Strategic Fit: How it works? Explained

A strategy is a plan of action that companies use to achieve their long-term goals. In other words, it is a long-term plan that companies use to meet their objectives. More specifically, it involves a pattern of activities that seek to achieve a company’s goals. Furthermore, it helps adapt its scope, resources and operations to external changes in the long run.

Companies develop strategies for various business areas. With these strategies, they can take a forward-looking approach. On top of that, it allows companies to use their resources better. Strategies are also crucial in providing a direction and purpose to a company. They help monitor progress in the light of the planned activities. Lastly, they also ensure goal congruence within all operations.

One of the primary aspects of a strategy includes the improved fit with the environment. When companies develop a plan, they keep their long-term objectives in mind. As mentioned, these plans may apply to various business areas. Therefore, it is crucial to confirm that they support the achievement of those objectives. Consequently, companies must ensure a strategic fit exists between the existing strategies.

What is a Strategic Fit?

Strategic fit is a term used to describe the alignment of a company’s resources to its external environment. The former includes all the capabilities and assets that companies use to achieve long-term goals. In contrast, the latter consists of the requirements set by stakeholders. It expresses the extent to which a company aligns its resources and capabilities to the external environment.

On top of that, strategic fit also relates to a company’s resource base. It examines that base and explores how companies can utilize it to maximize benefits. In essence, it studies the alignment between their resources and strategic goals or objectives. Strategic fit can have various other subsets, for example, financial or market-related fits. By exploiting achieving a strategic fit, companies can maximize their resource utilization.

A strategic fit also describes how a company can fit its strategies with its external environment. This environment is one of the two crucial factors that this concept considers. On top of that, it also describes how the company uses its resources to achieve its strategy. These resources are the second crucial factor that the strategic fit concept considers.

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Strategic fit is crucial in various areas, for example, related diversification. Companies can achieve a strategic fit in that area through superior competitive positions. Usually, it involves lower costs and the transfer of core competencies. On top of that, it may also apply to unrelated diversification. In general, the strategic fit is crucial in most diversification strategies. It relates to both internal and external environments associated with achieving those strategies.

Overall, a strategic fit explores the alignment between two factors. These include a company’s resources and capabilities and the opportunities in its external environment. Usually, companies achieve this through a strategy. Therefore, the company must ensure it has the resources and capabilities to support that strategy. If executed properly, companies can develop it into a competitive advantage and benefit from it.

How does Strategic Fit work?

Strategic fit involves aligning resources and capabilities to the needs of the business environment. It also refers to having similar goals within different business areas. Usually, the strategic fit works by allowing companies to achieve better results in various areas. Consequently, companies must consider several factors relating to accomplishing a strategic fit.

Strategic fit requires companies to understand how their business strategy helps achieve their objectives. As mentioned, companies develop various plans to achieve those objectives. Usually, the purpose for those plans is similar, to reach an end goal. This process also requires companies to establish a goal or objective to which those strategies relate. Once companies consider these factors, they must look at their resources and capabilities.

Resources and capabilities cover a wide range of areas. The former relates to the inputs that companies put into their production. For example, these may include machines, material, labour, etc. These may consist of both tangible and non-tangible resources. Financial and physical assets usually fall in the former category. On the other hand, technology, human resources, culture, etc., are a part of intangible resources.

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On the other hand, capabilities describe the accumulation of learning that a company possesses. Usually, it comes from the past experiences that companies have gone through due to their operations. Resources and capabilities are a part of a company’s internal environment. Companies can use several tools to assess these areas. For example, SWOT analysis, value chain analysis and cash flow analysis can help measure resources and capabilities.

However, strategic fit does not focus on those only. It also considers the external environment in which a company operates. With that, strategic fit also assesses the opportunities and threats. By evaluating these environments, companies can execute their support strategies better. On top of that, strategic fit can also apply to specific situations, for example, mergers and acquisitions.

What are the types of Strategic Fit classifications?

Strategic fit can exist within different areas in a company. These may include shared technology, marketing and production skills. Through these areas, companies can achieve economies of scope. This way, they can operate two or more businesses together while achieving better results. There are several types or classifications of strategic fit. These types include the following.

Market-related fit

Market-related fit occurs when the activity cost chains of different companies overlap. This overlap happens where companies reach the same consumers via similar distribution channels. Through these channels, companies can market and promote their products simultaneously. On top of that, companies can achieve economies of scope by sharing marketing resources. Furthermore, they can also transfer marketing skills.

With market-related fit, companies must ensure that it is possible to achieve. Usually, it can result in significant benefits. However, it is not always successful due to the complications involved. If companies can achieve results with this strategic fit, they can combine their sales forces. The resultant sales team then controls all the activities for both companies’ marketing needs.

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Operating fit

Operating fit is similar to market-related strategic fit. However, it does not involve selling and promotional activities. Instead, operating fit occurs when companies have cost-sharing or skill transfer opportunities in other areas. These areas may include procuring materials, conducting R&D, manufacturing components, administrative support functions and manufacturing components. By combining these areas, companies can achieve an operating fit.

Like the market-related fit, operating fit can also result in economies of scope. When companies combine their operations, they can save costs. Furthermore, it can also lead to a larger size of those operations, achieving economies of scale. They are crucial in allowing companies to operate efficiently and effectively. Overall, operating fit can be significantly critical in helping companies manage their operations combinedly.

Management fit

Management occurs when companies share the same administrative tasks or operating problems. This type of strategic fit is challenging to achieve due to the differences in corporate culture. Usually, business units operating under the same parent company can implement a management fit. Even then, however, the corporate culture may differ. These issues can lead the management fit to fail and cause losses.

Management fit allows companies to share their managerial skills and abilities. This way, they can transfer those skills and solve problems. On top of that, it may eliminate the need to obtain expert help or hire consultants. When companies achieve management fit, they transfer their managerial expertise. This transfer can occur anywhere in the activity-cost chain. By doing so, companies can also accomplish financial benefits.

Conclusion

Strategic fit relates to aligning a company’s internal and external environments. The former usually includes their resources and capabilities. On the other hand, it also exploits any opportunities in the external environment while avoiding threats. Strategic fit can be significantly crucial in various areas. There are several types of strategic fit. Usually, they include marketing-related, operating and management fit.

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