4th USIAS Fellows Seminar

Value Creation Through Resource Redeployability

Timothy Folta, Fellow 2012, Thomas John and Bette Wolff Family Chair in Strategic Entrepreneurship, University of Connecticut

Why does Samsung, best known for its smartphones, tablets and televisions, also make ships and operate a Korean amusement park? What is coffeemaker Starbucks doing in the yoghurt business?

Firms like to diversify their activities because it allows them to be more efficient by simultaneously sharing resources across multiple businesses. However there is also an important second benefit to diversification – firms gain flexibility to withdraw resources from declining businesses and redeploy them to growing ones.

Existing research tends to ascribe all diversification benefits to the first explanation, and may thus significantly overestimate its effect. Resource redeployment is a common business strategy involving billions of dollars in firms each year, so it really matters when and why it has benefits. Yet, there exists no research demonstrating how much firm value is attributable to having the flexibility to redeploy resources; both theory and empirical evidence are absent. Tim Folta’s research will formally develop and empirically test this newly emergent theory explaining how firms create value through diversification.