Unrelated Diversification Strategies Research Articles

Moderating Effect of Government Policies and Regulations on the Relationship Between Diversification Strategies and Organizational Performance Among Star Rated Hotels in the Kenyan Coast

Nowadays, organizations must exploit opportunities and avoid risks by applying relevant strategies and developing various strategic approaches that will improve their competitive edge and overall performance. One of the possible ways to improve business efficiency and performance is through diversification in light of available government policies and regulations. The purpose of this study was to evaluate the moderating effect of government policies and regulations on diversification strategies and organizational performance amidst organizational and environmental forces within star rated hotels in the coast region of Kenya. The specific objectives were; to determine the moderating effects of government policies and regulations on the relationship between diversification strategies and organizational performance among star rated hotels in the Kenyan Coast. Notably, 36 star rated hotels were selected while 419 respondents were involved which comprised; strategic managers, tactical and operational managers. This represented a response rate of 92.4% and 80.6% for the questionnaires and interviews respectively. Stratified sampling was used to select the hotels while purposive sampling was used to select the managers. Questionnaires and interview schedules were used during data collection. Data analyze was both analyzed using both descriptive and inferential analysis. The model summary results indicate that R-Square value improves (from 0.598 to 0.617) when the moderating variable (Government policies and regulations) was added to the regression model. This means that government policies and regulations improve the relationship between related diversification strategies and performance of star rated hotels in the Kenyan Coast. The model summary results in Table 5 show that the value of R-Square improves from 0.558 without the moderating variable to 0.670 with the moderating variable. The moderating variable therefore improves the relationship between unrelated diversification strategies and performance of star rated hotels in the Kenyan Coast. The null hypothesis “Government policies and regulations do not have a significant moderating effect on the relationship diversification strategies with performance of star rated hotels in the Kenyan Coast” was rejected. In conclusion, government policies and regulations have a significant moderating effect on the effect of diversification strategies on performance of star rated hotels, annihilating the simple linear relations between predictor and outcome variables. The government should encourage diversification among hotel industry by providing favourable environment to conduct business through reduced tax and subsidies especially during economic turbulence.

STRATEGIES FOR DIVERSIFICATION OF ENTERPRISE ACTIVITIES: CLASSIFICATION, PRINCIPLES OF IMPLEMENTATION AND STAGES OF DEVELOPMENT

The article is devoted to developing a classification of strategies for the diversification of enterprise activities, the principles of their implementation, and the key stages of development. It is substantiated that diversification strategies of enterprise activities are essential for ensuring sustainability, competitiveness, and development in a changing market environment. It is determined that by sectoral affiliation, mono-sectoral, multi-sectoral, and multi-sectoral unrelated diversification are distinguished. Attention is also focused on vertical, horizontal, concentric, and conglomerate diversification strategies. The essence, advantages, and disadvantages of each of them are defined. Varieties of vertical and horizontal diversification are considered, such as full integration, expansion of the range of products, and expansion by geographical location. The essence of related and unrelated diversification strategies and the possibility of their combination in cross-cutting and mixed strategies are disclosed. It is substantiated that the presented classification provides an opportunity for business owners and managers of enterprises to note and analyze various diversification strategies. It allows them to focus on those strategies that may be most effective in the context of a particular activity, especially in an environment of unstable functioning. The principles of the diversification strategy are clarified: consistency, flexibility, relevance, synergy, innovation, and distribution of risks. The main stages of developing a diversification strategy are presented, which include: analysis of the strengths and weaknesses of the business; determination of the goal, objectives, and expected results of diversification; search for possible areas of diversification; assessment of promising areas of diversification; analysis of the total investment portfolio; making a decision on the most optimal direction of diversification; monitoring the implementation of the diversification strategy.

