Resource allocation as an outcropping of strategic consistency: performance implications

The value of strategic consistency among business units in diversified firms is examined. Superior corporate performance is hypothesized for firms that adopt similar financial resource allocations among their lines of businesses. This approach emphasizes the importance of resource management toward sustainable competitive advantage, as opposed to the conventional product-market approach to diversification. This hypothesis is tested using 1984-1990 data from the COMPUSTAT data base. The results support the hypothesis that industry-adjusted return on assets is negatively related to variances in R&D intensity across diversified business units. These findings suggest that the resource-based view of diversification strategy is useful in identifying elements of consistency that contribute to sustainable competitive advantage.