Strategic Fit

Updated on March 26, 2024
Article byRutan Bhattacharyya
Edited byRutan Bhattacharyya
Reviewed byDheeraj Vaidya, CFA, FRM

Strategic Fit Definition

Strategic fit denotes the degree to which a business matches its capabilities and resources with opportunities materializing in its external environment. It enables companies to adjust to the alterations concerning their business environment and customer requirements. This improves the organization’s resiliency and allows them to seize opportunities that may arise.

Strategic Fit

You are free to use this image on your website, templates, etc, Please provide us with an attribution linkHow to Provide Attribution?Article Link to be Hyperlinked
For eg:
Source: Strategic Fit (wallstreetmojo.com)

This concept can help businesses improve resource allocation efficiency and decision-making. Moreover, it assists in establishing a competitive advantage. There are three types of strategic fit — management, market-related, and operating. This concept is essential in different areas, like related diversification. Businesses can achieve it in this area via superior competitive positions. Usually, it involves core competencies’ transfer and lower costs.

Key Takeaways

  • Strategic fit refers to a concept that denotes how well a business establishes a long-term match between its external environment and its capabilities and resources. It enables businesses to capitalize on opportunities that may arise in their external environment.
  • There are three types of strategic fit. They are management, market-related, and operating fit.
  • Two noteworthy advantages of strategic fit are that it helps a business increase its operational efficiency and decision-making concerning resource allocation and strategy formulation.
  • Unlike strategic fit, strategic intent refers to the intended direction or aspirational plan required to achieve the organizational vision.

Strategic Fit Explained

Strategic fit refers to the extent to which an organization’s capabilities, objectives, and strategies support and correspond with one another. It focuses on ensuring that all aspects of an organization’s operations align with the overall purpose. In other words, this is a way to make sure that the business is carrying out activities that it should to get the desired outcomes. Note that organizational effectiveness improves when all aspects, such as objectives and capabilities, match.

This concept is extremely crucial for businesses looking to gain sustainable competitive advantage within their respective markets. Note that this concept’s use is also common in the case of mergers and acquisitions (M&As), where one utilizes it to evaluate the compatibility between the strategies adopted by both the organizations involved.

An ideal degree of match between a business’s capabilities, resources and the business environment’s requirements helps managers make the most of the organization’s opportunities and minimize the negative impact associated with threats. Note that businesses require strategic planning and analysis to spot the optimal extent of match required to achieve competitive advantage in the long term. 

Individuals must remember that the resources and capabilities mentioned above cover an extensive range of areas. Such resources can be either intangible or tangible and relate to the inputs utilized by organizations during the production process, for example, material, labor, machines, technology, etc. On the other hand, an organization’s capabilities refer to the collection of learning an organization possesses. Usually, companies gather such learning from past experiences resulting from daily operations.

Types

Let us look at the various types of this concept.

  • Management fit: It occurs when organizations share identical operating problems and administrative tasks. This is challenging for businesses to achieve owing to differences concerning the corporate culture. In most cases, business units that operate under the same holding company can execute management fit.
  • Market-Related Fit: Businesses can achieve a market-related fit when different organizations’ activity cost chains overlap. Such an overall materializes when organizations reach the exact consumers through similar distribution channels. Businesses can promote and market their products and services simultaneously via these channels. Moreover, they can transfer marketing skills.
  • Operating Fit: This one is similar to the concept of market-related fit. That said, it does not involve promotional and selling activities. Rather, operating fit materializes when organizations have skill transfer or cost-sharing opportunities. Such areas may include carrying out research and development, procuring materials, manufacturing components, and administrative support functions. Companies can combine the areas to fulfill the achievement of an operating fit. Like a market-related fit, this type of strategic fit can lead to economies of scope

Examples

Let us look at a few strategic fit examples to understand the concept better.

Example #1

Suppose Company ABC aimed to achieve strategic fit in marketing. Hence, first, it analyzed its external environment to understand customers’ needs. Then, it identified the core competencies and determined how to utilize them to stand out from its competitors in the market. After that, ABC developed a promotional strategy and monitored the performance post-implementation to determine the degree to which the marketing efforts matched its objectives.

Example #2

Unilever, the Dove Soap maker, signaled on January 17, 2022, Monday, that it intends to acquire the consumer health business of GlaxoSmithKline as the former believes it to be a strong strategic fit. This is because, according to Unilever, the takeover would establish a growth platform and scale for its combined portfolio in China, the United States, and India, besides additional opportunities in other emerging markets.

How To Achieve?

Let us look at the steps one must follow to achieve strategic fit.

#1 – Conduct An Analysis Of the External Environment

The first step is to develop an understanding of the business’s external environment. This involves analyzing the customers, competition, and industry.

#2 – Spot The Business’s Core Competencies

Next, the business owner must identify the organization’s core competencies and determine how to utilize them to establish a competitive advantage.

#3 – Formulate A Strategy

Upon identifying the core competencies, one needs to formulate a strategy considering the organization’s objectives and goals.

#4 – Align The Resources

The business must ensure that both the human and financial resources align with the strategy developed in the previous step.

#5 – Track Or Monitor The Performance

The last step involves the business monitoring the performance to ensure achieving the set goals.

Importance

The importance of a strategic fit can be summarised as follows:

  • The concept improves an organization’s decision-making regarding the development of strategies and allocation of resources.
  • It helps businesses establish a unified culture. This can result in better productivity and improved morale.
  • Another key advantage of strategic fit is that it can help increase operational efficiency by ensuring the organization’s procedures and processes align with the overall strategy.

Strategic Fit vs Strategic Intent

The concepts of strategic intent and fit can be confusing for one new to the business world. To clearly understand their meaning and purpose, one must know how they differ. In that regard, the table below shows their distinct features.

Strategic FitStrategic Intent
It refers to how well a business’s strategy meets a competitive environment’s pressures. Strategic intent refers to the strategic direction any organization hopes to follow.
This concept allows organizations to adapt to changes in customer requirements and the business environment. This is a vital factor that determines where businesses must focus their efforts and what strategies they should purchase.  

Frequently Asked Questions (FAQs)

1. What are the major obstacles to achieving strategic fit?

Some noteworthy obstacles to achieving it are as follows:
– Inability to expect change
– Limited resources
– Lack of flexibility
– Increasing uncertainty and globalization
– Changing business environment and technology
– More demanding customers

2. How to assess strategic fit?

Businesses can evaluate their strategic fit by following the steps below:
– Utilize specific frameworks and tools to analyze the external and internal situation.
– Spot deviations, gaps, or misalignments.
– Lastly, prioritize improvements and actions.

3. In which areas of a business does strategic fit apply?

This concept in strategic management can apply to the following key areas of any organization:
Marketing: It ensures the marketing efforts align with the overall organizational goals.
Finance: This ensures the financial strategies support the company’s objectives. 
Operations: The concept helps ensure the operations align with the organization’s strategy.
Human Resources: Companies can use this concept to ensure that the recruitment process aligns with their business strategy.

This article has been a guide to Strategic Fit and its definition. We explain its examples, types, how to achieve it, comparison with strategic intent. & importance. You may also find some useful articles here –

Reader Interactions

Leave a Reply

Your email address will not be published. Required fields are marked *