External fit is the alignment between the organization and its environment. When the strategies of the organization are aligned to the HR systems of the organization to be in sync the external environment it is called external fit.
When the performance of the organization is positively affected by the alignment between the organizational contingencies and the environmental contingencies it is said that fit exists. Fit can be of two types internal fit and external fit.
Here HR systems refer to the HR practices and policies of the organization.
External fit is essential to improve the performance of the firm. It has been found that firms which have better external fit between strategy and HR systems have better performance than firms which have a less external fit. Thus HR systems facilitating the execution of the strategy of the firm results in higher performance. So having external fit is a competitive advantage for the firm.