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Describe the Mckinsey 7-S framework and explain how it could be used to inform a change management programme.
The McKinsey organization first coined culture as “how we do things around here”. In spite of this definition it is clear that many more contributing factors are also involved in the development of culture. Change is a pervasive influence in all aspects of our society and general function. It has an impact on the functionality of an organization. Culture takes centre stage in the changes that take place in an organization especially when different organizations come together and their differing cultures collide. This is particularly seen when the existing culture has to grow through some alterations because it ceases to be relevant to the current progress in the company. In other more static organizations, culture influences can be seen in staff low morale, absenteeism or a high staff turnover which essentially affects productivity negatively. Hence the culture in an organization can have a significant influence on the environment and output.
Introduction This paper discusses McKinsey's 7S Model that was created by the consulting company McKinsey and Company in the early 1980s. Since then it has been widely used by practitioners and academics alike in analysing hundreds of organisations. The paper explains each of the seven components of the model and the links between them. It also includes practical guidance and advice for the students to analyse organisations using this model. At the end, some sources for further information on the model and case studies available on this website are mentioned. The McKinsey 7S model was named after a consulting company, McKinsey and Company, which has conducted applied research in business and industry (Pascale & Athos, 1981; Peters & Waterman, 1982). All of the authors worked as consultants at McKinsey and Company; in the 1980s, they used the model to analyse over 70 large organisations. The McKinsey 7S Framework was created as a recognisable and easily remembered model in business. The seven variables, which the authors term "levers", all begin with the letter "S": These seven variables include structure, strategy, systems, skills, style, staff and shared values. Structure is defined as the skeleton of the organisation or the organisational chart. The authors describe strategy as the plan or course of action in allocating resources to achieve identified goals over time. The systems are the routine processes and procedures followed within the organisation. Staff are described in terms of personnel categories within the organisation (e.g. engineers), whereas the skills variable refers to the capabilities of the staff within the organisation as a whole. The way in which key managers behave in achieving organisational goals is considered to be the style variable; this variable is thought to encompass the cultural style of the organisation. The shared values variable, originally termed superordinate goals, refers to the significant meanings or guiding concepts that organisational members share (Peters and Waterman, 1982). The shape of the model (as shown in figure 1) was also 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
although the authors do acknowledge that other variables exist and that they depict only the most crucial variables in the model. procurement of daily use goods) to be taken. These processes are normally strictly followed and are designed to achieve maximum effectiveness. well thought through and often practically rehearsed. the recent trend is increasingly towards a flat structure where the work is done in teams of specialists rather than fixed departments. or anticipation of. The authors have concluded that a company cannot merely change one or two variables to change the whole organisation. Style/Culture: All organisations have their own distinct culture and management style. 1982). subject to constraints of the capabilities or the potential (Ansoff. The idea is to make the organisation more flexible and devolve the power by empowering the employees and eliminate the middle management layers (Boyle. they feel that the variables should be changed to become more congruent as a system.g. 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. skills. Systems: Every organisation has some systems or internal processes to support and implement the strategy and run day-to-day affairs. Traditionally the organisations have been following a bureaucratic-style process model where most decisions are taken at the higher management level and there are various and sometimes unnecessary requirements for a specific decision (e. the notion of performance or effectiveness is not made explicit in the model. the variables represented in the model were considered to be of crucial importance to managers and practitioners (Peters and Waterman. Traditionally. a company may follow a particular process for recruitment. However. strategy and systems with the soft variables.organisations.g. 2) where the organisation wants to be in a particular length of time and 3) how to get there. dependent on their objectives and culture. Many layers of management controlled the operations. Special emphasis is on the customers with the intention to make the processes that involve customers as user friendly as possible (Lynch. there have been extensive . staff and shared values) are considered to be "soft" variables. The structure of the company often dictates the way it operates and performs (Waterman et al. Description of 7 Ss Strategy: Strategy is the plan of action an organisation prepares in response to. For long-term benefit. beliefs and norms which develop over time and become relatively enduring features of the organisational life. While alluded to in their discussion of the model.. These other variables (e. Increasingly. Strategy is differentiated by tactics or operational actions by its nature of being premeditated. It deals with essentially three questions (as shown in figure 2): 1) where the organisation is at this moment in time. 2007). For example. each responsible for a specific task such as human resources management. The analysis of several organisations using the model revealed that American companies tend to focus on those variables which they feel they can change (e. Although this is still the most widely used organisational structure. strategy and systems) while neglecting the other variables. changes in its external environment.g. strategy is designed to transform the firm from the present position to the new position described by objectives. Japanese and a few excellent American companies are reportedly successful at linking their structure. It includes the dominant values. 1965). the organisations are simplifying and modernising their process by innovation and use of new technology to make the decision-making process quicker. Organisations are structured in a variety of ways. Structure: Business needs to be organised in a specific form of shape that is generally referred to as organisational structure. structure. the businesses have been structured in a hierarchical way with several divisions and departments. production or marketing. It also entails the way managers interact with the employees and the way they spend their time. with each answerable to the upper layer of management. 1980). The external environment is not mentioned in the McKinsey 7S Framework. style. Thus. 2005).
