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L 4 strategy types and choices
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- 2. Types of Strategies Levelof strategies 2
- 3. Strategy hierarchy 1. Corporatestrategy: 1) growth strategy, 2) stability strategy, 3) retrenchment strategy. 2. Business unit strategy: 1. cost leadership, 2. differentiation, 3. focus, 4. mixed 3. Functional strategy. 3
- 4. Types of Strategies OperationalLevel Functional Level Division Level Corp LevelA Large Company
- 5. Ch 5 -5 Typesof Strategies Functional Level Operational Level companyA small Company
- 6. Corporate strategies • Toplevel management formulate for overall organization • The question at the corporate level we should answer when design strategies: In what industry should we be operating? • It depends on the outcome of SWOT analysis. 6
- 7. Growth strategies Growth strategies: Theyresult increase in sales, market share and profit: the types: • Internal growth: Increase internal capacity of organization without acquiring other firms. • Conglomerate Diversification: Acquiring unrelated business. • Merger: Two roughly similar size firms combine into one. To benefit of synergy. • Strategic alliance: Temporary partnerships 7
- 8. Corporate Restructuring The changein a broad set of actions and decisions, e.g., changing relationships and organization of work. • The aim of restructuring is to improve effectiveness. • Restructuring could be growth, stability or retrenchment. This depends on why we use it. 8
- 9. Retrenchment strategies • Types: 1-Turnaround: Eliminating unprofitable outputs, pruning/cutting assets, reducing size of work force, rethinking firm’s products lines and customer groups. 2- Divestment: sell one of business units 3- Liquidation: last resort strategy 9
- 10. 10 Strategies in Action VerticalIntegration Strategies • Forward integration • Backward integration • Horizontal integration
- 11. 11 Strategies in Action Defined •Gaining ownership or increased control over distributors or retailers Example • Maruti Udyog Ltd is acquiring 10% of its dealers. Forward Integration
- 12. Strategies in Action Guidelinesfor Forward Integration Present distributors are expensive, unreliable, or incapable of meeting firm’s needs Availability of quality distributors is limited When firm competes in an industry that is expected to grow markedly Advantages of stable production are high Present distributor have high profit margins 12
- 13. 13 Strategies in Action Defined •Seeking ownership or increased control of a firm’s suppliers Example • Oberoi Hotels acquired a furniture manufacturer. Backward Integration
- 14. Strategies in Action Guidelinesfor Backward Integration When present suppliers are expensive, unreliable, or incapable of meeting needs Number of suppliers is small and number of competitors large High growth in industry sector Firm has both capital and human resources to manage new business Advantages of stable prices are important Present supplies have high profit margins 14
- 15. 15 Strategies in Action Defined •Seeking ownership or increased control over competitors Example • HDFC Bank acquiring Axis Bank Horizontal Integration
- 16. Strategies in Action Guidelinesfor Horizontal Integration Firm can gain monopolistic characteristics without being challenged by federal government Competes in growing industry Increased economies of scale provide major competitive advantages Faltering/losing due to lack of managerial expertise or need for particular resources 16
- 17. 17 Strategies in Action IntensiveStrategies • Market penetration • Market development • Product development
- 18. 18 Strategies in Action Defined •Seeking increased market share for present products or services in present markets through greater marketing efforts Example • Sharekhan, the on-line broker, triples its annual advertising expenditures to convince people they can make their own investment decisions. Market Penetration
- 19. Strategies in Action Guidelinesfor Market Penetration Current markets not saturated Usage rate of present customers can be increased significantly Market shares of competitors declining while total industry sales increasing Increased economies of scale provide major competitive advantages 19
- 20. 20 Strategies in Action Defined •Introducing present products or services into new geographic area Example • Bajaj Auto launching their bikes in South America Market Development
- 21. Strategies in Action Guidelinesfor Market Development New channels of distribution that are reliable, inexpensive, and good quality Firm is very successful at what it does Untapped or unsaturated markets Capital and human resources necessary to manage expanded operations Excess production capacity Basic industry rapidly becoming global 21
- 22. 22 Strategies in Action Defined •Seeking increased sales by improving present products or services or developing new ones Example • OLED Invention by Samsung. • Electric vehicles by Mahindra. Product Development
- 23. Strategies in Action Guidelinesfor Product Development Products in maturity stage of life cycle Competes in industry characterized by rapid technological developments Major competitors offer better-quality products at comparable prices Compete in high-growth industry Strong research and development capabilities 23
- 24. 24 Strategies in Action DiversificationStrategies • Concentric diversification • Conglomerate diversification • Horizontal diversification
- 25. 25 Strategies in Action Defined •Adding new, but related, products or services Example • LIC buying major share in IDBI Bank Ltd Concentric Diversification
- 26. Strategies in Action Guidelinesfor Concentric Diversification Competes in no- or slow-growth industry Adding new & related products increases sales of current products New & related products offered at competitive prices Current products are in decline stage of the product life cycle Strong management team 26
- 27. 27 Strategies in Action Defined •Adding new, unrelated products or services Example • Reliance Industries launching JIO Conglomerate Diversification
- 28. Strategies in Action Guidelinesfor Conglomerate Diversification Declining annual sales and profits Capital and managerial talent to compete successfully in a new industry Financial synergy between the acquired and acquiring firms Exiting markets for present products are saturated 28
- 29. 29 Strategies in Action Defined •Adding new, unrelated products or services for present customers Example • Reliance JIO offering IPTV to its existing customers Horizontal Diversification
- 30. Strategies in Action Guidelinesfor Horizontal Diversification Revenues from current products/services would increase significantly by adding the new unrelated products Highly competitive and/or no-growth industry w/low margins and returns Present distribution channels can be used to market new products to current customers New products have counter cyclical sales patterns compared to existing products 30
- 31. 31 Strategies in Action DefensiveStrategies • Joint venture • Retrenchment • Divestiture • Liquidation
- 32. 32 Strategies in Action Defined •Two or more sponsoring firms forming a separate organization for cooperative purposes Example • Lucent Technologies and Philips Electronic NV formed Philips Consumer Communications to make and sell telephones. Joint Venture
- 33. Strategies in Action Guidelinesfor Joint Venture Combination of privately held and publicly held can be synergistically combined Domestic forms joint venture with foreign firm, can obtain local management to reduce certain risks Distinctive competencies of two or more firms are complementary Overwhelming resources and risks where project is potentially very profitable (e.g., Alaska pipeline) Two or more smaller firms have trouble competing with larger firm A need exists to introduce a new technology quickly 33
- 34. 34 Strategies in Action Defined •Regrouping through cost and asset reduction to reverse declining sales and profit. Sometimes it is called turnaround or reorganizational strategy. Example • A company sold off a land and 4 apartments to raise cash needed. It introduces expense effective control system. Retrenchment (turnaround)
- 35. Strategies in Action Guidelinesfor Retrenchment Firm has failed to meet its objectives and goals consistently over time but has distinctive competencies Firm is one of the weaker competitors Inefficiency, low profitability, poor employee morale, and pressure from stockholders to improve performance. When an organization’s strategic managers have failed Very quick growth to large organization where a major internal reorganization is needed. 35
- 36. 36 Strategies in Action Defined •Selling a division or part of an organization Example • TATA Steel selling its Cement division Divestiture
- 37. Strategies in Action Guidelinesfor Divestiture When firm has pursued retrenchment but failed to attain needed improvements When a division needs more resources than the firm can provide When a division is responsible for the firm’s overall poor performance When a division is a misfit with the organization When a large amount of cash is needed and cannot be obtained from other sources. 37
- 38. 38 Strategies in Action Defined •Selling all of a company’s assets, in parts, for their tangible worth Example • A company selling all its assets and ceased business. Liquidation
- 39. Strategies in Action Guidelinesfor Liquidation When both retrenchment and divestiture have been pursued unsuccessfully If the only alternative is bankruptcy, liquidation is an orderly alternative When stockholders can minimize their losses by selling the firm’s assets 39
- 40. Ch 5 -40 MichaelPorter’s Generic Strategies Cost Leadership Strategies (Low-Cost & Best-Value) Differentiation Strategies Focus Strategies (Low-Cost Focus & Best-Value Focus)
- 41. Business Unit Strategies •Here we answer the question: How should we compete in the chosen industry? Cost leadership Differentiation (real or perceived). Mixed Focus 41
- 42. 6-42 Business Strategy Focuses onimproving competitive position of company’s products or services within the specific industry or market segment
- 43. 6-43 Porter’s Competitive Strategies CompetitiveStrategy -- –Low cost –Differentiation –Direct competition –Focus on niche
- 44. 6-44 Porter’s Competitive Strategies GenericCompetitive Strategies -- –Lower Cost strategy •Greater efficiencies than competitors –Differentiation strategy •Unique/superior value, quality, features, service