When does unrelated diversification increase performance? The effects of financial context and contingencies

PurposeThe purpose of this paper is to examine the financial factors across multiple levels of analysis that influence the performance effects of the unrelated diversification strategy, including institutional-, industry- and firm-levels.Design/methodology/approachUsing a unique panel dataset of Italian firms from 1980 to 2010, the paper tests hypotheses on how industry external financial dependence and the firm's financial constraints both separately and jointly alter the performance benefits of unrelated diversification in contexts with financial market inefficiencies.FindingsUnrelated diversification increases performance in weak financial contexts and such positive effect is enhanced by greater industry external financial dependence and greater firm financial constraints. However, as financial markets develop, the moderating effects of firm financial constraints shrink.Practical implicationsThe study highlights the importance of recognizing the multiple financial contingencies that may alter the benefits of the unrelated diversification strategy, suggesting caution in its pursuit to boost firm performance.Originality/valueThe authors develop a theoretical framework that explains the performance outcomes of unrelated diversification, linking the benefits of an internal capital market (ICM) with the financial context of the firm and offering a fine-grained analysis that moves beyond the advanced/emerging economy dichotomy. Furthermore, leveraging on the unprecedented time frame of the empirical analysis, the paper highlights the crucial role of industry- and firm-level financial contingencies and demonstrates that their effects change at varying levels of development of the financial context.

Symmetric Modeling of Diversification Strategy and Organizational Structure on Financial Performance: Evidence from China

Diversification is a strategy adopted by many enterprises in the process of expansion. The success of the diversification of an enterprise mainly depends on the choice and implement of strategy; choosing an organizational structure that fits the type of diversification strategy used is fundamental to improving financial performance. Based on the empirical research method, this study establishes a symmetric model of diversification strategy and organizational structure on financial performance and selects data from 613 A-share-listed companies in China, from 2012 to 2016, to test the impacts of unrelated and related diversification strategies on financial performance, as well as the moderating effects of united company, holding company, and multidivisional structures on such relationships. The results show that there is asymmetry between the diversification strategy adopted and financial performance, and a related diversification strategy should be adopted as a priority; the symmetry of an unrelated diversification strategy and holding company structure on financial performance is partially confirmed, and other elements should be adopted, simultaneously, to improve this symmetry; a related diversification strategy and multidivisional structure on financial performance is symmetric. The above findings will provide references for the diversification strategy choice and the organizational structure design of enterprises.

Technological diversification: a matter of related or unrelated varieties?

This paper contributes to the 50th-anniversary special issue of Technological Forecasting and Social Change, by discussing the extent to which firms, sectors and territories follow related and/or unrelated diversification strategies in periods of economic expansion and economic crises. The paper addresses this critical question by examining the evolution of the technological diversification of firms located in the Basque Country. We analyze all the WIPO patents granted to Basque companies in the period 1991–2011 (n = 1102) and their technology classes (m = 1177). We measure technological diversification over time, both at the territorial and sectoral levels, using the concept of entropy.Our results evidence that technological diversification adopts both related and unrelated variety logics at both levels of analysis. We also show that, at the sectoral level, technological diversification follows different evolutionary paths. As a result, we introduce a taxonomy that distinguishes between 8 types of technological diversification. We contend that for innovation policies to contribute to societal transformation, they cannot rest on a one-size-fits-all type of logic, and need instead to consider the extent to which environmental shocks may affect the dynamics observed at sectoral and territorial levels.

Pengaruh Strategi Diversifikasi terhadap Efisiensi pada Perusahaan Manufaktur yang Tercatat di Bursa Efek Indonesia

The purpose of this research is to examine the impact of Related Diversification, Unrelated Diversification and International Diversification on firm’s Efficiency. Related Diversification and Unrelated Diversification were measured using Entropy index, while International Diversification was measured using proportion of export sales over total sales. Efficiency was measured using Data Envelopment Analysis – BCC Model using total assets as input variable and return on asset, return on equity, profit margin, earning per share, market to book value and Tobin’s Q as output variables. This research also uses five control variables which are firm’s size, leverage, firm’s age, liquidity, and exchange rate. This research use manufacture companies listed in Bursa Efek Indonesia in 2013-2016 as research samples. The result of this research show Related Diversification gives negative effect on Efficiency, Unrelated Diversification gives positive effect to Efficiency, and no significant effect from International Diversification to Efficiency. The implication from this research indicates that Unrelated Diversification strategy is better for manufacturing firms in Indonesia and Efficiency will decrease as firm’s size grow. Keywords: Efficiency, International Diversification, Related Diversification, Unrelated Diversification  https://doi.org/10.21632/saki.2.2.149-176

The moderating effect of board size on the relationship between diversification and tourism firm performance

This study examines the effects of diversification strategy and board size on firm performance as well as the moderating effect of board size on the relationship between diversification strategy and firm performance in the Chinese tourism industry from 2008 to 2015. The results show that related diversification positively influenced Chinese tourism firm performance, and unrelated diversification negatively influenced it. Board size was found to negatively moderate the relationship between related diversification and firm performance and to positively moderate the relationship between unrelated diversification and firm performance. In addition, the results imply that small boards are beneficial to Chinese tourism firms when both related and unrelated diversification strategies are implemented.

