Which concept describes the number of different businesses a firm is engaged in and the extent to which these businesses are related?

• A. Institutional collectivism
• B. Diversification
• C. SWOT analysis
• D. PESTEL

Answer: (B)

Diversification describes how many different businesses a firm is in and how closely related those businesses are. It looks at how broad the company’s portfolio is and whether the units share core skills, resources, or markets. Related diversification means the businesses are connected by common strengths, which can yield synergies and easier coordination. Unrelated diversification means the firm moves into different industries to spread risk, often with fewer overlaps but potential financial diversification. The question is asking for the term that captures both breadth and the degree of relatedness, which is diversification. The other terms don’t fit: institutional collectivism refers to cultural preferences for collective action, SWOT analysis is a tool for evaluating strengths, weaknesses, opportunities, and threats, and PESTEL analyzes macro-environmental forces.