Academics, managers, and investors agree with near unanimity that corporate diversification destroys value. In their best-seller, In Search of Excellence, Tom Peters and Robert Waterman argued managers should “stick to the knitting” by focusing on the business they know best. Their argument presaged a series of management articles and books using different terms–including “core competency,” “unbundling the corporation” and “profit from the core“–to make the same point: Firms should focus on activities and markets where they have a sustainable competitive advantage. Diversification, according to this line of thought, dissipates attention and resources and breeds complexity. Outsourcing, off-shoring, and alliances allow firms to offload peripheral activities and focus narrowly on discreet activities where they excel.
A series of studies by financial economists documents a correlation between diversification economic value destruction. Philip Berger and Eli Ofek find that diversified firms trade at a discount of approximately 15% compared to focused competitors in the same industry. Larry Lang and René Stulz show that a firm’s diversification is negatively correlated with its Tobin’s Q (a firm’s market value divided by the book value of its
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Lucy Kellaway, FT columnist and associate editor, offers her solution to your workplace problems in a column in the Financial Times. In the 
