Modeling and measuring strategic alignment

Abstract

PurposeThis paper presents an analytical framework for modeling and measuring strategic alignment. The resource-product-market (RPM) model is introduced as a means of representing the alignment of the firm's internal resources with its product lines and external markets. A strategic alignment index is defined to measure the degree of alignment represented by a model.Design/methodology/approachThe RPM model is derived as an extension of prior research on diversification indexes. The strategic alignment index is mathematically defined and the properties of the model are characterized using graph theory. The approach is illustrated for two example firms.FindingsThe RPM model is flexible and can be used with different types and measures of resources, products and markets. The model represents strategy in a structural manner addressing a vertical type of alignment. The index ranges continuously from 0 to 1.0, providing a useful scale for measurement and comparison.Practical implicationsPractitioners may use RPM modeling to assess the current alignment of their respective firms and to identify strategic alternatives which increase alignment through a taxonomy of 13 strategic moves. The results of applying the model to ten firms are summarized.Originality/valueThe paper contributes to the literature by providing a new method for modeling firm strategy which integrates resource and industry views, thereby enabling a measurement of their alignment. The paper is also novel in the application of graph theory to management.