Title: The role of corporate synergy accomplishment in determining performance of diversification strategies

Authors: Alok Srivastava, Suresh S. Prabhu

Addresses: Decision Sciences Department, Georgia State University, Atlanta, GA 30030, USA. ' Department of Decision Sciences, School of Business Administration, Clark Atlanta University, James P. Brawley at Fair Street, Atlanta, GA 30114, USA

Abstract: This study investigated the diversification-performance relationship for two five-year time periods. Although, there was no difference in the long-term performance of firms pursuing different strategies, improvements in long-term performance on both profitability and risk dimensions were possible for those firms that exploited unique advantages associated with their strategy. Portfolio synergy (risk education) was found to be a key determinant of total synergy (increase in profitability) for all diversification strategies. Direct synergies representing production and technical economies were associated with related constrained and related linked categories. Accomplishment of synergy is suggested as the moderating factor that influences the direction of the strategy-performance relationship. Implications for the practising manager are that diversification, irrespective of the type of diversification, can result in creating value for the diversifying firm. However, such value creation is determined by the level of exploitation of the unique advantages associated with each strategy, like various synergies.

Keywords: strategic management; corporate synergy; diversification strategies; direct risk; portfolio risk; portfolio synergy; risk education; profitability increase.

DOI: 10.1504/IJTM.1996.025481

International Journal of Technology Management, 1996 Vol.12 No.1, pp.75 - 84

Available online: 22 May 2009 *

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