Student No: 40019693:

Student Name: Valerie Winters

1. Explain what is meant by strategic fit. (10%)

Strategic fit is a topic of much debate and therefore numerous definitions and theories exist. Research has shown that some theorists suggest that strategic fit is primarily related to strategy and the environment, while others argue that fit is better linked to structure, culture, or HR. Therefore, one fit does not fit all types of organisations. However, most concur that good fit is vital to increase organisational performance and gain competitive advantage. Xu et al, 2006 suggest strategic fit refers to the efficiency with which the organisations resources and capabilities are aligned with the opportunities and threats the environment presents. Similarly, Hill and Brown (2007) propose that strategic fit can be seen as the degree of linkage between the competitive priorities, delivery system and infrastructure of an operation. These definitions of fit are difficult to apply in all organisations, as the theoretical meaning of fit can vary, depending on how it is conceptualised (Millman, et al, 1991).

According to Waterman (1982) the answer to strategic fit is incorporated in the McKinsey 7-S framework (strategy, structure, style, systems, skills, staff and shared values) when all components are aligned the organisation is organised and therefore achieves organisational success and competitive advantage (Rijamampianina et al, 2003).

Student No: 40019693:

Student Name: Valerie Winters

To conclude, strategic fit between an organisations strategy and organisational contingencies is said to have a positive impact on organisation performance and thus organisations should strive to achieve such an alignment (Lindow et al, 2008).

Student No: 40019693:

Student Name: Valerie Winters

2. Provide a critique of the concept of strategic fit. (55%)

The concept of fit has been the focus of numerous studies over the decades by theorists such as Chandler, Miles and Snow and Hoffer. The concept of fit implies that there is a link between two variables, which predicts a third. Generally, the third is said to be organisational performance (Boon, 2008). Due to the lack of precise definition of what fit is, it becomes difficult to determine whether an organisation achieves fit or not. Venkratraman (1989) criticised that there had been a lack of statistical models used for the empirical testing of this concept and therefore developed a framework of 6 perspectives of fit which are commonly used: moderation, mediation, matching, covariation, profile deviation and gestalts, all of which have a different conceptualisation of fit, number of variables and measurement capabilities (Ensign, 2001). Venkratraman refers that MNCs can be best conceptualised as gestalts (Millman et al, 1991), whereas a family firm may be one of the other perspectives such as matching or moderation (Lindow et al, 2008). Appendix 1 compares all 6 perspectives and how they relate to fit.

Over the past 10 years, organisations have had to deal with rapid technological change, globalisation and the shortening of product life cycles, which requires them to be able to act rapidly and show high degrees of flexibility (Wit and Meyer, 2010). According to Sanchez (1995; cited by Wright and Snell, 1997 pg 138), strategic flexibility is a firms abilities to respond to various demands from dynamic competitive environments. Flexibility provides organisations with the capability to adapt current practices/policies in response to non-transitory changes in the
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Student No: 40019693:

Student Name: Valerie Winters

environment. In contrast, Teece (1997) propose that organisations in dynamic not static environments must reconfigure the asset structure and accomplish the necessary internal and external transformations. Therefore, flexibility promotes organisational effectiveness in an emergent approach, and survival in a dynamic or uncertain environment. Miles and Snow (1984 pg 11) state that fit is a process as well as a state and with factors transforming the competitive environment, organisations may be required to adjust either on a revolutionary or evolutionary basis.

Zajac et al (2000) states the concept of fit between strategy and environment depicts the appropriateness of the adopted strategy by organisations. Huang (2007) argues that organisations that adopt fit strategy would outperform others because this strategy matches the environment demand or conditions. In contrast, Galliers (2004; cited by Baker and Jones, 2008 pg 10) argue that strategic fit cannot be definitively achieved when the business environment is continually changing, therefore, giving way to new information needs within the organisation and necessitating changes in their organisational strategy.

Fit is seen as the building blocks of contingency theory. The contingency theory proposes that the alignment of environment, strategy and structure is required to reach high performance (Garlichs, 2011). According to Ensign (2001) performance has become an accepted measure of the efficacy of alignment which is used to determine the degree to which an organisation is able to achieve its goals.

Student No: 40019693:

Student Name: Valerie Winters

Miles and Snow (1978) employ a qualitative measure of fit among strategy, structure and process to differentiate the stable strategic types: defenders, prospectors, analysers and unstable reactors (Venkratraman and Camillus, 1984), while others use reliability analysis and factor and cluster analysis. However, it has been argued that fit is difficult to measure. Becker and Huselid (2006; cited by Boon, 2005 pg 5) argue that fit is inherently multi-dimensional which can include structure, management processes and not easily captured by simple bivariate statements. Performance can also be measured by using the organisations financial performance such as profitability, return on investment and cash-flow.

