What is a good 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.

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.

Strategic Fit exists when value chain of different business are related. When these different value chains allow transferring skills and expertise from one business to other , and their combined performances work to reduce cost.

Strategic fit could be classified into

1. Market related Fits.

2. Operating Fit

3. Management 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 a similar way and have a common distribution channel (common dealers and retailers)

Market related fit could be of following types:

1. Common sales force to call on customers

2. Advertising related products together

3. Use of same brand names

4. Joint delivery & shipping

5. Joint after-sale service & repair work

6. Joint order processing & billing

7. Joint promotional tie-ins

8. Cents-off couponing, trial offers, specials

9. Joint dealer networks

Operational Fit:

Operational Fit arises when different businesses work along in order to explore opportunities for cost-sharing or skill transfer.

Types of Operational Fits are:

1.Procurement of purchased inputs

2.R&D/technology

3.Manufacture & assembly

4.Administrative support functions

5.5.Marketing & distribution

Benefits of Operating Fits.

As both businesses tend to work together they often save lot on cost. The companies are able to tap into more economy of scale and/or economies of scope. Both the businesses often tend to increase operation efficiency through sharing of related activities.

Management Fit:

This fit revolves around a comfort that is built among both the businesses in terms of some comparable units like Entreasures, Administration and various administrative activities , operating problems. It allows accumulated managerial know-how in one business to be used in managing another business.

It is necessary that business management should take actions to capture benefits as they don’t just happen! Benefits with sharing potential must be recognized so that activities to be shared are merged and coordinated. When skill transfer takes place a means must be found to make it effective.