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businesses to include different restaurants such as McDonald’s and Chipotle. While
other food-service companies have multiple outlets—YUM! Brands, for example,
owns A&W, Taco Bell, Pizza Hut, Long John Silver’s, and Kentucky Fried
Chicken—McDonald’s determined that one brand (McDonald’s) was a better strategy

for it in the future, and sold off Chipotle in 2006. The following figure provides a
graphic guide to this kind of planning.

The logic behind corporate strategy is one of synergy and diversification. That
is, synergies arise when each of YUM! Brands food outlets does better because they
have common ownership and can share valuable inputs into their businesses.
Specifically, synergy exists when the interaction of two or more activities (such as
those in a business) create a combined effect greater than the sum of their individual
effects. The idea is that the combination of certain businesses is stronger than they
would be individually because they either do things more cheaply or of higher quality
as a result of their coordination under a common owner.
Diversification in contrast, is where an organization participates in multiple
businesses that are in some way distinct from each other, as Taco Bell is from Pizza
Hut, for instance. Just as with a portfolio of stock, the purpose of diversification is to
spread out risk and opportunities over a larger set of businesses. Some may be high
growth, some slow growth or declining; some may perform worse during recessions,
while others perform better. Sometimes the businesses can be very different, such as
when fashion sunglass maker Maui Jim diversified into property and casualty
[5]
insurance through its merger with RLI Corporation. Perhaps more than a
coincidence, RLI was founded some 60 years earlier as Replacement Lens
International (later changed to its abbreviation, RLI, in line with its broader insurance
products offerings), with the primary business of providing insurance for replacement
contact lenses. There are three major diversification strategies: (1)concentric
diversification, where the new business produces products that are technically similar
to the company’s current product but that appeal to a new consumer group;
(2) horizontal diversification, where the new business produces products that are
totally unrelated to the company’s current product but that appeal to the same
consumer group; and (3) conglomerate diversification, where the new business

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