Corporate diversification: identifying new businesses systematically in the diversified firm

Companies with mature businesses struggle to deliver the growth rates demanded by analysts and shareholders and often opt for diversification. In the years of downsizing and refocusing on core competencies, many companies have lost the ability to generate new businesses. This contribution discusses the process of the systematic identification and assessment of diversification opportunities and its organization within a diversified firm. The article takes a corporate strategy perspective and analyses which inputs are required from corporate strategy and what the role of R&D and other groups within the firm should be in this process. Firstly, different diversification strategies are distinguished and related to the business life cycle and corporate strategies. Secondly, the article describes the process of the systematic identification and assessment of diversification opportunities within a diversified firm. It also describes how the diversification opportunities can be gradually filtered out through increasingly detailed assessments. Thirdly, it shows how the process can be focused by identifying adequate search fields. This systematic approach distinguishes between competence- and market-driven search strategies. It shows how these strategies should differ depending on how related the search is to existing markets and competencies. Fourthly, the article discusses the organization of the process. It describes the coordinating role of corporate planning and the particular roles of R&D, venture funds and other contributors in the process. Finally, a conclusion is drawn and directions for future research are given.