however. Cisco. The researcher also needs to consider a variety of facts about the 7S model. flexible and dynamic culture in the organisation where the employees are valued and innovation encouraged. It is also noted that the softer components of the model are difficult to change and are the most challenging elements of any change-management strategy. however. is generally difficult to manage. are continuously developing and are altered by the people at work in the organisation. 2003). 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. Changing the culture and overcoming the staff resistance to changes. etc put extraordinary emphasis on hiring the best staff. 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. The seven components described above are normally categorised as soft and hard components. if these factors are altered. hierarchical organisational structure normally leads to a bureaucratic organisational culture where the power is centralised at the higher management level. providing them with rigorous training and mentoring support. not easy to achieve where the traditional culture is been .g. however. can be made between the hard and soft components. Staff: Organisations are made up of humans and it's the people who make the real difference to the success of the organisation in the increasingly knowledge-based society. corporate plans. and this forms the basis of these organisations' strategy and competitive advantage over their competitors. The remaining four Ss. especially the one that alters the power structure in the organisation and the inherent values of the organisation. for example. This may be to make money or to achieve excellence in a particular field. Using the 7S Model to Analyse an Organisation A detailed case study or comprehensive material on the organisation under study is required to analyse it using the 7S model. using interviews along with literature review is more suited. structure and systems which are normally feasible and easy to identify in an organisation as they are normally well documented and seen in the form of tangible objects or reports such as strategy statements. The hard components are the strategy. Some of these are detailed in the paragraphs to follow. Culture remains an important consideration in the implementation of any strategy in the organisation (Martins and Terblanche. innovative and friendly environment with fewer hierarchies and smaller chain of command. However. All leading organisations such as IBM. This is because the model covers almost all aspects of the business and all major parts of the organisation. This is. It is therefore highly important to gather as much information about the organisation as possible from all available sources such as organisational reports. e. 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. 2003). it is seen that a rigid. The capabilities. Microsoft. they can have a great impact on the structure. It is therefore only possible to understand these aspects by studying the organisation very closely. values and elements of corporate culture. organisational charts and other documents. are more difficult to comprehend. 2003). Over the last few years. For example.efforts in the past couple of decades to change to culture to a more open. normally through observations and/or through conducting interviews. The importance of human resources has thus got the central position in the strategy of the organisation. Some linkages. and pushing their staff to limits in achieving professional excellence. news and press releases although primary research. away from the traditional model of capital and land. strategies and the systems of the organisation. there has been a trend to have a more open. Shared Values/Superordinate Goals: All members of the organisation share some common fundamental ideas or guiding concepts around which the business is built.
and Pascale and Athos (1981) who came up with the idea and applied it to analyse over 70 large organisations. and then allocating resources to implement the policies and plans. For even advanced analysis. students must analyse in depth the cultural dimension of the structure. when analysing an organisation using the 7S model. Especially the "cause and effect" analyses of soft and hard components often yield a very interesting analysis and provides readers with an indepth understanding of what caused the change. It is too easy to fall into the trap of only concentrating on the hard factors as they are readily available from organisations' reports etc. it has been used by hundreds of organisations and academics for analytical purposes. Since then. Sources for Data on McKinsey's 7S Model The main source of academic work on the 7S model has to be the writings of Waterman et al. Recent studies and leading management theorists have advocated that strategy needs to start with stakeholders expectations and use a modified balanced scorecard which includes all stakeholders. which are designed to achieve these objectives. . However. often in terms of projects and programs. (1980. involving utilization of resources. how one component is affected by changes in the other. 1982). A balanced scorecard is often used to evaluate the overall performance of the business and its progress towards objectives. to enhance the performance of ﬁrms in their external environments. developing policies and plans. the development of policies and plans often in relation to projects and programs which are constructed to achieve these objections and then gradually allocating these resources to Strategic management is a field that deals with the major intended and emergent initiatives taken by general managers on behalf of owners. Many such case studies can be obtained from the academic journals and the books written on the topic. for example the analyses of Coca-Cola and energy giant Centrica (Owner of British Gas). vision and objectives. Similarly. vision and objectives. It entails specifying the organization's mission. This also includes the outlining of the company’s mission. Or in other words. the student should not just write about these components individually but also highlight how they interact and affect each other. What compounds their problems is their focus on only the hard components and neglecting the softer issues identified in the model which is without doubt a recipe for failure. it is important for the researcher to give more time and effort to understanding the real dynamics of the organisation's soft aspects as these underlying values in reality drive the organisations by affecting the decision-making at all levels. A few case studies. to achieve higher marks. projects and programs. processes and decision made in an organisation.dominant for decades and therefore many organisations are in a state of flux in managing this change. are also available at this website. References Strategic management is a modern concept which involves the deliberate and emerging initiatives of general managers on behalf of the company owners which involves resource utilization to enhance the firm’s performance in external environments.