The Role of Social Network in Family Business Diversification: Evidence from South Eastern Nigeria

Aim/Purpose: This study seeks to investigate if participation in business association’s programs through the traditional and new media platforms influences family businesses in South Eastern Nigeria to diversify into similar or different businesses. Background: Before the advances in information and communication technology, businesses were carried on via the traditional media. The application of these advances has changed the way business communications and transactions are conducted globally in both family and non-family businesses. Businesses are adapting to today’s turbulent environment by opening similar or different businesses in the same or different locations that are hinged on the traditional and new media platforms. Nigerians are largely involved in social network through the traditional (face-to-face contact) and new media (e.g., Facebook, WhatsApp, Twitter, YouTube and Instagram). Moreover, in spite of the commonplaceness of family businesses in Nigeria, these businesses still experience weak diversification, bankruptcy and loss of socio-emotional wealth. Consequent upon the foregoing, this paper specifically investigates if involvement in social network via the traditional media (i.e., participation in business association’s meetings, workshops, seminars) and the new media (i.e., participation in the business association’s interactive sessions on trending business issues through the association’s online social platform like WhatsApp, Twitter), influence family businesses in South Eastern Nigeria to diversify into similar or different businesses. Methodology: The study adopted a qualitative methodology. The qualitative data were generated via interview involving 30 purposively selected businesses from South Eastern Nigeria. This comprises 15 family businesses each that have respectively adopted related and unrelated diversification strategies. Two respondents (i.e., the business owner and a top level manager) each were drawn from the selected businesses. In all, 60 respondents were interviewed. Since the unit of analysis is the family business, the interview transcriptions from all the respondents were subjected to thematic content analysis on the basis of the family businesses. Contribution: Active involvement and participation in all the meetings, discussions, workshops and seminars of the social network via the traditional and new media platforms facilitates the adoption of related or unrelated diversification in family businesses. Moreover, the adoption of similar social network platforms like WhatsApp and Twitter in all the relationships among and between employees and managers, and the transactions of the businesses is one of the key factors for achieving successful related or unrelated diversification in family businesses. Findings: In spite of the risky nature of the business environment, the adoption of related diversification strategies is significantly influenced by resources such as business consultancy services garnered through the traditional and new media platforms of the social network. Also, family businesses that are actively involved in a social network where the actors interact through the traditional and new media are influenced by the resources acquired to consider adopting unrelated diversification. These resources include: better understanding of the nature of business challenges, environments and experiences; and different lines of businesses. Thus, the traditional and new media platforms are complementary in their roles. Recommendations for Practitioners: Family business owner-managers could use the findings to develop related or unrelated strategies for diversifying into existing or new markets. This can be through the localization of manufacturing plant, improvement of product packaging, sitting of sales outlet closer to the consumers, introduction of lower prices for products/services, introduction of new and better ways of service delivery, or development of more compelling promotion strategies. Recommendation for Researchers: As a veritable guide, this study could guide future researchers in the formulation of their objectives, selection of instrument for data collection and respondents, and adoption of method of data analysis. Impact on Society: Successful diversification suggests the establishment of new or more businesses. Consequently, these new or more family businesses are expected to translate to more employment opportunities and by extension reduction in unemployment and poverty rates in the society. Future Research: Further studies should be carried out to enhance the development of family businesses, contribute to the existing literature and ensure the generalization of the findings.

