong>of</strong> <strong>the</strong> group production function, while
o<strong>the</strong>rs will perform auxiliary operative functions, for example, sales and marketing (Figure 3).
Considering also different functions <strong>of</strong> <strong>the</strong> firm beside production, “caesuras” result convenient
whenever possible.
Therefore, <strong>the</strong> choice between vertical or horizontal group structure, and corresponding complexity,
will be determined by <strong>the</strong> dynamics relating to <strong>the</strong> third production subsystem, <strong>the</strong> operating
environment (Romagnoli, 1996).
Up to now we have discussed in detail vertically integrated groups.
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