What is Strategic Fit?
A strategic fit occurs when organisations design their internal operations in accordance with their external environment. In other words, strategic fit creates a long-term match between internal operations and the external environment. Organisations create a strategic fit to fulfil the demands of its target customers by ensuring an effective use of resources.
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Strategic Fit Concept
Let us understand the concept of strategic fit with the help of an example. Rate the market demand/environment demand for a product and organisation’s actual performance on a scale of 0 to 100. Now, if the market demand is 30 and the organisation’s actual performance is also 30, then there is a perfect strategic fit. If the organisation’s actual performance is lower than 30, it is not meeting the market demand and in such a case, there would be a risk that competitors will move to give better customer satisfaction.
Now, if the organisation’s actual performance is more than 30, it is exceeding the market demand and is probably wasting resources. This situation denotes that internal operations are not being used to capacity and resources are being wasted. Figure shows the strategic fit:
In Figure, the market/environmental demand is moving upwards as customers are becoming more demanding over time. Organisations, in order to maintain an advantage over the long run, require looking for continuous improvement and moving towards right on the horizontal axis. This would result in a long-term movement up the diagonal (from point X to point Y).
Strategic fit operations aim at satisfying the market view (making products that customer want) by satisfying the resources view (efficient utilisation of resources). Sometimes these two views can be balanced and satisfied equally by same operations.
For example, if products are manufactured with no defects, customers may get high quality products and operating costs can also be kept low. This will satisfy both, the market view and the resource view. However, often, the two views cannot be satisfied as they give different requirements.
For example, customers usually demand a distinctive range of products, tailored to their specific needs. On the other hand, manufacturers may prefer a long production run of a standard product. Thus, fulfilling the requirements of both the views can be tricky for an organisation.
In the strategic fit, an operations strategy has a long-term concern for how to determine and develop operational resources that could build a high degree of compatibility between these resources and corporate business strategy. In other words, an operational strategy in strategic fit focuses on fulfilling customer needs that the corporate strategy targets to fulfil. For instance, an organisation’s corporate strategy concentrates on attracting customers by offering them low-priced products.
To achieve this, an organisation must make sure that its operational capabilities can support its corporate strategy. To achieve the strategic fit, the operations strategy configures major resources of operations management in a manner that could help in achieving the organisation’s corporate objectives. Some issues of relevance include taking decisions regarding location, capacity, processes, technology, etc.
In addition, the operations strategy must also integrate with other functions at the corporate level to strengthen corporate objectives. The strategic fit is achieved when operational resources are completely aligned with corporate objectives. According to Nigel Slack and Michael Lewis, operations strategy is the total pattern of decisions which shape the long-term capabilities of any type of operations and their contribution to the overall strategy, through the reconciliation of market requirements with operations resources.
Thus, in order to achieve strategic fit, an organisation requires taking a number of operations decisions based on operations capability of plant and match corporate requirements with operational resources.
Basic Understanding of Learning Curve
Most organisations learn and improve over time by performing a task again and again and by learning how to perform it more efficiently. This ultimately increases the organisational efficiency in performing a task.
Learning curve is a graphical representation of the increase of learning with experience. Learning curves are based on the principle that people and organisations become better at performing tasks if tasks are repeated. This in turn helps in reducing the time to produce a unit that a person or organisation produces. A learning curve graph is shown in Figure:
The graph (shown in Figure ) displays the labour hour per unit versus the number of units produced. It states that time per repetition decreases as the number of repetitions increases. In other words, it can be said that the time required in completing each subsequent unit decreases. This happens because people/organisations learn from repetition and learning helps them to produce more efficiently.
The concept of learning curve was initially presented in a report by T.P. Wright of Curtis-Wright Corp. in 1936. Wright explained how direct labour costs of making a particular airplane reduced with learning. Learning curves have since been used not only to labour cost but also to a variety of costs related with material and purchase mechanisms. A learning curve plays a major role in taking various strategic decisions regarding employment levels, costs, capacity and pricing.
According to the learning curve principle, when the production doubles, a decrease in time per unit affects the rate of the learning curve. So, if the learning curve is at an 80% rate, the second unit takes 80% of the time, the fourth unit takes 80% of the time of the second unit, the eighth unit takes 80% of the time of the fourth unit, and so forth. This principle is shown as:
T × Ln = Time required for the nth unit
T = unit cost or unit time of the first unit
L = learning curve rate
n = number of times T is doubled
If the first unit of a particular product took 20 labour-hours, and if an 80% learning curve is present, the hours the fourth unit will take require doubling twice- from 1 to 2 to 4. Therefore, the formula is:
Hours required for unit 4 = 20 × (0.8)2 hours = 12.8 hours