McKinsey’s 7-S and Pascale’s Adaption Thereof

McKinsey’s 7-S

McKinsey & Co.’s 7S framework provides a useful framework for analyzing the strategic attributes of an organization. The McKinsey Consulting Firm identified strategy as only one of seven elements exhibited by the best managed companies.

Strategy, structure and systems can be considered the “hardware” of success whilst style, staff, skills and shared values can be seen as the “software”.

Companies, in which these soft elements are present, are usually more successful at the implementation of strategy.

The 7 Ss are:

1. Shared values
2. Structure
3. Systems
4. Style
5. Staff
6. Skills
7. Strategy

There is no particular order to the 7 Ss. Each of the 7 Ss is elaborated on below:

1. Shared Values

Shared values means that the employees share the same guiding values. Values are things that you would strive for even if they were demonstrably not profitable. They act as an organization’s conscience, providing guidance in times of crisis. Identifying corporate values is also the first essential step in defining the organization’s role in the larger community in which it functions.

2. Strategy

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.

3. Structure

The policies and procedures which govern the way in which the organization acts within itself and within its environment. The organization chart (e.g. hierarchical or flat) as well as the group and ownership structure are included here. Also note Porter’s categorization of group structures: Efficient allocators of Capital; Allocation of Resources, etc.

4. Systems
• Computer Systems,
• Operational Systems,
• HR Systems,
• etc.

The decision making systems within the organization can range from management intuition, to structured computer systems to complex expert systems and artificial intelligence. It includes

5. Style
• Leadership Style
• Organizational Culture

Style refers to the employees shared and common way of thinking and behaving – unwritten norms of behavior and thought:

6. Skills

Skills refers to the fact that employees have the skills needed to carry out the company’s strategy. Training and Development – ensuring people know how to do their jobs and stay up to date with the latest techniques.

7. Staff

Staff means that the company has hired able people, trained them well and assigned them to the right jobs. Selection, training, reward and recognition, retention, motivation and assignment to appropriate work are all key issues.

Pascale’s Adaptation

Pascale found that corporations with a high degree of fit amongst parts had a lot of focus, but they were often threatened with stagnation. Where organizational parts meshed together less well, the resultant contradictions and tensions made them somewhat more adaptive. Pascale found that contentions in organizations tended to arise in predictable domains. These vectors of contention each corresponded to the 7 S’s identified by McKinsey and explained above. Each domain captures a paradox or polarity that needs to be reconciled. The polarities provide an ongoing vehicle for sustaining constructive disequilibrium.

The contending opposites are:

1. Strategy: Planned versus Opportunistic

Organizations need both planned and opportunistic tendencies, but the key to success lies in the in a dynamic synthesis thereof. Opportunistic responses often shape the content of a new thrust whilst strategic thinking identifies the underlying context. Strategic planning is about asking questions, more than attempting to answer them. Strategy formulation entails a search for a different frame of reference. It is the quest for a new business paradigm. There are two types of paradigms that apply to management, namely the business and the organizational or managerial paradigms. The business paradigm defines a company’s position in the marketplace with respect customers, technology and products. The organizational or managerial strategy pertains to assumptions on how the company inspires and co-ordinates collective activity, their fundamental assumptions about human beings at work and their expectations concerning their capabilities. Strategy causes us to question the fundamental premises on which all else rest. Strategic thinking involves the understanding of basic economics of business; identifying one’s sources of competitive advantage, and allocating resources to ensure that ones distinctive capabilities remain strong. Strategy’s most important contribution is searching for, and redefining, context. Strategic thinking also creates a readiness to exploit unforeseen opportunities.

2. Structure: Elitist versus Pluralist

Functional excellence can only be achieved if there is sufficient integrity and focus within each business unit and structuring an organization is therefore not an easy task. In order to understand how an organization really works, one has to look beyond the structure as drawn out on a piece of paper.

Pascale uses the term “elites” to describe those specialized organizational units with proximity to power and/or superior competence when compared to competitive benchmarks. These functions represent a particular organization’s distinctive capability. It is, however, important that more than one such elite function exist. They need to be complementary in order to ensure that they serve as a check on another. Pascale uses the term “pluralist” to describe these vital forces that play a key role in decision making. The tension that is created amongst these forces stimulates thoughts and lead to self-improvement and competitiveness.

Elite functions bring core strengths to an organization, but must co-operate with the whole (plurality) to achieve collective results. The stronger and more competent the elites are, the more difficult it is to achieve cross-functional teamwork. The company’s challenge is therefore to ensure that these functions are on a par with that of competition, but at the same time they need to ensure that they respond to market demands by cutting across these functional compartments.

3. Systems: Mandatory versus Discretionary

Systems not only refers to hard copy reports and procedures but also to informal mechanisms such as meetings and conflict management routines. It is important that systems emphasize key themes, but at the same time it should permit discretion and exception. Systems are powerful influences of behavior. Although well-managed companies try to eliminate inconsistencies by creating good fit, they must guard against inward-centeredness, which could stifle the business.

4. Style: Managerial versus Transformational

Pascale defines “managerial” as an administrative orientation whose aim is to get the maximum out of the existing organization whilst a transformational orientation aims at quantum leaps in performance. The focus is on creating a new order of the things. The managerial approach is more project than process focused.

5. Staff: Collegiality versus Individuality

Collegiality refers to supportive relationships and teamwork and in organizations where this is present you will find communal tendencies in the form of coherent social rules and common identities. Such a well-constructed network can make employees feel autonomous but yet still part of the coherent whole.

6. Shared Values: Hard Minds versus Soft Hearts

“Hard minds” refers to the financial performance of an organization. According to Pascale, an enterprise that cannot generate a profit is not adding enough value to perpetuate its right to exit, but when short-term profits are over-emphasized, a company’s long-term competitive position can be sacrificed. Hard minds drive for financial results and this drive manifest itself in a preoccupation with concrete, bottom-line results. Hard-minded values are tied to goals that are unambiguous and quantifiable.

Soft hearted values, on the other hand, pertain to intangibles that are tied to higher-order ideals that affect employees (treating them with dignity), customers (treating them with fairness) and society (making a social contribution). Soft hearts act as a counterweight to tangible financial goals.

7. Skills: Maximize versus “Meta-Mize”

A company’s skills can include hard assets such as financial strengths and dominant market share, but it takes the human and managerial input to translate these into sustainable a sustainable competitive advantage. Pascale uses the terms “maximize” and “meta-mize” to describe a company’s decision to decide whether it should be getting better at what it is already good at or whether it should be looking toward higher order capabilities that are beyond the old.

Mapping an Organization

It is possible to map an organization on each of these axes, as follows (for example):