Modeling a Diversification Strategy for Iranian Private Multi-Business Companies

Document Type : Research Paper


1 Ph.D. candidate, Department of Strategic Management, Faculty of Management and Economics, Tarbiat Modares University, Tehran, Iran.

2 Professor, Faculty of Management and Economics, Tarbiat Modares University, Tehran, Iran.


Objective: The purpose of this study is to find mechanisms for adopting and implementing diversification strategies in Iranian multi-business companies in the form of content, context and process models. The owners of multi-business companies will be able to adopt an appropriate strategy in dealing with the future investment opportunities based on these mechanisms. They can also properly manage the organization and reduce the risk of value degradation through recognizing and examining various causal, underlying, and intervening conditions of this strategy. Therefore, the main question is that “what is the nature of the diversification strategy mechanisms in Iranian multi-business companies”.
Methodology: This research is an exploratory research in terms of purpose and has been conducted based on descriptive and survey appraoch. The data were collected through a qualitative method and in-depth interviews with senior managers. They were then analyzed using the systematic grounded theory method. The statistical population includes the managers and senior experts in the field of strategy in Iranian multi-business companies who participated in the diversification process and decisions in their organizations. Theoretical saturation was obtained uisng integrated purposeful and snowball sampling after 25 in-depth interviews. In this study, the interviews were conducted with the managers from Golrang Industrial Group, Golestan Industrial Group, Kourosh Investment Group, Ariana Industrial Group, Padideh Paydar Holding, Middle East Investment Group, and Rahmani Industrial Group. The data were collected from March 2017 to March 2019.
Findings: The results of the data analysis indicates that the causal conditions of individual incentive (the concepts such as seeking power, maximum role-playing in the success of the company, fulfilling social responsibility - especially the first generation, as well as gaining prestige and social prestige); organizational incentive (the concepts of growth of human resource development, division and balance of power in the organization, the organizations’ intellectual assets such as brand, and the organizations’ knowledge assets); economic incentive (the concepts of limited size and growth of the existing industries, achieving development prospects, financial and cost convergences, wide range and the possibility of taking advantage of opportunities in other industries, exploiting macro-opportunities and the transformation of political-economic threats into opportunities, political-economic constraints for the initial business, non-outflow of liquidity, and exploitation of special opportunities); reduction of risks (the concepts of diversifying the flow of profitability, avoiding the threats and confrontations with powerful institutions, bankruptcy, covering business fluctuations, avoiding threats to the immediate environment); as well as intervening conditions can shape the degree of stability of the macro environment, the facilitating institutions, the status of supporting laws and policies, and the environment which is prone to special opportunities, business diversification in the context of maturity in the organizational life cycle, organizational resources, capabilities of the organization, senior managers’ strategic skills and thinking as well as the organizational strategic orientations. This phenomenon is implemented through option-making, option-selecting, defining entry strategy, holding, institutionalization, and systematization. It can also lead to positive consequences such as higher financial performance, reduction of risks, strength, growth and development and etc.
Conclusion: Completing the value chain including front and back integrations and entering into other core value chain businesses, is regarded as a major part of the organizations’ diversification activities. The diversification is successful in immediate businesses because the company is relatively familiar with their business principles and models. The transformation of intra-company services such as business services and advertising into independent businesses due to competency and vacancy indicates endogenous growth and diversity. These factors, along with supporting other companies and heterogeneous diversification, can form diversification strategy. For the successful implementation of the diversification strategy, it is necessary to pay comprehensive attention to the 27 important categories and the related concepts, and to use them properly with full awareness.


