Strategy and Diversification

From the goal tree to a portfolio question

Take out your Week 5 goal tree. The Week 5 worked example tested Option A · Expansion (expand cheerleading and sports-entertainment talent management). Whatever option your team chose, this chapter follows the Option A test so that everyone shares one set of facts. The test is small on purpose. It covers two home-game appearances by one Korean performer, up to 10 hours a week of coordination from Mina and a travel budget of up to NT$60,000. Company cash must never fall below NT$100,000.

The tree also has a row called "what has to wait". New sponsored-video deals wait, because Judy's hours go to payment conversations with two more teams. That row describes the test. It does not describe the whole company.

During the same 12 weeks, the company keeps publishing its videos, makes the two sponsored videos it has already agreed to, and runs a small food-service line. These activities belong to Option C · Content-centered return (return to content, advertising, food service and personal brand). So for 12 weeks, the company runs two directions at once.

The public record already shows both kinds of work. Judy publishes Korean-language videos on her YouTube channel, @judy777. Taipei East, a professional volleyball team in Taipei, has published material about Tokki Cutie, a cheerleading collaboration it describes as involving OM Entertainment, a company it presents as led by Judy. Content work and sports-entertainment work already sit side by side.

Running two lines together can be a strength. They may share an audience, and they share Mina, the bilingual coordinator you met in Week 2. But the two lines may also compete for the same hours. This chapter continues the practice scenario from Weeks 4 and 5, which is invented for learning. This week's question is: when does running several lines of business together create real synergy, and when does it create overload?

Where this week fits

Week 5 produced a goal tree for one 12-week test. This week places that test next to everything else the company does and asks whether the combination makes sense. The result is a portfolio table: one page that shows each line of business, what it shares with the others, what it costs them and what the company will not do. Week 7 takes the "shared resource" from that table and tests whether it is a real capability of the company.

Diversification is a choice about scope

A company's scope is the set of activities, customers and markets it chooses to run. Diversification means widening that scope by adding a new activity, a new kind of customer or a new market. The activities a company manages together form its business portfolio. A portfolio is managed as a whole because its activities draw on the same hours, money and people.

In the practice scenario, Judy's company runs three lines during the test:

• Game appearances (the Option A test). A professional team in Taiwan, called the home team in this chapter, pays for one Korean performer to appear at two of its home games.
• Content and sponsored videos. Judy publishes videos on her channel, including two that a brand has paid for.
• Food service. A small line sells food under Judy's brand at events and online.

Legal form does not settle scope. Two lines can be registered as separate companies and still depend on the same person every day. One company can hold several lines that share almost nothing except the owner's attention. The useful question is practical: which work, customers or people do the lines really share, and who coordinates them?

Lines that share something important are called related. Relatedness is a claim that a resource or routine can move from one activity to another and still work. Two activities can look similar and still share very little. A performance and a food stand at the same home game both happen at the venue. But the home team pays for the performance, fans pay for the food, and each needs its own permissions and quality checks.

Farjoun (1994) showed that businesses can be related through the expertise their people share, not only through similar products. This matters for a small company. The strongest link between Judy's lines may be what one person knows how to do, not what the lines sell.

Synergy needs a mechanism and a comparison

Synergy is the extra benefit a company gets from running activities together rather than separately, after counting the cost of coordinating them. People often use the word loosely. They say the lines "fit" or "reinforce each other". Those phrases are starting points. A synergy claim becomes something you can check when it answers four questions:

1. What is shared: for example, an audience, a person or a tool?
2. How does it move from one activity to the other?
3. What extra benefit does that movement produce?
4. What new costs and risks appear because the lines are combined?

Economists have names for the two possible results. When sharing lowers total cost or raises total value, there is an economy of scope. For example, one social post can announce a game and also serve as content for the channel, so one piece of work does two jobs. When sharing adds delay, conflict or extra work, there is a diseconomy of scope. For example, a sponsor's filming day and a game rehearsal may land on the same afternoon, and Mina must spend time untangling them.

The table shows five things lines often share, the question to ask about each, and how each appears in the practice scenario.

