Related diversification, core competences and corporate performance
Version of Record online: 14 JUN 2007
Copyright © 1994 John Wiley & Sons, Ltd.
Strategic Management Journal
Supplement: Chaos theory and strategy: Theory, application, and managerial implications
Volume 15, Issue Supplement S2, pages 149–165, Summer 1994
How to Cite
Markides, C. C. and Williamson, P. J. (1994), Related diversification, core competences and corporate performance. Strat. Mgmt. J., 15: 149–165. doi: 10.1002/smj.4250151010
- Issue online: 14 JUN 2007
- Version of Record online: 14 JUN 2007
- Related diversification;
- core competences;
- corporate performance
Despite nearly 30 years of academic research on the benefits of related diversification, there is still considerable disagreement about precisely how and when diversification can be used to build long-run competitive advantage. In this paper we argue that the disagreement exists for two main reasons: (a) the traditional way of measuring relatedness between two businesses is incomplete because it ignores the ‘strategic importance’ and similarity of the underlying assets residing in these businesses, and (b) the way researchers have traditionally thought of relatedness is limited, primarily because it has tended to equate the benefits of relatedness with the static exploitation of economies of scope (asset amortization), thus ignoring the main contribution of related diversification to long-run, competitive advantage; namely the potential for the firm to expand its stock of strategic assets and create new ones more rapidly and at lower cost than rivals who are not diversified across related businesses. An empirical test supports our view that ‘strategic’ relatedness is superior to market relatedness in predicting when related diversifies outperform unrelated ones.