ABSTRACT
This chapter focuses on the concept of relatedness and its importance for the study of a firm's diversification strategy. It is critical because relatedness is a condition sine qua non for the realization economies of scope. Such an understanding also is particularly important because relatedness is subjective. Even when potential synergies abound, actual synergy is difficult. Relatedness, when managed properly, should result in tangible and intangible synergies that allow the corporate strategy to equal more than the sum of its individual business units' strategies. The resource based view (RBV) offers an alternative approach to the analysis of business relatedness. Managers' perceptions of relatedness in terms of product market similarities across their firms' portfolios businesses correlate closely with commonly used Standard Industrial Classification (SIC) based measures of relatedness. However, managers tend to hold several, additional conceptualizations, including some based on differentiation characterized by a common emphasis on product design, brand name products, R&D, and the development of new products.