Analysis of Competitive Strategies: A Research on Accommodation Enterprises in Çanakkale

The implementation of competitive strategies within the enterprise will cause them to gain a distinctive identity from their competitors and to be preferred by customers more particularly. In the study, accommodation enterprises, which are one of the important sectors of Turkey's economy, are examined. The study population consists of two-star, three-star, four-star and five-star hotel enterprises operating in the province of Canakkale and operating under the Ministry of Tourism with special certification. In this context, semi-structured interview method which is among qualitative research methods has been applied and the study has been conducted with 15 accommodation enterprises. Research findings indicate that hotel enterprises often implement cost leadership strategy. In addition, it has been observed that the strategy of unrelated diversification, which is among basic level strategies, has been frequently implemented in accommodation industry. In the study, no differentiation has been found between the competitive and basic level strategies applied by hotel enterprises and types and classes of enterprises. The fact that hotels remain idle during winter season in Canakkale province, while, there is a frequent customer concentration during the summer season has caused the hotel managements to often prefer the cost leadership strategy and unrelated diversification strategy.

Curvilinear Relationship between Diversification and Performance: A Replication and Extension of Previous Research

As argued in most strategic management textbooks, the relationship between diversification and performance is curvilinear and firms pursuing a related diversification strategy outperform those firms pursuing a dominant or an unrelated diversification strategy. Using SAS modeling techniques and controlling for industry, corporate and business unit effects new insights were gleaned with regards to the relationship between diversification and performance. The implications to performance (statistical significance), given the type and extent of diversification strategies, are discussed resulting in a deeper understanding of how the complex relationships between performance and diversification play out across the entire diversification spectrum.

Operationalizing the Concept of Conflicting Functional Demands

A number of authors have described the challenge of managing organizations that are subject to conflicting functional demands. These authors belong to different sub‐disciplines of the field, and have demonstrated that conflicting external demands may result in inconsistent strategies, organizational structures, and management practices. Although the issue is widely recognized, the concept of ‘conflicting functional demands’ has rarely been operationalized. The lack of operationalization complicates the interpretation of existing research. It also leads to weak prescriptions for practice. The question raised in this paper is thus how we may operationalize this concept and assess it empirically. The key proposal is to separate between function and structure (or ends and means) and to define functional conflict as a negative interdependency between a particular function (e.g., a goal or requirement) and a structural element (e.g., an organizational unit). This reconceptualization suggests an alternative manner in which to test dualistic models that contain two opposing factors, such as exploration vs. exploitation, related vs. unrelated diversification, or broad vs. narrow strategy.

Competitive advantage and the transformation of value chains over time: The example of a South Korean diversified business group, 1953–2013

We examine the historical evolution of different elements in value chains that create value-added and competitive advantage. This is achieved by using the conceptual model of the ‘smile curve’ with a longitudinal case study of a diversified business group, CJ Group, a former affiliated firm of Samsung Group. We found that the value-added structure graph in the industrialisation period displayed an ‘upside-down U shape’, indicating that production and manufacturing were the most value-adding sectors. However, in the more recent knowledge-based economy period, the graph shows a quite different shape, indicating R&D, firm infrastructure, manufacturing, logistics, service, and marketing as sources of value-added. This shows that competitive advantage diversified into other fields to fit with the changed economy. We also investigate what type of organisational structure, strategy, and capabilities were adopted for organisational change. We found an evolution, with an unrelated diversification strategy by altering capabilities from contacts and generic to organisational and technological capabilities.

How do institutional transitions impact the efficacy of related and unrelated diversification strategies used by business groups?

Drawing from institutional theory and organizational theory, this paper reports findings from a longitudinal study of Indian business groups as they were responding to pro-market institutional reforms. It explores their diversification choices at the group level, and the group performance consequences of these choices during a period of institutional change (1988–2012). Results show that although overall group diversification had a positive impact on performance, as institutions developed and market reforms took root, unrelated diversification resulted in poorer performance. However, related diversification strategies resulted in positive group performance outcomes after pro-market reforms had taken root. This suggests that the performance consequences of alternative diversification strategies adopted by business groups change as institutional development occurs, an important facet of business group evolution that has received limited attention in the extant literature.