Every synergy claim also needs a comparison. A counterfactual is the realistic alternative you compare against: what would happen if the company did not combine the lines this way. "Sharing Mina saves hiring a second coordinator" is incomplete. Compared with what: a part-time hire, a partner who takes part of the work, or pausing one line?

If a limited contract can deliver the same benefit at lower risk, the combination has not earned its place. The worked example below makes this comparison with numbers.

What research says about widening scope

Research on diversification mostly studies large companies. It still gives a small company two useful warnings.

• Extremes are risky. Palich, Cardinal and Miller (2000) combined the results of many earlier studies and found that moderate diversification was linked to better performance than very little or a great deal. This warns against extremes. It does not give Judy's company a target number of lines.
• Transfer is not automatic. Markides and Williamson (1994) argued that related diversification pays off when a core competence, a skill the company is known for, can actually be used in the new business. A skill that works in one line may need new customer knowledge or a different quality standard in the next.

When sharing creates cost

A company can share a resource and still lose value. Sharing can make every line wait for one decision maker. It can stretch one translator beyond reasonable hours. It can also let the strongest line push its costs onto a weaker or less visible one.

Kumar (2013) found this last effect in large diversified companies: a powerful core business could gain from shared transactions while a smaller related business became less productive. The lesson for a small company is to ask who gains and who pays. A combination can look efficient for the company as a whole while one person or one line quietly absorbs the cost.

Mina's position shows how this happens. She handles the sponsored videos, the food-service orders and the game appearances. No second coordinator is hired, so the portfolio looks cheap. Then approvals start to arrive late, the performer receives a schedule with a missing detail, and replies to the sponsor slip to the next day.

The company now has a bottleneck: one point that all the work must pass through, which slows everything when it is full. The right response is to record the hidden work, then add capacity, narrow the scope or change who decides.

Who decides whether a combination counts as a success? Usually it is the owner, and the owner mostly sees the saving. The people who do the shared work see the costs, but nobody may ask them. Here is what three of them might see:

• The performer may see a risk of overexposure if game photos are reused in sponsored content.
• Mina may see extra hours that no budget records.
• The translator may see correction work that grows each time a message is reused for another line.

A portfolio decision should give these people the information and a way to challenge the plan.

Attention is a scarce resource

Managerial attention is the limited time and mental energy that managers have for setting priorities, making judgments and handling exceptions. Budgets usually treat it as free. A new line may need little equipment but many small decisions: checking a partner, confirming a schedule, answering a customer. These costs do not appear in the budget. They appear later as delay, tiredness or a goal that is quietly dropped.

This is why the Week 5 non-goal matters now. A non-goal is a decision about what the company will not take on during the period. A focused company can still learn and work with partners. A diversified company can still set strict limits. The question is whether the chosen scope fits the attention, skills and authority the company actually has.

Crossing a border also changes the cost of sharing. As Week 4 showed, a useful comparison looks at mechanisms, such as who approves and which language version counts, not at national character. In the scenario, the sponsored videos follow the brand's approval routine. The game appearance follows the home team's routine and needs the performer's own approval in Korean. Mina is one person, but she works inside two approval routines and two languages, and every switch between them costs time.

Worked example: synergy or overload?

This example compares four ways of arranging Mina's week during the 12-week test.

Step 1: What sharing saves and what it adds

Mina works a 40-hour week. Before the test, the other lines take 35 of those hours: 19 for content and sponsored videos, 8 for food service, and 8 for incoming requests and administration. That leaves 5 spare hours.

The goal tree reserves up to 10 hours a week for the test. How many of them Mina needs depends on the week. In an ordinary week, the test needs about 3 hours of administration. In the week before a game, it also needs about 4 hours of checks and about 3 hours of game-day logistics, such as passes and local transport. So if Mina does everything, the week before a game uses all 10 reserved hours.

Judy's staff also expect two synergies in the week before a game. Posts that announce the game also serve as channel content, which saves about 2 hours of content work. Mina's existing contacts with the translator and with Korean-speaking performers save about 1 more hour. Combining the lines also adds cost. Clashes between sponsor shoots and game preparation, and time lost switching between tasks, add about 2 hours that week.

