214 Part 2: Strategic Actions: Strategy Formulation
its own and that target the same customers. Recently, for example, WelchAllyn acquired
Scale-Tronix, a small firm that manufacturers “medical scales and patient weighing sys-
tems for hospitals, clinics, and extended-care facilities.”^36 Scale-Tronix’s specialization in
a complete line of scales for use in the health care field allows WelchAllyn to immediately
expand the scope of its product offerings to its customers.7-2d Lower Risk Compared to Developing New Products
The outcomes of an acquisition can be estimated more easily and accurately than the out-
comes of an internal product development process; as such, managers may view acquisi-
tions as less risky.^37 However, firms should be cautious when using acquisitions to reduce
risk relative to the risk incurred when developing new products internally. Indeed, even
though research suggests acquisition strategies are a common means of avoiding risky
internal ventures (and therefore risky R&D investments), acquisitions may also become
a substitute for internal innovation.
Over time, being dependent on others for innovation leaves a firm vulnerable and
less capable of mastering its own destiny when it comes to using innovation as a driver
of wealth creation. Thus, a clear strategic rationale, such as the ones influencing the
cross-border acquisitions described in a Strategic Focus in this chapter, should drive each
acquisition a firm chooses to complete. If a firm is being acquired to gain access to a spe-
cific innovation or to a target’s innovation-related capabilities, the acquiring firm should
be able to specify how the innovation is or the innovation-based skills are to be integrated
with its operations for strategic purposes.7-2e Increased Diversification
Acquisitions are also used to diversify firms. Based on experience and the insights result-
ing from it, firms typically find it easier to develop and introduce new products in mar-
kets they are currently serving. In contrast, it is difficult for companies to develop prod-
ucts that differ from their current lines for markets in which they lack experience. Thus,
it is relatively uncommon for a firm to develop new products internally to diversify its
product lines.^38
Acquisition strategies can be used to support the use of both related and unrelated
diversification strategies. As we mentioned in Chapter 6, Campbell Soup uses a related
con strained strategy. This global food company generates annual revenue in excess of $8 bil-
lion. In addition to the iconic soups, the firm’s brands include Pepperidge Farm cookies,
Arnott’s Kjeldsens and Royal Dansk biscuits, and Pace Mexican sauce, among many oth-
ers. Campbell recently restructured around product categories rather than geographies
and brand groups. Americas Simple Meals and Beverages, Global Biscuits and Snacks,
and Packaged Fresh are the three new
business units. The firm’s new struc-
ture is thought to be one that “will align
the organization of the company’s busi-
nesses with its core growth strategies.”^39
One outcome from this reorganization is
that Campbell feels it is better positioned
to acquire “brands that are more popular
and present greater growth opportuni-
ties.”^40 Of course, given the firm’s related
constrained diversification strategy,
brands that are acquired will share some
similarities with those in one of the firm’s
newly-developed product categories.Campbell Soup Company
Pictured here are some of the products from Campbell Soup Co.’s new
business unit called Packaged Fresh.