The Fit-Concept in Strategic Management - an Inappropriate Idea for Companies in the 21st Century?

Executive Summary

The aim of this paper is confronted with the question of how the fit concept in strategic

management is an appropriate idea or not for companies in the 21st century. After a short

introduction about strategy which is defined by Michael E. Porter (1980), we will describe

some basic concepts. Cited by Porter (1985, 1996) and Thomson/Strickland (1998), we

find out that operational effectiveness is a helpful tool, but not enough for gaining

competitive advantage. Strategies must be developed and it must match the organization

in order to become effective. This is a task which is often fulfilled by the management.

Then we will go deeper into the concept of fit. Some additional discussions of different

perspectives follow and a briefly overview about the research of the six types of fit can be

found. After clarifying the meaning of fit, we come to the McKinsey 7-S framework,

because this is an important management tool which is still up-to-date and relevant to our

assignment. Inspired by the authors we analyze the Japanese' Keiretsu Concept. We find

out that they are effective and successful on the one hand, but on the other hand,

symptom appears where the changing environment also influences their business because

of globalization. Therefore the concept of fit is important for them too. After this section

we compare the business situation between the 20th and the 21st century in the sense of fit.

Information and capital movements as well as a spread portfolio for investors are

addressed in the last chapter. At the end this paper closed with the result that the fit

concept is necessary in the 21st century, because the competition on operational

effectiveness alone can only lead to a situation, where the only differentiating factor is

prize and this leads to diminishing profits. Michael E. Porter's view of the fit concept

seems to be a good option for gaining the competitive advantage until nowadays.

1 Introduction

The world economy is moving swiftly from the industrial age to the knowledge/information/systems age. The traditional hierarchical structures built around functional specialization have to undergo radical surgery to accommodate greater emphasis on building competitively valuable cross functional capabilities; the best companies have to be able to act and react quickly and to create, package, and rapidly move information to the point of need- in short, companies have to reinvent their organizational arrangements. This challenge imposed on companies and the required changes, which come with this problem, have to be dealt with to retain or gain sustainable competitive advantage. If we agree with Porter's definition that a strategy is performing different activities from rivals or performing similar activities in different ways, then we can safely assume that strategy is as important for companies in the 21st century as it was for companies in the late 20th century. This would mean that with the change of the industry from standardized to individual products and service the industry structures have to change, which would imply that flexibility is needed. It leads to the question, if the Fit Concept in strategic management as proposed by Porter 1996 is a suitable concept for the 21st century or if the strategic fit will hinder flexibility. We will attempt to answer the question in this paper. The paper will start going into details of the basics of the fit concept, which we will extract from the Literature. In this context we will discuss types of fit and introduce an alternative prospective for the FIT concept. Next the 7s's model is discussed together with the new 7s's model in an attempt to find indications if the fit concept is still applicable for the 21st century. A description of the expected 21st century market requirements versus the 20th century market requirements follows. After the historical excursion we will then take the reader into an excursion of flexibility and show the advantages of flexibility as propagated in the Literature. The requirement of flexibility will be demonstrated in different market surroundings. Finally we are going to discuss the effect of the freedom of information- and capital movement.

2 Basic Concepts

As described above, Porter (1996) claims that operational effectiveness is not sufficient to gain a competitive advantage. Creating value for buyers that exceed the costs of doing so is the goal of any generic strategy. The ideal is to find a strategy that competitors are frozen from reacting due to their present circumstances .

A unique strategy is needed to prevent rivals from copying the operational effectiveness of a company. Strategic fit creates competitive advantage by lowering activities cost because of the way the activities are performed, or increase the activity's values to customers by complementary activities .

In order for a strategy to become effective it is required that the strategy matches the organization. The importance of matching organizations design and structure to the particular needs of strategy was first brought forward to the forefront in a landmark study of 70 large corporations conducted by Professor Alfred Chandler . His research revealed that changes in an organization's strategy bring about new organizational problems which, in turn, require a new or refashioned structure for the new strategy to be successfully implemented. He found that structure tends to follow the growth strategy of the firm - but often not until inefficiency and internal operating problems provoke a structural adjustment. The experiences of these firms followed a consistent sequential pattern: new strategy creation, emergence of new administrative problems, a decline of profitability and performance, a shift to a more appropriate organizational structure and then recovery to more profitable levels and improved strategy execution. In today's world such sequential pattern could be used to a company's