Testing for strategy-structure fit and its importance for performance

Abstract

1.INTRODUCTIONOne of the key concepts in strategic management and organizational theory is the concept of fit, seen as the corner stone of the organization's strategic development (Hill and Cuthbertson, 2011). Nadler and Tushman (1980) state that fit between the two elements is defined as the degree to which the needs, requirements, objectives, purpose and/or structure of one element is in accordance with the needs, requirements, objectives, purpose and/or structure of another element. The concept itself emphasizes the importance of harmonization between complex organizational elements in order for them to reinforce one another. In other words, as Carmeli and Tishler state (2004: 1261), the interaction amongst the elements becomes complementary in that the value of one element is increased by the presence of other elements.In the context of organization, Siggelkow (2001) makes the distinction between internal fit seen as a coherent configuration of activities inside an organization and external fit defined as an appropriateness of the configuration given the environmental conditions faced by the firm. Miller (1996) states that the internal fit among elements of an organization can be evidenced by the degree to which strategy, structure and systems complement one another. They reinforce each other and this can result in a cycle of mutual cause and effect that tightens the relationship among them (Andrews et al., 2009). Many theorists emphasize that organizations need to have interdependent and mutually supportive strategy, structure and processes in order to be successful (e.g. Venkatraman and Camillus, 1984; Hamilton and Shergill, 1992; Xu et al., 2006; Garengo and Bernardi, 2007; Roberts, 2007; Cunliffe, 2008; Aagaard, 2016). This high mutual reinforcement leads to a high degree of fit that strengthens organizational effectiveness and creates superior performance (Burton and Obel, 2004; Hsieh and Chen, 2011). At the same time, many empirical studies suggest that there is a connection between the existence of the fit and increased effectiveness of the firm (e.g. Olson et al., 2005; Xu et al., 2006; Andrews et al., 2009; Camuffo and Wilhelm, 2016).Miles and Snow typology of strategy (1984) allows us to understand organizational performance with respect to specific relationship between the four strategic types and environment. Each of the strategic types should be characterized by specific internal organizational settings that need to support chosen strategy and its implementation in order for organization to accomplish its strategic goals in a certain environment. The question that rises is how to align these elements in order to achieve strategy-structure fit, and transform these mutual relations into higher levels of organizational performance. In that sense, the aim of the current study is to capture and determine the pattern of relationships between strategy, structure, and strategy implementation processes and their influence on organizational performance. Therefore, we conducted a cross-sectional field research on a sample of 113 organizations to gain a better understanding of the relationship between strategy-structure fit and performance.The paper is structured as follows. After a short introduction, we give a theoretical overview of characteristics and different approaches in the studies of fit, as well as its importance for performance. Additionally, Miles and Snow typology is shortly presented and analyzed in the context of strategy-structure fit. Methodology and main results of our empirical research are presented in the next section. The paper concludes with a discussion on major findings of the study, research limitations and possibilities for further research.2.ORGANIZATIONAL FIT - CHARACTERISTICS AND APPROACHESTwo concepts of fit, internal fit between organizational strategy and structure on one side, and external fit between strategy and environment of the organization, on the other, have been extensively analyzed in the existing literature. …