Traditional approaches to corporate diversification are inadequate for understanding the role of corporation and strategy in the knowledge economy. This paper discusses (1) the need to construe corporate diversification in terms of knowledge-based relatedness and knowledge management capabilities of firms and (2) the role of IT for diversified firms. Knowledge-based relatedness captures relatedness of the most strategic knowledge resources—product, customer, managerial, and IT knowledge resources—residing across businesses of the firm whereas knowledge management capability captures the ability of the firm to create, transfer, integrate, and leverage knowledge across its businesses. While knowledge-based relatedness provides a potential for performance through knowledge-based synergies, knowledge-management capability converts this potential into actual performance. IT knowledge relatedness is key to both creation and realization of knowledge-based synergies across the diversified firm.