A Strategy To Align Organization And Environment Essay
A Strategy To Align Organization And Environment
This paper analyzes the term ‘strategic fit’ exactly means, types of strategic fit, necessities to focus on strategic fit, and most importantly how well an organization can align its resources & capabilities with the opportunities that exist in the external environment so as to achieve peak performance in the business. Strategy of Nestle as an example to discuss how far it is true that effective strategic fit ensures organization’s resources & capabilities and what the environment exactly needs from it.
Key Words Strategic, Fit, Strategy, Resource, Capabilities, Opportunities, Environment, Business Introduction It should be recognized that any strategy or management style is appropriate only in a particular set of circumstances. Strategic fit enables an organization to operate in its particular competitive situation at peak effectiveness. It expresses the degree to which an organization is matching its resources and capabilities with the opportunities in the external environment.
The matching takes place through strategy and it is therefore vital that the company have the actual resources and capabilities to execute and support the strategy. Meaning of Strategic Fit The contingency theorist’s argument that performance outcomes are maximized when a firm achieves an alignment or “fit” between a firm’s external environment, its internal factors and its strategy has been well established in the literature (Burns & Stalker 1967; Lawrence & Lorsch 1967; Keats & Hitt, 1988).
Nadler and Tushman (1979) theorized that the greater the total degree of congruence or fit between the various components, the more effective will be the organization, leading to higher levels of goal attainment, utilization of resources, and adaptation. Need for Strategic Fit Strategic fit is a quest to align the organization’s operation with the needs of the market. It also involves identification of the opportunities and the action to capitalize on the opportunities. Strategic fit can be used actively to evaluate the current strategic situation of a company as well as opportunities such as M&A and divestitures of organizational divisions.
Strategic fit is related to the Resource-based view of the firm which suggests that the key to profitability is not only through positioning 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. Resources s Capabilities A unique combination of resources and capabilities can eventually be developed into a competitive advantage 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. Types of Resources Resources can be classified as tangible resources and intangible resources. Tangible Resources The term tangible means capable of being touched, real or actual, rather than imaginary or visionary, definite; not vague or elusive, having actual physical existence, as real estate or chattels, and therefore capable of being assigned a value in monetary terms. Financial (Cash, securities) • Physical (Location, plant, machinery) are some of the tangible resources Intangible Resources Resources that are not physical in nature are said to be Intangible resources. Corporate intellectual property (items such as patents, trademarks, copyrights, business methodologies), goodwill and brand recognition are all common intangible resources in business point of view. An intangible resource can be classified as either indefinite or definite depending on the specifics of that resource.
A company brand name is considered to be an indefinite resource, as it stays with the company as long as the company continues operations. However, if a company enters a legal agreement to operate under another company’s patent, with no plans of extending the agreement, it would have a limited life and would be classified as a definite resource. • Technology (Patents, copyrights) • Human resources • Reputation (Brands) • Culture, are some of the intangible resources. Capabilities
Capabilities are what a firm does, and represents the firm’s capacity to deploy resources that have been purposely integrated to achieve the desired end state. Capabilities become important when they are combined in unique combinations which create core competencies which have strategic value and can lead to competitive advantage. Capabilities needed for strategic fit are 1. Coordination 2. Commitment 3. Competence (technology, management and leadership) 4. Communication 5. Creativity 6. Capacity management (allocation of resources)
Benefits of Strategic Fit The extent to which the activities of a single organization or of organizations working in partnership complement each other in such a way as to contribute to competitive advantage. The benefits of good strategic fit include cost reduction, due to economies of scale, and the transfer of knowledge and skills (technological expertise, managerial know how), use of common brand name. The success of a merger, joint venture, or strategic alliance may be affected by the degree of strategic fit between the organizations involved.
Similarly, the strategic fit of one organization with another is often a factor in decisions about acquisitions, mergers, diversification, or divestment. Types of Strategic Fit 1. Market related fit 2. Operating fit 3. Management fit Market Related Fit Market related fit arises when value chains of different businesses overlap so that the products can be used by same customers, marketed and promoted in similar ways, distributed through common dealers and retailers.
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