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Chapter 12

McKinsey 7S

Ch12. McKinsey 7S
• • • • • • • • Short Description Background Strategic Rationale & Implications Strengths & Advantages Weaknesses & Limitations Process for Applying Technique Case Study: Kenya Airways FAROUT
Business and Competitive Analysis. By C. Fleisher & B. Bensoussan.

FT Press 2007. All Rights Reserved.

Ch12.2

Business and Competitive Analysis. FT Press 2007. Ch12. Bensoussan.3 .Ch12. McKinsey 7S Short Description • The McKinsey 7S model is a diagnostic management tool used to test the strength of the strategic degree of fit between a firm’s current and proposed strategies. All Rights Reserved. Fleisher & B. • It is a management tool designed to facilitate the process of strategy implementation within the context of organizational change. By C.

Business and Competitive Analysis.Ch12. recognized a circular problem central to their client’s failure to effectively implement strategy. • Successful implementation of strategy requires management of the interrelationships between seven elements. Fleisher & B. FT Press 2007. All Rights Reserved. Ch12. By C. McKinsey 7S Background • Idea that structure will follow strategy had been a prominent concept in modern strategy theory. • Consultants at McKinsey & Co. Bensoussan.4 . and co-developed the McKinsey model.

Structure 2. Business and Competitive Analysis. Shared values FT Press 2007. All Rights Reserved.5 . Ch12.Ch12. Strategy 3. Systems 4. Fleisher & B. McKinsey 7S Background • Seven elements are: 1. Skills 7. By C. Style 5. Staff 6. Bensoussan.

Fleisher & B.Ch12.6 . Strategy Systems Structure Shared Values / Subordinate Goals Staff Skills Style FT Press 2007. Bensoussan. McKinsey 7S Background: Schematic of the McKinsey 7S Framework. Business and Competitive Analysis. Ch12. All Rights Reserved. By C.

By C. – The lines connecting each element identify the mutual dependency between each element. – Strategic failure may be attributable to inattention to one or a combination of seven elements. Business and Competitive Analysis. McKinsey 7S Background • There are four key insights which can be derived from this model: – Five other elements comprise organizational effectiveness in addition to the traditional strategy and structure.7 . – The circularity of the model focuses the analyst’s attention on the absence of hierarchical dominance. Ch12. FT Press 2007. Fleisher & B. All Rights Reserved. Bensoussan.Ch12.

All Rights Reserved. • Organizational effectiveness was not dependent on just strategy and structure. • First model to meld the “hard” and “soft” aspects of the enterprise. Fleisher & B. Business and Competitive Analysis. FT Press 2007. • Model was also one of the first to help connect academic research with managerial practice. By C.Ch12. and how they interact. • Emphasizes coordination of key tasks. McKinsey 7S Strengths and Advantages • Emphasis on a firm’s strategy implementation. • Comprehensive because the analyst must consider each of the seven constructs. Ch12. Bensoussan.8 .

9 . • Remains difficult to properly assess the degree of fit. • Little empirical support for the model or of its originator’s conclusions. Business and Competitive Analysis. By C. • The 7S is mostly a static model. FT Press 2007. Fleisher & B.Ch12. McKinsey 7S Weaknesses and Limitations • May miss some fine-grained areas in which gaps in strategy conception or execution can arise. • Difficult for analysts to explain what should be done for implementation using the model. Ch12. All Rights Reserved. Bensoussan.

By C. Business and Competitive Analysis.Ch12. • The bottom row would contain the elements of each ‘S’ where the company is achieving sub-par performance. • Can create a 7 X 2 matrix with the top row containing critical features of each ‘S’ that the company does extremely well. • The key success factors for each element need to be identified. Ch12. Bensoussan. Fleisher & B. (Waterman. All Rights Reserved. 1982) • This matrix can be extremely useful in organizing the analysis.10 . FT Press 2007. McKinsey 7S Process for Applying the Technique • The first step is to closely examine each ‘S’.

Ch12. Bensoussan. Business and Competitive Analysis. McKinsey 7S • Process for Applying the Technique Structure Strategy Systems Style Staff Skills Shared Values Aligned strategic fit Partially aligned fit Structure Strategy Systems Style Staff Skills Shared Values Mis-aligned fit FT Press 2007. By C.11 . All Rights Reserved. Fleisher & B.Ch12.

Ch12. All Rights Reserved. By C. a compromise between each option is the realistic alternative.12 . – Often. FT Press 2007. Ch12. Fleisher & B. – It can change the strategy to fit the existing orientation of the other six elements of the model. Business and Competitive Analysis. Bensoussan. there are essentially three options: – The firm can work to change the required components of each ‘S’ so that they are consistent with strategy. McKinsey 7S Process for Applying the Technique • After isolating the strategic distance between the seven elements of strategic fit.

