The independent and joint effects of skill and physical bases of relatedness in diversification of organisations listed in the industrial sector of the JSE

Abstract

Diversification is an important strategic alternative commonly used by organisations in pursuit of different markets and greater returns. Within the resource based view, (Collins&Montgomery, 2005) suggest that an effective diversification strategy can only be conducted if there is a fit between resources and the business opportunity so that resources contribute to competitive advantage.A quantitative research methodology was followed whereby organisations listed within the Industrial sector of the Johannesburg Securities Exchange (JSE) were categorized as diversified from period 2000 to 2010. The study empirically examined the independent and joint relationship between physical and skill base of relatedness against three financial measures in the form of hypotheses, to determine which base of relatedness influenced better performance.All three bases of relatedness had no significant effect on organizational financial performance. The findings refine our understanding of relatedness as a multidimensional concept and suggest that to have a more comprehensive evaluation of corporate diversification and its value in boosting company performance, a matrix of interrelationships across lines of business, activities, resources, industry effects and many more variables should be considered.