However, as stated above there is no best way to measure performance. Ensign (2001) states that performance may well not be the only goal that should be measured. It is imperative to keep in mind that performance is only an outcome, and is not one of the elements of fit that must be aligned with organisational and environmental variables. Organisational excellence requires more than just minimal fit. Miles and Snow (1984) argue that truly outstanding performance is linked with tight fit, both externally with the environment and internally among strategy, structure and management processes.

Strategic management has been conceptualised in various ways. The main areas that are focused on are the content of strategy and/or the process of strategy making. The area of content addresses the need to align and include components that match different environmental conditions. In contrast, the process addresses patterns or streams of interactions taken to achieve the most favourable match
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Student No: 40019693:

Student Name: Valerie Winters

between the external environment and the organisations structure and management process (Venkratraman and Camillus 1984). Nowadays, alignment is generally considered a pro-active or interactive process, as Porter (1981; cited in Ensign, 2001 pg 295) found that there is a two-way interaction between external variables such as market structure and internal variable such as firm conduct (Ensign, 2001).

The domain of fit addresses three segments, internal, external and integrated which surrounds itself in the organisation-environment combination (Venkratraman and Camillus, 1984). Strategy formulation looks at the fit primarily between external variables, such as market environment, economic conditions, and product life cycle. In contrast, strategy implementation requires all internal variables to be aligned such as structure, culture and management processes. Grant (2005; cited by Boon, 2008 pg 41) argues that it is not viable to look at both separately, as they are codependent a strategy that is formulated without regard to its implementation is likely to be totally flawed.

Achieving proper fit between strategy and structure has been at the centre of research for many years. Galbraith and Nathanson (1978; cited by Grinyer et al, 1980 pg 196) imply that a good fit of structure to strategy will aid an organisation to cope with environmental changes. Lawrence and Dyer (1983; cited by Jennings and Seaman, 1994 pg 460) argue that an organic structure is best suited in dealing with or adapting to a turbulent environment. For managers of MNCs, the implication is that adaptation to local cultural conditions is necessary to achieve high performance outcomes especially if considering mergers and acquisitions (Newman and Nollen 2007).
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Student No: 40019693:

Student Name: Valerie Winters

However, environmental change is not the only cause of alignment deterioration. Misfit may occur when organisations change their strategy but fail to follow through with appropriate structural and managerial adjustments (Miles and Snow, 1984). This leads into the issue whether an organisation should stick to a definitive strategy and its respective structure, in a rapidly changing environment and whether it still works and enhances organisational performance (Garlichs, 2011).

Due to the many issues raised, recent research has been conducted towards an alternative approach Ambidexterity which addresses the behaviour of organisations towards managing their businesses. Wulf et al (2010) believe that in todays business environment, ambidexterity will have more explanatory power on organisational performance than the traditional concept of it. The research into ambidexterity allows organisations to choose between two dominant options exploitation and exploration. Exploitation allows an organisation to align themselves to activities that increase efficiency, which focuses on operations, costreduction and quality in order to improve performance. In contrast, exploration allows an organisation to concentrate on activities that increase flexibility and focuses on product innovation, growth and opportunities to ensure future effectiveness. According to Gibson and Birkinshaw (2004) organisations that integrate exploitation and exploration are efficient in their management of todays business demands and adaptive to changes in the environment at the same time. In conclusion, due to the lack of precise definition of what fit is, it becomes difficult to determine whether an organisation has it not. Globalisation and shortening life
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Student Name: Valerie Winters

cycles have meant that organisations need to by dynamic and show high levels of flexibility. It has been debated that organisations should align as many variables such as strategy-structure and strategy-environment in order to achieve organisational performance and achieve competitive advantage (Santala and Parvinen, 2007). Recent research is now allowing organisations to move away from the traditional concept of fit and move towards ambidexterity.

Student No: 40019693:

Student Name: Valerie Winters

3. Outline and illustrate (company examples) the factors and issues that an organisation should take account of if it wanted to achieve strategic fit. (35%)

It is imperative that organisations aim to achieve strategic fit by aligning their strategy with as many variables such as environment, structure or internally in order to gain competitive advantage and increase organisational performance. For the purpose of this question, core competencies and the importance of culture within the structure fit of mergers and acquisitions will be discussed.

In order to achieve strategic fit organisations should look at what their core competencies and distinctive capabilities are. Prahalad and Hamel (1990) suggest that organisations should scan and assess resources and capabilities to find their core competences. An example of organisations who know their core competencies are Dell in the way they have configured their value chain around their business and Tesco whose core competence is imitable, as their competitors despite having similar resources, have been unable to replicate its success. By using their skills and technology they were able to provide benefit to customers, therefore achieving fit with customers and the environment (Javidan, 1998; cited by Ljungquist, 2007 pg 394). Core competences are the greatest value to organisations, but are the most difficult to achieve (Ljungquist, 2007).

