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McKinsey 7S Framework for effective organisations

McKinsey 7S Framework This model was developed in the 1980's by Robert Waterman, Tom Peters and Julian Philips whilst working for McKinsey and originally presented in their article “Structure is not Organization". The 7S Model which they developed and presented became extensively used by mangers and consultants and is one of the cornerstones of organizational analysis. Essentially the model says that any organization can be best described by the seven interrelated elements shown above: The Seven-Ss (7-S Model) is a framework for analyzing organizations and their effectiveness. It looks at the seven key elements that make the organizations successful, the model shows that organizational immune systems and the many interconnected variables involved make change complex, and that an effective change effort must address many of these issues simultaneously. The 7-S model is a tool for managerial analysis and action that provides a structure with which to consider a company as a whole, so that the organization's problems may be diagnosed and a strategy may be developed and implemented.  The 7-S diagram illustrates the multiplicity interconnectedness of elements that define an organization's ability to change. The theory helped to change manager's thinking about how companies could be improved. It says that it is not just a matter of devising a new strategy and following it through. Nor is it a matter of setting up new systems and letting them generate improvements. The model proposes 7 interdependent factors – 3 hard ‘S’ i.e. strategy, structure, systems; and 4 soft ‘S’ i.e. shared values, skills, style and staff. The hard ‘S’ are more tangible, easily to define and easy to influence than the soft ‘S’. Strategy Strategy is “plans an organization formulates to reach identified goals” and a set of decisions and actions aimed at gaining a sustainable advantage over the competition. What is the organization’s strategy seeking to accomplish? How does the organization plan to use its resources and capabilities to deliver that? What is distinct about this organization? How does the organization compete? How does the organization adapt to changing market conditions? Structure Structure is the organizational chart and associated information that shows who reports to whom and how tasks are both divided up and integrated. In other words, structures describe the hierarchy of authority and accountability in an organization, the way the organization's units relate to each other: centralized, functional divisions (top-down); decentralized (the trend in larger organizations); matrix, network, holding, etc. These relationships are frequently diagrammed in organizational charts. Most organizations use some mix of structures – pyramidal, matrix or networked ones – to accomplish their goals. How is the organization organized? What are the reporting and working relationships (hierarchical, flat, silos, etc.)? How do the employees align themselves to the strategy? How are decisions made? Is it based off of centralization, empowerment, decentralization or other approaches? How is information shared (formal and informal channels) across the organization? Systems Systems define the flow of activities involved in the daily operation of business, including its core processes and its support systems. They refer to the procedures, processes and routines that are used to manage the organization and characterize how important work is to be done. What are the primary business and technical systems that drive the organization? What and where are the system controls? How is progress and evolution tracked? What internal rules and processes does the team utilize to maintain course? Shared Values Shared values are commonly held beliefs, mindsets, and assumptions that shape how an organization behaves � its corporate culture. Shared values are what engender trust. They are an interconnecting center of the 7Ss model. Values are the identity by which a company is known throughout its business areas, what the organization stands for and what it believes in, it central beliefs and attitudes. These values must be explicitly stated as both corporate objectives and individual values. What is the mission of the organization? What is the vision to get there?  If so, what is it? What are the ideal versus real values? How do the values play out in daily life? What are the founding values that the organization was built upon? Style "Style" refers to the cultural style of the organization, how key managers behave in achieving the organization's goals, how managers collectively spend their time and attention, and how they use symbolic behavior. How management acts is more important that what management says. What is the management/leadership style like? How do they behave? How do employees respond to management/leadership? Do employees function competitively, collaboratively, or cooperatively? Are there real teams functioning within the organization or are they just nominal groups? What behaviors, tasks and deliverables does management/leadership reward? Staff "Staff" refers to the number and types of personnel within the organization and how companies develop employees and shape basic values. What is the size of the organization? What are the staffing needs? Are there gaps in required capabilities or resources? What is the plan to address those needs? Skills "Skills" refer to the dominant distinctive capabilities and competencies of the personnel or of the organization as a whole. What skills are used to deliver the core products and/or services? Are these skills sufficiently present and available? Are there any skill gaps? What is the organization known for doing well? Do the employees have the right capabilities to do their jobs? How are skills monitored, assessed, and improved?     