In September 1967 Time magazine devoted a cover story to conglomerates, “the new business giants”, and to Harold Geneen, the boss of International Telephone and Telegraph Corporation (ITT). Geneen had not only transformed ITT from a tiddler into a Leviathan by expanding into everything from insurance to real estate. He had proved that conglomerates were the highest stage of capitalism. They could protect themselves from the vagaries of the business cycle by investing in a range of companies. They could also produce the maximum returns from their managerial skills by applying them to ever more organisations: Geneen masterminded 350 acquisitions and mergers in 80 countries and kept tight control of his huge empire by ingesting the accounts and constantly searching for efficiencies.

Over the next three decades these new giants were transformed into dinosaurs. Management theorists argued that companies should focus on their core competencies or stick to their knitting. It is better to do one thing well than lots of things badly. Investors argued that they were better-off themselves investing in a portfolio of companies rather than letting managers do it for them. Peter Lynch, an investment guru, coined the term “diworsification”. The stockmarket applied a “conglomerate discount” to diversified companies of up to 12%. And the press exposed Geneen’s dark side: he had been actively involved in various attempts to depose the president of Brazil, João Goulart, in 1964 and the president of Chile, Salvador Allende, in 1973.

And yet in 2013 conglomerates will once again be the latest thing. The most obvious reason for this is the rise of emerging markets. They teem with highly diversified companies such as India’s Tata (a giant force in every-thing from consulting to steelmaking). These companies sprawled partly because of opportunism and partly because they have no choice. In a world where the state is incompetent and the market underdeveloped, steel companies quickly find themselves running their own hospitals and creating their own advertising agencies.

Conglomerates are reviving in the West, too. They had flourished in an era when there was little risk capital available and when established companies could use the profits from their “cash cows” to fund more adventurous businesses. As banks and venture capitalists become more risk-averse, those methods will return in 2013: the 500 biggest American companies are sitting on more than $1 trillion dollars in cash. In 2013 they will increasingly take some of that cash and invest it in ventures that may be some distance from their core businesses.

This will reflect the need to innovate across technological boundaries. Pharmaceutical companies will insert sensors into medicine bottles so that they can inform their users when to take their medicines. Human-resource companies will invent electronic secretaries that can book tickets and manage schedules.

Consumers are happier dealing with one provider rather than dozens

Management thinkers once assumed that emerging-world companies would become more focused as their countries developed (South Korea saw over a third of its top 30 conglomerates collapse in the late 1990s). But more recently something very different has happened. Korean conglomerates such as Samsung have emerged from the 1990s as technological giants. And other emerging-market conglomerates have found that there is a post-modern as well as a pre-modern justification for diversification: for example, Tata Chemicals teamed up with Tata Consulting to invent the world’s cheapest water purifier.

Going with the flow

Other forces are pushing in the same direction. Consumers are happier dealing with one provider rather than dozens: Virgin can sell hotels and door-to-door transport as well as airline tickets to travellers. Retail companies are becoming transport companies and farming consultancies rather than just big shops.

Some great companies such as General Electric and 3M have always stuck with the conglomerate form. And some of the world’s best business brains have embraced diversification: Warren Buffett’s Berkshire Hathaway has ventured far away from the insurance business. Until recently these stars were swimming against the current. In 2013 they will find that they have the current with them for the first time since the 1970s.

Adrian Wooldridge: management editor and Schumpeter columnist, The Economist