ORGANIZATION THEORY AND DESIGN ASSIGNMENT

Analysis of Mckinsey 7s Framework

By

Pravin Bang
2012HR031

2012-2014

TATA INSTITUTE OF SOCIAL SCIENCES

The McKinsey 7S Framework is a management model developed by business consultants Robert H. Waterman, Jr. and Tom Peters. The 7S are structure, strategy, systems, skills, style, staff and shared values.

The model is based on the theory that, for an organization to perform well, these seven elements need to be aligned and mutually reinforcing. So, the model can be used to help identify what needs to be realigned to improve performance, or to maintain alignment (and performance) during other types of change. (Ref: The McKinsey 7S Framework, Website-www.mindtools.com) The 7S model is a tool for managerial analysis and action that provides a structure with which to consider the company as a whole. It is a value-based management (VBM) model that describes how one can holistically and effectively organize a company. Together, these factors determine the way in which a corporation operates. It is a framework for analyzing organizations and their effectiveness. It looks at the seven key elements that make the organization successful, or not. (Ref: 7-S Framework of McKinsey, Website-www.vectorstudy.com)

The shape of the model (as shown in the figure ) was designed to illustrate the interdependency of the variables. This is illustrated by the model also being termed as the "Managerial Molecule". While the authors thought that other variables existed within complex organisations, the variables represented in the model were considered to be of crucial importance to managers and practitioners. The framework suggests that these 7 factors influence an organizations ability to change. All of these factors are interconnected and because of these interconnectedness, it would be difficult to make significant progress in one of the areas without making progress in the others as well. The 7S model is a tool for managerial analysis and action that provides a structure with which to consider the company as a whole. It is a value-based management (VBM) model that describes how one can holistically and effectively organize a company. Together, these factors determine the way in which a corporation operates. It is a framework for analyzing organizations and their effectiveness. It looks at the seven key elements that make the organization successful, or not.(Ref: 7-S Framework of McKinsey, Website-www.vectorstudy.com) The shared value as the central factor in the model underlines the fact that this is the most important element in the growth of all other critical elements.

The 7s model falls under the 1st type (integral general or Internal G) of the four Structural types approaches to organizational studies. Integral as a general and holistic perspective which provides an inclusive view of organisational life but lacks a developmental understanding of change. This category describes a general theory or holistic approach towards integrating perspectives on developing the organisation, its products and services and the quality of peoples lives. These theories fit under the popular, dictionary definition of the word integral and are useful and important contributors to improving the understanding of organisational behaviour and the operations of organisations in practice. The McKinsey 7S framework (Rasiel and Friga, 2001) used by many management consultants is an integral G type because it aims to integrate and improve on a number of aspects of the organisation, e.g. staff, systems, and organisational structures. The 7S model, however, does not organise the seven areas into any coherent domains and does not recognise levels of development. Nor does it recognise any developmental domains that might correspond to the four quadrants. Many current organisational development and transformational theories might fall within the Integral G category. The theory of transformational leadership, for example, is a well researched and validated theory that covers a wide range of behaviours and characteristics of highly effective leaders. However, it does not have clearly articulated domains or levels within its framework. It does attempt to provide a broadly holistic view of leadership and, hence, it comes under the Integral G type.

(Ref: Ron Cacioppe, Mark G. Edwards, (2005),"Adjusting blurred visions: A typology of integral approaches to organisations", Journal of Organizational Change Management) The Seven Elements: The McKinsey 7S model involves seven interdependent factors which are categorized as either "hard" or "soft" elements. Hard Elements Strategy Structure Systems Soft Elements Shared values Skills Style Staff

The seven elements are described as follows: Strategy: It is basically the plan devised to maintain and build a competitive advantage over the competition. It is the integrated vision and direction of the company, as well as the manner in which it derives, articulates, communicates and implements that vision and direction. It determines the long term direction of the company. .It deals with essentially three questions where the organization is at this moment in time, where the organization wants to be in a particular length of time and how to get there (Anso, 1965).