and these in turn are with the market and the context.  Strategy evaluation • Measuring the effectiveness of the organizational strategy. This involves crafting vision statements (long term view of a possible future). suggest a strategic plan. strategic business unit objectives (both financial and strategic).” (Lamb. or political environment.Strategic management is a level of managerial activity under setting goals and over Tactics. financial. opportunities and threats (both internal and . The plan provides the details of how to achieve these objectives. new competitors. in the light of the situation analysis.. and tactical objectives." According to Arieu (2007). These objectives should. new technology." Strategic management includes not only the management team but can also include the Board of Directors and other stakeholders of the organization. In the field of business administration it is useful to talk about "strategic alignment" between the organization and its environment or "strategic consistency. and then reassesses each strategy annually or quarterly [i. “Strategic management is an ongoing process that evaluates and controls the business and the industries in which the company is involved. These objectives should be parallel to a time-line. some are in the short-term and others on the long-term. Strategic management provides overall direction to the enterprise and is closely related to the field of Organization Studies. regularly] to determine how it has been implemented and whether it has succeeded or needs replacement by a new strategy to meet changed circumstances. weaknesses. a new economic environment. it's extremely important to conduct a SWOT analysis to figure out the strengths.e. assesses its competitors and sets goals and strategies to meet all existing and potential competitors. self-evaluation and competitor analysis: both internal and external. or a new social. It depends on the organizational structure. 1984:ix) •  Strategy formation Strategic formation is a combination of three main processes which are as follows: • • • Performing a situation analysis. Concurrent with this assessment. mission statements (the role that the organization gives itself in society). both micro-environmental and macro-environmental. objectives are set. "there is strategic consistency when the actions of an organization are consistent with the expectations of management. overall corporate objectives (both financial and strategic).
This may require taking certain precautionary measures or even changing the entire strategy. For example. The key point to consider is whether the strategy would address the key strategic issues underlined by the organisation's strategic position. • Return deals with the benefits expected by the stakeholders (financial and non-financial). employees would expect improvement in their careers and customers would expect better value for money. • • • Does it make economic sense? Would the organization obtain economies of scale or economies of scope? Would it be suitable in terms of environment and capabilities? Tools that can be used to evaluate suitability include: • • Ranking strategic options Decision trees  Feasibility Feasibility is concerned with whether the resources required to implement the strategy are available. Scholes and Whittington present a model in which strategic options are evaluated against three key success criteria: • • • Suitability (would it work?) Feasibility (can it be made to work?) Acceptability (will they work it?)  Suitability Suitability deals with the overall rationale of the strategy. time and information. risk and stakeholder reactions. employees and customers) with the expected performance outcomes. Resources include funding. which can be return. can be developed or obtained. shareholders would expect the increase of their wealth. people.external) of the entity in business. In corporate strategy. Johnson. . Tools that can be used to evaluate feasibility include: • • • cash flow analysis and forecasting break-even analysis resource deployment analysis  Acceptability Acceptability is concerned with the expectations of the identified stakeholders (mainly shareholders.
employees and unions could oppose outsourcing for fear of losing their jobs. there are two main approaches. decides on the overall direction the company should take. In the bottom-up approach. self discipline behaviour. Cost underestimation and benefit overestimation are major sources of error. Time remaining. top-down. to strategic management: • • The Industrial Organizational Approach o based on economic theory — deals with issues like competitive rivalry. Shareholders could oppose the issuing of new shares. which are opposite but complement each other in some ways. The stakeholder focused approach is an example of this modern approach to strategy. economies of scale o assumptions — rationality. customers could have concerns over a merger with regards to quality and support. Stakeholder reactions deals with anticipating the likely reaction of stakeholders. Tools that can be used to evaluate acceptability include: • • what-if analysis stakeholder mapping  General approaches In general terms. The top-down approach is the most common by far. The proposals that are approved form the substance of a new strategy. funnel the best ideas further up the organization. The outcome comprises both the desired ending goal and the plan designed to reach that goal. Strategic management techniques can be viewed as bottom-up. the CEO. profit sub-optimality.• • Risk deals with the probability and consequences of failure of a strategy (financial and non-financial). In it. satisfying behaviour. Managing strategically requires paying attention to the time remaining to reach a particular level or goal and . resource allocation. profit maximization The Sociological Approach o deals primarily with human interactions o assumptions — bounded rationality. possibly with the assistance of a strategic planning team. in turn. employees submit proposals to their managers who. Some organizations are starting to experiment with collaborative strategic planning techniques that recognize the emergent nature of strategic decisions. or collaborative processes. Proposals are assessed using financial criteria such as return on investment or cost-benefit analysis. all of which is done without a grand strategic design or a strategic architect. Strategic decisions should focus on Outcome. This is often accomplished by a capital budgeting process. An example of a company that currently operates this way is Google. and current Value/priority.
