Short answer

When planning for company growth, prioritize diversification into related business areas where existing knowledge and resources can be leveraged, rather than pursuing entirely unrelated ventures.

Field: Innovation & Markets
Source: E3S Web of Conferences (2021)
Method: Literature Review and Case Analysis
Evidence: Moderate effect

Companies tend to favor diversification into related business areas over unrelated ventures, suggesting a strategic preference for leveraging existing expertise and market synergies. This innovation & markets research insight is drawn from a 2021 study published in E3S Web of Conferences. Using Literature review and case analysis, researchers explored how this design variable affects real-world outcomes. The key design takeaway: When planning for company growth, prioritize diversification into related business areas where existing knowledge and resources can be leveraged, rather than pursuing entirely unrelated ventures.

Study

Innovation & MarketsHigh ImpactModerate effect

Relational Diversification Outperforms Unrelated Expansion in Corporate Growth

Companies tend to favor diversification into related business areas over unrelated ventures, suggesting a strategic preference for leveraging existing expertise and market synergies.

E3S Web of Conferences · 2021

Key Findings

01Companies often exhibit a preference for moderate diversification into related business lines (relational diversification).
02Key growth strategies include market penetration, market expansion, product innovation, and diversification, each with distinct advantages and disadvantages.
03Diversification can be horizontal, vertical, or lateral, driven by both external (environmental) and internal (company-specific) factors.
04Effective portfolio diversification, especially in financial markets, is complex and requires careful consideration of systemic and non-systemic risks.

Application

Design takeaway

When planning for company growth, prioritize diversification into related business areas where existing knowledge and resources can be leveraged, rather than pursuing entirely unrelated ventures.

How to apply

Before launching a new product line or entering a new market, analyze how it relates to your current offerings and capabilities. Assess whether the potential gains from diversification outweigh the risks of venturing into unfamiliar territory.

Project actions

01When considering a design project that involves expanding a product or service, think about how it connects to the existing user base or technology.
02Research how similar companies have diversified and what strategies they used.

Method & Evidence

AimWhat are the prevailing strategies for corporate diversification and their relative effectiveness?

MethodLiterature Review and Case Analysis

ProcedureThe authors reviewed existing literature on corporate diversification strategies and analyzed common practices, identifying key growth strategies and types of diversification. They also examined the motivations behind diversification and the complexities of portfolio management.

ContextCorporate Strategy and Business Development

Variables

IVType of diversification strategy (related vs. unrelated)

DVCompany growth and success metrics

CVIndustry, company size, market conditions

Strengths & Limitations

Strengths

+Identifies a common trend in corporate strategy.
+Categorizes different types of diversification and growth strategies.

Limitations

The tendency towards related diversification might not apply to all industries or company sizes, and external market disruptions can alter strategic preferences.

Reliability & validity

The findings are based on observed corporate practices and literature review, suggesting moderate reliability. Validity depends on the breadth of companies and industries analyzed in the source material.

Think critically

While related diversification is common, under what conditions might unrelated diversification be a more advantageous strategy for a company?

Design Principles

"Leverage existing competencies and market adjacencies for strategic growth."

Understanding this tendency is crucial for businesses considering growth strategies. Focusing on related diversification can lead to more efficient resource allocation and a stronger competitive advantage by building upon established capabilities and brand recognition.

What This Means for Your Design

Companies usually grow by adding products or services that are similar to what they already do, rather than doing something totally different. This is often a safer and more successful way to expand.

How to use in your project

1.Use this research to justify the strategic direction of your design project, especially if it involves expanding into new areas or diversifying product offerings.

Add to My Project

Quick Cite

Paragraph starter

The research indicates a prevalent corporate tendency towards relational diversification, where companies expand into business lines related to their existing operations. This suggests that design projects focused on leveraging established expertise and market adjacencies are likely to be more strategically aligned and potentially more successful than those pursuing entirely novel or unrelated ventures.

Source

E3S Web of Conferences

Problems of choosing strategies for diversifying companies

journal · 2021

View source

Questions About This Research

What does the research say about relational diversification outperforms unrelated expansion in corporate growth?: When planning for company growth, prioritize diversification into related business areas where existing knowledge and resources can be leveraged, rather than pursuing entirely unrelated ventures. Evidence: E3S Web of Conferences (2021).
Why does "Relational Diversification Outperforms Unrelated Expansion in Corporate Growth" matter for design?: Understanding this tendency is crucial for businesses considering growth strategies. Focusing on related diversification can lead to more efficient resource allocation and a stronger competitive advantage by building upon established capabilities and brand recognition.
How can designers apply this research?: When planning for company growth, prioritize diversification into related business areas where existing knowledge and resources can be leveraged, rather than pursuing entirely unrelated ventures.
What were the main findings?: Companies often exhibit a preference for moderate diversification into related business lines (relational diversification).. Key growth strategies include market penetration, market expansion, product innovation, and diversification, each with distinct advantages and disadvantages.. Diversification can be horizontal, vertical, or lateral, driven by both external (environmental) and internal (company-specific) factors.. Effective portfolio diversification, especially in financial markets, is complex and requires careful consideration of systemic and non-systemic risks.
What research method was used?: Literature Review and Case Analysis.
How strong is the evidence?: Evidence strength is rated Moderate effect, based on a 2021 journal from E3S Web of Conferences.
What should I do differently in my next project?: Before launching a new product line or entering a new market, analyze how it relates to your current offerings and capabilities. Assess whether the potential gains from diversification outweigh the risks of venturing into unfamiliar territory.
What are the limitations?: The study focuses on corporate practice and may not fully capture the nuances of all diversification approaches or the specific success metrics for each strategy.