... can confront is whether to diversify: the rewards and risks can be extraordinary. ... To complicate matters, diversification as a corporate strategy goes in and out ...Youhave1freearticlesleftthismonth.Youarereadingyourlastfreearticleforthismonth.Subscribeforunlimitedaccess.Createanaccounttoread2more.Mergers&acquisitionsToDiversifyorNotToDiversifyByansweringsixquestions,managerscanreducethegambleinthishigh-stakesgame.byConstantinosC.MarkidesbyConstantinosC.MarkidesFromtheMagazine(November–December1997)TweetPostShareSaveGetPDFBuyCopiesPrintTweetPostShareSaveGetPDFBuyCopiesPrintLeerenespañolLeremportuguêsOneofthemostchallengingdecisionsacompanycanconfrontiswhethertodiversify:therewardsandriskscanbeextraordinary.Successstoriesabound—thinkofGeneralElectric,Disney,and3M—butsodostoriesofsuchinfamousandcostlyfailuresasQuakerOats’entryinto(andexitfrom)thefruitjuicebusinesswithSnapple,andRCA’sforaysintocomputers,carpets,andrentalcars.Whatmakesdiversificationsuchanunpredictable,high-stakesgame?First,companiesusuallyfacethedecisioninanatmospherenotconducivetothoughtfuldeliberation.Forexample,anattractivecompanycomesintoplay,andacompetitorisinterestedinbuyingit.Ortheboardofdirectorsstronglyurgesexpandingintonewmarkets.Suddenly,seniormanagersmustsynthesizemountainsofdata—includinginternal-rate-of-returncalculations,marketforecasts,andcompetitiveassessments—underintensetimepressure.Tocomplicatematters,diversificationasacorporatestrategygoesinandoutofvogueonaregularbasis.Inotherwords,thereislittleconventionalwisdomtoguidemanagersastheyconsideramovethatcouldgreatlyincreaseshareholdervalueorseriouslydamageit.Butdiversificationdoesn’tneedtobequitesucharollofthedice.Yes,italwayswillinvolveuncertainty;allmajorbusinessdecisionsdo.Andindeed,thereisawealthofgoodadviceabouthowtoapproachdiversification.1Butmyresearchsuggeststhatifmanagersconsiderthefollowingsixquestions,theycanpushtheirthinkingstillfurthertoreducethegambleofdiversification.Answeringthequestionswillnotleadtoaneasygo-no-g