adjusting the pace and options accordingly. Alternatively. or focus to achieve a sustainable competitive advantage and long-term success. for example. new product decisions. Corporate strategy refers to the overarching strategy of the diversified firm.  The strategy hierarchy In most (large) corporations there are several levels of management. and price setting. new product development strategies. According to Michael Porter. differentiation. relative concept of value-add. financial strategies. and actively making course corrections as needed. An SBU is treated as an internal profit centre by corporate headquarters. legal strategies. and information technology management strategies. Each functional department attempts to do its part in meeting overall corporate objectives. according to W. The emphasis is on short and medium term plans and is limited to the domain of each department’s functional responsibility. Value/priority relates to the shifting.while also incorporating the longest time horizon. and corporate missions. A technology strategy. Many companies feel that a functional organizational structure is not an efficient way to organize activities so they have reengineered according to processes or SBUs. and hence to some extent their strategies are derived from broader corporate strategies.applying to all parts of the firm . may include dimensions that are beyond . Functional strategies include marketing strategies. corporate culture. Such a corporate strategy answers the questions of "which businesses should we be in?" and "how does being in these businesses create synergy and/or add to the competitive advantage of the corporation as a whole?" Business strategy refers to the aggregated strategies of single business firm or a strategic business unit (SBU) in a diversified corporation. although it is focused on technology as a means of achieving an organization's overall objective(s). Strategic decisions should be based on the understanding that the value-add of whatever you are managing is a constantly changing reference point. Under this broad corporate strategy there are typically business-level competitive strategies and functional unit strategies. Strategic management by definition. It gives direction to corporate values. human resource strategies. Chan Kim and Renée Mauborgne. Strategic management is the highest of these levels in the sense that it is the broadest . an organization can achieve high growth and profits by creating a Blue Ocean Strategy that breaks the previous value-cost trade off by simultaneously pursuing both differentiation and low cost. corporate goals. a firm must formulate a business strategy that incorporates either cost leadership. An objective that begins with a high level of value-add may change due to influence of internal and external factors. supply-chain strategies. hiring decisions. is managing with a heads-up approach to outcome. A strategic business unit is a semi-autonomous unit that is usually responsible for its own budgeting. time and relative value.
both business and corporate. Alfred Chandler recognized the importance of coordinating the various aspects of management under one all-encompassing strategy. Operational Strategy is about how an organisation delivers on a small scale. Although there were numerous early contributors to the literature. Operational level strategies are informed by business level strategies which. popularized by Carpenter and Sanders's textbook . It must operate within a budget but is not at liberty to adjust or create that budget. engineering organization or IT department.the scope of a single business unit. and the seamless integration of strategy formulation and implementation. Such a strategy must be geared towards success. some firms have reverted to a simpler strategic structure driven by advances in information technology.0] Corporate strategy is about the overall business of the firm encompassing things like resource allocation across the business units. are informed by corporate level strategies. It is felt that knowledge management systems should be used to share information and create common goals. Business strategy is about how a bit of a business competes within it's own environment (eg for a biotech firm how its biopharma/bioagriculture/biochem divisions operate within the company). This work builds on that of Brown and Eisenhart as well as Christensen and portrays firm strategy. Strategic divisions are thought to hamper this process. An additional level of strategy called operational strategy was encouraged by Peter Drucker in his theory of management by objectives (MBO). Prior to this . and Peter Drucker. Philip Selznick. Igor Ansoff. Chandler.  Historical development of strategic management  Birth of strategic management Strategic management as a discipline originated in the 1950s and 60s. [De-Bulshitted Version 1. "operational level" (eg RND) Since the turn of the millennium. It is very narrow in focus and deals with day-to-day operational activities such as scheduling criteria. This notion of strategy has been captured under the rubric of dynamic strategy. as necessarily embracing ongoing strategic change. in turn. the most influential pioneers were Alfred D. An organization can achieve high growth and profits by creating a strategy that provides diversity on the cheap (eg IKEA). Such change and implementation are usually built into the strategy through the staging and pacing facets.
He predicted the rise of what he called the “knowledge worker” and explained the consequences of this for management.” In 1957. the procedure of setting objectives and monitoring your progress towards them should permeate the entire organization. In 1985. Andrews. As early as 1954 he was developing a theory of management based on objectives. he stressed the importance of objectives. This evolved into his theory of management by objectives (MBO). His contributions to strategic management were many but two are most important. Strengths and weaknesses of the firm are assessed in light of the opportunities and threats from the business environment. “structure follows strategy. product development strategies.time the various functions of management were separate with little overall coordination or strategy. top to bottom. and others at the Harvard Business School General Management Group. An organization without clear objectives is like a ship without a rudder. Ellen-Earle Chaffee summarized what she thought were the main elements of strategic management theory by the 1970s: • Strategic management involves adapting the organization to its business environment. According to Drucker. In his 1962 groundbreaking work Strategy and Structure. Peter Drucker was a prolific strategy theorist. there were one or two managers that relayed information back and forth between two departments. direction. Chandler showed that a long-term coordinated strategy was necessary to give a company structure. author of dozens of management books. market development strategies and horizontal and vertical integration and diversification strategies. Interactions between functions or between departments were typically handled by a boundary position. He says it concisely. He felt that management could use these strategies to systematically prepare for future opportunities and challenges. that is. he developed the gap analysis still used today in which we must understand the gap between where we are currently and where we would like to be. Chandler also stressed the importance of taking a long term perspective when looking to the future. then develop what he called “gap reducing actions”. Work would be carried out in teams with the person most knowledgeable in the task at hand being the temporary leader. and focus. In his 1965 classic Corporate Strategy. . Igor Ansoff built on Chandler's work by adding a range of strategic concepts and inventing a whole new vocabulary. He developed a strategy grid that compared market penetration strategies. This core idea was developed into what we now call SWOT analysis by Learned. with a career spanning five decades. His other seminal contribution was in predicting the importance of what today we would call intellectual capital. Firstly. Philip Selznick introduced the idea of matching the organization's internal factors with external environmental circumstances. He said that knowledge work is non-hierarchical.
