Diversification can't make a strategy problem disappear. It just creates a different problem

"The logic holds that when a company has a shareholder-unfriendly component of its portfolio - e.g. the business in question is cyclical, or it is low-growth or low margin - the company should diversify to make that business less-shareholder unfriendly. I take on the fallacy in this Playing to Win/Practitioner Insights (PTW/PI) piece entitled Diversification Can't Disappear a Strategy Problem: It Just Creates a Different Problem. And as always, you can find all the previous PTW/PI here."

"A memorable example of this for me was Alcan in the 1980's, at that time the world's best aluminum company and arguably Canada's finest company. But it didn't like the cyclicality of its core business, which was making and selling aluminum ingots. The downstream industries that used aluminum in some way appeared alluringly less cyclical. So, Alcan invested in a number of those businesses including packaging and aluminum structured automobiles."

Companies often diversify to hide or offset shareholder-unfriendly portfolio elements such as cyclicality, slow growth, or falling profitability. Common motives include reducing earnings volatility or accessing faster-growing markets. Historical examples show that downstream or adjacent businesses can require different skills and economics than the core business. Those capability mismatches frequently prevent the diversified units from creating sustainable value and lead to divestitures. Diversification replaces one strategic challenge with another unless the new businesses share core capabilities and economic logic with the existing portfolio.

Read at Fast Company