“Strategic fit is the degree of alignment and amount of synergy in a company’s business system.”
– The Power of Strategic Fit, Harvard Business Review, March–April 2025
When a firm’s strategic fit is optimal, it creates beneficial multiplier effects among all the components of the business:
- When employees are aligned with components – such as the company’s purpose – their engagement increases.
- Engaged employees develop more-innovative products that create enthusiastic, loyal customers.
- Enthusiastic customers attract other customers, improve financial results, and make employees’ jobs more fulfilling.
- Enhanced financial performance can generate the money needed to provide better employee benefits, to invest in creating appealing customer offerings, and to contribute more to the community.
Strategic fit produces a system that is nearly impossible for competitors to replicate and effectively adapts to changing conditions.
Seven Strategy Elements
The process of achieving strategic fit begins by identifying seven essential elements of strategy. Because they must remain aligned under ever-changing and unpredictable conditions to deliver superior performance, they should be developed concurrently and iteratively.
The mental model. Success hinges on understanding how a business really works and how it can capitalize on changing market conditions. Effective leaders develop mental models that approximate complex realities yet are simple enough to guide daily decisions.
Mental model begins with the following assumptions:
- The company creates value by improving people’s lives.
- People are subject to a complex range of human emotions.
- The job to be done is to unlock people’s full potential.
Align and balance four complementary components: people, purpose, profits, and play. These four Ps are the strategic lens through which the company views every aspect of its business and against which it measures every decision:
- They help people navigate obscure and shifting conditions, as if they were wearing night vision goggles while competitors stumble in the dark.
- Virtually everyone in the company can recite the four Ps
- Stakeholders choose to affiliate with the company because they share its values.
The four Ps are not a marketing slogan but a powerful tool for reaching difficult decisions.
Purpose and ambitions. A company’s purpose and ambitions are intertwined. Purpose is the reason the company exists and what it aims to achieve for others, whereas ambitions are what the company hopes to accomplish for itself, including financial and operational goals. To understand the true essence of a company’s purpose and ambitions, you must look at its actions, not merely its words.
Profitable operations are the gravitational force that pulls attractive customers, the right investors, and high-potential employees into the company’s business system and enables investments to strengthen the company while creating superior value for all stakeholders.
Stakeholder value creation. Stakeholders are the groups that affect and are affected by the activities of a business that include customers, employees, suppliers, communities, and investors. Each plays a vital role:
- Customers generate sales and profits.
- Employees create products and services.
- Suppliers provide essential tools and materials.
- Communities offer the environment and permission to operate.
- Investors supply the financial resources needed to fund growth.
The goal of stakeholder value creation is to continually increase the value that all stakeholders receive from and contribute to the business.
- Leaders who subscribe to this goal work hard to convince stakeholders that collaborating for their mutual benefit is in their personal best interest.
- Companies that excel at creating stakeholder value attract and retain the most valuable stakeholders, gaining a competitive advantage.
- Effective stakeholder-value creation aligns with the needs and values of targeted stakeholders. It ensures that every action taken by the company enhances mutual benefits and supports strategic goals.
Purpose-minded customers grow more loyal when the company shows commitment to its purpose – especially when that commitment is expensive or difficult. And it is far easier to do expensive or difficult things that pay off only in the long term when investors are equally purpose minded.
Macro forces. Macro forces are factors outside a company that can significantly affect its performance. They include economic conditions, demographic trends, political and legal factors, cultural trends, technological developments, environmental issues, and global trade dynamics.
Macro forces are inherently unstable and outside the direct control of companies. However, companies should monitor them and adapt their strategy to capitalize on emerging opportunities rather than struggle against unfavorable trends.
Potential synergies among purpose, stakeholders, and macro forces are causing leaders to reexamine which markets and products will be most valuable to the company’s future success.
Markets and products. Because complex systems are always changing, companies must constantly consider where they will do business and where they will not. They spend significant time and money searching for the best markets for their products. But the real challenge is determining what “best” means, since markets and products that are blockbusters for one company may be flops for another.
Bain & Company recently analyzed total shareholder returns for 4,228 companies across eight industries from February 2019 to February 2024. The study found that the highest average returns (19%) were in technology. However, the top 10% of companies in every industry outperformed the average returns of tech firms. In other words, entering an attractive industry does not guarantee superior performance, and a strategically fit company can excel in even the toughest industries.
Competitive advantages. Competitive advantages are unique attributes or capabilities that enable a company to outperform competitors. They are crucial to the performance and long-term success of a company. They drive sales and profit margins, attract top talent, boost investor confidence, enhance resilience, and create significant barriers to entry for new competitors.
When competitors see profitable growth in other strategies, copycats emerge. By then, leaders have created the competitive advantage that are hardest to replicate: a people-centric culture that inspires everyone to be passionate about what they do. That culture views and treats people as partners and valuable assets rather than expenses.
Turning operational effectiveness, culture, and loyalty into competitive advantages requires an operating model that strengthens a company’s capabilities and continually adapts to changing conditions.
The operating model. An operating model comprises the organization’s structure and accountabilities, governance processes and metrics, leadership and culture, talent and performance management, business processes, and technology and data. It is the organizational engine that unleashes the power of people and fuels value creation.
A good operating model ensure that an organization’s operations align with its strategic objectives. An optimized operating model streamlines processes, reduces waste, and enhances resource allocation. This, in turn, can lead to cost savings, improved customer satisfaction, and a competitive edge in the marketplace.
By developing and evolving their operating models effectively, organizations can position themselves for sustainable growth, innovation, and competitiveness in the long term.
. . .
Maximizing company value requires unleashing the power of strategic fit—creating beneficial multiplier effects among all the components of a company’s business system. Eventually this value should show up in its market value. But now that we have better ways to measure the changing value of more-strategic factors and to model the synergistic effects among them, executives can adapt to dynamic market conditions more quickly and effectively. Intangible assets can become more tangible and more easily valued inside and outside the company. As executives gain experience with this way of thinking and develop better data for measuring and managing progress, both companies and markets will become more efficient.
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Rigby, Darrell and First, Zach. The Power of Strategic Fit. Harvard Business Review. March–April 2025.