Peak Frameworks Team
McKinsey 7S Model: Boosting Strategy in Finance
The McKinsey 7S Model, a managerial tool developed in the late 1970s by consultants at McKinsey & Company, provides a holistic approach to organizational effectiveness. It emphasizes the interconnectedness of seven key elements: strategy, structure, systems, shared values, skills, style, and staff.
Understanding the McKinsey 7S Model
Strategy is the plan an organization devises to outperform its competitors. For instance, in 2015, Microsoft shifted its strategy from being a 'devices and services' company to focusing on 'mobile-first, cloud-first'. This strategic shift allowed the tech giant to remain competitive and relevant in the fast-paced digital age.
Structure refers to the way an organization's units relate to each other. A well-designed structure can enhance efficiency and productivity. Amazon’s creation of independent business units like AWS, Amazon Prime, and Amazon Marketplace exemplifies a strategic organizational structure that enables each unit to focus on its unique goals while contributing to the company’s overall objectives.
Systems are the procedures and routines that characterize how important work is to be done. Goldman Sachs, for instance, has robust risk management systems in place to identify, assess, and manage potential risks, an integral part of their overall business strategy.
Shared values, also known as core values, are the guiding principles of the organization. They are the beliefs and ideals that shape the organization's culture and identity. Google’s famous motto "Don't be evil" reflects its commitment to ethical business practices and decision-making.
Skills refer to the capabilities of the organization's staff. A notable example is the emphasis on 'hustle' at Uber, which enabled the company to rapidly expand and penetrate various markets globally.
Style pertains to the leadership approach of an organization. Apple, under Steve Jobs, was known for its innovative and visionary style, which led to the development of groundbreaking products like the iPhone and iPad.
Staff refers to the employees and their general capabilities. Netflix’s strategy of hiring 'fully-formed adults' and offering them a high degree of autonomy has been pivotal in its success and growth.
Applying the McKinsey 7S Model to Business Strategy
The McKinsey 7S Model serves as a guide for organizational analysis and strategy formulation. It emphasizes the need for alignment and balance among the seven elements. When considering strategic changes, one must assess potential impacts on all seven elements to ensure coherence and harmony.
For instance, when adopting a new strategy, consider its implications on the organizational structure, the systems in place, shared values, the skills required, leadership style, and the staff.
The McKinsey 7S Model in the Future
The McKinsey 7S Model remains a relevant tool, even as business landscapes evolve. Technological advancements and digitalization necessitate its continual adaptation. For instance, as remote work becomes more prevalent, organizations might need to reevaluate their structure, systems, and style to ensure effectiveness in a virtual environment.
Success Stories of Organizations That Effectively Used the 7S Model
Procter & Gamble (P&G)
P&G successfully implemented the 7S model when it transformed its business strategy to focus on sustainable innovation.
The company aligned its strategy by setting ambitious sustainability goals, restructuring its organization (structure), implementing sustainable practices (systems), fostering a culture of environmental responsibility (shared values), developing the necessary skills in its workforce, embracing a collaborative leadership style, and recruiting staff passionate about sustainability.
This alignment led to the successful launch of eco-friendly products and significant cost savings.
General Electric (GE)
GE utilized the 7S model to revitalize its business during a challenging period. The company redefined its strategy, emphasizing the development of industrial software and advanced manufacturing (strategy).
General Electric restructured its organization by divesting non-core businesses and focusing on high-growth industries (structure). It implemented efficient systems to improve productivity and streamline operations (systems). GE fostered a culture of innovation, integrity, and customer focus (shared values).
By developing the necessary skills in its workforce, adopting a dynamic leadership style, and aligning its staff with the new strategy, GE successfully navigated through its transformation.
Lessons Learned from Companies That Failed to Balance the 7S Elements
Blockbuster, once a dominant player in the video rental industry, failed to adapt to changing market dynamics. While it had a solid strategy, offering physical rentals and later expanding into online streaming, it lacked the agility to align its structure, systems, and style with the emerging digital landscape.
Blockbuster's late entry into online streaming, rigid hierarchical structure, outdated systems, and inability to embrace innovation ultimately led to its downfall.
Nokia, a former leader in the mobile phone industry, struggled to maintain its market position due to a failure to balance the 7S elements. Despite having a strong brand and innovative products, Nokia faced challenges when it failed to align its strategy with the growing smartphone market.
Its bureaucratic structure hindered quick decision-making, while the lack of necessary skills and a rigid leadership style prevented effective adaptation. This misalignment allowed competitors like Apple and Samsung to surpass Nokia in the smartphone revolution.