Skill relatedness and firm diversification
Article first published online: 7 SEP 2012
Copyright © 2012 John Wiley & Sons, Ltd.
Strategic Management Journal
Volume 34, Issue 3, pages 297–316, March 2013
How to Cite
Neffke, F. and Henning, M. (2013), Skill relatedness and firm diversification. Strat. Mgmt. J., 34: 297–316. doi: 10.1002/smj.2014
- Issue published online: 22 JAN 2013
- Article first published online: 7 SEP 2012
- Accepted manuscript online: 22 AUG 2012 08:36AM EST
- Manuscript Revised: 17 AUG 2012
- Manuscript Received: 7 JAN 2010
- human capital;
- labor flows;
Because of the importance of human capital, a firm's choice of diversification targets will depend on whether these targets offer opportunities for leveraging existing human resources. We propose to quantify the similarity of different industries' human capital or skill requirements, that is, the industries' skill relatedness, by using information on cross-industry labor flows. Labor flows among industries can be used to identify skill relatedness, because individuals changing jobs will likely remain in industries that value the skills associated with their previous work. Estimates show that firms are far more likely to diversify into industries that have ties to the firms' core activities in terms of our skill-relatedness measure than into industries without such ties or into industries that are linked by value chain linkages or by classification-based relatedness. Copyright © 2012 John Wiley & Sons, Ltd.