Strategic fit

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Jump to: navigation, search This article is an orphan, as no other articles link to it. Please introduce links to this page from related articles; suggestions may be available. (August 2009) 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.[1] 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.[2] 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.[3] 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.

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Achieving Strategic Fit And Scope

by Nirmala last on Oct 22, 2008

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Achieving Strategic Fit And Scope Presentation Transcript

1. Chapter 2 Supply Chain Performance: Achieving Strategic Fit and Scope Supply Chain Management (2nd Edition) 2. Outline Competitive and supply chain strategies Achieving strategic fit Expanding strategic scope 3. What is Supply Chain Management? Managing supply chain flows and assets, to maximize supply chain value. What is supply chain value ?

4. Competitive and Supply Chain Strategies Competitive strategy: defines the set of customer needs a firm seeks to satisfy through its products and services Low cost, Rapid Response, Product Differentiation Ex: Migros versus BIM HP versus Dell Supply chain strategy: determines the nature of material procurement, transportation of materials, manufacture of product or creation of service, distribution of product Consistency and support between supply chain strategy, competitive strategy, and other functional strategies is important ! 5. The Value Chain: Linking Supply Chain and Business Strategy New Product Development Marketing and Sales Operations Distribution Service Finance, Accounting, Information Technology, Human Resources Competitive Strategy New Product Strategy Marketing Strategy Supply Chain Strategy 6. Product development strategy: specifies the portfolio of new products that the company will try to develop Marketing and sales strategy: specifies how the market will be segmented and product positioned, priced, and promoted 7. Supply Chain Strategy Traditionally, SC strategy includes -Suppliers Strategy -Operations Strategy -Logistics Strategy regarding inventory, transportation, operating facilities, information flows. 8. Achieving Strategic Fit What is strategic fit? How is it achieved? Other issues affecting strategic fit 9. Achieving Strategic Fit Strategic fit: Consistency between customer priorities of competitive strategy and supply chain capabilities specified by the supply chain strategy Competitive and supply chain strategies have the same goals A company may fail because of a lack of strategic fit Example of strategic fit -- Dell 10. How is Strategic Fit Achieved? Step 1: Understanding the customer and supply chain uncertainty Step 2: Understanding the supply chain capabilities Step 3: Achieving strategic fit 11. Step 1: Understanding the Customer and Supply Chain Uncertainty Identify the needs of the customer segment being served by the following attributes: Quantity of product needed in each lot Response time customers will tolerate Variety of products needed Service level required Price of the product Desired rate of innovation in the product Ex: 7-Eleven vs. Wallmart 12. Step 1: Understanding the Customer and Supply Chain Uncertainty Understand the o verall attribute s of customer demand Demand uncertainty : uncertainty of customer demand for a product Implied demand uncertainty : resulting uncertainty for the supply chain due to the portion of the demand the supply chain is required to handle and attributes the customer desires Ex: A firm supplying only emergency orders for a product faces higher implied demand uncertainty then when there is long lead time. Ex: Imputed demand uncertainty increases with service level, but demand uncertainty does not change. 13. Step 1: Understanding the Customer and Supply Chain Uncertainty Implied demand uncertainty also related to customer needs and product attributes Table 2.1 Figure 2.2 Table 2.2 First step to strategic fit is to understand customers by mapping their demand on the implied uncertainty spectrum 14. Understanding the Customer Lot size Response time Service level Product variety Price Innovation Implied Demand Uncertainty Step 1: Understanding the Customer and Supply Chain Uncertainty 15. Impact of Customer Needs on Implied Demand Uncertainty (Table 2.1) Firm now has to handle unusual surges in demand Required service level increases New products tend to have more uncertain demand Rate of innovation increases Total customer demand is now disaggregated over more channels Number of channels increases Demand per product becomes more disaggregated Variety of products required increases Less time to react to orders Lead time decreases Wider range of quantity implies greater variance in demand

