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This paper provides a new approach to account for the relationship between diversification and innovation by integrating the insights concerning strategic fit. We argue that the type of diversification strategy will lead to greater innovation output when the appropriate technological search strategy is used. Using a longitudinal study of the patenting activity of 258 manufacturing firms, we find support for the idea that strategic fit is important for innovation output. More specifically, a related diversification strategy leads to greater innovation when a narrow technological search strategy is utilized. In contrast, an unrelated diversification strategy leads to greater innovation when a broader technological search strategy is used. Implications for future research are discussed.
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