Wednesday, December 29, 2010

The merits of the McKinsey 7-S framework

McKinsey is clearly one of the best around. Usually they advise many, including me, so I thought this time I do the reverse!
McKinsey’s 7-S model has been developed in the late 1970s to evaluate organizations by focusing on seven ‘S’. Over time, the model has been slightly amended, yet remains one of the foremost tools to understand complex organizations. The model presses modern management techniques into a framework of headings starting with the same alphabetic character ‘S’. This paper evaluates the model’s capabilities when used as an analyzing tool. The paper also highlights some of the shortcomings a manager could experience when putting the model into use.
The model addresses measurable factors such as the organization’s structure, systems, and strategy (the so-called ‘hard triangle’) as well as aspects derived from a much more irrational process, namely super-ordinate goals (later renamed into shared values), style, staff, and skills (the so-called ‘soft square’) and argues that a successful organization is one in balance, with all variables heading into the same direction, and without any flaws in the interaction between these factors. Consequently, managers within the organization need to address all aspects of the model in order to run a successful organization, or when attempting to change an existing organizational structure and philosophy, be it financially, strategically, operationally, or from an employee satisfaction point of view (Weber:1998), whereas focusing on a few subjects only will result in failure.
Weber (1998) has described the seven Ss of the model in detail. They consist of the following:
Strategy: the strategy of an organization reflects on three steps:
  • Where the organization is right now;
  • Where the organization wants to be at a certain point in time; and maybe most importantly
  • How to get there.
The Strategy of an organization is also subject to external factors, such as competition and customer demands.

Structure: the structure of an organization depicts on how individuals and business units relate to each other. Flawed lines of communication are usually the bottlenecks within an organization’s structure. It is relatively easy to comprehend the organization’s structure by evaluating the hierarchy of the organization.

Systems: A set of systems can be seen as internal processes that determine how the organization operates on a day-to-day basis. Important to realize is who has factual authority over the used systems.

Style: All organizations display a certain culture, a set of shared actions, values and beliefs that distinguishes the organization from competitors. A question to ask would be: is the leadership style adequate to internal and external demands?

Staff: in the 7-S model, staff refers not only to support functions, but to all human resources within the organization. Competency gaps need to be addressed.

Skills: Skills in the 7-S model is used to address the capabilities of the whole organization, not only the individual skills of its members, and as such, where does the assessment of the skill lie?

Shared Values: Shared Values refer to the fundamental common beliefs held by the individual members of the organization on how to the organization needs to operate. An obvious question would be: are the shared values aligned with the company’s vision and core values?
It is widely believed that McKinsey’s 7-S model incorporates most of the elements of an organization. Studying the seven factors in-depth and linking the respective outcomes according to the model would therefore generate an accurate picture of the organization focused on. The model does not only consist of seven individual components, however. What tends to be equally important is the interaction of the factors and how they affect each other. Any gaps found depict shortcomings in the organization that need to be addressed.
McKinsey’s 7-S framework therefore is a strong analytical tool to evaluate organizations and competitors. Since the model emphasizes the interrelation between all functions, the model forces managers to adhere to a helicopter view and not to focus on a few elements within the organization only. Likewise, through its presentation of hard and soft elements, managers need to address the softer emotional side of the organization, something that has been excluded to a large extent in historical analyses of organizations. The framework is therefore also highly suited to be used when dealing with organizational change since it will also highlight the underlying elements, the ones that do not always figure prominently on balance sheets, of the organization.
However, as with any device to aid one’s memory, the used headings, the seven Ss, tend not always to represent the best choice of wordings and should therefore not be applied without a proper understanding of the underlying meanings. Staff, for example, does not only refer to staff in the traditional sense, it encompasses all people linked with the organization from within. Style, as another example, could be best paraphrased as culture with all its associated values and beliefs.
At the same time, the concepts within the soft square present additional difficulties when trying to quantify them. Variables within the ‘hard triangle’ can be relatively easily found in organizational reports and press releases. The ‘soft square’ factors, on the other hand, are harder to comprehend since these factors tend to be flexible and frequently changing over time. The model therefore rarely calculates a precise analysis of these variables, as such making it difficult for managers to quantify the generated and received data.
Although the model presents itself as a tool for all stakeholders in the organization, an important group within the stakeholders, some might even argue the most important group, is missing, or at least has not the central position it deserves in the discussed framework, namely the stakeholder called customer. Moreover, external factors generally do seem to be underrepresented in the 7-S model. A focus on the organization’s market opportunities for example is not considered, making it necessary to combine the outcome of a 7-S analysis with outcomes of other analytical models, such as a SWOT-analysis. Also, financial results of an organization can only be evaluated to a very limited extent within the 7-S framework. Traditional accounting analyses should therefore complement the McKinsey model when used to analyze financials of an organization.
Additionally, although the model does focus on people, it does not incorporate nor does it address human traits, such as the resistance to change, or the sometimes inherent incapability to communicate effectively. So in the end, although McKinsey’s 7-S framework is a very valuable tool to analyze organizations, one should however be aware of its shortcomings. Additional methods might be required to properly assess the organization and as with all management techniques, proper training needs to be received by the implementer. Or, to be using a popular phrase, train the trainer first.

1 comment:

  1. Thanks, Alex, for this. I was struggling with my MBA exam and your essay certainly helped me a lot!