Range of quantity increases Causes implied demand uncertainty to increase because Customer Need 16. Levels of Implied Demand Uncertainty (Figure 2.2) Low High Price Responsiveness Customer Need Implied Demand Uncertainty Detergent Long lead time steel Purely functional products High Fashion Palm Pilot Entirely new products 17. Correlation Between Implied Demand Uncertainty and Other Attributes (Table 2.2) 10%25% 0% Avg. forced season-end markdown 10%-40% 1%-2% Avg. stockout rate 40%-100% 10% Avg. forecast error High Low Product margin High Implied Uncertainty Low Implied Uncertainty Attribute 18. Step 2: Understanding the Supply Chain How does the firm best meet demand? Dimension describing the supply chain is supply chain responsiveness Supply chain responsiveness -- ability to respond to wide ranges of quantities demanded meet short lead times handle a large variety of products build highly innovative products meet a very high service level 19. Step 2: Understanding the Supply Chain There is a cost of achieving responsiveness Supply chain efficiency: cost of making and delivering the product to the customer Increasing responsiveness results in higher costs that lower efficiency Figure 2.3: costresponsiveness efficient frontier Figure 2.4: supply chain responsiveness spectrum Second step to achieving strategic fit is to map the supply chain on the responsiveness spectrum 20. Understanding the Supply Chain: Cost-Responsiveness Efficient Frontier High Low Low High Responsiveness Cost 21. Step 3: Achieving Strategic Fit Step is to ensure that what the supply chain does well is consistent with target customers needs Fig. 2.5: Uncertainty/Responsiveness map Fig. 2.6: Zone of strategic fit Examples: Dell, Barilla 22. Achieving Strategic Fit Shown on the Uncertainty/Responsiveness Map (Fig. 2.6) Implied uncertainty spectrum Responsive supply chain Efficient supply chain Certain demand Uncertain demand Responsiveness spectrum Zone of Strategic Fit 23. Step 3: Achieving Strategic Fit All functions in the value chain must support the competitive strategy to achieve strategic fit Fig. 2.7 Two extremes: Efficient supply chains (Barilla) and responsive supply chains (Dell) Table 2.3 Two key points there is no right supply chain strategy independent of competitive strategy there is a right supply chain strategy for a given competitive strategy 24. Comparison of Efficient and Responsive Supply Chains (Table 2.3) Greater reliance on responsive (fast) modes Greater reliance on low cost modes Transportation strategy Speed, flexibility, quality Cost and low quality Supplier selection strategy Aggressively reduce even if costs are significant Reduce but not at expense of greater cost Lead time strategy Buffer inventory Minimize inventory Inventory strategy Capacity flexibility High utilization Mfg strategy Higher margins Lower margins Pricing strategy Modularity to allow postponement Min product cost Product design strategy Quick response Lowest cost Primary goal Responsive Efficient 25. Other Issues Affecting Strategic Fit Multiple products and customer segments Product life cycle Competitive changes over time 26. Multiple Products and Customer Segments Firms sell different products to different customer segments (with different implied demand uncertainty) The supply chain has to be able to balance efficiency and responsiveness given its portfolio of products and customer segments Two approaches: Different supply chains if the segments are large enough Tailor supply chain to best meet the needs of each products demand , i.e., share some links. 27. Product Life Cycle The demand characteristics of a product and the needs of a customer segment change as a product goes through its life cycle Supply chain strategy must evolve throughout the life cycle Early: uncertain demand, high margins (time is important), product

