Resource Driven Diversification

Resource Driven Diversification

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  • Date Submitted: 05/26/2010 9:30 AM
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Centre de Recherche en Gestion

Ressource-driven diversification: Assessing relatedness through competence analysis

Marc FRECHET / Daniel PARDO October 2005

Cahier de recherche no. 2005 – 169

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Resource-driven diversification: assessing relatedness through competence analysis

Resource-driven diversification: assessing relatedness through competence analysis
Marc Fréchet IAE - Université de Toulouse 1 CRG – Centre de Recherche en Gestion

Daniel PARDO CNRS.UMR5504/UMR6123

2

Resource-driven diversification: assessing relatedness through competence analysis

Introduction
Diversification of firms is one of the most treated topics in strategic management, but still the field has not reached maturity. Although it is generally argued that related diversification enhances performance while unrelated diversification decreases it (Markides & Williamson, 1994; Rumelt, 1974), research on the link between diversification and performance leads often to contradictory results (Palich et al., 2000; Stern & Henderson, 2004). Authors argue that problem could be the way relatedness is defined, measured or conceptualised (Markides & Williamson, 1996). The present study has two main aspects. First, we present an original method, gathering patent analysis and interviews, to assess the extent to which two activities are related. Researchers have often measured relatedness through the use of SIC 1 codes. Instead, we show that the use of SIC codes may be inaccurate. Second, we put emphasis on the process of diversification-refocusing, which has been disregarded. Many of the studies have been made with econometric and more generally quantitative methods relying on available financial data. Authors simply argue that firms have probably over diversified in the last decades and that the current divestment and refocusing...

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