November 16, 2011

The three tests for successful diversification set the standards that any corporate strategy must  meet; meeting them is so difficult that most diversification fails. Many companies lack a clear concept of corporate strategy to guide their diversification or pursue a concept that does not address the tests. Others fail because they implement a strategy poorly.

My study has helped me identify four concepts of corporate strategy that have been put into practice - Portfolio Management, restructuring transferring skills, and sharing activities. While the concepts are not always mutually exclusive, each rests on a different mechanism by which the corporation creates shareholder value and each requires the diversified company to manage and organize itself in a different way. The first two require no connections among business units; the second two depend on them.

While all four concepts of strategy have succeed under the right circumstances, today some make more sense than others. Ignoring any of the concepts is perhaps the quickest road to failure.

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