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Companies that possess both the incentives and the resources to diversify generally will diversify to a greater extent than will companies that have only the resources but not the incentives, or that have the incentive to diversify but lack the resources. If the company's resources are highly flexible, it is likely that they will be used in unrelated diversification. Conversely, a company that possesses less flexible resources is likely to pursue related diversification.

 

Unrelated diversification strategies generally will require a smaller corporate office because of the increased information processing (and coordinating) requirements that accompanies the inter-unit linkages from activity sharing in related diversification.

 

Companies having both the incentives and resources to diversify should increase the company's level of diversification until they reach the optimal level of performance for the company (as illustrated in Figure 5.3).  Companies that diversify because of low (real or perceived) performance may have a different optimal performance level than companies that do not diversify for that reason.