McKinsey 7S Framework
INTRODUCTIONWhen I was planning my thesis I needed a framework to understand how a firm's culture could be influenced to create new products faster to reach its markets faster and thereby gain a first mover advantage over its competitors. One framework that I considered was McKinsey's 7S framework. I ended up by not using it, in favor of a more specific framework for my studies, however, I found it useful as a model to look into an organization and assess if it's aligned with it's strategy.
Having setup up several new technology teams in my career, I also see this framework as a good guide for setting up a new product development area. It encompasses the seven areas a manager must consider when creating a new product department or division. All seven areas must be in alignment with the desired strategy for the firm to succeed.
HISTORYMcKinsey & Company introduced this framework in the 1970s based on work from consultants Tom Peters, Robert Waterman and Julien Philips with a help from Richard Pascale and Anthony G. Athos. The framework presents a model for analyzing a firm’s organizational design by looking at 7 key internal elements: Strategy, Structure, Systems, Shared Values, Style, Staff and Skills.
The model categorizes these seven elements further into hard and soft categories, thereby taking into consideration the human factors affecting a firm's capability to achieve its goals. The three hard elements are Strategy, Structure and Systems. The remaining four elements are noted as soft. The soft elements are more abstract and influenced by behaviors and the firm's culture. Hard elements are more visible/tangible (processes, applications, systems, reports, organization charts and policies) whereas the soft elements are not as obvious and take more time to identify. However, these seven elements must be effectively aligned for an organization to achieve its strategies. Hard and soft elements are equally important. The diagram to the right is from Wikipedia. The Wikipedia entry has some additional information on the authors of this framework and is a suggested read.
A firm usually develops a strategy for growth. This strategy, mission and values define what structure, skills, number of staff, and what systems are necessary to support the firm's strategy. It all starts first with the strategy and that defines the elements needed for its success. Be it a new product introduction or establishing a new division, the starting element is the strategy and subsequently what resources, by way of the other 7S elements, are needed to implement that strategy.
The model remains relevant to this day. It has been widely used by academics and strategy consultants and is one of the most recognized strategic planning tools.
DEFINITIONSHard Elements
- Strategy - is the plan the firm develops to attain its goals. Introduction of new products or services begins with a strategy defining how the firm will achieve market success. If a firm decides that it is going to introduce a new product into the market, what are the other elements of the firm required to support that vision and strategy. For example, a decision that the firm will use Agile product development methods to create new products, does the firm have the culture of change, skills and systems required to support such a strategy?
- Structure - is the manner in which the firm is organized. Perhaps the firm is divided into
multiple semi-autonomous product devisions, perhaps it is fully centralized. Think of an organization
chart as a way to view the structure of the firm. How is the firm organized and what are the reporting
lines of control? Who makes decisions? If the firm moves to a faster product development model, does the
current organization decision making structure facilitate that or will it hamper the effort? Large firms
will often setup separate divisions with their own culture and structure to create products quicker
without impacting the structure of the parent firm. Especially, if the firm sees failure risk with the
new division. In such cases the new division can be approached as an experiment.
In larger firms, separate divisions can fail without impacting the structure and culture of the parent, similar to snipping off a dead branch on a tree. For example, the structure of a Fintech will be markedly different from that of a Tier 1 Bank. Banks will have a much hierarchal control and decision making structure, while a Fintech will have a structure that encourages agility and shorter lines of communication for faster decision making. The structure of a firm will often indicate the culture of the firm.
- Systems - are policies, processes, procedures and IT systems that the firm uses on a daily basis to conduct its business. Do the current systems in place support the strategy of the firm? For example, if a firm decides that to increase productivity it will allow employees to work from home, does the firm have the systems (remote access, video conferencing software) to support such a change? How about policies in this case, does the firm have a work from home policy? Likewise, an expanding firm creating a new product division hires 50 staff. Can the current payroll and HR systems support the staff growth? Depending on the firm's strategy (service or product growth) it must have the systems in place to support it.
- Shared Values - this would be the organization's mission and vision, sometimes documented as a mission statement. This is also the behaviors, beliefs, values and standards that guide how employees behave and a act within the firm. Do staff believe and support the company's strategy? Do we see homogeneity in values and behaviors within the firm? Is everyone working towards the same goals? In larger firms, it's common to have staff who don't necessarily share the same beliefs and values that the firm espouses, but they continue to perform and do their jobs well nevertheless.
- Staff - a firm undergoing new product development, does it have sufficient staff to support the product strategy? If not, how will the firm recruit, train and motivate additional staff? Is there a strategy of combining contract staff with permanent staff, if so what is an acceptable ratio? Would the other elements support the introduction of contract staff, what policies (Systems) would have to change to support this model?
- Skills - what skills are needed for the firm's strategy to succeed? For example, if a firm develops
a new product, do the current staff have the skills to support it's development? Are specialized skills
required that the firm does not have? Will that be a barrier to product development? In most cases
training can be provided to improve skills, other cases may require bringing in contract staff with the
requisite skills. I've also seen scenarios where there is no hope of having the current staff develop
the required skills and they are terminated. Skilled staff is brought in to replace them.
As an example, an Agile transformation at ING Bank required all current staff to re-apply for their jobs as an emphasis was placed on adopting an Agile mindset and culture. Not all staff were eligible and many were redundant. At another firm I worked at, an agile transformation resulted in several terminations due to staff not having the right skills, would never develop them and could undermine the transformation if they stayed. The expression "Agile victims" is often referred to terminated staff of Agile transformational initiatives. In summary, how is the firm going to acquire the skills it needs to support its goals? Does an executive invest in training its staff or divest some of its staff and replace them with more skilled staff?
- Style - defines how executives behave, manage, reward and interact with employees. Style sets the culture of a group, be it autocratic or consultative. Senior management makes all the difference in setting up norms that define the culture of groups within a firm. Heterogeneous sub-cultures can exist within a the larger firm. It's incorrect to assume that larger firms have homogeneous monolithic cultures. A Bank's technology group may be very different from the culture within Private Banking. A command and control culture may be appropriate for the military but not for a Fintech where a an informal, collaborative open culture is expected.
In the mid 1990s I joined a division of General Electric to create Internet based Marketplace Exchanges. This was to bring efficiencies to firms procuring products from vendors through auctions and B2B marketplaces. The strategy for the Canadian location was to implement a Java software development center to support projects in the US marketplace. The lower cost of developers in Canada, an abundance of skilled workers and a favorable foreign exchange rate seemed like a good strategy to do software development in Canada. We had a couple of Java developers already, but we didn't have the staff, infrastructure or structure to support software development. Had I applied the 7S framework, I would have realized there were many obstacles to successfully implementing the strategy. A framework analysis of the group would have highlighted the issues below:
GXS 7S Example
The 7S model is often used for organization design and transformations. Much has been written about using this model to understand a firm and what needs to change when the firm adopts a new strategy. Does the firm have the soft and hard elements required to support its goals? I'm a fan of using this framework to assess the readiness of an established firm to pursue a new strategy.
Suggested ApplicationFor assessing if a firm has the right elements to pursue its strategy. To understand if all the elements are in place to start a new division, or whether certain elements need to be modified to support the division's strategy.
Related Links: