McKinsey 7-S

McKinsey and Co's 7S framework provides a useful framework for analysing the strand weaknesses an organisation (see also 6 Essential Strategy Analysis Tools). 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. Hardware 1. 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. Things to consider:

1. Does the firm have a clear strategy? 2. Is there a clear, logical and understood connection between and understanding of the firms strengths and weaknesses, environmental context, strategic intent, strategic and business plans, and management information and control systems? 3. Is the strategy known to and understood by the staff in the organisation? Is it communicated to everyone as appropriate in a way that accords it the right amount of attention? 4. Is everyone aligned behind the strategy? 5. Is the strategy acted on and implemented? Is it actively applied in the making of decisions on a day to day basis? (All to often, a strategy is a document which sits on an executive shelf while the organisation continues to act asit would have done, regardless.) 6. Do key individuals continue to pursue their own strategies and agendas, contrary to the strategy?

7. Is the organisation opportunistic or is it inclined to develop detailed plans and stick to them? 8. Is strategy formulated by an elite group (strategic planning group or senior executives) and handed down from the top, or using an inclusive, participative bottom-up process? 9. Is the strategy transformative (large and structural changes to the firm or industry) or incremental (smaller adjustments)? 10. Is the strategy reviewed and cast in stone once a year, or more regularly (or even continuously)? See also: The 5 Levels of Stratgic Orientation

2. Structure
Consider: committees, governance, depth, breadth, collaboration, centralised, decentralised The policies and procedures which govern the way in which the organisation acts within itself and within its environment. The organigram (e.g. hierarchical or flat) as well as the group and ownership structure are included here. Also note Porter's categorisation of group structures: Efficient allocators of Capital; Allocation of Resources, etc.

3. Systems
Consider: IT, operational, finance, HR, etc. The decision making systems within the organisation can range from management intuition, to manual policies and procedures, to structured computer systems, to complex expert systems and artificial intelligence. The level of rigour of systems can range from rigid and bureaucratic, to more laissez faire and flexible. Systems can be modern and efficient or out of date. Software 4. Style Consider: culture, leadership, managerial versus transformational Style refers to the employees shared and common way of thinking and behaving unwritten norms of behaviour and thought:

o o

Leadership Style Organisational Culture

5. Staff
Consider: selection, reward, autonomy, empowerment 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.

6. Skills
Consider: ability, training, experience 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. Shared Values
Consider: alignment, positive or negative, hard minds versus soft hearts Shared values means that the employees share the same guiding values. Values are things that you would strive for even if they were not demonstrably profitable. Values act as an organisation's conscience, providing guidance in times of crisis. Example: 'The "famous" Johnson and Johnson Tylenol case is an example where a credo helped provide guidelines for practical decision making. When tainted Tylenol was discovered, J&J's leaders could quickly make a decision to immediately, publicly, remove all Tylenol from the nation's shelves, because they were following the organisation's credo - which said that J and J's first responsibility was to provide quality products to doctors, nurses and patients. This dramatic action helped unsure a reinstatement of both public trust and employee pride in the integrity of the company, and led to higher long term sales.'[Senge, Ross, Smith, Roberts and Kleiner: 1994] Identifying corporate values is also the first essential step in defining the organisation's role in the larger community in which it functions. Resources: McKinsey 7-S Case Study Other references: McKinsey 7-S on Papers.com

LESSON 28: MC KINSEY'S 7S FRAMEWORK

Learning Objectiive On completion of this chapter you should be able to: ? You should be able to understand CSF's referred to as a strategic factors or key factors for success, which are very crucial. ? You should be able to understand that why companies fail versus global industries so on. Exhibit 9.2 presents CSFs for some industries for the sake of clarification. Exhibit Critical Success Factors in Different Industries Toothpaste industry or succeed depending upon on whether CSF's has been identified or not. ? You should be able to understand that CSF's are based on Quality in terms of form, flavor, foam and freshness, widearea distribution network, high level of promotion, and brand loyalty. Food Processing Industry