availability is most important, cost is secondary Late: predictable demand, lower margins, price is important 28. Product Life Cycle Examples: pharmaceutical firms, Intel As the product goes through the life cycle, the supply chain changes from one emphasizing responsiveness to one emphasizing efficiency 29. Competitive Changes Over Time Competitive pressures can change over time More competitors may result in an increased emphasis on variety at a reasonable price The Internet makes it easier to offer a wide variety of products The supply chain must change to meet these changing competitive conditions 30. Expanding Strategic Scope Scope of strategic fit The functions and stages within a supply chain that devise an integrated stategy with a shared objective One extreme: each function at each stage develops its own strategy Other extreme: all functions in all stages devise a strategy jointly Five categories: Intracompany intraoperation scope Intracompany intrafunctional scope Intracompany interfunctional scope Intercompany interfunctional scope Flexible interfunctional scope 31. Strategic Scope Suppliers Manufacturer Distributor Retailer Customer Competitive Strategy Product Dev. Strategy Supply Chain Strategy Marketing Strategy 32. Intracompany Intraoperational Scope One operation within a functional area in a company Each operation within each stage of the supply chain devises a strategy independently and attempts to optimize its own performance independently Usually results in different operations having conflicting objectives does not maximize total supply chain profits Figure 2.9 33. Strategic Scope: Intracompany Intraoperation Scope Suppliers Manufacturer Distributor Retailer Customer Competitive Strategy Product Dev. Strategy Supply Chain Strategy Marketing Strategy 34. Intracompany Intrafunctional Scope Strategic fit is expanded to include all operations within a function Attempt to maximize performance for the entire function Figure 2.10 35. Strategic Scope: Intracompany Intrafunctional Scope Suppliers Manufacturer Distributor Retailer Customer Competitive Strategy Product Dev. Strategy Supply Chain Strategy Marketing Strategy 36. Intracompany Interfunctional Scope All functional strategies within a company are developed to support each other and the companys competitive strategy Strategic fit is expanded to include all functions in a firm Goal is to maximize company profit Figure 2.11 37. Strategic Scope: Intracompany Interfunctional Scope Suppliers Manufacturer Distributor Retailer Customer Competitive Strategy Product Dev. Strategy Supply Chain Strategy Marketing Strategy 38. Intercompany Interfunctional Scope The only positive cash flow for the supply chain occurs when the customer pays for the product all other cash flows are resettling of accounts within the chain and add to total supply chain cost Supply chain surplus Difference between what the customer pays and total supply chain cost Total profit to be shared among all members of the supply chain 39. Intercompany Interfunctional Scope Increasing supply chain surplus increases the amount to be shared All stages coordinate strategy across all functions to ensure that they best meet the customers needs and maximize supply chain surplus Also provides more speed by managing the interfaces between supply chain stages Each company must evaluate its actions in the context of the entire supply chain Figure 2.12 40. Strategic Scope: Intercompany Interfunctional Scope Suppliers Manufacturer Distributor Retailer Customer Competitive Strategy Product Dev. Strategy Supply Chain Strategy Marketing Strategy 41. Flexible Intercompany Interfunctional Scope Ability to achieve strategic fit when partnering with stages that change over time in the supply chain Customer needs and

members of the supply chain change over time A firm may have to partner with many different firms over time 42. Summary of Learning Objectives Why is achieving strategic fit critical to a companys overall success? How does a company achieve strategic fit between its supply chain strategy and its competitive strategy? What is the importance of expanding the scope of strategic fit across the supply chain?

Achieve Sustainable Superior Performance by applying Strategic FIT

Strategic Fit is the difference that makes the difference.

To achieve sustainable superior performance a business must attract more loyal customers than its competitors. Every business attempts to achieve this but not many succeed.

Many organisations focus on attracting new customers whilst under-servicing their current customers. The result customer defection. The cost of customer churn can be crippling. This reminds me of a story.

One night a man dreamed that he had past away. He found himself standing in front of a lift and was considering whether to push up or down. He had been told so many stories about hell that he said to himself. This is only a dream, why dont I go down and see what hell is like. So he pushed down.

When the elevator doors opened, he was greeted by voluptuous young women in grass skirts with bare tummies. Hawaiian necklaces were placed around his neck and a drink was put into his hands. He was wined and dined, played golf on terrific courses and had never been so well looked after in his entire life. He was brought back to reality by his wife shaking him and calling his name. She was telling him that he would be late for work if he didnt get up immediately.