Porter’s Value Chain Analysis According to Michael Porter value is the chain of activities for a company that operates in a specific industry. For gaining the competitive advantages, Porter suggested that going through the chain of organization activities will add more value to the product and services than the sum of added cost of these activities. And thus, the company will gain marginal value for that product or service. If these activities run efficiently the company gains competitive advantage on the product or service. For this case the customers should transact the product or services willingly and provide return on value to the organization.   The value chain framework can be used as powerful analysis tool for the strategic planning and to build the organizational model ensuring an effective leadership model. The value chain concept can be applied also in the individual business unit and can be extended to the whole supply chains and distribution networks. To form a successful product for an organization it is important to add value in each activity that the product goes through during the life cycle. The best possible value can be achieved in the product development process by adding value in each stage. For that it needs all, or a combination of, value chain activities and a proper synchronization among all the related activities. A proper organization is required that contains all the required functional departments to perform these activities and a proper communication approach is required to synchronize the activities of these functional units efficiently. How to map the porter's value chain activities into business functional activities? To solve this problem, first we have to classify the value chain activities into functional activities:  Classification of Porter's value chain activities:  Porter classified the generic value added activities into two classes which are presented below. These activities are: primary activities which are classified as product and market related activities and support activities that are related to infrastructure, technology, procurement, and human resource management. Porter’s Value Chain Activities Primary activities can be classified into product related and market related activities which are described below:  Product related activities: The activities that the organization performs to add value to the products and services itself. The activities are classified as:  1. Inbound logistics: For the production and development activities, organizations need inputs as goods which are received from the suppliers. Inbound logistics refer to all the activities related to receive goods from the suppliers, decision about the transportation scheduling, storing the goods as inventory, managing the inventory, and make the inputs ready to use for the production of end products. 2. Operations: These include the production process, development activities, testing, packaging, maintenance, and all other activities that transform the inputs into finished product.  3. Services: Organization offers the services after the products and/or services have been sold. These service activities enhance the product’s value in the form of after sales guarantees, warranties, spare parts management, repair services, installation, updating, trainings, etc.  Market related activities: The activities that the organization performs to transfer the finished products or services to the customers. The activities are classified as: 1. Outbound Logistics: The finished products are developed using the product related activities. Now activities are required to transfer the finished products to the customers via warehousing, order fulfillment, transportation, and distribution management.  2. Marketing and Sales: These activities include the advertising, channel selection, product promotion, selling, product pricing, retail management, etc. The activities are performed to make sure that the products are transferred to the targeted customer groups. Marketing mix can be an instrument to take the competitive advantage to the target customers. Support Activities Although, primary activities add value directly to the production process, they are not necessarily more important than support activities. Nowadays, competitive advantage mainly derives from technological improvements or innovations in business models or processes. Therefore, such support activities as ‘information systems’, ‘R&D’ or ‘general management’ are usually the most important source of differentiation advantage. On the other hand, primary activities are usually the source of cost advantage, where costs can be easily identified for each activity and properly managed. Procurement: This department must source raw materials for the business and obtain the best price for doing so. The challenge for procurement is to obtain the best possible quality available (on the market) for their budget. Technology development: The use of technology to obtain a competitive advantage is very important in today’s technological driven environment. Technology can be used in many ways including production to reduce cost thus add value, research and development to develop new products and the internet so customers have 24/7 access to the firm. Human resource management: The organization will have to recruit, train and develop the correct people for the organization to be successful. Staff will have to be motivated and paid the ‘market rate’ if they are to stay with the organization and add value. Within the service sector such as the airline industry, employees are the competitive advantage as customers are purchasing a service, which is provided by employees; there isn't a product for the customer to take away with them. Firm infrastructure: Every organization needs to ensure that their finances, legal structure and management structure work efficiently and helps drive the organization forward. Inefficient infrastructure is waste resources, could affect the firm's reputation and even leave it open to fines and sanctions.  