Competitive strategy, operational effectiveness, and M&A: Examining the role of acquirer and target strategy and effectiveness on M&A performance

Paul A Mudde, Purdue University

Abstract

This dissertation contains a series of studies examining the effect of a firm's competitive strategy and operational effectiveness on its ability to gain advantage in its business-level competitive environment and in its corporate-level strategic actions, specifically its acquisition activity. Its main premise is that the resources and capabilities that result from a firm's efforts to achieve competitive advantage in its business-level competition can also be used to advantage in its acquisitions. It develops concepts of strategic and effectiveness capabilities. It tests two issues of debate within strategic management: whether economizing or strategizing is more important to achieving competitive advantage and whether mixing competitive strategies of cost leadership and differentiation improves or harms firm performance. The empirical findings show economizing is 3.5 times more important to competitive advantage than strategic positioning and mixed strategies perform better than pure-form strategies. It examines how strategic and effectiveness capabilities affect acquirers' ability to create economic value in acquisitions. An acquirer's capabilities are predicted to affect the type and amount of performance improvement realized in acquisitions. Regression models show a significant relationship between cost leadership, differentiation, and effectiveness capabilities in acquirers and post-acquisition ROA, costs, and revenues. It develops theory on how differences between an acquirer's and target's strategy and effectiveness influence acquisition performance. It introduces concepts strategic distance, strategic deficiency, and effectiveness deficiency. The analysis examines the importance of acquirer capabilities versus the fit between the acquirer and target in affecting acquisition performance. The results indicate that both the capabilities of an acquirer and its target contribute to acquisition success. It explores how a firm's profitability, competitive strategy, operational effectiveness, and size affect its involvement in M&A activity. It explores whether more capable acquirers are also more likely to make acquisitions and whether the weakest firms in terms of profitability, efficiency, and strategy are most likely to be acquired. The findings oppose perspectives that predict the “survival of the fittest” and demise of the weakest. We conclude that strategy and efficiency are critical to understanding competitive advantage within business-level competition, corporate advantage resulting from acquisition activity, and in shaping M&A activity within an industry.

Degree

Ph.D.

Advisors

Brush, Purdue University.

Subject Area

Management|Banking

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