McKinsey 7S model is a tool that analyzes firm’s organizational design by looking at 7 key internal elements: strategy, structure, systems, shared values, style, staff and skills, in order to identify if they are effectively aligned and allow organization to achieve its objectives.
Understanding the tool
McKinsey 7s model was developed in 1980s by McKinsey consultants Tom Peters, Robert Waterman and Julien Philips with a help from Richard Pascale and Anthony G. Athos. Since the introduction, the model has been widely used by academics and practitioners and remains one of the most popular strategic planning tools. It sought to present an emphasis on human resources (Soft S), rather than the traditional mass production tangibles of capital, infrastructure and equipment, as a key to higher organizational performance. The goal of the model was to show how 7 elements of the company: Structure, Strategy, Skills, Staff, Style, Systems, and Shared values, can be aligned together to achieve effectiveness in a company. The key point of the model is that all the seven areas are interconnected and a change in one area requires change in the rest of a firm for it to function effectively.
Below you can find the McKinsey model, which represents the connections between seven areas and divides them into ‘Soft Ss’ and ‘Hard Ss’. The shape of the model emphasizes interconnectedness of the elements.
The model can be applied to many situations and is a valuable tool when organizational design is at question. The most common uses of the framework are:
- To facilitate organizational change.
- To help implement new strategy.
- To identify how each area may change in a future.
- To facilitate the merger of organizations.
In McKinsey model, the seven areas of organization are divided into the ‘soft’ and ‘hard’ areas. Strategy, structure and systems are hard elements that are much easier to identify and manage when compared to soft elements. On the other hand, soft areas, although harder to manage, are the foundation of the organization and are more likely to create the sustained competitive advantage.
|Hard S||Soft S|
Strategy is a plan developed by a firm to achieve sustained competitive advantage and successfully compete in the market. What does a well-aligned strategy mean in 7s McKinsey model? In general, a sound strategy is the one that’s clearly articulated, is long-term, helps to achieve competitive advantage and is reinforced by strong vision, mission and values. But it’s hard to tell if such strategy is well-aligned with other elements when analyzed alone. So the key in 7s model is not to look at your company to find the great strategy, structure, systems and etc. but to look if its aligned with other elements. For example, short-term strategy is usually a poor choice for a company but if its aligned with other 6 elements, then it may provide strong results.
Structure represents the way business divisions and units are organized and includes the information of who is accountable to whom. In other words, structure is the organizational chart of the firm. It is also one of the most visible and easy to change elements of the framework.
Systems are the processes and procedures of the company, which reveal business’ daily activities and how decisions are made. Systems are the area of the firm that determines how business is done and it should be the main focus for managers during organizational change.
Skills are the abilities that firm’s employees perform very well. They also include capabilities and competences. During organizational change, the question often arises of what skills the company will really need to reinforce its new strategy or new structure.
Staff element is concerned with what type and how many employees an organization will need and how they will be recruited, trained, motivated and rewarded.
Style represents the way the company is managed by top-level managers, how they interact, what actions do they take and their symbolic value. In other words, it is the management style of company’s leaders.
Shared Values are at the core of McKinsey 7s model. They are the norms and standards that guide employee behavior and company actions and thus, are the foundation of every organization.
The authors of the framework emphasize that all elements must be given equal importance to achieve the best results.
Using the tool
As we pointed out earlier, the McKinsey 7s framework is often used when organizational design and effectiveness are at question. It is easy to understand the model but much harder to apply it for your organization due to a common misunderstanding of what should a well-aligned elements be like.
We provide the following steps that should help you to apply this tool:
Step 1. Identify the areas that are not effectively aligned
During the first step, your aim is to look at the 7S elements and identify if they are effectively aligned with each other. Normally, you should already be aware of how 7 elements are aligned in your company, but if you don’t you can use the checklist from WhittBlog to do that. After you’ve answered the questions outlined there you should look for the gaps, inconsistencies and weaknesses between the relationships of the elements. For example, you designed the strategy that relies on quick product introduction but the matrix structure with conflicting relationships hinders that so there’s a conflict that requires the change in strategy or structure.
Step 2. Determine the optimal organization design
With the help from top management, your second step is to find out what effective organizational design you want to achieve. By knowing the desired alignment you can set your goals and make the action plans much easier. This step is not as straightforward as identifying how seven areas are currently aligned in your organization for a few reasons. First, you need to find the best optimal alignment, which is not known to you at the moment, so it requires more than answering the questions or collecting data. Second, there are no templates or predetermined organizational designs that you could use and you’ll have to do a lot of research or benchmarking to find out how other similar organizations coped with organizational change or what organizational designs they are using.