Organizational Culture The values and behaviors that contribute to the unique social and psychological environment of an organization. Organizational culture includes an organization's expectations, experiences, philosophy, and values that hold it together, and is expressed in its self-image, inner workings, interactions with the outside world, and future expectations. It is based on shared attitudes, beliefs, customs, and written and unwritten rules that have been developed over time and are considered valid. Also called corporate culture, it's shown in  (1) the ways the organization conducts its business, treats its employees, customers, and the wider community,  (2) the extent to which freedom is allowed in decision making, developing new ideas, and personal expression,  (3) how power and information flow through its hierarchy, and  (4) how committed employees are towards collective objectives. It affects the organization's productivity and performance, and provides guidelines on customer care and service, product quality and safety, attendance and punctuality, and concern for the environment. It also extends to production-methods, marketing and advertising practices, and to new product creation. Organizational culture is unique for every organization and one of the hardest things to change. “Culture is how organizations ‘do things’.” — Robbie Katanga Culture is consistent, observable patterns of behavior in organizations. Aristotle said, “We are what we repeatedly do.” This view elevates repeated behavior or habits as the core of culture and deemphasizes what people feel, think or believe. It also focuses our attention on the forces that shape behavior in organizations, and so highlights an important question: are all those forces (including structure, processes, and incentives) “culture” or is culture simply the behavioral outputs? “In large part, culture is a product of compensation.” — Alec Haverstick Culture is powerfully shaped by incentives. The best predictor of what people will do is what they are incentivized to do. By incentives, we mean here the full set of incentives — monetary rewards, non-monetary rewards such as status, recognition and advancement, and sanctions — to which members of the organization are subject. But where do incentives come from? As with the previous definition, there are potential chicken-and-egg issues. Are patterns of behavior the product of incentives, or have incentives been shaped in fundamental ways by beliefs and values that underpin the culture? “Organizational culture defines a jointly shared description of an organization from within.” — Bruce Perron Culture is a process of “sense-making” in organizations. Sense-making has been defined as “a collaborative process of creating shared awareness and understanding out of different individuals’ perspectives and varied interests.” Note that this moves the definition of culture beyond patterns of behavior into the realm of jointly-held beliefs and interpretations about “what is.” It says that a crucial purpose of culture is to help orient its members to “reality” in ways that provide a basis for alignment of purpose and shared action. “Organizational culture is the sum of values and rituals which serve as ‘glue’ to integrate the members of the organization.” — Richard Perrin Culture is a carrier of meaning. Cultures provide not only a shared view of “what is” but also of “why is.” In this view, culture is about “the story” in which people in the organization are embedded, and the values and rituals that reinforce that narrative. It also focuses attention on the importance of symbols and the need to understand them — including the idiosyncratic languages used in organizations — in order to understand culture. “Organizational culture is civilization in the workplace.” — Alan Adler Culture is a social control system. Here the focus is the role of culture in promoting and reinforcing “right” thinking and behaving, and sanctioning “wrong” thinking and behaving. Key in this definition of culture is the idea of behavioral “norms” that must be upheld, and associated social sanctions that are imposed on those who don’t “stay within the lines.” This view also focuses attention on how the evolution of the organization shaped the culture. That is, how have the existing norms promoted the survival of the organization in the past? Note: implicit in this evolutionary view is the idea that established cultures can become impediments to survival when there are substantial environmental changes. “Culture is the organization’s immune system.” — Michael Watkins Culture is a form of protection that has evolved from situational pressures. It prevents “wrong thinking” and “wrong people” from entering the organization in the first place. It says that organizational culture functions much like the human immune system in preventing viruses and bacteria from taking hold and damaging the body. The problem, of course, is that organizational immune systems also can attack agents of needed change, and this has important implications for on-boarding and integrating people into organizations. In the discussion, there