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Leveraging synergies versus resource redeployment: Sales growth and variance in product portfolios of diversified firms

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  • Marco S. Giarratana
  • Martina Pasquini
  • Juan Santaló

Abstract

Research Summary This article analyzes the relationship between sales growth and variance for diversified firms. Distinguishing product niches linked by scale free versus non‐scale free resources, this study predicts that the more a firm diversifies leveraging on a non‐scale free resource, the more likely its sales growth and variance are positively correlated. However, this relationship is negatively moderated by the presence of a scale‐free resource such that the presence of scale‐free resources of high value implies a negative correlation. These theoretical intuitions are consistent with data from 2008 to 2013, reflecting firm sales growth rates in five industries spanning 45 product niches in seven EU countries and the United Kingdom. These industries prioritize shelf space as a non‐scale free resource, and brand as a scale free resource. Managerial Summary Diversifiers may base their value creation either in pursuing synergies or in exploiting the benefits derived by internal resource redeployment across products or across industries. Here, we highlight the different managerial implications on risk/performance structure derived from diversification based on resource redeployment compared to diversified companies exploiting synergies. Can the disparity of sales growth between products of the same firm's portfolio be good for the corporate performance? Here, we show that diversification based on resource redeployment goes hand in hand with a positive relation between overall firm growth and variance of results within the same firm. On the contrary, firm diversification based on synergies implies a negative relationship between within firm disparity and overall firm growth.

Suggested Citation

  • Marco S. Giarratana & Martina Pasquini & Juan Santaló, 2021. "Leveraging synergies versus resource redeployment: Sales growth and variance in product portfolios of diversified firms," Strategic Management Journal, Wiley Blackwell, vol. 42(12), pages 2245-2272, December.
    • Handle: RePEc:bla:stratm:v:42:y:2021:i:12:p:2245-2272
    DOI: 10.1002/smj.3281
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    2. Mario Daniele Amore & Mariano Mastrogiorgio, 2022. "Technological Entry, Redeployability, and Firm Value," Journal of Management Studies, Wiley Blackwell, vol. 59(7), pages 1688-1722, November.

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