The influence of the diversification degree and directivity on business risk

One of main purposes of diversification strategy is to decrease the business risk by portfolio construction. In this case, since the unrelated diversification strategy differs in the performance variation pattern between business segments greatly, we think that business risk will be decreasing. We find that when RHI (an index of the degree of diversification) is less than 0.3, Dir (an index of the directivity of diversification we proposed) and business risk is in positive correlation. That is, when the degree of diversification is low, unrelated diversification will be effective in decreasing a business risk.

Revamping research on unrelated diversification strategy: perspectives, opportunities and challenges for future inquiry

With the aim of achieving an advanced understanding of current research on unrelated diversification and providing fruitful groundwork to foster active interchange between disciplinary traditions, this paper detects articles from two relevant research streams; i.e., strategic management and financial economics. We first provide a brief overview of management thinking on unrelated diversification strategy. Then, we present a conceptual map that offers a comprehensive appreciation of unrelated diversification strategy antecedents (i.e., environmental and institutional, organizational value-enhancing, and managerial drivers), implementation process (i.e., managerial complexity, misallocation of resources, and structural inertia), and consequences (i.e., diversification premiums and discounts). Finally, we unpack the major gaps in our current knowledge that may help refocus the research agenda on unrelated diversification strategy and revamp the apparent waning proclivity of this issue.

The benefits of related and unrelated diversification strategies in the Spanish context: What is the difference that executive leadership style can make?

This article builds on the agency-stewardship approach to examine if the impact of related and unrelated diversification strategies on firm performance is contingent on the leadership style of diversifying Chief Executive Officers (CEOs) ranging from the agent model to the steward model. For this purpose, it proposes four hypotheses which are empirically tested using data from a sample of 183 Spanish firms. The findings provide new insights about the relevance of CEOs’ leadership style so that a right fit between diversification type and executive leadership style seems to be crucial for firms pursuing growth and profitability benefits.

Competitive Advantage of an Unrelated Diversified Company

A company is diversified when it is in two or more lines of business. Companies pursue unrelated diversification strategy when they enter into a new activity that has no obvious similarities with any of the company’s existing activities. This is often risky for a company with strengths in one industry or product to tackle a completely unrelated industry, but the potential benefits are also significant for businesses that succeed with this growth strategy. This paper reviews the competitive advantage of unrelated diversification and concludes that the critical factor in determining success is the level of management expertise in formulating and implementing the unrelated diversification strategy. Key words: Diversification; Unrelated diversification; Competitive advantage

The circular relationship between geographical and product diversification in Spanish MNEs

Diversification as a strategic response to global opportunities has become increasingly important for firms. Drawing on the Resource Based View of the Firm, this paper investigates these strategies by analysing a circular relationship between product and geographical diversification. The results, obtained from a sample of leading Spanish multinational firms, suggest that adaptation to a wide range of different countries hinders the necessary coordination of activities that related product diversification requires and vice-versa. In contrast, unrelated diversification strategies can provide financial synergies, experience and flexibility, which help the process of internationalisation. Simultaneously, greater geographical diversification allows each subsidiary to behave as an independent unit and to develop more efficient internal control systems and resource allocation.

Search behavior of the diversified firm: The impact of fit on innovation

This paper provides a new approach to account for the relationship between diversification and innovation by integrating insights concerning strategic fit. We argue that the type of diversification strategy leads to greater innovation output when the appropriate technological search strategy is employed. Using a longitudinal study of the patenting activity of 258 manufacturing firms, we find that strategic fit is important for innovation output. More specifically, a related diversification strategy leads to greater innovation when firms use a narrow technological search strategy. In contrast, an unrelated diversification strategy leads to greater innovation when a broader technological search strategy is used. Implications for future research are discussed. Copyright © 2013 John Wiley & Sons, Ltd.

Relación entre el rendimiento y las estrategias de crecimiento en las sociedades anónimas chilenas

The relationship between business performance and diversification or concentration is a very important topic. In this context, this article presents the evidence obtained by comparing the yield of 82Chilean corporations, selected at random, with their concentration or diversification strategy. The methodology involved the classification of strategies by a matrix based on the International Standard Industrial Code (ISIC) of Chile, and implementation of the Du Pont method for determining the outcome. The main evidence is that most companies are concentrated, but companies with associated diversification strategy gained a greater average yield than concentrated companies and companies with an unrelated diversification strategy.