Structure: It is the way the organization is structured and who reports to whom. Structure is the skeleton, the form of shape, of organisations. It dictates the way it operates and performs. Traditionally, businesses are structured with divisions, departments and layers, in which the lower layers answer to upper layers. Although this is still the most widely used organisational structure, the recent trend is increasingly towards a flat structure where the work is done in teams of specialists rather than fixed departments. The idea is to make the organisation more flexible and devolve the power by empowering the employees and eliminate the middle management layers (Boyle, 2007).[Abstract] Systems: Systems are routine processes and procedures followed within an organisation to implement the strategy and to run day-to-day affairs. These processes are mainly designed to achieve maximum effectiveness. Traditionally, the higher management makes the most decisions. Increasingly, the organisation are using innovation and new technology to make decision-making process quicker.

Traditionally the organisations have been following a bureaucratic-style process model where most decisions are taken at the higher management level. Increasingly, the organisations are simplifying and modernising their process by innovation and use of new technology to make the decision-making process quicker. Special emphasis is on the customers with the intention to make the processes that involve customers as user friendly as possible (Lynch, 2005). Skills: Skills are the capabilities and Competencies of the staff within the organisation as a whole. Staff: These are the human capital of the company and the way they are trained and developed. The people hired should fit well in the job and should be engaged to their roles. All leading organisations such as IBM, Microsoft, Cisco, etc put extraordinary emphasis on hiring the best staff, providing them with rigorous training and mentoring support, and pushing their staff to limits in achieving professional excellence, and this forms the basis of these organisations' strategy and competitive advantage over their competitors. It is also important for the organisation to instil confidence among the employees about their future in the organisation and future career growth as an incentive for hard work (Purcell and Boxal, 2003). Style: It is the leadership approach of the top management and the companys overall operating approach. Broadly, it refers to the employees shared and the common way of thinking and behavingunwritten norms of behavior and thought. The businesses have traditionally been influenced by the military style of management and culture where strict adherence to the upper management and procedures was expected from the lower-rank employees. However, there have been extensive efforts in the past couple of decades to change to culture to a more open, innovative and friendly environment with fewer hierarchies and smaller chain of command. Culture remains an important consideration in the implementation of any strategy in the organisation (Martins and Terblanche, 2003) Shared Values: It is called "superordinate goals" when the model was first developed, these are the core values of the company that are evidenced in the corporate culture and the general work ethic. Employees are expected to abide by the values even if they are not demonstrably profitable. These values and common goals keep the employees working towards a common destination as a coherent team and are important to keep the team spirit alive. The organisations with weak values and common goals often find their employees following their own personal goals that

may be different or even in conflict with those of the organisation or their fellow colleagues (Martins and Terblanche, 2003).

Application of 7s models:
Analysing Examining Starbucks utilizing of the 7s method. The company Starbucks the 41 year old Seattle based coffee retailer. Starbucks corporation purchases and roasts high quality whole bean coffees and sells them along with fresh, rich-brewed coffees, Italian style and espresso beverages. The company objective is to establish Starbucks as the most recognized and respected brand in the world. To achieve this goal, the company plans to continue expanding its retail operations rapidly, growing its specialty operations and selectively pursuing other opportunities to leverage their brand through the introduction of new products and the development of new distribution channels. The analysis of Starbucks organization by 7s frameworks led to the following conclusions: Shared values: The organization constantly refers to the Starbucks experience, and rallies employees behind delivering and satisfying this notion. Strategy: Starbucks has aggressively expanded throughout North American and to locations around the world. The number of retail locations increased by 35% from 1998 to 2000. In bringing the Starbucks experience to consumers world-wide, the company has decided that it must focus on its core competency; namely coffee. Structure: Starbucks has a functional structure that can be defined as unstructured. This emphasizes the need for new ideas and employee input. Systems: The firm has several important systems in place within the organization. These deal primarily with product knowledge, and product development. Examining Starbucks using the 7s method . Skills: Starbucks has a distinct competitive advantage with its front line employees who are knowledgeable and friendly. Further, the Starbucks coffee experience is reinforced through strategic alliances with major grocery stores, hotels, and airlines. Staff: Through generous benefits packages, and comprehensive training, Starbucks is able to have high quality employees in a retail environment, while minimizing the challenges facing many other traditional retailers including employee turnover or employee motivation. Style: The style for the organization is defined as innovative, flexible and team-orientated.