Arnould, R. J. (1969). Conglomerate growth and public policy. In L. Gordon (Ed.), Economics of conglomerate growth: 72-80. Corvallis: Oregon State University Department of Agricultural Economics.
Asadzadeh, A., Rahmanseresht, H (2015). A model describing intelligence in parent companies. Journal of Business Management, 7 (4), 805-822. (in Persian)
Chang, S. J., & Hong, J. (2002). How much does the business group matter in Korea? Strategic Management Journal, 23(3), 265–274
Chakrabarti, A., Singh, K., & Mahmood, I. (2006). Diversification and performance: evidence from East Asian firms. Strategic Management Journal, 28(2), 101–120.
Creswell, J. & Creswell, J. (2018). Research design : qualitative, quantitative, and mixed methods approaches. Thousand Oaks, California: SAGE Publications, Inc.
Creswell, J. & Poth, C. (2018). Qualitative inquiry & research design : choosing among five approaches. Thousand Oaks, California: SAGE.
Datta, D. K., Rajagopalan, N., & Rasheed, A. M. A. (1991). Diversification and Performance: Critical Review and Future Directions. Journal of Management Studies, 28(5), 529–558.
De Wit, B. and Meyer, R. (2010). Strategy process, content, context ; an international perspective, 4th edn. United Kingdom: Cengage Learning Business Press.
Dhir, S., & Dhir, S. (2015). Diversification: Literature Review and Issues. Strategic Change, 24(6), 569–588.
Fernandez, W. D. )2004(. The Grounded Theory method and case study data inis research: Issues and design’, in Hart, D. N. and Gregor, S. D. (eds) Information Systems Foundations: Constructing and Criticising, ANU EPress, Canberra Australia.
Ginsberg, A. 1990. Connecting diversification to performance: A sociocognitive approach. Academy of Management Review, 15: 514-535.
Given, L. (2008). The Sage encyclopedia of qualitative research methods. Los Angeles, Calif: Sage Publications.
Gomes J, Livdan D. (2004). Optimal diversification: reconciling theory and evidence, Journal of Finance 59: 507–535.
Grant, R.M. (2013), ‘Contemporary strategy analysis with access code’, 8th edn. New York: John Wiley & Sons
Helfat, C., & Eisenhardt, K. 2004. Intertemporal economies of scope, organizational modularity, and the dynamics of diversification. Strategic Management Journal, 25: 1217-1232.
Heidari, A., Valipour, A., (2017). Strategic Management Research in Iran: An Overview of Published Works in Domestic Scientific Journals during 2002 to 2015. Journal of Business Management, 9 (1), 83-102. (in Persian)
Hill, C. W. L., & Hoskisson, R. E. (1987). Strategy and structure in the multiproduct firm, Academy of Management Review, 12: 331-341.
Hitt, M. A., & Ireland, R. D. (1986). Relationships among corporate level distinctive competencies, diversification strategy, corporate structure and performance. Journal of Management Studies, 23: 401-416
Hoskisson, R. E. (1987). Multidivisional structure and performance: The diversification strategy contingency. Academy of Management Journal, 30: 625-644.
Hoskisson, R. E., & Hitt, M. A. (1990). Antecedents and performance outcomes of diversification: A review and critique of theoretical perspectives. Journal of Management, 16: 461-509.
Hoskisson, R. E., Eden, L., Lau, C. M., & Wright, M. (2000). Strategy in emerging economies. Academy of Management Journal, 43: 249-267.
Kakani, R.K. (2000). Financial performance and diversification strategy of Indian business groups. Doctoral dissertation. Indian Institute of Management, Calcutta.
Khanna T, Palepu K. (1997). Why focused strategies may be wrong for emerging markets. Harvard Business Review. 75(4): 41–51.
Kheirolahi, F,. & Ghasemi, M,.(2014).Construction of company direction as a Factor for diversification strategy.Journal Modern Theories of Accounting,:4 (1), 71-90.(in persian)
Kim, H., Hoskisson, R. E., Tihanyi, L., & Hong, J. )2004(. The evolution and restructuring of diversified business groups in emerging markets: The lessons from chaebols in Korea. Asia Pacific Journal of Management, 21:25-48.
Kock, C. J., & Guillén, M. F. )2001(. Strategy and structure in developing countries: Business groups as an evolutionary response to opportunities for unrelated diversification. Industrial and Corporate Change, 10: 77-113.
Liebeskind J. )2000(. Internal capital markets: Benefits, costs and organizational arrangements. Organization Science. 11: 58–76.
Lichtenthaler, E. (2005). Corporate diversification: Identifying new businesses systematically in the diversified firm. Technovation, 25(7), pp. 697–709.
