Embedding Strategy: McKinsey's 7S Model
One of the most famous frameworks to come out of McKinsey was the 7S model. The 7S Model is a simple framework to think through how the major elements of an organisation interplay with one another. The basic question is: “What are the key elements that make an organisation tick?” – McKinsey answered this with 7 elements.
Published in the 1970’s, it was a very insightful yet very simple framework. I have used it in many organisations with much success. As with any and all frameworks, the simplest ones are generally the best – the value is in the underlying thinking and how you apply the framework.
For McKinsey & Co’s commentary on the framework, go here:
The firm has recently added a further 3 S’s to the framework to make it 10 but I cant for the life of me remember what the other 3 are… I guess that’s why Snow White had 7 dwarfs and not 10; she would never have remembered 10 names.
One observation, looking at the 7S framework, is that there is no bubble labelled Operations. I suppose that “the 7S and 1 “O” framework” doesn’t have the same ring to it.
Seriously though, your operations strategy is just as important as your strategy for all the other S’s in the framework. What about Product and Pricing strategies? Agree. The framework isn’t perfect. The 7S model provides a generic framework for all and any organisation regardless of business model.
My reflection is that your Operations Strategy is how all the seven elements work in unison to generate revenue. Ill touch on what I think are missing pieces at the end of the article.
How does one use the framework?
Proactively, one should have a strategy for all the particular elements. A Staff or Human Capital strategy; a Skills or Talent Management strategy; A Structure or Strategic Organisation strategy.
Reactively, one can assess and measure the 7 elements, both in terms of their own health and robustness, as well as how the 7 elements are working in unison and complimenting one another.
Let’s briefly unpack each of the elements and consider the key questions one should ask and answer in building a robust business model.
There is no guess as to why Values sits at the heart of the framework. As discussed in my Purpose, Vision, Mission, Values article, why your organisation exists and how it wishes to conduct itself is enduring and at the heart of the business.
When considering the other elements of the business, it is important to circle back on Shared Values to ensure that your strategic design of that element of the business fosters, reinforces, or compliments the Shared Values of the business and certainly doesn’t undermine the Shared Values.
It is therefore critical that Purpose, Mission and Shared Value are articulated in a practical and usable way.
Please see my article and framework on Strategy formulation.
I place strategy at the top of the 7S framework as, next to Shared Values, these are the two guiding lights for the organisation. The answers to these three fundamental questions provides the rules of the game and the playing field on which all other elements are designed to support:
- Who are we?
- How are we going to conduct ourselves?
- What are we going to do?
If you done have answers to these questions then you don’t know what you are solving for in considering the other elements. Have a clearly articulated Vision, Values and Strategy for going any further.
This is the organisational structure. What are the vertical and horizontal layers in your organisation? How have you organised divisions and departments and committees and sub-committees to best achieve your vision and mission?
Im sure some of you will be surprised at having to answer this at an early stage of business launch / development.
Trust me, if you don’t consciously consider these factors, you will wake up one day with hundreds of people and an organisational structure (good or bad) that has evolved out of nowhere. Give it forthought and planning.
Some of the key questions to consider in thinking about organisational structure:
How big do you want the executive committee to be?
This is a serious question. Do you want 5 executives sitting around a table making strategic decisions or do you want 10? This has significant implications on how you generate exec portfolios and think about spans of control and the level of senior management clout in the organisation.
Do an exercise as a team of founders or CEO – COO:
- If you only had 5 exec portfolios, what would they be?
- What if you had 10?
- What if you had 15?
- Now, what if you had 2 only?
What do those different pictures look like? Which seem lean and which seem excessive? What did you group where under your 2 or 5 scenario? What can this tell us about how you are thinking about management synergies or collaboration?
Where is innovation going to be housed?
I don’t mean continuous improvement, that has become a given. I mean innovation. Fresh new thinking. Are you expecting it to be embedded throughout the business? Will you have a separate R&D department? Do you expect all of your innovation to happen in Product Design? Or are you an Execution edge business? Will you have Innovation Agents that work throughout the business to big ideas across design, manufacture and distribute?
What are the silo’s you have to avoid?
Silo’s will happen. You can design for and against silos. Do you want Marketing and Sales under one portfolio to ensure the message the customer gets is the product delivered? Is marketing so unrelated to distribution that it doesn’t make sense to house them together? (e.g. above-the-line marketing versus call centre sales operations – sharing messages is sufficient, they don’t need to be under the same organisational division or executive)
How will the picture change? When will we move divisions or departments into other portfolios after incubation?
Do we incubate Internal Software Development under the Operations Head in order to make sure they are as close as possible to their customers? Once they gain scale and have developed an effective understanding of the business and internal customer service culture, we can move them out and give them to the CTIO to manage.
Cognisance also need to be given to the other elements.
- What is our UVP? How do we structure the organisation to maintain and optimise our UVP?
- What is our Staff strategy? Where are we going to over-invest in talent and where aren’t we? How does that help or hinder my structures?
