Research on Corporate Diversification: A Synthesis

I feel, that the first purpose of this article is properly defining the word diversification. Varadarajan lists multiple articles where the word diversification is improperly defined as means for analyzing companies outbound and inbound initiatives. For the article, Varadarajan defines diversification as The entry of a firm or business unit into new lines of activity, either by process of internal business development or acquisition, which entail changes in its administrative structure, systems and other management processes. (Varadarajan) For me, this seemed like a pretty basic definition of diversification, although diversifications definition can be skewed and manipulated in many different ways.

The second purpose of this article was for Varadarajan to define his main figure of the article. Figure 1 is a superhighway of connections pertaining to diversification, at first glance; I mistook it for brain neurons. In this figure, there are 11 boxes, each of which has a different facet of diversification. The first three boxes are very broad aspects, and they read as follows, 1) General Environment an external force on the business or industry. 2) Industry environment (Market Structure) The setup of the market and industry as a whole. And 3) Firm Characteristics-unique aspects of a company that help them differ from competition. Varadarajan then goes on to

explain the 8 boxes of his diagram. 4) Firms decisions to diversify- what influences a firm to diversify. 5) Choice of direction of diversification what aspect of their business are they going to diversify. 6) Choice of mode of diversification The extent to which a firm relies on internal business development as a means of new lines of activity. 7) Diversity Measurement of diversification. 8,9,10) Management of Diversification- As a firms scope of diversification increase, so do the problems of managing diversity. 11) ex-post performance and Ex-ante performance.

Varadarajan then explains his findings further by using other studys and applying their findings by means of his study. Table 2 applies 4 pages of different research studies on diversity and applies their findings to his 11 box diagram. Personally, I like the very first application, which says that Diversification through acquisition is more common than diversification through internal development.

Overall, I felt that this article was pretty difficult to read, but as I was typing out this paper, I realized that I was simply overthinking Varadarajans ideas. They are basically a framework to apply other diversification findings too.