chapter  16
22 Pages

Valuable clusters of offerings: relatedness

Chapters 3 and 13 have defined the task of corporate strategy as managing the company’s cluster of offerings with a view to boosting its value. Chapter 14 provisionally – and negatively – described relatedness as a valid objective in contrast with risk diversification or size, and argued that unrelated clusters will not generate value. In its own right, it was argued, diversification has only one certain effect: it adds the significant costs of diversified operation. These costs are imposed by the existence of a head office. Risk diversification is no offset to those costs. Size, as we saw, can at certain thresholds reduce the cost of capital. Yet even that must not be treated as a commensurate offset to the costs of diversified operation, unless a diversification is related – as defined in this chapter – and also passes the criteria proposed in Chapter 14.