In the 1980s, diversification became almost synonymous with mergers, and especially acquisitions.

• On average, almost 50 percent of all acquisitions fall short of expectations, and the failure rate has not changed much over the past 40 years.
• Even supposedly well-managed companies have had problems with diversification by means of acquisition.

When a company is doing well, its managers often seem to believe that they have superior ability and can therefore succeed in almost any business; the attitude seems to be that the new industry or business only needs the skills of the acquiring firm's managers to produce a winner.

• Acquiring managers frequently lose sight of the fact that their specialized knowledge of their own industry is an important reason for their competitive success. By diverting attention from the main business, they may seriously injure it.
• Unfortunately, a chief executive's pride may get in the way of sound business judgment. If the CEO was responsible for a company's entering a new field, he or she may prevent or delay divestiture when it has clearly failed or performed below expectations.