Diversification or Desynchronicity: An Organisational Portfolio Perspective to Risk Reduction

Reducing corporate risk has long been a business strategy concern. Many scholars support diversification as a method to achieve risk reduction. Building on organisational portfolio analysis, we develop the concept of ‘desynchronicity’ as a complement to existing diversification theories about risk reduction. Organisational portfolio analysis views firms as portfolios of business units, suggesting that a low level of correlation between the income streams of business units in the portfolio is the key to effective risk reduction. ‘Desynchronicity’ is a concept to understand the extent to which the income streams of business units are lowly correlated. Our results show diversification does not necessarily lead to corporate risk reduction. Instead, strategies that strength a firm’s ‘desynchronicity’ are shown to reduce corporate risk.