• Senior management was appointed by politicians and had virtually no airline experience. All Rights Reserved. McKinsey 7S Case Study: Privatization of Kenya Airways • Kenya Airways was originally established in 1977 as a corporation owned by the Kenyan Government. • The company lacked structure and direction. By C. Business and Competitive Analysis. Bensoussan. had very little equipment (seven planes).Ch12. FT Press 2007. Ch12.13 . and was burdened with high interest foreign currency loans. Fleisher & B. • By 1991 the airline was losing market share due to poor service and unreliable flight schedules and its debts were an enormous strain on the Kenyan Government.

Needs of all stakeholders were identified IT department was created to introduce new consistent systems and controls for accounting. and ticketing. • By 1994. • • • • Ch12. management. the airline recorded its first profits. • In 1996 the Kenyan Government sold 26% of its stock to KLM. leaving only a 22% minority ownership block held in the airline. Bensoussan. scheduling. FT Press 2007. operations. A new and capable management team was hired. McKinsey 7S Case Study: Privatization of Kenya Airways In 1991. By C. and most of the remainder of its stock to the Nairobi Stock Exchange. the commercialization process began. Business and Competitive Analysis. Fleisher & B.14 . All Rights Reserved.Ch12. • 1995 created a strategic alliance with KLM Royal Dutch Airlines.

• Change culture to be service-oriented by taking every employee through customer service training program. • Keep product offerings consistent and of the highest quality. • Increase shareholder value. • Create alliances with other respectable airlines. Fleisher & B. • Anticipate industry change factors. • Be the ‘airline of choice in Africa’. McKinsey 7S BEFORE AFTER Strategy • Lack of strategy. Ch12. • Always be safe. Business and Competitive Analysis. All Rights Reserved. customers and travel agents. product quality and performance’.15 Shared Values • Not suited to commercial profit-driven firm. By C. • Deliver profitability consistently. Bensoussan. Shared Values • Identify needs of internal staff. FT Press 2007. • Unreliable and rarely on time. Strategy • Goal to ‘achieve world-class standards in service delivery. • Aim to become Africa’s leading airline. .Ch12. • Very little attention paid to managing firm-wide human factors. • Mainly unprofitable. • Operate a modern fleet of aircraft. • Government pricing policies dictated too low fare schema. • No market direction.

By C. FT Press 2007. •No means to measure productivity. Business and Competitive Analysis. McKinsey 7S BEFORE (cont’d) AFTER (cont’d) Structure •Bloated workforce. •New budget planning and reporting systems. •Computer systems not sufficient to sustain business. Fleisher & B. •De-centralized with offices or agents in every region the airline serviced. •New program to continuously improve operations and reliability. •Lack of accountability. Structure Systems •Lack of measurement for operations. Bensoussan. •Imprecise financial reporting. Systems •New financial control and accountability systems. Ch12. •Lack of accountability in governance.Ch12. •Workforce reduction. •Creation of IT department. •Bureaucratic. All Rights Reserved.16 . •Technical skills misused and underutilized. •Managers expected to be responsible and accountable for their units.

•Consistently profitable FT Press 2007. •Strategic alliance with KLM. •Decent share of international routes. All Rights Reserved. •Weak sales and marketing. •All staff get customer service training. •CEOs were rarely held the station longer than a couple of years and lacked adequate time to implement strategies. Style •Profit-oriented culture. Business and Competitive Analysis. •Stakeholder driven culture.Ch12. By C. Staff •Employees were friends and relatives of politicians. •Increased productivity. Ch12. •Low standards of customer service. Fleisher & B. •Hiring of upper management with airline experience. •Attracting business class customers. •All staff expected to be responsible and accountable. Skills •Efficient use of fleet.17 . McKinsey 7S BEFORE (cond’t) AFTER (cond’t) Style •Politically influenced. control and reporting systems. •Executives expected to re-vamp budget planning. •Technical skills misused and underutilized. Bensoussan. •More employees were employed than needed. sales and marketing. Staff •Reduction of staff. •Unused talent and energy at almost every level. Skills •Large market share of regional routes.

All Rights Reserved. Fleisher & B. Ch12. McKinsey 7S • FAROUT Summary 1 2 3 4 5 F A R O U T FT Press 2007.18 .Ch12. By C. Business and Competitive Analysis. Bensoussan.

Business and Competitive Analysis. By C. Fleisher & B. Ch12.Ch12. All Rights Reserved.19 . McKinsey 7S Related Tools and Techniques • Competitive Benchmarking • Customer Segmentation and Needs Analysis • Customer Value Analysis • Functional Capability and Resource Analysis • SERVO Analysis • SWOT Analysis • Value Chain Analysis FT Press 2007. Bensoussan.

20 . Bensoussan. see: Fleisher. All Rights Reserved.Ch12. Bensoussan Business and Competitive Analysis: Effective Application of New and Classic Methods Upper Saddle River. Fleisher & B. McKinsey 7S For More About McKinsey 7S and 23 Other Useful Analysis Methods. Business and Competitive Analysis. Ch12. By C. NJ 2007 FT Press 2007. Craig S. and Babette E.