A Resource-Based Perspective on the Relationship between Service Diversification and Firm Performance: Evidence from Italian Facility Management Firms

By Giachetti, Claudio | Journal of Business Economics and Management, June 2012 | Go to article overview

A Resource-Based Perspective on the Relationship between Service Diversification and Firm Performance: Evidence from Italian Facility Management Firms


Giachetti, Claudio, Journal of Business Economics and Management


1. Introduction

The relationship between business diversification and the firm's economic performance has become a particularly prominent issue in the strategic management literature with the development of the resource-based view of the firm. Resource-based theory argues that shared strategic assets or resources within corporate portfolios are critical to firm performance, and corporate strategy relies upon scope economies of that type among businesses (Peteraf 1993). However, possessing valuable and inimitable resources in a business portfolio is a necessary but insufficient condition to achieve a competitive advantage. Those valuable resources must also be managed effectively to increase performances (Barney, Arikan 2001; Dhaoui 2008; Sirmon et al. 2007).

By borrowing from the resource-based theory, authors in the strategic management literature seem to have found a general consensus about the performance implications of business diversification, where a 'business' may refer both to a product (product diversification) or a geographic area in which the firm is operative (international diversification). In particular, when examining financial performance indicators, most of empirical studies have shown that business diversification is positive for firms only up to a certain point. Past a certain level diversification seems to cause performance problems (Hitt et al. 1997; Palich et al. 2000). The reasons for this curvilinear inverted U-shape relationship can be synthesized as follows. A firm must coordinate different businesses if it is to capture economies of scale and scope and the advantages of diversification. When business diversification is limited, most firms are able to manage their resources efficiently and achieve several positive outcomes from them. However, this becomes increasingly complex when the portfolio includes many businesses. Managerial complexity increases because each product represents a unique mixture of competitive structures, customers and resources. Therefore, moderate levels of business diversification may present the optimal balance of the costs and benefits.

Although a general theoretical and empirical consensus has been found about the performance implications of product and international diversification strategies (Palich et al. 2000), less is understood about the performance outcomes of service-diversified organizations. In fact, on the one hand, excluding those studies focusing on international diversification, most of the other studies on the diversification-performance relationship has considered 'product' firms as unit of analysis; very few arguments have been developed around 'service' firms. On the other hand, the few studies analyzing the performance implications of service diversification have offered opposing arguments.

In the service industry, a first group of authors suggests that one possible strategic option for the firm to make efficient use of its resources and achieve a competitive advantage is to expand the service portfolio (Carman, Langeard 1980; Hitt et al. 2001). By enlarging its service portfolio a firm can more efficiently use its underutilized resources and capabilities and thereby benefit from scope economies (Nayyar 1993). Moreover, by expanding the total package of services offered, a firm may attract new clients or more fully serve existing clients by offering bundles of services (Hitt et al. 2006). But there are also authors that suggest that enlarging the line of businesses in the service industry is much more difficult that it is in manufacturing (Heskett 1986) and, therefore, service firms are unlikely to obtain competitive advantages from diversification. The main drawback of service diversification resides in the complexity of managing efficiently heterogeneous resources (Normann 2002).

In light of these divergent arguments, also empirical studies investigating the relationship between service diversification and firm financial performance have shown mixed results (Table 1). …

The rest of this article is only available to active members of Questia

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Buy instant access to cite pages or passages in MLA 8, MLA 7, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

(Einhorn 25)

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Note: primary sources have slightly different requirements for citation. Please see these guidelines for more information.

Cited article

A Resource-Based Perspective on the Relationship between Service Diversification and Firm Performance: Evidence from Italian Facility Management Firms
Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Help
Full screen
Items saved from this article
  • Highlights & Notes
  • Citations
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

matching results for page

    Questia reader help

    How to highlight and cite specific passages

    1. Click or tap the first word you want to select.
    2. Click or tap the last word you want to select, and you’ll see everything in between get selected.
    3. You’ll then get a menu of options like creating a highlight or a citation from that passage of text.

    OK, got it!

    Cited passage

    Style
    Citations are available only to our active members.
    Buy instant access to cite pages or passages in MLA 8, MLA 7, APA and Chicago citation styles.

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

    1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

    Cited passage

    Thanks for trying Questia!

    Please continue trying out our research tools, but please note, full functionality is available only to our active members.

    Your work will be lost once you leave this Web page.

    Buy instant access to save your work.

    Already a member? Log in now.

    Search by... Author
    Show... All Results Primary Sources Peer-reviewed

    Oops!

    An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.