Performance Implications of Related Product-Market and Business-Model Diversification

This study develops a conceptual framework that captures key dimensions of product-market relatedness (i.e., product and customer relatedness) and business-model relatedness (i.e., value-proposition and distribution-channel relatedness). While previous research has typically investigated how related diversification along the product dimension affects performance, this study argues that superior performance may be driven by heretofore widely neglected intangible dimensions of relatedness beyond the product dimension. We test this argument using a unique dataset of 170 multiunit chain organizations for the period from 1999 to 2010. We first verify prior empirical findings by showing that related product diversification alone appears to be positively related to performance. Moreover, beyond previous findings, results show that related diversification along the customer and value-proposition dimensions also increases performance. Interestingly, the tangible product dimension of relatedness becomes insignificant in combination with intangible relatedness dimensions, providing support for our argument that superior performance is mainly driven by resource flows along intangible dimensions of relatedness.