Michael_A._Hitt,_R._Duane_Ireland,_Robert_E._Hosk

Chapter 6: Corporate-Level Strategy 195

(see Chapter 10). Appropriate strategy implementation tools, such as organizational struc-
tures, are also important for the strategies to be successful (see Chapter 11).
We have described corporate-level strategies in this chapter. In the next chapter, we
discuss mergers and acquisitions as prominent means for firms to diversify and to grow
profitably. These trends toward more diversification through acquisitions, which have
been partially reversed due to restructuring (see Chapter 7), indicate that learning has
taken place regarding corporate-level diversification strategies.^125 Accordingly, firms that
diversify should do so cautiously, choosing to focus on relatively few, rather than many,
businesses. In fact, research suggests that although unrelated diversification has decreased,
related diversification has increased, possibly due to the restructuring that continued into
the 1990s through the early twenty-first century. This sequence of diversification followed
by restructuring has occurred in Europe and in countries such as Korea, following actions
of firms in the United States and the United Kingdom.^126 Firms can improve their strate-
gic competitiveness when they pursue a level of diversification that is appropriate for their
resources (especially financial resources) and core competencies and the opportunities
and threats in their country’s institutional and competitive environments.^127

Figure 6.4 Summary Model of the Relationship between Diversification and Firm Performance

Firm

Performance

Value-Neutral

Influences

• Incentives


• Resources

Value-Creating

Influences

• Economies of Scope


• Market Power


• Financial Economics

Value-Reducing

Influences

• Managerial Motives
  to Diversify

Internal

Governance

Strategy

Implementation

Diversification

Strategy

Capital Market

Intervention and the

Market for

Managerial Talent

Source: Adapted from R. E. Hoskisson & M. A. Hitt, 1990, Antecedents and performace outcomes of diversification:
A review and critique of theoretical perspectives, Journal of Management, 16: 498.