Wow, FIT! (or part 4)

Today I have been... 

Reading about fit, part of Porter's article What is Strategy.

Why? 

Reader, p51, required reading.

So What?

How do individual activities relate to each other?  Well, when you are deciding which activities to do, you also need to think about how you'll do them and how they relate to each other. Strategy is all about this.

Porter quotes Southwest airlines again to highlight that everything matters. There's no one thing they do that highlights their core competence. It gains competitive advantage thanks to the way its activities fit and reinforce one another.

If everything fits, the activities all build on and complement each other. He cites an example of one activity's cost being lowered thanks to the way other activities are performed.

Strategic fit creates competitive advantage and superior profitability.

 Core competencies. Critical resources. Key success factors. Sound familiar? Are managers really seeing the company as a whole if focus is on core, critical, key anything?

Of course if fit is strategy specific it enhances uniqueness of the strategic position and amplifies trade-offs.

Types of fit:-

• simple consistency - 1st order fit between each activity and strategy. This helps make strategy easier to communicate to all stakeholders. Ensures cumulative effect of competitive advantage of activities
• activities reinforcing each other - 2nd order fit. Should be self explanatory!
• optimisation of effort - 3rd order fit. This is where, for example, decisions about your product can reduce or eliminate costs in post-sales support.

It can be thought of as a list of strengths that cuts across many activities, where one strength blends into others. Or themes that pervade many activities eg luxury, low cost, service, value delivered.

It is much harder for one of your rivals to match you when you have good fit. If you have an array of complementary, interlocked, well-thought-out activities, it is much harder for one of your rivals to mimic it.

Thinking mathematically, if your strategic position is x and it is reached by having a combination of activities (a to g) which "fit", then that position could be said to be a x b x c x d x e x f x g (a multiplication as opposed to a simple summation, because the activities reinforce each other). If the probability of a competitor mimicing any one of those activities is 0.9, then the probability of the mimicing that particular set is 0.9 x 0.9 x 0.9 x 0.9 x 0.9 x 0.9 x 0.9 - under 50%

For a competitor to try and reposition or straddle to match your strategic position they will have to redesign many of their own activities which will take time, have repercussions for them, and may not be successful.

New entrants will face formidable barriers to competition.

So make sure your positioning is using a mix of second and third order fit, as this path will lead you to greater sustainability of your competitive advantage. Put yourself in the position of a potential competitor and you can imagine how hard their task would be, just to see the interconnections, let alone untangle them, between your activities.

The fit itself will create pressure and incentives to improve operational effectiveness. If activities are mutually reinforcing, then poor performance in one activity will also drag down others making it easier to spot and correct. And excellent performance in one activity will drag others with it.

Activity system maps can be used to show activities, their links and strengths (p 54-56, reader).

So thinking back to tradeoffs, the most viable position to be in is one where your activity systems are incompatible with your competitors because of tradeoffs.

Strategic positioning sets the rules that define how individual activities will be configured and integrated. Thinking of strategy in terms of activity systems shows why structure, systems and processes need to be strategy-specific. Make your organisation suit the delivery of your strategy, rather than your strategy suit your organisation.

Remember again this is for the long term. It is expensive to regularly shift positioning.

So strategy is creating fit among a your  activities.