What Does Diversification Over Time Show Us

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The Answer is Over time, the "diversification pendulum" has swung away from intensive diversification to a trend toward concentration, and greatly reduced levels of diversification.
The diversification era took place approximately between 1950 and 1980, when it was an important source of corporate growth. A new corporate form, the conglomerate, emerged in the 1970s, through multiple and unrelated acquisitions. A common idea among managers was to not consider industry specific knowledge as critical for the success of a diversified firm, because techniques of financial and strategic management would compensate for the absence of such knowledge and experience.
After 1980, the trend reversed and diversification decreased, due mainly to three factors:
a) a shift in corporate goals from growth to profitability
b) inefficiencies of corporate management, within a conglomerate, during turbulent economic times
c) the emergence of new strategic thinking about the conditions under which unrelated diversification may be profitable and desirable, and the development of new approaches based on the construction of competitive advantages derived from a firm's resources and capabilities
This evolution demonstrates the power of the "general thinking" in the managerial field, the variations of positions firms take in regard to diversification across geographies and time, and the fact that most firms in fact "test" managerial practices, and then use the result as a lesson to change them. No one really knows in advance which managerial practice is going to be successful.

What Does Diversification Over Time Show Us

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What Does Diversification Over Time Show Us

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