In fiscal 2001, Matsushita electric, a traditional Japanese manufacturer of general electrical appliances, recorded the largest loss in its history. Then, following drastic structural reforms, the company's business results experienced a rapid V-shaped recovery. By transforming its product development strategy from the old technology-led type to a customer-led type and implementing far-reaching organizational reforms, Matsushita emerged as a global leader in the field of digital household appliances. The source of Matsushita's new product development capability was founded on the formation of a number of strategic communities (SCs), which represent the organizational boundaries within and outside Matsushita Group companies, and the organizational integration of these SCs. In this paper, the author uses a detailed case study to describe the mechanism of boundary management that enabled Matsushita electric to simultaneously establish a new market position and achieve competitively advantageous capability in the hi-tech field of digital appliances by balancing vertically integrated SCs and horizontally integrated SCs.