Performance effects of corporate diversification: Roles of knowledge resources, knowledge management capability and information technology

This dissertation studies how diversified firms add value to their businesses, and whether and how information technology (IT) contributes to the value creation process.; Previous research posits that diversified firms add value by forming a portfolio of related businesses that enjoy resource-based synergies. However, empirical tests of the relatedness hypothesis produced equivocal results: some studies found a significant link between related diversification and firm performance while others did not.; Related diversification can lead to superior performance only if it is based on valuable, rare, imperfectly imitable and imperfectly substitutable resources. Identifying knowledge as the most strategic resource of the firm and recognizing the role of IT in management of firm's knowledge resources, this dissertation proposes to construe performance effects of diversification in terms of knowledge-based relatedness, knowledge management capability, and IT knowledge relatedness of the firm. Knowledge-based relatedness captures the extent to which the firm has a strategy of leveraging knowledge-based synergies across its businesses. Knowledge management capability captures the firm's ability to implement a strategy of knowledge-based relatedness. IT knowledge relatedness captures the extent to which IT human resources, IT relationships, and IT infrastructures of the firm's businesses are managed in related ways.; This study hypothesizes that the diversified firm adds value by creating and leveraging knowledge-based synergies across its businesses, and that IT enhances knowledge management capability and performance of the firm by facilitating exchange of related knowledge resources across the businesses. These hypotheses are tested with primary data from senior business and IT executives of Fortune 1000 firms. 339 business executives and 356 IT executives participated in the business and IT surveys of the study. LISREL 8.3 is used to validate measurement and structural properties of the proposed research model.; Findings provide support for the hypotheses of the study. Traditional measures of diversification and related diversification are not associated with firm performance. But the performance effects of diversification are observed through mediating roles of knowledge-based relatedness, knowledge management capability, and IT knowledge relatedness. Implications for theory and practice are discussed. A program of research is proposed to better understand business and IT strategies that enable knowledge-based diversification.