Step 3. Decide where and what changes should be made
This is basically your action plan, which will detail the areas you want to realign and how would you like to do that. If you find that your firm’s structure and management style are not aligned with company’s values, you should decide how to reorganize the reporting relationships and which top managers should the company let go or how to influence them to change their management style so the company could work more effectively.
Step 4. Make the necessary changes
The implementation is the most important stage in any process, change or analysis and only the well-implemented changes have positive effects. Therefore, you should find the people in your company or hire consultants that are the best suited to implement the changes.
Step 5. Continuously review the 7s
The seven elements: strategy, structure, systems, skills, staff, style and values are dynamic and change constantly. A change in one element always has effects on the other elements and requires implementing new organizational design. Thus, continuous review of each area is very important.
Example of McKinsey 7S Model
We’ll use a simplified example to show how the model should be applied to an existing organization.
Current position #1
We’ll start with a small startup, which offers services online. The company’s main strategy is to grow its share in the market. The company is new, so its structure is simple and made of a very few managers and bottom level workers, who undertake specific tasks. There are a very few formal systems, mainly because the company doesn’t need many at this time.
So far the 7 factors are aligned properly. The company is small and there’s no need for complex matrix structure and comprehensive business systems, which are very expensive to develop.
|McKinsey 7s Example (1/3)|
|Systems||Few formal systems. The systems are mainly concerned with customer support and order processing. There are no or few strategic planning, personnel management and new business generation systems.||Yes|
|Skills||Few specialized skills and the rest of jobs are undertaken by the management (the founders).||Yes|
|Staff||Few employees are needed for an organization. They are motivated by successful business growth and rewarded with business shares, of which market value is rising.||Yes|
|Style||Democratic but often chaotic management style.||Yes|
|Shared Values||The staff is adventurous, values teamwork and trusts each other.||Yes|
Current position #2
The startup has grown to become large business with 500+ employees and now maintains 50% market share in a domestic market. Its structure has changed and is now a well-oiled bureaucratic machine. The business expanded its staff, introduced new motivation, reward and control systems. Shared values evolved and now the company values enthusiasm and excellence. Trust and teamwork has disappeared due to so many new employees.
The company expanded and a few problems came with it. First, the company’s strategy is no longer viable. The business has a large market share in its domestic market, so the best way for it to grow is either to start introducing new products to the market or to expand to other geographical markets. Therefore, its strategy is not aligned with the rest of company or its goals. The company should have seen this but it lacks strategic planning systems and analytical skills.
Business management style is still chaotic and it is a problem of top managers lacking management skills. The top management is mainly comprised of founders, who don’t have the appropriate skills. New skills should be introduced to the company.
|McKinsey 7s Example (2/3)|
|Systems||Order processing and control, customer support and personnel management systems.||No|
|Skills||Skills related to service offering and business support, but few managerial and analytical skills.||No|
|Staff||Many employees and appropriate motivation and reward systems.||Yes|
|Style||Democratic but often chaotic management style.||No|
|Shared Values||Enthusiasm and excellence||No|
Current position #3
The company realizes that it needs to expand to other regions, so it changes its strategy from market penetration to market development. The company opens new offices in Asia, North and South Americas. Company introduced new strategic planning systems hired new management, which brought new analytical, strategic planning and most importantly managerial skills. Organization’s structure and shared values haven’t changed.
Strategy, systems, skills and style have changed and are now properly aligned with the rest of the company. Other elements like shared values, staff and organizational structure are misaligned. First, company’s structure should have changed from well-oiled bureaucratic machine to division structure. The division structure is designed to facilitate the operations in new geographic regions. This hasn’t been done and the company will struggle to work effectively. Second, new shared values should evolve or be introduced in an organization, because many people from new cultures come to the company and they all bring their own values, often, very different than the current ones. This may hinder teamwork performance and communication between different regions. Motivation and reward systems also have to be adapted to cultural differences.
|McKinsey 7s Example (3/3)|
|Systems||Order processing and control, customer support, personnel management and strategic planning systems.||Yes|
|Skills||Skills aligned with company’s operations.||Yes|
|Staff||Employees form many cultures, who expect different motivation and reward systems.||No|
|Shared Values||Enthusiasm and excellence||No|
We’ve showed the simplified example of how the Mckinsey 7s model should be applied. It is important to understand that the seven elements are much more complex in reality and you’ll have to gather a lot of information on each of them to make any appropriate decision.
The model is simple, but it’s worth the effort to do one for your business to gather some insight and find out if your current organization is working effectively.