practical logic, heuristic than an elaborate procedure. ? You should be able to understand that CSF's are result of High quality product, packaging, efficient distribution network, and sales promotion. Shoe Industry long years of managerial experience, which leads to the development of intuition, judgment and a hunch that can be used in strategic decision-making. High quality product, cost efficiency sophisticated retailing, flexible product mix, and creation of product image. Automobile Industry Critical Success Factors Approach In order to understand how critical success factors (CSFs) approach is applied to generating competitive advantage and the concept of CSFs, let us take few examples. A good academician can be successful in teaching and research and not necessarily, he succeeds as a business man. A player having high competence in a particular game, say lawn tennis, and is successful is unlikely to. succeed in cricket. Even in the same game, a player cannot succeed in all positions, for example, a good, wicket keeper cannot be a good bowler too. The question is: why does this happen? The answer is: each activity has unique requirement, and a single person cannot meet the requirement of all activities. He can be successful only in that for which he has competence to meet its requirement. (Success is defined in terms of objective achievement.) This social phenomenon can be replicated in business situation where the question may be asked: why does a successful business organisation in one industry fails in another industry? The answer of this question lies in the opening part of this chapter: an organisation's core competence does not necessarily lead to competitive advantage because it may not have any relevance to the industry hi which the organisation fails. It appears, then, that requirement of an industry differs from those of other industries. This requirement is expressed in terms of critical success factors. Concept of Critical Success Factors Critical success factors, also referred to as strategic factors or key factors for success, are those characteristics, conditions, or variables which when maintained and sustained can have significant impact on the success of an organisation competing in a particular industry. A CSF may be a characteristic such as product features, a condition such as high capital investment, or any other variable. A basic nature of CSFs is that they differ from Industry to industry: consumer goods versus industrial goods, differentiated versus undifferentiated industries, local Styling, strong dealer network, manufacturing cost control, and ability to meet environmental standards. Courier Service Speedy dispatch, reliability, and price. Managing these CSFs effectively generates competitive advantage. For example, Ohame states that: "Key success factors (CSFs) in an industry and business need to be identified to inject a concentration of resources into a particular area where the company sees an opportunity to gain significant strategic advantage (competitive advantage) over its competitors. Identifying Industry CSFs In order to generate competitive advantage along CSFs, it is necessary to identify these. Based on a study related to identifying strategic factors, which are important to different businesses, Steiner views that "there are indeed strategic factors needed for a business and they can be identified. However, the question is: if CSFs differ from industry to industry, how can these be identified? In order to find out the answer of this question, managers can put another question: what do we need to do in order to be successful in a particular business? It is just like an individual putting a question: what does he/she need to

do to be successful in studies, in career, etc. However, the answer of the question `what needs to be done for success in a business' is not as simple as it prima facie appears. Therefore, managers need to generate as much information as possible by going through following ways: 1. CSFs can be identified based on logic, heuristics, or even a rule of thumb rather than through any theoretical model. These are based on long years of managerial experience which leads to the development of intuition, judgment, and hunch. 114 ? Copy Right: Rai University 11.601 2. CSFs can also be identified internally in the organisation by using creative techniques like brainstorming. 3. CSFs can be deduced from other companies' statements, expert opinions, organisational success stories, etc. Using CSF Approach CSF approach can be used in a number of ways to generate competitive advantage. Rockart has identified three steps in using CSF approach: generate the critical success factors, refine CSFs into objectives, and identify measures of performance. 17 While the first step is related to identification of CSFs, other two are related to using these CSFs. A company can generate competitive advantage based on CSFs in the following ways: 1. The company can identify key result areas based on CSFs. A key result area is an aspect of an organisation or its unit that must function effectively for the entire organisation to succeed. If a key result area has been defined in terms of CSFs, its focus is more relevant. A key result area may be any type, for example, aftersales service In automobile or equipment industry. 2. The company can allocate its resources, both physical and human, on the basis of CSFs. For example, in fastmoving consumer goods, there are two critical success factors: product innovation and efficient distribution system. Hindustan, Lever has focused on both by deploying its critical resources in both these areas. 3. A company can generate new CSFs, as these are not static but dynamic. Thus, the new CSF may be more important than the existing ones. This is based on the maxim of doing things differently. For example, when Reliance entered textile fabrics, it introduced the concept of branding which was not a critical concept in textile at that time. In order to promote its brand, it went for huge advertising. With the result, Reliance became number one in textile business very soon. On the basis of CSFs, a company can differentiate itself from others by doing the same thing differently or by doing different thing. However, CSF approach is not free from its limitation, which are in two forms. First, existing or potential competitors can emulate the strategy through benchmarking and other tools and a company cannot remain as competitive as it used to be. Second, if one company can generate a new CSF, others can also do. In this case also, the company may not remain highly competitive. Thus allocating huge resources based on CSFs runs a risk. However, the risk is a prime element of any strategy. It does not mean that CSF approach is not meaningful because of its limitations. In fact what an organisation needs to do is that it takes continuous realigning of CSFs into its operations Organisational Critical Success Factors The above discussion of CSFs is externally focused in the sense that it concentrates on what an organisation should do to be successful in a particular industry. Researchers, both academicians and consultants, have made attempt to find out the answer of the question: what are the characteristics of an organisation, which make it successful in different industries or meeting the requirements of CSFs of these industries? Though the answer of this question is not, precise because of interplay 11.601 of different variables in determining success of an organisation, some clues can be derived from various prescriptions and research studies. McKinsey & Company, a USbased consultant, has prescribed seven factors which lead to success as shown in Figure 1. Strategya means to achieve objectives. 2.