Step 2: Compare four arrangements

The table shows the week before a game, because it is the busiest week, and so it decides whether a plan fits. It compares Mina's week without the test with three ways of running the test.

In the partner arrangement, the home team's own event staff handle game-day logistics for NT$8,000 per game. Mina keeps the performer, the translator and all approvals, and she spends about 1 hour a week briefing the partner. The partner also takes over the game-day clashes, so the added cost of combining almost disappears. In the last arrangement, the company pauses its food-service line for the 12 weeks, which removes some clashes and leaves about 1 added hour.

An ordinary week is easier. The test needs only about 3 hours, plus about 1 hour of briefing in the partner arrangement, and there are no game-week savings or clashes. Mina's week is then about 38 hours if she does everything, 39 with the partner and 30 with food service paused. All three fit.

Step 3: Read the result

The synergy is real. In the week before a game, sharing saves about 3 hours. But if Mina does everything, the test needs all 10 reserved hours that week, so the saving covers less than a third of the new work.

Mina would then need 44 hours in a 40-hour week. This happens twice during the test, in exactly the weeks when a mistake costs most. In ordinary weeks her plan fits, so the overload does not show up in an average. A plan that fits the ordinary week can still fail in the peak week.

Two arrangements fit even in the week before a game. The partner arrangement uses 8 of the 10 reserved test hours and fills Mina's week exactly, which leaves no spare hour for a surprise. It costs NT$16,000, which Judy would have to approve and check against the NT$100,000 cash floor. Pausing food service leaves 5 spare hours, but the company gives up that line's income and must look after its customers and suppliers during the pause.

The numbers do not make the choice. They show what each arrangement costs and who pays. The choice between the partner and the pause depends on things the table cannot show, such as how reliable the home team's event staff are and whether food-service customers would come back.

Now look at Judy's hours. Suppose Judy spends about 3 hours a week (invented) on operating goal 2, conversations with two more teams. The goal tree also pauses new sponsored-video deals, which frees about 3 hours. Judy's week stays roughly the same, because the goal tree already made her trade-off visible.

Mina's week has no "what has to wait" row. The overload falls on the person whose hours were never written down. This is Kumar's question again, on a small scale: who gains, and who pays?

Step 4: Record it in the portfolio table

The portfolio table puts the whole portfolio on one page. Each column is a line of business. The first rows use the four questions from Week 1. The later rows record what the lines share, what they cost each other and where the company draws its limits.

Here is the table after Judy's staff choose the partner arrangement. Choosing the pause instead would also be reasonable.

The hours add up to Mina's limit. In the week before a game: 8 test hours + 19 + 8, plus 8 hours of shared requests and administration, minus 3 hours saved, equals 40. In an ordinary week, the total is about 39. The table records a scope decision, not only a list of activities. The "not now" row shows what the company has chosen not to take on, and the hours row shows who pays for the combination.

What does the center add?

In a company with several lines, someone at the center allocates money, protects the brand and settles conflicts between lines. Researchers call this corporate parenting. The center adds value only if it does these jobs better than a contract, a partner or a separate business would. It also adds cost in meetings, approvals and waiting time.

In a founder-led company, the center is often one person. Judy's name, network and authority connect the three lines. That is powerful, but it also makes every line depend on her. If Judy must approve every message, schedule and exception, the portfolio is a set of founder-dependent projects rather than a company another manager could run.

Martin and Eisenhardt (2010) studied collaborations between business units in six large companies and found that collaborations started by the business-unit managers themselves performed better than those imposed by corporate executives. For Judy's company, this suggests that the people running each line should help shape how the lines work together, instead of receiving every arrangement from the center.

Three questions test whether the center adds value:

1. What does the center provide that the lines could not get elsewhere? In the scenario, Judy holds the relationship with the home team and approves agreements.
2. What burden does it add? Every change to an agreement waits for Judy's calendar.
3. What is the alternative? For example, a written limit within which Mina may approve small changes herself, as the goal tree already allows for rehearsal times.

