What are the two ways that an unrelated diversification strategy can create value?

Unrelated diversification can create value through two types of financial economies. The first involves efficiency in resource allocation. The external market may be less efficient at allocating resources because of less accurate or incomplete information. The management staff can more effectively discipline underperforming managers and allocate resources. Firms may reduce risks by allocating resources among diversified businesses, which may also have a positive effect on the returns of the firm. A second approach to financial economies is concerned with restructuring a firm's assets and implementing rigorous financial controls. This may include selling assets, purchasing divisions through tender offers or hostile takeovers, and instituting rigorous financial controls.