McKinsey 7S Model: The 7S Framework Explained - SM Insight

Definition of the McKinsey 7S Model

McKinsey 7S model is a tool that analyzes company’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 the organization to achieve its objectives.

What is the McKinsey 7S Model

McKinsey 7S model was developed in the 1980s by McKinsey consultants Tom Peters, Robert Waterman and Julien Philips with help from Richard Pascale and Anthony G. Athos. Since its 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 the 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 a new strategy.
• To identify how each area may change in the future.
• To facilitate the merger of organizations.

7S factors

In the 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 a sustained competitive advantage.

Strategy

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 the 7S McKinsey model?

In general, a sound strategy is one that’s clearly articulated, long-term, helps to achieve a competitive advantage, and reinforced by a strong vision, mission, and values.

But it’s hard to tell if such a strategy is well-aligned with other elements when analyzed alone. So the key in the 7S model is not to look at your company to find the great strategy, structure, systems and etc. but to look if it’s aligned with other elements.

For example, a short-term strategy is usually a poor choice for a company, but if it’s aligned with the other 6 elements, then it may provide strong results.

Structure

Structure represents the way business divisions and units are organized and includes the information on 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

Systems are the processes and procedures of the company, which reveal the 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

Skills are the abilities that a firm’s employees perform very well. They also include capabilities and competencies. During organizational change, the question often arises of what skills the company will really need to reinforce its new strategy or new structure.

Staff

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

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 the company’s leaders.

Shared Values

Shared Values are at the core of McKinsey’s 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 McKinsey 7S framework

As we pointed out earlier, the McKinsey 7S framework is often used when organizational design and effectiveness are in question. It is easy to understand the model but much harder to apply it to your organization due to a common misunderstanding of what should 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 a strategy that relies on quick product introduction, but the matrix structure with conflicting relationships hinders that, so there’s a conflict that requires a change in strategy or structure.

Step 2. Determine the optimal organizational design

With the help of 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 you would like to do that. Suppose you find that your firm’s structure and management style are not aligned with the company’s values. In that case, you should decide how to reorganize the reporting relationships and which top managers the company should 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 a 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 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 a complex matrix structure and comprehensive business systems, which are very expensive to develop.

McKinsey 7S Example (1/3)

Current position #2

The startup has grown to become a large business with 500+ employees and now maintains a 50% market share in the domestic market. Its structure has changed and it is now a well-oiled bureaucratic machine.

The business expanded its staff and introduced new motivation, reward and control systems. Shared values evolved and now the company values enthusiasm and excellence. Trust and teamwork have 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 the 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)

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 America.

The company introduced new strategic planning systems and hired new management, which brought new analytical, strategic planning, and, most importantly, managerial skills. The 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, the company’s structure should have changed from a well-oiled bureaucratic machine to a division structure. The division structure is designed to facilitate 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)

We’ve shown a 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.

• GE McKinsey Matrix
• The Johari Window Model
• Business Model Canvas (BMC)
• Elaboration Likelihood Model of Persuasion