A few days later he really died and found himself in front of the same lifts that he had dreamed about a few days earlier. So naturally, he pushed the down button. When the doors opened, he was greeted by the Devil. It was unbearably hot and he was given a large hammer and immediately put to work in atrocious conditions. He turned to the Devil and said, whats going on? A few nights ago, I came down here in a dream and was treated like a king. Now I come down here forever and you are treating me like a criminal. What happened? The Devil replied that was when you were a prospect. Now you are a customer.

There are many reasons as to why customers defect: 1. Their patronage may not be valued 2. The company may be too internally focused 3. The product is seen as a commodity 4. Customers have no emotional attachment to the supplier 5. The value proposition may not be appealing to customers 6. The price that they pay may be perceived to be too high in relation to what they receive in exchange for their money 7. Competitors are better at some or all of the above

To achieve sustainable superior performance any company must consistently present win-win outcomes. See the figure below.

If customers feel that they are giving more than they are getting from the supplier, this results in a win-lose outcome from the perspective of the customer and is not sustainable. The customer feels ripped off. If the supplier feels that it is giving more than it is getting, this is a lose-win outcome from the perspective of the supplier. This too, is not sustainable as the supplier feels it is not worthwhile. The worst case is where both parties feel that they are giving more than they are getting, resulting in a lose-lose scenario. That is definitely not sustainable. The only sustainable position is where both parties feel that they are receiving value for money.

The Strategic FIT Program will guide you to achieving a consistent win-win outcome. It will help you to build a large, strong and loyal customer franchise. Loyal customers may even be prepared to pay a small premium for the real or perceived value that they receive. Loyal customers also help the supplier reduce its costs because it does not have to incur huge marketing expenditure to entice its customers. Furthermore, loyal customers will tell their friends, providing word of mouth advertising for the supplier. Not only is this free, but it is more powerful than traditional advertising approaches.

Furthermore, one of the cultural traits of superior performing businesses is that they continuously look for ways to reach more and more customers with the same or less infrastructure, time, effort energy and cost. They are also continuously seeking new or different ways to add value to the people that they reach.

We assist you to achieve a state of Strategic FIT walking and guiding you step-by-step through a process that starts with the customer, aligns the companys service delivery to meet or exceed expectations and keeps the organisation relevant to its customers over time.

The Customer Module helps you to align service delivery to meet customer needs. It is our experience that over 80% of organisations get this wrong. They think that they understand customers needs and talk passed their customers. In this module we show you how to uncover current needs and how to elicit latent or unknown needs.

The Operating Environment Module recognises that no organisation operates within a vacuum that it depends upon and is dependent upon its environment to succeed. To deal with turbulence and uncertainty, we need to understand the forces driving and shaping our markets and how these are most likely to unfold over time. We walk and guide you through a process to scan your environment, understand your competitors and build potential scenarios.

Most companies today operate in slow growth, mature markets. Yet all players want to achieve growth that exceeds that of the market. The only way to achieve this, is to take lunch away from the competition. The Strategy Module assists you to develop strategy to win in a competitive environment. We want to develop an offer that customers cannot say no to, motivate and unite our people with an inspirational vision and position the business to achieve a sustainable competitive advantage. Most executives find this very challenging. We show you how it can be accomplished.

Unless the business powerfully engages its customers by mirroring their requirements and speaks to them in a language that they understand, the company is unlikely to succeed longterm in winning and keeping customers. The organisations culture reflects its current capability to deliver customer and shareholder value. Accordingly, The Culture Module helps leaders create and manage appropriate organisational change.

Leadership shapes the organisations future capabilities. The Leadership Module helps you build and nurture powerful and effective leadership coalitions at all levels within the business to shape, guide and lead the business to its desired or preferred future.

It is relatively easy to formulate strategy. It is far more difficult to execute well. The final Taking Action Module provides ongoing processes for keeping activity on track, deploying scarce resources effectively, and navigating towards the future turning vision into reality.

To know but not to do, is not yet to know. Knowledge in and of iteself is useless! It is the effective application of that knowledge that makes the difference. Strategic FIT is the difference that makes the difference. We provide the knowledge and the support to give effect to the knowledge that you acquire on the Strategic FIT Program.