Mackey, T. B., Barney, J. B. and Dotson, J. P. (2017). Corporate diversification and the value of individual firms: A Bayesian approach. Strategic Management Journal, 38: 322–341.
Nayyar, P. R. (1993). Stock market reactions to related diversification moves by service firms seeking benefits from information asymmetry and economies of scope. Strategic Management Journal, 14: 569-591
Nayyar, P., & Kazanjian, R. )1993(. Organizing to attain potential benefits from information asymmetries and economies of scope in related diversified firms. Academy of Management Review, 18: 735-759.
Ng, D. W. 2007. A modern resource based approach to unrelated diversification. Journal of Management Studies, 44: 1481-1502.
North, D. C. (1997), the new institutional economis and third world development, In Hunter, J., Lewis, C. & Harriss, J. (1997). The new institutional economics and Third World development. Pp. 17-26  London New York: Routledge
Palich, L. E., Cardinal, L. B., & Miller, C. C. (2000). Curvilinearity in the diversification–performance linkage: An examination of over three decades. Strategic Management Journal, 21: 155-174
Panahi, M,. Hoseini S.M,. Hamidizadeh, M,. (2013) .The impact of ownership structure on firm’s diversification strategy. Journal of business management, 15(1),13-34. (in persian)
Peng MW, Lee SH, Wang D. )2005(. What determines the scope of the firm over time? A focus on institutional relatedness. Academy of Management Review 30: 622–633.
Prahalad, C. K., & Bettis, R. A. (1986). The dominant logic: A new linkage between diversity and performance. Strategic Management Journal, 7: 485-501.
Prahalad, C. K., & Hamel, G. (1990). The core competence of the organization. Harvard Business Review, 68: 79-91.
Purkayastha, S., Manolova, T.S. and Edelman, L.F. (2012). Diversification and performance in developed and emerging market contexts: A review of the Literature. International Journal of Management Reviews, 14(1), pp. 18–38
Richter, A., Schommer, M., & Karna, A. (2017). The Performance Effects of Diversification in the Context of Its Decline: A Meta-Analytical Review. Academy of Management Proceedings, 2017(1), 13813
Rumelt, R. P. (1974). Strategy, structure, and economic performance. Cambridge. MA: Harvard University Press
Santarelli, E. and Tran, H.T. (2016). Diversification strategies and firm performance in Vietnam. Economics of Transition, 24(1), pp. 31–68.
Scherer, F. M. (1980). Industrial market structure and economic performance (2nd ed.), Boston: Houghton Mifflin.
Shayne Gary, M. (2005). Implementation strategy and performance outcomes in related diversification. Strategic Management Journal, 26(7), pp. 643–664
Sobhanollahi, M. A., Rahmanseresht, H. & Asli beygi, F. (2012). A model of strategic interaction at holding companies, Quarterly Journal of Strategic Management Studies, 12: 15- 42. (in Persian)
Strauss, A., & Corbin, J. (1998). Basics of qualitative research: Techniques and procedures for developing grounded theory. Thousand Oaks, CA: Sage
Teece, D. J. (1982). Toward an economic theory of the multiproduct firm. Journal of Economic Behavior and Organization, 3: 39-63
Teece, D. J. (2015). Diversification, Relatedness, and the New Logic of Co-Creation. In International Encyclopedia of the Social & Behavioral Sciences (pp. 585–588)
Vares, H., Kazaei, S., Bannazadeh, M.J. (2019). Investigating the Effectiveness of Business Portfolio Diversification Strategy on Financial Performance using Nonlinear Model in Parent Companies. Journal of Business Management, 11(2), 437-456. (in Persian)
Vares, S,H,.Tehrani, R,. Bannazadeh M,J,. (2017) .A Survey on Relation between Corporate Portfolio Management and Financial Performance in the LLP Corporations in Iran. Financial Research,19(45), 173-192. (in persian)
Wan, W.P., Hoskisson, R.E., Short, J.C. and Yiu, D.W. (2010). Resource-based theory and corporate diversification: Accomplishments and opportunities. Journal of Management, 37(5), pp. 1335–1368.
Wang, H. C., & Barney, J. B. )2006(. Employee incentives to make firm-specific investments: Implications for resource-based theories of corporate diversification. Academy of Management Review, 31: 466-476.
Williamson, O. E. (1975). Markets and hierarchies: Analysis and antitrust implications. New York: Free Press- Macmillan.
Yiu, D. W., Bruton, G. D., & Lu, Y. )2005(. Understanding business group performance in an emerging economy: Acquiring resources and capabilities in order to prosper. Journal of Management Studies, 42: 183-206.