franchises. Strategic management affects the entire organization by providing direction. it now contains decades of information on the relationship between profitability and strategy. Strategic management involves both conceptual and analytical thought processes.  Levenson (1984). The most appropriate market dominance strategies were assessed given the competitive and regulatory environment. The PIMS study was a long term study. vertical integration. and portfolio theory. joint ventures. Their initial conclusion was unambiguous: The greater a company's market share. particularly the effect of market share. and organic growth were discussed. The first CEO to address the problem of a multi- . Started at General Electric.• • • • • • Strategic management is fluid and complex. Schumacher (1973). Change creates novel combinations of circumstances requiring unstructured non-repetitive responses. The studies conclusions continue to be drawn on by academics and companies today: "PIMS provides compelling quantitative evidence as to which business strategies work and don't work" . moved to Harvard in the early 1970s. The combined effect is increased profits.  Growth and portfolio theory In the 1970s much of strategic management dealt with size. The management of diversified organizations required new techniques and new ways of thinking. The benefits of high market share naturally lead to an interest in growth strategies. This was sometimes called the “hole in the middle” problem. The high market share provides volume and economies of scale. It also provides experience and learning curve advantages. the greater will be their rate of profit. Strategic management is partially planned and partially unplanned. and individual business strategies. growth. and later Traverso (2002) showed how smaller niche players obtained very high returns. This anomaly would be explained by Michael Porter in the 1980s. There was also research that indicated that a low market share strategy could also be very profitable. started in the 1960s and lasted for 19 years. Strategic management involves both strategy formation (she called it content) and also strategy implementation (she called it process). mergers and acquisitions.Tom Peters. The relative advantages of horizontal integration. By the early 1980s the paradoxical conclusion was that high market share and low market share companies were often very profitable but most of the companies in between were not. Strategic management is done at several levels: overall corporate strategy. and then moved to the Strategic Planning Institute in the late 1970s. Woo and Cooper (1982). that attempted to understand the Profit Impact of Marketing Strategies (PIMS). diversification.
Each operating division (also called strategic business units) was treated as a semi-independent profit center with its own revenues. Several techniques were developed to analyze the relationships between elements in a portfolio. They claimed that instead of producing products then trying to sell them to the customer. and then produce it for them. marketing philosophy.E. From the beginnings of capitalism it was assumed that the key requirement of business success was a product of high technical quality. and market focused. If you produced a product that worked well and was durable." This was largely due to the growing numbers of affluent and middle class people that capitalism had created.divisional company was Alfred Sloan at General Motors. objectives. But after the untapped demand caused by the second world war was saturated in the 1950s it became obvious that products were not selling as easily as they had been. Analysis. costs. multi factoral model was developed by General Electric.  The marketing revolution The 1970s also saw the rise of the marketing oriented firm. but with centralized support functions. Each of a company’s operating divisions were seen as an element in the corporate portfolio. and strategies. In the previous decade Harry Markowitz and other financial theorists developed the theory of portfolio analysis.G.C. This was called the production orientation and it was generally true that good products could be sold without effort. B. In the 1970s marketers extended the theory to product portfolio decisions and managerial strategists extended it to operating division portfolios. has been reformulated and repackaged under numerous names including customer orientation. was developed by the Boston Consulting Group in the early 1970s. encapsulated in the saying "Build a better mousetrap and the world will beat a path to your door. GM was decentralized into semi-autonomous “strategic business units” (SBU's). One of the most valuable concepts in the strategic management of multidivisional companies was portfolio theory. The 1950s and 1960s is known as the sales era and the guiding philosophy of business of the time is today called the sales orientation. This marketing orientation. businesses should start with the customer. The customer became the driving force behind all strategic business decisions. it was assumed you would have no difficulty selling them at a profit.  The Japanese challenge . find out what they wanted. In the early 1970s Theodore Levitt and others at Harvard argued that the sales orientation had things backward. for example. This was the theory that gave us the wonderful image of a CEO sitting on a stool milking a cash cow. Companies continued to diversify until the 1980s when it was realized that in many cases a portfolio of operating divisions was worth more as separate completely independent companies. in the decades since its introduction. customer focus. customer intimacy. It was concluded that a broad portfolio of financial assets could reduce specific risk. customer driven. Shortly after that the G. The answer was to concentrate on selling.
