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Research Article

Skill relatedness and firm diversification

  1. Dr. Frank Neffke1,*,
  2. Martin Henning2

Article first published online: 7 SEP 2012

DOI: 10.1002/smj.2014

Issue

Strategic Management Journal

Strategic Management Journal

Volume 34, Issue 3, pages 297–316, March 2013

Additional Information

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

Author Information

  1. 1

    Center for International Development, Harvard Kennedy School, Harvard University, Cambridge, Massachusetts, U.S.A., Erasmus School of Economics, Erasmus University Rotterdam, Rotterdam, the Netherlands, and Erasmus Studio, Erasmus University Rotterdam, Rotterdam, the Netherlands

  2. 2

    Department of Human Geography, Lund University, Lund, Sweden, and School of Business, Economics and Law, University of Gothenburg, Gothenburg, Sweden

*Dr. Frank Neffke, Center for International Development, Harvard Kennedy School, Harvard University, 79 John F. Kennedy Street, Box 34, Cambridge, MA 02 138, U.S.A. E-mail: frank_neffke@hks.harvard.edu

Publication History

  1. Issue published online: 22 JAN 2013
  2. Article first published online: 7 SEP 2012
  3. Accepted manuscript online: 22 AUG 2012 08:36AM EST
  4. Manuscript Revised: 17 AUG 2012
  5. Manuscript Received: 7 JAN 2010

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Keywords:

  • diversification;
  • relatedness;
  • human capital;
  • labor flows;
  • skills

Abstract

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.

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