Depending on the nature of the organisation and its strategy, consideration should be given to the value of mergers and acquisitions (M&A). The primary driver for M&A is to increase revenue and business growth. However, this approach rarely takes
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Student No: 40019693:

Student Name: Valerie Winters

account of cultural differences which may inhibit successful adaption. Carnell (2007) states organisational culture is commonly defined as the attitudes, values, beliefs, norms and customs which distinguish an organisation from others.

In 2010, US MNC Kraft merged with UK chocolate giant Cadbury which can be summarised as a hostile but profitable merger (www.businessweek.com). Krafts strategy was to increase market share and gain access to emerging markets. However, shortly after the merger 5 senior executives left Cadbury, reasons for which were mainly lack of cultural fit (www.ft.com) and an inability to deal with Kraft's heavy hand on the operations. The general consensus was that Kraft didnt understand the confectionary business, and that it was a structure/culture issue (www.economictimes.com). Appendix 2 describes four types of cultures and highlights the cultural differences between both companies (Goffee and Jones, 1998).

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Student No: 40019693:

Student Name: Valerie Winters

According to the Miles et al (1978) typology of strategic behaviour, organisations can be seen as either pursuing a defender, prospector, analyzer or reactor strategy. The below table describes the 4 typologies (Wulf et al, 2010)

Prospector:

Continually search for market opportunities and experiment with potential responses to changes in the environment. Type of Fit: Customer/Competitive/Technological

Defender:

More conservative approach and preference on price competition and quality rather than investment in new product development. Type of Fit: Technological/Resource/Organisational

Analyzer:

Share elements of both strategic behaviours. Continuously screen their industry for new ideas, and adopt quickly to those that appeal promising. Explore new market opportunities and harvest on a stable base of existing products and customers. Type of Fit: Competitive/Technological/Resource

Reactor:

Lack any consistent forward-looking strategy. Rarely adjusts strategy or behaviour unless forced to do so. Lack any fit between strategy and structure. Type of Fit: None

Table: 1 (Source: Wulf et al, 2010)

In line with the above table, it can be seen that Kraft favoured the Analyzer strategy in that they explored new market opportunities and relied on existing products and customers. Wulf et al (2010) suggest that ambidexterity fits better when

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Student No: 40019693:

Student Name: Valerie Winters

implementing an analyzer strategy, because dynamic market environments lead to a performance dominance of organisations with analyzer behaviour.

Leadership and style are also very important factors to look at when merging as cultures are not only different in every organisation but also in every country.

Xu et al (2006) propose that fit is achieved when the host and home market share similarities. However, companies who failed to understand this concept where BP and Shell who invested in the minerals industry, and later forced to withdraw as a result of unacceptable levels of earnings which were a consequence of the parent oil companies lack of understanding of the mineral business; in other words, a lack of fit (Rijamampianina et al, 2003).

Disney looked at acquisitions to stay competitive, as they had to re-align and shift attention from retail which was the cornerstone of the company to intellectual property. Disney successfully bought Pixar in 2006 (www.money.cnn.com) and Marvel in 2009 that excelled in the digital revolution which fitted with Disneys strategy to produce animation movie hits (www.dbrs.com).

In conclusion, there are a number of ways that organisations can achieve fit, it is not enough to think about strategy implementation as a matter only of strategy and structure, but other factors such as customers and environment have to be considered. The conventional wisdom used to be that if you first get the strategy right, the right organisation follows (Waterman, 1982).

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Student Name: Valerie Winters

References
Carnall, C. (2007). Managing Change in Organisations (5th ed.). Harlow: Pearsons. De Wit, Bob & Meyer, Ron. (2010). Strategy Synthesis Resolving Strategy Paradoxes to Create Competitive Advantage. Hampshire: Cengage Learning EMEA. Ensign, P. (2001). The Concept of Fit in Organisational Research. International Journal of Organisational Theory & Behaviour , 4 (3), 287-306. Garlichs, M. (2011). The Concept of Strategic Fit. Hamburg: Diplomica@Verlag GmbH. Gibson, C., and Birkinshaw, J,. (2004). The antecedents, consequences, and mediating role of organisational ambidexterity. Academy of Management , 47 (2), 209-226. Goffee, R & Jones, G. (1998). The Character of a Corporation: How Your Companys Culture Can Make or Break Your Business,. London: Harper Business. Grinyer, P, Yasai-Ardekani, M & Al-Bazzaz, S. (1980). Strategy, Structure, the Environment, and Financial Performance in 48 United Kingdom Companies. Academy of Management Journal , 23 (2), 193-220. Hill, Alex & Brown, Steve. (2007). Strategic Profiling: A visual representation of internal strategic fit in service organisations. International Journal of Operations & Production Management , 27, 13331261. Huang, P.-W. (2007). Why and How to be Ambidextrous? The Relationship between Environmental Factors, Innovation Strategy and Organisational Capabilities. Taiwan: Department of Business Management. Javidan, M. (1998). Core Competence: what does it mean in practice? Long Range Planning , 31 (1), 60-71. Jennings, D & Seaman, S. (1994). High and Low Levels of Organisational Adaptation: An Empirical Analysis of Strategy, Structure, and Performance. Strategic Management Journal , 459-475.