Lower cost structure. and spiritual. Systems. One year later.) He claimed that strategy in America was too analytical. and social cohesion in the workplace. Edwards Deming in the 1950s and 60s. Although there was some truth to all these potential explanations.D. It was quite common for Americans to exhibit a very different personality at work compared to the rest of their lives. In Japan the task of management was seen as managing the whole complex of human needs. In America work was seen as something that was separate from the rest of one's life. cameras. and inexpensive exports. Numerous theories purported to explain the Japanese success including: • • • • • • • Higher employee morale. watches. 1995. hierarchical in America. Economies of scale associated with increased exporting. ship building. social. In industry after industry. They divided management into 7 aspects (which are also known as McKinsey 7S Framework): Strategy. including wages. Richard Pascale and Anthony Athos in The Art of Japanese Management claimed that the main reason for Japanese success was their superior management techniques. autos. staff.'s Tokyo office. And post WWII reconstruction was nearly 40 years in the past. Americans had started to notice how successful Japanese industry had become. The Mind of the Strategist was released in America by Kenichi Ohmae. Effective government industrial policy. shared values and beliefs. Relatively low value of the Yen leading to low interest rates and capital costs. and electronics. The first three of the 7 S's were called hard factors and this is where American companies excelled. and Supraordinate goals (which we would now call shared values). and consensus in Japan. The remaining four factors (skills. Style. and loyalty. Skills. there was clearly something missing. Strategy should be a creative art: It is a frame of mind that requires intuition and intellectual flexibility. In fact by 1980 the Japanese cost structure was higher than the American. dedication. Pascale also highlighted the difference between decision making styles. the head of McKinsey & Co. The first management theorist to suggest an explanation was Richard Pascale. Superior quality control techniques such as Total Quality Management and other systems introduced by W. Structure. In 1981.) Americans did not yet place great value on corporate culture.By the late 70s. (It was originally published in Japan in 1975. Modernization after WWII leading to high capital intensity and productivity. psychological. style. Westerners wanted to know why. including steel. Staff. and shared values) were called soft factors and were not well understood by American businesses of the time (for details on the role of soft and hard factors see Wickens P. preferring instead to apply management fads and theories in a piecemeal fashion. He also claimed that American business lacked long term vision. low dividend expectations. economic. the Japanese were surpassing American and European companies. He claimed that Americans .
Don’t waste time studying it with multiple reports and committees. rote formula. Rehfeld (1994) explains it is not a straight forward task due to differences in culture. Stick to the knitting — Do what you know well. Scherer). for example. the FTC was under the direction of Frederic M. have not been successful when implemented in the U. Entrepreneurship — Even big companies act and think small by giving people the authority to take initiatives. that Japanese style kaizen (continuous improvement) techniques. Forty-three companies passed the test. They are: • • • • • • • • A bias for action — Do it. (At the time. The basic blueprint on how to compete against the Japanese had been drawn. A certain type of alchemy was required to transform knowledge from various cultures into a management style that allows a specific company to compete in a globally diverse world. They looked at 62 companies that they thought were fairly successful.S. Each was subject to six performance criteria. mainly to Japanese competitors. In 2009. Tom Peters and Robert Waterman released a study that would respond to the Japanese challenge head on. He compared the culture of Japan in which vagueness. it had to be above the 50th percentile in 4 of the 6 performance metrics for 20 consecutive years. To be classified as an excellent company. and step-by-step processes. In 1975 the FTC reached a settlement with Xerox Corporation in its anti-trust lawsuit. and tentative decisions were acceptable. Try it. Also in 1982. Peters and Waterman. But as J. The 1975 Xerox consent decree forced the licensing of the company’s entire patent portfolio. ambiguity. industry consultants Mark Blaxill and Ralph Eckardt suggested that much of the Japanese business dominance that began in the mid 1970s was the direct result of competition enforcement efforts by the Federal Trade Commission (FTC) and U. Value-oriented CEOs — The CEO should actively propagate corporate values throughout the organization.S. unless they are modified significantly. to American culture that valued fast decisions. Know your customer. Department of Justice (DOJ). He says.E. who had several years earlier collaborated with Pascale and Athos at McKinsey & Co. Customer focus — Get close to the customer. Keep things simple and lean — Complexity encourages waste and confusion. They then studied these successful companies and interviewed key executives. Simultaneously centralized and decentralized — Have tight centralized control while also allowing maximum individual autonomy. asked “What makes an excellent company?”. although suitable for people socialized in Japanese culture. Productivity through people — Treat your people with respect and they will reward you with productivity. They concluded in In Search of Excellence that there were 8 keys to excellence that were shared by all 43 firms.") This .constrained their strategic options by thinking in terms of analytical techniques. (See "compulsory license.
