ABSTRACTThis study examines diversification of the activities of business organizations. The meaning of diversification has been ambiguous in many studies that have used the concept as a way of describing strategic resource allocation decisions within firms. Many previous studies of diversification have suffered from a number of deficiencies. Some studies have observed the consequences of firms’ resource allocation and made inferences about the influence of organizational and external environmental factors on managers’ decisions affecting diversification. Other studies, that have been concerned with investigating diversification from a focus within the firm, have often adopted a molecular approach, being concerned with a limited number of organizational or environmental characteristics. In an attempt to redress these deficiencies, a contingency theory framework is used to describe and, in part, explain the formulation of decisions affecting diversification. This involves developing an unambiguous definition of diversification, and identifying organizational and external environmental characteristics that may be used to aid understanding of why firms diversify their activities in different w