Why diversify? Four decades of management thinking

Abstract

Executive Overview This article explores both the thinking and practice of diversification during the last four decades, and our current understanding of diversification strategies that work and those that do not. There have been relatively few influential ideas about what constitutes a successful strategy for a diversified company. In the 1960s, the spectacular performance of a few successful conglomerates seemed to prove that any degree of diversification was possible if corporate level managers had the requisite general management skills. In the 1970s, many diversified companies turned to portfolio planning, aiming to achieve an appropriate mix of growth and mature businesses. In the 1980s, many corporations restructured and rationalized, basing their strategies on “sticking to the knitting” and eschewing broad diversification. Should chief executives in the 1990s aim to focus only on a few closely related businesses? Or should they aim to exploit synergies, or core skills, across a variety of businesses? Just how important are the managerial approaches of top executives in adding value to different businesses? These are the critical questions for corporate strategy today.

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