Structurebasic framework to designate responsibilities and functions. 3. Systemsmanagement tools for planning, decision making, communication, and control. 4. Staffshuman resources of the organisation. 5. Skillsorganisational and individual capabilities. S. Stylehow managers lead and motivate. 6. Shared valuesorganisational values which govern behaviour of its members. Based the McKinsey 7S framework, Peter and Waterman have identified eight characteristics of successful companies (called as excellent companies): CSF `s diagram. STRATEGIC MANAGEMENT 1. Bias for action, 2. Close to customers 3. Autonomy and entrepreneurship 4. Productivity through people 5. Hands on, value driven 6. Stick to knitting 7. Simple form, lean staff, and 8. Simultaneous loosetight control. However, these characteristics should not be taken on static basis for generating competitive advantage. For example, some of the companies such as Delta Airlines, Digital Equipment, IBM, Included in the list of excellent companies started showing declining performance soon after the publication of the book. AT Kearney, another USbased consultancy firm conducted a study, which included 1100 companies in Europe, American 115 ? Copy Right: Rai University continent and AsiaPacific region to identify organisational growth drivers. In association with Economic Intelligent Unit, the researchers also surveyed 57 CEOs of Indian and MNCcontrolled companies. They identified five organisational growth driversleadership, strategy, competencies and resources, organisational design, and organisational culture and climate. The external factors affecting growth were macro environment, competitive pressure, customer satisfaction, shareholder pressure, and technological change in that order. Finance Asia has adjudged Infosys Technologies and Reliance Industries as the two bestmanaged companies of Asia for the year 2000. While a case on Reliance has been given In Part V of the text, Exhibit 9.3 traces the success factors of Infosys Lets take an example: Organisational Culture Organisational culture is one of the strongest features of Infosys. It emphasizes on high ethical values in all operations, equality among all personnel irrespective of their organisational positions, encouragement of high performance standards set by the personnel themselves, and sharing of outcomes of performance by all. The company has set a culture in which no stakeholder aspires to take more than what it contributes. Work culture is quite friendly and emphasis is placed on teamwork. Organisation Structure The company has adopted a freeform organisation devoid of hierarchies. Everyone is known as associates irrespective of his position in the company. Software development is undertaken through teams and the constitution of teams is based on the principle of flexibility. A member who might have been team leader in one project may be replaced by another member of the same team for another project. This system not only helps in creating the feeling of equality but also helps in developing project leaders. Notes STRATEGIC MANAGEMENT Critical Success Factors of Infosys Infosys Technologies Limited is engaged in development of application software mostly for business. Software development is highly knowledgebased industry in which quality of human resources is a key determinant of competitive advantage. Infosys derives most of its revenues from overseas operations. For achieving excellence, it has concentrated on five key elementsleadership, human resources, strategy,

organisational culture, and organisation structure. Leadership Infosys believes that leadership is one of the most essential ingredients of organisational success, which is provided by its Chairman, N R Narayanmurthy (affectionately called as NRN by Infocians those who work for the company call themselves). Leadership is based on high business vision and predominantly supportive styles. There is emphasis on developing leadership qualities among employees throughout the organisation so that there is no role vacuum. Top management emphasizes on opendoor policy, continuous sharing of information, takes inputs from employees in decision-making, and builds personal rapport with employees. Human Resources Since Infosys is in knowledgebased industry, it focuses on the quality of the human resources. Out of total personnel, about 90 per cent are computer professionals. At the entry level, it emphasizes on selecting candidates who find the company's middleclass culture satisfying, superior academic records, technical skills, and high level of learnability. The company emphasizes on training and development of its employees on continuous basis and spends about 2.65 per cent of its revenues on up gradation of employees' skills. In an era when personnel turnover is very high in IT industry, Infosys has offered stock options to every employee with the result that not only personnel turnover is negligible but employees are highly motivated to work. Strategy Infosys has adopted a clientfocused strategy to achieve growth. Rather than focusing on numerous small organizations, it focuses on limited number of large organizations throughout world. In order to cater its clients, the company emphasizes on custombuilt software. 116 ? Copy Right: Rai University