Strategic fit expresses the degree to which an

organization An organization or organisation (English in the Commonwealth of Nations, Commonwealth English; American and British English spelling differences#-ise, -ize (-isation, -ization), see spelling differences) is an legal entity, entity—such as ...

is matching its

resource ''Resource'' refers to all the materials available in our environment which are Technology, technologically accessible, Economics, economically feasible and Culture, culturally Sustainability, sustainable and help us to satisfy our needs and want ...

s and capabilities with the opportunities in the external environment. The matching takes place through

strategy Strategy (from Greek στρατηγία ''stratēgia'', "troop leadership; office of general, command, generalship") is a general plan to achieve one or more long-term or overall goals under conditions of uncertainty. In the sense of the " a ...

and it is therefore vital that the company has the actual resources and capabilities to execute and support the strategy. Strategic fit can be used actively to evaluate the current strategic situation of a company as well as opportunities such as

mergers and acquisitions Mergers and acquisitions (M&A) are business transactions in which the ownership of a company, business organization, or one of their operating units is transferred to or consolidated with another entity. They may happen through direct absorpt ...

(M&A) and

divestiture In finance and economics, divestment or divestiture is the reduction of some kind of asset for financial, ethical, or political objectives or sale of an existing business by a firm. A divestment is the opposite of an investment. Divestiture is a ...

s of organizational divisions. Strategic fit is related to the

resource-based view The resource-based view (RBV), often referred to as the "resource-based view of the firm", is a managerial framework used to determine the strategic resources a firm can exploit to achieve sustainable competitive advantage. Jay Barney's 1991 artic ...

of the firm which suggests that the key to

profitability In economics, profit is the difference between revenue that an economic entity has received from its outputs and total costs of its inputs, also known as surplus value. It is equal to total revenue minus total cost, including both Explicit co ...

is not only through

positioning Positioning may refer to: * Positioning (marketing), creating an identity in the minds of a target market * Positioning theory, a theory in social psychology * Positioning (critical literacy), reader context * Positioning (telecommunications), a t ...

and industry selection but rather through an internal focus which seeks to utilize the unique characteristics of the company's portfolio of resources and capabilities. A unique combination of resources and capabilities can eventually be developed into a

competitive advantage In business, a competitive advantage is an attribute that allows an organization to outperform its competitors. A competitive advantage may include access to natural resources, such as high-grade ores or a low-cost power source, highly skille ...

which the company can profit from. However, it is important to differentiate between resources and capabilities. Resources relate to the inputs to production owned by the company, whereas capabilities describe the accumulation of learning the company possesses.

Used in analysis

Several tools have been developed that can be used in order to analyze the resources and capabilities of a company. These include

SWOT analysis In strategic planning and strategic management, SWOT analysis (also known as the SWOT matrix, TOWS, WOTS, , and Situation analysis, situational analysis) is a decision-making technique that identifies the strengths, weaknesses, opportunities, ...

value chain A value chain is a progression of activities that a business or firm performs in order to deliver goods and services of Value (economics), value to an end customer. The concept comes from the field of business management and was first described ...

analysis,

cash flow Cash flow, in general, refers to payments made into or out of a business, project, or financial product. It can also refer more specifically to a real or virtual movement of money. *Cash flow, in its narrow sense, is a payment (in a currency), es ...

analysis and more.

Benchmarking Benchmarking is the practice of comparing business processes and performance metrics to industry bests and best practices from other companies. Dimensions typically measured are Project management triangle, quality, time and cost. Benchmarking is ...

with relevant peers is a tool to assess the relative strengths of the resources and capabilities of the company compared to its competitors. Strategic fit can also be used to evaluate specific opportunities like M&A opportunities. The strategic fit would, in this case, refer to how well the potential acquisition fits with the planned direction (strategy) of the acquiring company. In order to justify growth through M&A transactions the transaction should yield a better return than

organic growth Organic business growth is related to the growth of natural systems and organisms, societies and economies, as a dynamic organizational process, that for business expansion is marked by increased output, customer base expansion, or new product devel ...

. The differential efficiency theory states that the acquiring firm will be able to increase its efficiency in the areas where the acquired firm is superior. In addition, the theory argues that M&A transactions give the acquiring firm the possibility of achieving positive

synergy Synergy is an interaction or cooperation giving rise to a whole that is greater than the simple sum of its parts (i.e., a non-linear addition of force, energy, or effect). The term ''synergy'' comes from the Attic Greek word συνεργία ' f ...

effects meaning that the two merged companies are worth more together than the sums of their parts individually. This is because merging companies may enjoy from

economies of scale In microeconomics, economies of scale are the cost advantages that enterprises obtain due to their scale of operation, and are typically measured by the amount of Productivity, output produced per unit of cost (production cost). A decrease in ...

and economies of scope. However, in reality, many M&A transactions fail due to different factors, one of them being lack of strategic fit. A CEO survey conducted by

Bain & Company Bain & Company is an American management consulting company headquartered in Boston, Massachusetts. The firm provides advice to public, private, and nonprofit organizations. One of the Big Three (management consultancies), Big Three management co ...

in 1997 showed that 94% of the interviewed CEO's considered the strategic fit to be vitally influential in the success or failure of an acquisition. A high degree of strategic fit from can potentially yield many benefits for an organization. Best case scenario a high degree of strategic fit may be the key to a successful

merger Mergers and acquisitions (M&A) are business transactions in which the ownership of a company, business organization, or one of their operating units is transferred to or consolidated with another entity. They may happen through direct absorpt ...

, an efficient organization, synergy effects or

cost reduction Cost reduction is the process used by organisations aiming to reduce their costs and increase their profits, or to accommodate reduced income. Depending on a company’s services or products, the strategies can vary. Every decision in the produ ...

s. It is a vital term and it should be taken into consideration when evaluating a company's strategy and opportunities.

Classifications

Resources can be classified both as tangible and intangible: Tangible: *Financial (cash,

securities A security is a tradable financial asset. The term commonly refers to any form of financial instrument, but its legal definition varies by jurisdiction. In some countries and languages people commonly use the term "security" to refer to any for ...

) *Physical (Location, plant, machinery) Intangible: *

Technology Technology is the application of Conceptual model, conceptual knowledge to achieve practical goals, especially in a reproducible way. The word ''technology'' can also mean the products resulting from such efforts, including both tangible too ...

(

patent A patent is a type of intellectual property that gives its owner the legal right to exclude others from making, using, or selling an invention for a limited period of time in exchange for publishing an sufficiency of disclosure, enabling discl ...

copyright A copyright is a type of intellectual property that gives its owner the exclusive legal right to copy, distribute, adapt, display, and perform a creative work, usually for a limited time. The creative work may be in a literary, artistic, ...

s) *

Human resources Human resources (HR) is the set of people who make up the workforce of an organization, business sector, industry, or economy. A narrower concept is human capital, the knowledge and skills which the individuals command. Similar terms include ' ...

( tacit knowledge) *Reputation (Brands) *Culture

References

{{DEFAULTSORT:Strategic Fit Strategic management