Related Diversification - On Business Creating Processes in Large Technology-Based Firms

Doctoral thesis, 2001

This thesis deals with related diversification in large technology-based firms by investigating business creating processes. The purpose is to increase our understanding of how related diversification processes influence outcomes of diversification, and to propose concepts that help identify and explain challenges of managing related diversification with focus on resource utilization and creation. Related diversification based on technology and innovation, has been identified as a viable strategy for large technology-based firms. Most research on diversification has looked for relationships between firm diversity, and economic performance, and more limited research has examined the diversification process. This thesis takes a resource-based strategy perspective when investigating processes of related diversification. The empirical data comes from case studies of firms in Japan, Scandinavia and the USA. The empirical study includes 95 interviews, held on three levels - corporate, business unit and diversification venture, together with internal documentation. Related diversification has been found to have a potential of being more, and something else, than a process of adding or attaching yet another (or several) new business (-es) to a firm which "stays the same". Instead, related diversification is found to have a fundamental influence on what defines the firm as a whole in terms of businesses, competencies, and resources. Thus, related diversification becomes a process of firm-level regeneration, requiring leverage and avoidance of existing resources in combination with creation of new ones. A framework is proposed of how the three activities of leverage, avoidance and creation of resources have to be balanced as a major task of managing related diversification. The results indicate that the firm-specific context influences the balancing act to the extent that it is not meaningful to search for a firm independent preferred degree of relatedness when analyzing diversification performance. Instead the firm's managerial processes of performing the balancing act are proposed as decisive for related diversification outcomes. Such processes are identified and conceptualized. More specifically, the emergent process of relating a diversification move to the firm's existing resource base; unlearning of the dominant management logic; rearticulation of the firm's business scope; and demanding, but rewarding, processes of core competence building, are identified as managerial processes, which also exemplify dynamic capabilities of related diversification.