Corporate Strategy, Relatedness and Diversification

Abstract

'The Corporate strategy of diversified companies has two major tasks: (1) the selection of the mix of businesses and (2) the value enhancing management of this mix of businesses based on appropriate organisational structures, systems and resource policies. Although these tasks seem to be rather straightforward there are few topics in the strategic management literature that have been discussed as controversially as the issue of corporate diversification and the roles of corporate management. In fact, the influx of new concepts and terminology has up to now made it difficult to determine whether we are making progress in developing theoretical and prescriptive knowledge. Given this situation the following survey takes stock of many contributions from different sources and perspectives, and attempts, by bringing them together in one integrated paper, to provide a balanced overview and facilitate an unbiased discussion. The paper limits itself mainly to corporate strategy of 'horizontally' and 'laterally' diversified companies. 'Vertical diversification', is not part of this survey. It is structured into five major chapters. In the first chapter, after a short presentation of the findings on the observable degree of diversification in the overall economy, one of the key questions of research in this field is taken up, namely: is there a relationship between the degree and type of diversification of companies and their economic performance? Chapter 2 explores the mechanisms, merits and pitfalls of 'related diversification', followed by chapter 3 which deals with contributions on 'unrelated or conglomerate diversification'. Chapter 4 reviews some considerations from a longitudinal and more dynamic perspective. In chapter 5 attention then turns to the second task of corporate strategy mentioned above, namely the value enhancing organization and management of the diversified company, which is covered in a very selective fashion. In the last chapter the survey is summarized, some conclusions are drawn and some research desiderata are identified.' (extract)

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