(Ref: Examining Starbucks utilizing the 7s method and less than perfect information (2001), Tim Glowa)

Application of 7s Model on Xerox Corporation:

XEROX CORPORATION On the eve of the twenty-first century, Xerox Corporation seemed on top of the world, with fast-rising earnings, a soaring stock price, and a new line of computerized copier-printers that were technologically superior to rival products. Less than two years later, many considered Xerox a has-been, destined to fade into history. Consider the following events: Sales and earnings plummeted as rivals caught up with Xeroxs high-end digital machines, offering comparable products at lower prices. Xeroxs losses for the opening year of the twenty-first century totaled $384 million, and the company continued to bleed red ink. Debt mounted to $18 billion. The stock fell from a high of $64 to less than $4, amid fears that the company would file for federal bankruptcy protection. Over an 18-month period, Xerox lost $38 billion in shareholder wealth. Twenty-two thousand Xerox workers lost their jobs, further weakening the morale and loyalty of remaining employees. Major customers were alienated, too, by a restructuring that threw salespeople into unfamiliar territories and tied billing up in knots, leading to mass confusion and billing errors. The company was fined a whopping $10 million by the Securities and Exchange Commission (SEC) for accounting irregularities and alleged accounting fraud. What went wrong at Xerox? The companys deterioration is a classic story of organizational decline. Although Xerox appeared to fall almost overnight, the organizations problems were connected to a series of organizational blunders over a period of many years. BACKGROUND Xerox was founded in 1906 as the Haloid Company, a photographic supply house that developed the worlds first xerographic copier, introduced in 1959. Without a doubt, the 914 copier was a money-making machine. By the time it was retired in the early 1970s, the 914 was the best-selling industrial product of all time, and the new name of the company, Xerox, was listed in the dictionary as a synonym for photocopying. Joseph C. Wilson, Haloids longtime chairman and president, created a positive, people-oriented culture continued by his successor, David Kearns, who steered Xerox until 1990. The Xerox culture and its dedicated employees (sometimes called Xeroids) were the envy of the corporate world. In addition to values of fairness and respect, Xeroxs culture emphasized risk taking and employee involvement. Wilson wrote the following for early recruiting materials: We seek people who are willing to accept risk, willing to try new ideas and have ideas of their own . . . who are not afraid to change what they are doing from one day to the next, and from one year to the next . . . Xerox continued to use these words in its recruiting efforts, but the culture the words epitomize had eroded.(Ref: Understanding the Theory and Design of Organizations Page no. 3 5, Richard Daft ) Application of 7s Framework to analyze the case of Xerox corporation: Strategy: Xerox outsourced much of the production to outside contractors. Applied High degree of Focus on Innovation and sevice. Many money losing operations were closed to cut down on the operating cost

System: High Degree of focus on Research and Development which can fuel growth in the long run. Skills: The Employee workforce of Xerox were highly Innovative and Research oriented. It was these same skills that fuelled the exponential growth of Xerox in initial years. Shared values: Mulachy was firmly committed to the principles of ethical business practices. Mulcahy has also responded to global stakeholders with a firm commitment to human rights. Her personal involvement in settlement of long investigation into fraudulent accounting practices showed her commitment towards ethical business practices. Style: As as leader Mulachy was willing to change the status quo. Mulachy was a very strong decision maker and took very did whatever she could to Reduce operational costs.