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Traditional measures of relatedness provide an incomplete and potentially inaccurate picture of the scope of exploit interrelationships between its S… - Constantinos C. Markides
" "Traditional measures of relatedness provide an incomplete and potentially inaccurate picture of the scope of exploit interrelationships between its SBUs. This is because traditional measures look at relatedness only at the industry or market level. But as we explain below, the relatedness that really matters is that between 'strategic assets' (i.e., those that cannot be accessed quickly and cheaply by nondiversified competitors.) Therefore, to accurately measure whether two businesses are related, we need to go beyond broad definitions of relatedness that focus on market similarity; we need to look at the similarities between the underlying strategic assets of the various businesses that a company is operating in.
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About Constantinos C. Markides
(born 1960) Cypriot economist and Robert P. Bauman Professor of Strategic Leadership at (London, UK), since 1990. He was listed among the Forbes.com list of Most Influential Management Gurus (2009).
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Costas Markides
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A fundamental part of any firm's corporate strategy is its choice of what portfolio of business to compete in. According to the academic literature, this decision should reflect the 'superiority' of related diversification over unrelated diversification... This is because related diversification presumably allows the corporate center to exploit the interrelationships that exist among its different businesses (SBUs) and so achieve cost and/or differentiation competitive advantages over its rivals.
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We will argue that the long-run value of a related diversification lies not so much in the exploitation of economies of scope (asset amortization) - where the benefit is primarily short-term - but in allowing corporations to more cost efficiently expand their stocks of strategic assets. Relatedness, which opens the way for asset improvement, asset creation and asset fission, holds the key to the long-run competitive advantages of diversification. This means that in most cases, similarities in the processes by which strategic assets are expanded and new assets are created are more important than static similarities between the strategic assets that are the outcome of these processes.
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