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Student Name: Valerie Winters

Lindow, C, Stubner, S & Wulf, T. (2009). Family Firms and The Concept of Fit: Do family firms need strategic fit to be successful? Germany. Lindow, Corinna, Stubner, Stephan & Wulf, Torsten. (2009). Family Firms and The Concept of Fit. Germany. Ljunguist, U. (2007). Core Competency beyond identification: presentation of a model. Management Decision , 45 (3), 393-402. Miles, R & Snow, C. (1984). Fit, Failure and The Hall of Fame. California Management Review , 26 (3), 10-28. Miles, R, Snow, C, Meyer, A & Coleman, H. (1978). Organisational strategy, structure and process. Academy of Management Review , 3, 546-562. Milliman, J, Glinow, M & Nathan, M. (1991). Organisational Life Cycles and Strategic International Human Resource Management in Multinational Companies: Implications for Congruence Theory. Academy of Management , 16 (2), 318-339. Nandakumar, M., Ghobadian, A., O'Regan, N. (2010). Business-Level Strategy and performance: The moderating effects of environment and structure. Management Decision , 48 (6), 907-939. Newman, K & Nollen, S. (1996). Culture and Congruence: The Fit between Management Practices and National. Journal of International Business Studies , 27 (4), 773-779. Partovi, F. (2001). An analytic model to quantify strategic service vision. Journal of Service Management , 12 (5), 476-499. Porter, M. (1996). What is Strategy? Harvard Business Review , 61-78. Prahalad, CK and Hamil, G. (1990). The core competence of the organisation. Harvard Business Review , 68 (3), 79-91. Rijamampianina, Rasoave, Abratt, Russell & February, Yumiko. (2003). A framework for concentric diversification through sustainable competitive advantage. Management Decision , 41 (4), 362-371.

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Student Name: Valerie Winters

Santala, M & Parvinen, P. (2007). From Strategic fit to customer fit. Management Decision , 45 (3), 582-601. Teece, D., Pisano, G., & Shuen, A. (1997). Dynamic capabilities and strategic management. Strategic Management Journal , 5 (3), 509-533. Venkatraman, N & Camillus, J. (1984). Exploring the Concept of "Fit" in Strategic Management. The Academy of Management Review , 9 (3), 513-525. Venkratraman, N. (1986). The Concept of Fit in Strategic Research: Towards Verbal and Statistical Correspondence. Waterman, R. (1982). The Seven Elements of Strategic Fit. Journal of Business Strategy , 2, 69-79. Wright, P & Snell, Scott. (1997). Toward a Unifying Framework for Exploring Fit and Flexibility in Strategic Human Resource Management. CAHRS Working Paper Series , 1-37. Wulf, T, Stubner, S & Blarr, H. (2010). Ambidexterity and the Concept of Fit in Strategic Management - Which Better Predicts Success? Leipzig Graduate School of Management. Xu, Shichun, Cavusgil, T & White, Chris. (2006). The Impact of Strategic Fit Among Strategy, Structure, and Processes on Multinational Corporation Performance: A Multimethod Assessment. Journal of International Marketing , 14 (2), 1 - 31. Zajac, E, Kraatz, M & Bresser, R. (2000). Modeling the Dynamics of Strategic Fit: A Normative Approach to Strategic Change. Strategic Management Journal , 21 (4), 429-453.

Websites
Beaudin, G. (2010, February 9th). Kraft-Cadbury Making Acquistions Work. Retrieved March Friday, 2012, from Business Week: http://www.businessweek.com Comments on Acquisition of Pixar Animation Studios. (2006, January). Retrieved March Friday, 2012, from www.dbrs.com: http://www.dbrs.com Goldman, D. (2009, August). Disney to buy Marvel for $4 billion. Retrieved March Friday, 2012, from money.cnn.com: http://money.cnn.com 15

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Rigby, E. (2010, May 27th). Kraft hit by Exodus of Cadbury executives. Retrieved March Friday, 2012, from Financial Times: http://www.ft.com Vijayraghavan, K. (2011, November 23). Cadbury-Kraft not as sweet as a chocolate. Retrieved March Friday, 2012, from www.economictimes.com: http://www.economictimes.com

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Yooptech, C & Chirapanda, S. (2009). Organisational Strategic Fit and Long-Term Performance: The Sufficiency Economy Approach.

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