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 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.

7S Factor
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.
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 it’s 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.

Unsing 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
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.

Alignment

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.
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.

Alignment

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.
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.

Alignment

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.
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.