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Are you too focused?
Should anyone doubt that focused companies perform better than diversified ones, volumes of corporate and academic research testify otherwise. Yet even focused companies must diversify to survive as they mature, or new growth businesses won't be around to supplant the declining value creation prospects of their predecessors. Is there a profitable middle ground between focus and diversification? Over the past 20 years, companies that have managed to find the strategic sweet spot of moderate diversification have not only outperformed both focused and highly diversified companies 81 percent of the time but also generated higher total returns to shareholders every year except one since 1985.
The take-away: Focus isn't always the best answer for managing corporate scope. While focused companies generally outperform more diversified ones, the companies identified in this article as moderately diversified perform at least as well as—and often better than—their focused counterparts.
Articles provided by The McKinsey Quarterly
© 1992-2003 McKinsey & Company, Inc
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