which translate into “actual place”. mostly with U. and suppliers.[original research?] Within four years of the consent decree. customers. Gary Hamel and C. copier market dropped from nearly 100% to less than 14%. including IBM. They introduced terms like strategic intent and strategic architecture.S. and is sometimes called the 3 G's (Genba. The 1980s and early 1990s saw a plethora of theories explaining exactly how this could be done. Between 1950 and 1980 Japanese companies consummated more than 35. and Eastman Kodak. and “actual situation”).000 foreign licensing agreements. The MBWA concept was popularized in 1985 by a book by Tom Peters and Nancy Austin. companies. This direct contact with key people provided them with a solid grounding from which viable strategies could be crafted. Senior HP managers were seldom at their desks. The post-1975 era of anti-trust initiatives by Washington D. which resulted in the compulsory licensing of tens of thousands of patent from some of America's leading companies. In the early days of Hewlett-Packard (HP). They spent most of their days visiting employees. unprecedented rise in Japanese competitiveness and a simultaneous stalling of the U. “actual thing”. Prahalad declared that strategy needs to be more active and interactive. Their most well known advance was the idea of core competency. but some of the more important strategic advances of the decade are explained below. Active strategic management required active information gathering and active problem solving. In 5 forces analysis he identifies the forces that shape a firm's strategic environment. Japanese managers employ a similar system.C. They cannot all be detailed here. Bausch & Lomb. manufacturing economy.action marked the start of an activist approach to managing competition by the FTC and DOJ. 5 forces analysis. the value chain. K. and clusters. Probably the most influential strategist of the decade was Michael Porter. strategic groups. economists at the FTC corresponded directly with the rapid. They showed how important it was to know the one or two key things that your company does better than the competition. It shows how a firm can use these forces to obtain a sustainable competitive advantage. for free or low-cost licenses made possible by the FTC and DOJ. less “arm-chair planning” was needed. Dave Packard and Bill Hewlett devised an active management style that they called management by walking around (MBWA). Xerox's share of the U. generic strategies. and Genjitsu. but detailed comparisons of the two management styles and examinations of successful businesses convinced westerners that they could overcome the challenge. Porter modifies Chandler's dictum about structure following strategy by introducing .S. He introduced many new concepts including. AT&T. DuPont.  Competitive advantage The Japanese challenge shook the confidence of the western business elite. which originated at Honda.S. It is like a SWOT analysis with structure and purpose. Genbutsu.
Borrowing from Gary Hamel and Michael Porter. . He also challenged managers to see their industry in terms of a value chain. all divided by the firm's net output. and then configure them in unique and sustainable ways. including human. A firm will be successful only to the extent that it contributes to the industry's value chain. innovation. which in turn follows industry structure. Crafting and implementing a strategy involves creating a position in the mind of the collective consumer. and organizational structure. from inception to completion. This forced management to look at its operations from the customer's point of view. and then assemble a collection of assets that will increase value added and provide a competitive advantage. In 1993. for example. Michael Hammer and James Champy felt that these resources needed to be restructured. The 1980s also saw the widespread acceptance of positioning theory. some newly invented but most borrowed from other disciplines. involved organizing a firm's assets around whole processes rather than tasks. Jay Barney.a second level of structure: Organizational structure follows strategy. This avoided functional silos where isolated departments seldom talked to each other. where adding value is defined as the difference between the market value of outputs and the cost of inputs including capital. Multidimensional scaling. he showed the importance of choosing one of them rather than trying to position your company between them. In 1992. and suppliers. The basic premise is that a strategy should not be judged by internal company factors but by the way customers see it relative to the competition. and market focus strategies. saw strategy as assembling the optimum mix of resources. In this way a team of people saw a project through. it didn’t gain wide acceptance until Al Ries and Jack Trout wrote their classic book “Positioning: The Battle For Your Mind” (1979). John Kay took the idea of the value chain to a financial level claiming “ Adding value is the central purpose of business activity”. He claims that there are 3 types of capabilities that can do this. Preference regression can be used to determine vectors of ideal positions and cluster analysis can identify clusters of positions. creates visual displays of the relationships between positions. This process. Although the theory originated with Jack Trout in 1969. factor analysis. Perceptual mapping for example. technology. reputation. that they labeled reengineering. Although he did not introduce these terms. Others felt that internal company resources were the key. and conjoint analysis are mathematical techniques used to determine the most relevant characteristics (called dimensions or factors) upon which positions should be based. discriminant analysis. Every operation should be examined in terms of what value it adds in the eyes of the final customer. Kay claims that the role of strategic management is to identify your core competencies. Several techniques were applied to positioning theory. product differentiation strategies. Porter's generic strategies detail the interaction between cost minimization strategies. It also eliminated waste due to functional overlap and interdepartmental communications.