Sequence before scale

Widening scope does not have to be one large step. It can be staged. Raisch and Tushman (2016) followed new businesses in six large companies and described how a new business can first develop on its own and join the parent later. For a small company, the idea becomes three questions asked in order.

1. Learning. Will a defined customer value this service? In the test: will the home team, and two more teams, pay for coordinated appearances?
2. Delivery. Can the company deliver it with a clear owner, language checks and agreed terms? In the test: can the two games happen without crossing a red line?
3. Repeatability. Can someone other than Judy or Mina do the work again? Week 7 takes up this question.

Growth becomes a sensible subject only after the third answer is "yes". The goal tree's reviews in test week 6 and test week 12 are natural points to check each stage. A staged test still creates promises, so it also needs an exit plan.

Plan the exit at the start

Managers sometimes see an exit as proof that the original idea was foolish. That attitude makes exits later and more expensive. Once a project has public attention, a founder may feel pressure to continue even when nobody will pay or the work cannot be delivered safely. Lien and Klein (2013) found that how closely a business is related to a company's other businesses helps explain which businesses companies leave. Exit, in other words, is a normal part of managing scope.

An exit plan asks what can be separated and what cannot. In the scenario, three commitments would be hard to undo:

• The home team has announced the games. Fans expect the performer, so a cancellation costs the home team as well.
• The performer may have turned down other work to keep the dates free.
• Photos and videos stay online after the test ends, carrying the performer's image and the brand.

Write these commitments down before the portfolio grows. Also keep an exit trigger separate from a missed target. A target can be missed because the work was done badly, because an assumption was wrong or because an outside condition changed, and each reason leads to a different decision. The plan should also say who may stop the work, and who needs notice, payment or another arrangement if it stops.

AI and the cost of sharing

AI tools can make a portfolio look easier to run than it is. A tool might draft captions for both the channel and the game posts, or suggest ways to sell food at the games. The drafts are fast, but someone still has to check the meaning, the performer's approval and the brand's rules. In the worked example, that checking time belongs in Mina's hours. If it is left out, the company counts a saving that does not exist.

The three options as portfolios

The same test applies to all three options. The third is Option B · Boutique (a small cross-border talent and advisory service for a few clients). Each option combines work in a different way, so each has a different shared resource and a different hidden cost. The table compares them without ranking them, because a responsible choice would need evidence that the case does not provide.

Class practice: a portfolio table for the test

This practice is done without AI tools. Your teacher will tell you which worksheet to use and how to submit it. Bring your Week 5 goal tree.

1. List the lines. Write the two or three lines of business your company runs during the 12-week test. Use the practice scenario or the option your group tested in Week 5.
2. Test one synergy. Choose one shared resource. Write what moves between the lines, what extra benefit it creates, and one realistic alternative that you compare it with.
3. Count the hours. Estimate the hours of the person who carries the shared work in an ordinary week and in the busiest week, with and without the extra line. Say who absorbs any hours above the limit. Label every number you invent.
4. Draw the limits. Write one "not now" for the portfolio and one review or exit trigger.

Then swap with a classmate. Your classmate looks for one hidden cost and one person who pays for the combination without appearing in the plan. Keep your table for Week 7.

Key points and what you bring to Week 7

• Diversification is a choice about scope. What matters is which work, customers and people the lines really share, not how many names the company has.
• A synergy claim names what is shared, how it moves, the extra benefit and the new costs. It also compares the combination with a realistic alternative, the counterfactual.
• Sharing can save time and still create overload. In the worked example, sharing saved about 3 hours in the week before a game, but doing all the test work herself would have given Mina 44 hours that week.
• Check the busiest week, not only the ordinary week. Managerial attention is a real cost even when no invoice records it, and non-goals protect it.
• Stage a new line (learn, deliver, repeat) and plan the exit before the commitments grow.

For Week 7. Bring your portfolio table. Week 7 takes its "shared resource" row, which in the scenario is Mina's cross-border coordination, and asks whether it is a capability of the company or the skill of one person. You will record the answer in a capability inventory.