In a 1983 work, Richard A Bettis discussed three conundrums that exist for corporate strategy and public policy. Conundrum number one will be the focus of this discussion. Systematic risk is also known as market risk. This risk cannot be diversified. CAPM uses beta to identify this market risk.
Unsystematic risk is security specific risk and can be diversified.
Since investors are mean variant efficient and can diversify unsystematic risk, they will only consider market risk in determining required rates of return. Bettis concludes ,according to MFT, the stock market will not reward managers for managing unsystematic risk, and therefore, they should not be concerned with it. The conclusion that managers should not be concerned with unsystematic risk contradicts the idea of corporate strategy. The scenario discussed is one in which a competitor introduces a new product that is essentially the same as a company's existing product. This would represent the threat of a new entrant.