Juran. William Davidow. C. and Christopher Lovelock (1994). leaving no aspect of the firm free from potential process improvements. finding an organization that is exceptional in this area. service mapping. strategic service vision. Although the procedures have a long history. Earl Sasser (1995). Carl Sewell. then studying the company and applying its best practices in your firm. People like W. Because of the broad applicability of process management techniques. quality. Christopher Hart. It looks at an activity as a sequential process. service charting. service. Process management uses some of the techniques from product quality management and some of the techniques from customer service management. A large group of theorists felt the area where western business was most lacking was product quality. A. Some realized that businesses were spending much more on acquiring new customers than on retaining current ones. Kearney. Their underlying assumption was that there is no better source of competitive advantage than a continuous stream of delighted customers. lean manufacturing. Len Schlesinger. and product innovation Breaking down organizational barriers between departments Eliminating layers of management creating flatter organizational hierarchies. The seven areas of best practice were: • • • • • • • Simultaneous continuous improvement in cost. they can be used as a basis for competitive advantage. This involves determining where you need to improve. A. Paraurgman (1988). Gronroos. dating back to Taylorism. Jane Kingman-Brundage. People like James Heskett (1988). the service encounter. and Earl Sasser showed us how a . the scope of their applicability has been greatly widened. The objective is to find inefficiencies and make the process more effective. Frederick F. Total Customer Service (TCS). and Armand Feignbaum suggested quality improvement techniques like total quality management (TQM). gave us fishbone diagramming. Joseph M. service gaps analysis. Reichheld. An equally large group of theorists felt that poor customer service was the problem. continuous improvement (kaizen). Six Sigma. and service teams. Philip Crosby.In 1989 Richard Lester and the researchers at the MIT Industrial Performance Center identified seven best practices and concluded that firms must accelerate the shift away from the mass production of low cost standardized products. Closer relationships with customers and suppliers Intelligent use of new technology Global focus Improving human resource skills The search for “best practices” is also called benchmarking. the service profit chain. Len Berry. and return on quality (ROQ). Edwards Deming.
James Gilmore and Joseph Pine found competitive advantage in mass customization. James Collins and Jerry Porras spent years conducting empirical research on what makes great companies. Six years of research uncovered a key underlying principle behind the 19 successful companies that they studied: They all encourage and preserve a core ideology that nurtures the company. and customer relationship management). and restructuring will not stimulate dedicated employees to build a great company that will endure. It describes a business culture where technological change inhibits a long term focus. called customer lifetime value (CLV). This effectively turned the product into a service. that service would be transformed into an “experience”. They also realized that if a service is mass customized by creating a “performance” for each individual client. and shareholder loyalty.competitive advantage could be found in ensuring that customers returned again and again. A significant movement started that attempted to recast selling and marketing techniques into a long term endeavor that created a sustained relationship with customers (called relationship selling. cost cutting. Flexible manufacturing techniques allowed businesses to individualize products for each customer without losing economies of scale. They are: • • • • Sensitivity to the business environment — the ability to learn and adjust Cohesion and identity — the ability to build a community with personality. In 2000 Collins coined the term “built to flip” to describe the prevailing business attitudes in Silicon Valley. He identified four key traits of companies that had prospered for 50 years or more. The Experience Economy. He also popularized the concept of the BHAG (Big Hairy Audacious Goal). They also developed techniques for estimating the lifetime value of a loyal customer. and purpose Tolerance and decentralization — the ability to build relationships Conservative financing . distributor loyalty. This has come to be known as the loyalty effect after Reicheld's book of the same name in which he broadens the concept to include employee loyalty. supplier loyalty. were able to maintain a core set of values. vision. Arie de Geus (1997) undertook a similar study and obtained similar results. relationship marketing. along with the work of Bernd Schmitt convinced many to see service provision as a form of theatre. Like Peters and Waterman a decade earlier. Even though strategy and tactics change daily. nevertheless. the companies. Their book. This school of thought is sometimes referred to as customer experience management (CEM). In Built To Last (1994) they claim that short term profit goals. Customer relationship management (CRM) software (and its many variants) became an integral tool that sustained this trend. These core values encourage employees to build an organization that lasts.
A company with these key characteristics he called a living company because it is able to perpetuate itself. goals.htm http://university-essays.mindtools. and sees itself as an ongoing community of human beings. "Will the product add value for the firm?" .org/wiki/Strategic_management http://www. it has the potential to become great and endure for decades. product features and consumer perceptions. and persona.html .tripod. including: • • • "Will the proposed competitive advantage create something that is different from the competition?" "Will the difference add value in the eyes of potential customers?" This question will entail a discussion of the combined effects of price. If a company emphasizes knowledge rather than finance.some will work but many will not.com/pages/article/newSTR_90.Answering this question will require an examination of cost effectiveness and the pricing strategy. Will Mulcaster  suggests that firms engage in a dialogue that centres around the question "Will the proposed competitive advantage create Perceived Differential Value?" The dialogue should raise a series of other pertinent questions.wikipedia. There are numerous ways by which a firm can try to create a competitive advantage . To help firms avoid a hit and miss approach to the creation of competitive advantage.com/mckinsey_7s_framework. http://en. Such an organization is an organic entity capable of learning (he called it a “learning organization”) and capable of creating its own processes.
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