- What systems are we going to invest in? Where do I need people-people and where do I need technical people or operators?
- What leadership style are we subscribing to? How does that impact which divisions or departments I put into portfolios?
I would break systems into two S’s:
Technical Systems and Management Systems
- What is our level of investment in technical systems?
- Where will be heavily invest and where wont we?
- What is the strategy and horizons for:
- Enterprise architecture
- nfrastructure and networking
- Internal Software
- Customer-facing digital platforms
- Data, MIS and Business Intelligence
- Where will we rely on manual processes?
- What will we insource versus outsource?
- Will we buy or will be build?
The answers to the questions have significant impact on all other elements.
I think of Management Systems as “How are you going to run your business?”
Are you going to have a centralised complexity business or a decentralised complexity business?
- Are you going to hire super smart people that can make key decisions in a decentralised manner?
- Or are you going to have a high level of policies and procedures and technology to make decisions for people? And associated escalation paths and management layers to handle escalations that fall outside of the norm?
- How are people going to report?
- What will you have policies for?
- What will you have Standard Operating Procedures for?
- What will your major Steering Committees be? Who will sit on them?
- What are you main weekly, monthly, quarterly and annual meetings and cycles? Whats on the agendas? Who attends?
Style refers to Leadership Style. It has a close relationship to Structure and Staff.
I am a big fan of:
True North by Bill George and
Lead From the Heart by Mark Crowley
They look at different elements of leadership and different leadership archetypes. Being conscious of the founders / early stage embedded leadership style, this should be given explicit consideration as it significantly influences:
- the profile you recruit as leaders / managers,
- how decentralised is decision making,
- how you support them or don’t support them,
- how they are trained,
- the structure of their management systems,
- the language that the team adopts,
This should take significant consideration in the Human Capital strategy.
Your staff / talent management strategy may differ by division. Gone are the days where businesses have one single competitive advantage.
Take for example a software development firm – you may have a particular staff and talent management strategy for your technical development teams and a completely different strategy for your sales force. It is equally important to consider each major division and its requirements.
Key questions to ask and consider:
- Where are staff going to come from? Straight out of school? Graduates? Post graduates?
- What is our remuneration model? 50th percentile, 75th percentile or 95th percentile? What about 20th percentile?
- How are we going to excite and motivate employees? Monetary levers versus other added benefits, culture, investment in development, culture, etc.
- What profile of employee and manager do we need to maintain the business culture or foster the right business culture? What profiles are we looking to avoid?
- What is our recruiting brand strategy?
You need to develop and grow your employees – not for the sake of personal development but to ensure that you get the most out of them in your business context. I am not a fan of generic training for trainings sake and most small companies cant afford that. Invest in figuring out what training is going to have a direct impact on the business. This includes which skills are required, how those are applied in your business culture and what universal language do you want to be talking (and which frameworks you use) for things like conflict management, project management, consequence management, performance management, etc.
Key questions to answer:
- How do we think about generalist skills versus technical skills? General management skills versus technical management skills? (circle back to strategic organisational structure)
- How do we mentor and groom the future leaders?
- How do we do this without alienating other staff?
- Are we hiring in skills over the medium term or are we growing staff internally to fill future senior roles?
- How do we balance internal grow-our-own with hire from outside to get a well-rounded skill and experience base?
- We do we want to hire from outside? Where do we want to grow from within?
- What internal training are we providing? Which topics are best handled internally? Who facilitates? How do we make it applicable to the day to day challenges of the business?
- What training do we outsource to better providers?
- How do we think about networking and learning from others?
- Do we have consulting partners that can advise us on best practice? Where in the business may we need this?
In my personal opinion, there are a couple of other elements that need to fall either in your 7S considerations or in your strategy formulation process:
Operations strategy: insource / outsource? Lean? Six sigma? Levels of automation versus manual.
Product Strategy: How diversified does the business want or need to be? How fast? Iterate products often with upgrades or focus on diversification of offering? What are the product growth horizons?
Marketing Strategy: How are you going to get customers through the door? Above the line versus below the line investment? Digital versus traditional mediums? Complementary channels (driving digital traffic through print or TV?)?
Brand Strategy: One brand or many? What is the brand personality and essence?
Distribution Strategy: Own, partner or outsource? Global or regional? How do distribution considerations impact the operations and product strategy?
Customer Strategy: Who are your customers? What are the segments? What do the industry profit pools look? Are you targeting all pools at once or targeting a particular segment? How does this impact product, marketing and distribution strategies? Customer service strategy – do we have key account managers? Given our segments and product strategy, how sophisticated does our customer service infrastructure and staff need to be?
Digital Strategy: How do we serve our customers digitally? Website? Applications?
In private equity owned ventures, a liquidity or exit strategy is worth giving due consideration to make sure the business is not unduly upset these requirements come to the fore for particular shareholders.
I will be publishing posts on each of these in time, stay in touch.