Synergy is the only justification for a firm's diversification. Discuss. (ePub)

Essay from the year 2002 in the subject Business economics - Business Management, Corporate Governance, grade: B, Royal Holloway, University of London (School of Management), course: Strategic Management, language: English, abstract: Synergy is commonly regarded as a justification for a firm's diversification.
But, is it the only one? Or to continue that thought, is it a justification for a
firm's diversification at all? My intention in this essay is to investigate the
role of synergies in the decission-making process that leads to the
diversification of a company.
To find an answer to that problem, we will first have to take a look at what
the terms "synergy" and "diversification" actually mean. After that, I will go
on to discuss what possible other reasons there might be for a firm to
diversify. To find out about their role in that process, it is necessary to first have a
look on what synergies are and how they can be created. Obviously it is
possible to create synergies by diversification.
Sharon M. Oster writes: "The strategic management literature emphasizes
the role of diversification in creating synergies. Two business units have
synergies if their union allows for opportunities not available to either
seperately."0 So, this definition of synergy says that new opportunities
emerge from making use of shared resources. [...]