Strategic fit express 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. Strategic fit can be used actively to evaluate the current strategic situation of a company as well as opportunities 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 companys portfolio of resources and 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. Resources can be classified both as tangible and intangible: Tangible: Financial (Cash, securities) Physical (Location, plant, machinery)

Intangible: Technology (Patents, copyrights) Human resources Reputation (Brands) Culture

Several tools have been developed one can use in order to analyze the resources and capabilities of a company. These include SWOT, value chain analysis, cash flow analysis and more. Benchmarking with relevant peers is a useful 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. 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. The Differential Efficiency Theory states that the acquiring firm will be able 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 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 economics of scale and economics of scope. However, in reality many M&A transactions fails due to different factors, one of them being lack of strategic fit. A CEO survey conducted by Bain & Company showed that 94% of the interviewed CEOs 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, an efficient organization, synergy effects or cost reductions. It is a vital term and it should be taken into consideration when evaluating a companys strategy and opportunities. 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 Fit 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 costsharing 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.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 dont 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.