Determining the optimal number of enterprise activities

Abstract

Diversification is one of the main strategies of enterprise development. However, being much promising, diversification is still viewed as a controversial approach because quite a few diversification projects failed. This happened for many reasons, and one of them is that the field of company’s operations is too wide. To determine the optimal number of activities, the effect of diversification on the efficiency of company’s commercial and economic activities should be known. The empirical research has shown that the effect of enterprise economic and commercial activities’ diversi-fication on its performance is adequately expressed by parabolic dependence of these values, i.e. when diversifi-cation level is higher, the performance is better. It reaches its maximum and then starts to decrease. A theoretical and practical problem arises as how to determine the number of activities with the respective probability for the optimal value of diversification criterion (index), i.e. the value corresponding to maximum enterprise efficiency. This can be achieved by geometrical treatment of the absolute probability and Bayes formulas.