What are the dangers of diversifying?

There are some limits and dangers to diversification: 1. Management egos, ambition (“size matters” etc.) 2. Addressing declining results by “starting new things” instead of fixing what is wrong (incl. strategic renewal) Diversification should be used before industry sales start to decline. If a firm has not diversified, their sales will start to decline and as they have no other products/services so will overall business performance: