... diversification and performance, there is still confusion regarding the nature of this relationship. The following aspects of the problem are emphasised throughout the article: 1. Exactly what kind of relatedness between two businesses can allow the business to reap improved returns by diversifying across them, relative to the profits available to single-business rivals in both industries? 2. Is the ability to reap this potential diversification benefits on the diversifier's adopting a particular organisational structure? Resource based view of the firm is used to explain strategic relatedness. The authors also argue that existing measures of diversification (ie. Standard Industrial Classification count and Rumelt's diversification categories) are likely to fail in identifying the opportunities for profitable diversification. That is because; measures do not take into account which strategic assets are common across the two businesses Economies of scope Allows a number of Strategic Business Units (SBU) to exploit any synergies between the number of units to ...

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