Diversification, Refocusing, and Economic Performance: (Diversification, Refocusing, and Economic Performance)

During the 1980s a dramatic change in the evolution of the modern corporation took place. The phenomenon, which has been labelled "refocusing", "de-diversifying", "de-conglomerating" or simply "getting back to basics", has changed the terrain of American business. "Diversification, Refocusing and Economic Performance" empirically examines the causes and consequences of this phenomenon from a corporate strategy perspective, uncovering the full scope and effects of corporate refocusing, its strategic logic, and the resultant managerial implications. Two key findings are that every firm has its own limit for diversification, beyond which profits will decline, and that there are certain similarities among those companies who choose to refocus. Starting right after World War II, many companies diversified widely, primarily in areas unrelated to their core businesses. In the 1980s, however, as corporate acquisitions and hostile takeovers ran rampant, this trend toward diversification and conglomeration began to reverse. In the 1990s, there is ample evidence that corporate managers are responding in significant numbers to takeover threats by shedding unlucrative divisions and subsidiaries and concentrating on boosting the core product lines that have been their company's bread-and-butter. Drawing on a data set of 250 of the top Fortune 500 companies, Constantinos Markides measures the extent of the refocusing phenomenon, proposes reasons for its current popularity, delineates the characteristics of firms that are refocusing, and discusses the effects of refocusing on company market value, profitability and organizational structure.

Table of Contents:
Introduction and statement of the phenomenon; diversification, X inefficiencies, and the optimum size of the firm - an explanation of corporate refocusing; research design; the contours of the refocusing activity; the characteristics of refocusing firms; the consequences of corporate refocusing - ex ante evidence; the consequences of refocusing - ex post evidence; organization structure, refocusing, and profitability; summary and future research.

About the Author :
Constantinos Markides is a Professor of Strategy and Entrepreneurship, Robert P. Bauman Chair in Strategic Leadership, and Executive Education Faculty Director at the London Business School.