were also some important observations pushing against the view of culture as something that it is unitary and static, and toward a view that cultures are multiple, overlapping, and dynamic. “Organizational culture [is shaped by] the main culture of the society we live in, albeit with greater emphasis on particular parts of it.” — Elizabeth Skringar Organizational culture is shaped by and overlaps with other cultures — especially the broader culture of the societies in which it operates. This observation highlights the challenges that global organizations face in establishing and maintaining a unified culture when operating in the context of multiple national, regional and local cultures. How should leaders strike the right balance between promoting “one culture” in the organization, while still allowing for influences of local cultures? “It over simplifies the situation in large organizations to assume there is only one culture… and it’s risky for new leaders to ignore the sub-cultures.” — Rolf Winkler The cultures of organizations are never monolithic. There are many factors that drive internal variations in the culture of business functions (e.g. finance vs. marketing) and units (e.g. a fast-moving consumer products division vs. a pharmaceuticals division of a diversified firm). A company’s history of acquisition also figures importantly in defining its culture and sub-cultures. Depending on how acquisition and integration are managed, the legacy cultures of acquired units can persist for surprisingly long periods of time. “An organization [is] a living culture… that can adapt to the reality as fast as possible.” — Abdi Osman Jama Finally, cultures are dynamic. They shift, incrementally and constantly, in response to external and internal changes. So, trying to assess organizational culture is complicated by the reality that you are trying to hit a moving target. But it also opens the possibility that culture change can be managed as a continuous process rather than through big shifts (often in response to crises). Likewise, it highlights the idea that a stable “destination” may never — indeed should never — be reached. The culture of the organization should always be learning and developing. Organizational Culture and Strategic Change Transforming an organization—for example, changing a service model or delivery area, or adding a new set of beneficiaries— is not just an exercise in creating new strategies and processes to accomplish the organization’s mission. It also means evaluating how the existing organization’s culture might positively or negatively influence the change that needs to take place—and then working to adjust the culture, as needed, so that it supports the change. Culture is in essence an organization’s operating environment: the implicit patterns of behavior, activities, and attitudes—shaped by a shared set of values and beliefs—that characterize the way people work together. In order for any strategic change to be implemented successfully, the organization’s culture needs to be aligned. Unfortunately, if it isn’t, the challenge is significant; changing culture is not an easy task. “Changing culture isn’t as simple as identifying the new behaviors you want to see and articulating a new set of  beliefs and values associated with these,” explained Kirk Kramer. “Most people won’t change their behaviors until they observe the role models in their organization acting differently, and when they see this new behavior positively recognized and rewarded—a clear promotion, a plum assignment, a change in authority or responsibility, or simply praise from the top of the organization.” It has been found that the key levers leaders have to change culture are the ones that motivate and support different behaviors: who is on the leadership team, what they are doing, who makes key decisions, which people are in key jobs, who gets positive feedback through performance assessments, and even the right processes and systems that affect how people work together. Strong vs. Weak Culture Strong-Culture Companies: Strong-culture companies have a well-defined corporate character, typically underpinned by a creed or values statement. Three factors contribute to the development of strong cultures: a. A founder or strong leader who establishes values, principles, and practices that are consistent and sensible in light of customer needs, competitive conditions, and strategic requirements  b. A sincere, long-standing company commitment to operating the business according to these established traditions, thereby creating an internal environment that supports decision making and strategies based on cultural norms c. A genuine concern for the well-being of the organization’s three biggest constituencies – customers, employees, and shareholders CORE CONCEPT: In a strong-culture company, values and behavioral norms are like crabgrass; deeply rooted and hard to weed out. Weak-Culture Companies: In direct contrast to strong-culture companies, weak-culture companies are fragmented in the sense that no one set of values is consistently preached or widely shared, few behavioral norms are evident in operating practices, and few traditions are widely revered or proudly nurtured by company personnel. Very often, cultural weaknesses stems from moderately entrenched subcultures that block the emergence of a well-defined companywide work climate.  Weak cultures provide little or no strategy-implementing assistance because there are no traditions, beliefs, values, common bonds, or behavioral norms that management can use as levers to mobilize commitment to executing the chosen strategy.



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