- 45. 6-45 Porter’s Competitive Strategies CompetitiveAdvantage -- –Determined by Competitive Scope •Breadth of the target market
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- 48. 6-48 Porter’s Competitive Strategies CostLeadership -- –Low-cost competitive strategy –Broad mass market –Efficient-scale facilities –Cost reductions –Cost minimization
- 49. Michael Porter’s GenericStrategies • Cost leadership emphasizes producing standardized products at a very low per-unit cost for consumers who are price-sensitive. • There are two types of cost leadership strategies. • a. A low-cost strategy offers products to a wide range of customers at the lowest price available on the market. • b. A best-value strategy offers products to a wide range of customers at the best price-value available on the market. Ch 5 -49
- 50. Cost leadership • Strivingto be the low-cost producer in an industry can be especially effective when the market is composed of many price-sensitive buyers, when there are few ways to achieve product differentiation, when buyers do not care much about differences from brand to brand, or when there are a large number of buyers with significant bargaining power. Ch 5 -50
- 51. Cost leadership • Thebasic idea behind a cost leadership strategy is to underprice competitors or offer a better value and thereby gain market share and sales, driving some competitors out of the market entirely. • To successfully employ a cost leadership strategy, firms must ensure that total costs across the value chain are lower than that of the competition. This can be accomplished by: • a. performing value chain activities more efficiently than competition, and • b. eliminating some cost-producing activities in the value chain. Ch 5 -51
- 52. 6-52 Porter’s Competitive Strategies Differentiation– –Broad mass market –Unique product/service –Premiums charged –Less price sensitivity
- 53. Differentiation • Differentiation isaimed at producing products that are considered unique. This strategy is most powerful with the source of differentiation is especially relevant to the target market
- 54. Differentiation • A successfuldifferentiation strategy allows a firm to charge higher prices for its products to gain customer loyalty because consumers may become strongly attached to the differentiation features. • 3. A risk of pursuing a differentiation strategy is that the unique product may not be valued highly enough by customers to justify the higher price. Ch 5 -54
- 55. Differentiation • Common organizationalrequirements for a successful differentiation strategy include strong coordination among the R&D and marketing functions and substantial amenities to attract scientists and creative people.
- 56. Focus • 1. Focusmeans producing products and services that fulfill the needs of small groups of consumers. • 2. There are two types of focus strategies. • a. A low-cost focus strategy offers products or services to a small range (niche) of customers at the lowest price available on the market. • b. A best-value focus strategy offers products to a small range of customers at the best price-value available on the market. This is sometimes called focused differentiation.
- 57. Focus • Focus strategiesare most effective when the niche is profitable and growing, when industry leaders are uninterested in the niche, when industry leaders feel pursuing the niche is too costly or difficult, when the industry offers several niches, and when there is little competition in the niche segment.
- 58. Porter’s Competitive Strategies Cost-Focus– –Low-cost competitive strategy –Focus on market segment –Niche focused –Cost advantage in market segment
- 59. Porter’s Competitive Strategies DifferentiationFocus – –Specific group or geographic market focus –Differentiation in target market –Special needs of narrow target market
- 60. Porter’s Competitive Strategies Stuckin the middle – –No competitive advantage –Below-average performance
- 61. Risks of GenericStrategies Risks of Cost Leadership Cost leadership is not sustained: • Competitors imitate. • Technology changes. • Other bases for cost leadership erode. Proximity in differentiation is lost. Cost focusers achieve even lower cost in segments. Risks of Differentiation Differentiation is not sustained: • Competitors imitate. • Bases for differentiation become less important to buyers. Cost proximity is lost. Differentiation focusers achieve even greater differentiation in segments. Risks of Focus The focus strategy is imitated: The target segment becomes structurally unattractive: • Structure erodes. • Demand disappears. Broadly targeted competitors overwhelm the segment: • The segment’s differences from other segments narrow. • The advantages of a broad line increase. New focusers subsegment the industry. Risks of Cost Leadership Cost leadership is not sustained: • Competitors imitate. • Technology changes. • Other bases for cost leadership erode. Proximity in differentiation is lost. Cost focusers achieve even lower cost in segments. Risks of Differentiation Differentiation is not sustained: • Competitors imitate. • Bases for differentiation become less important to buyers. Cost proximity is lost. Differentiation focusers achieve even greater differentiation in segments. Risks of Focus The focus strategy is imitated: The target segment becomes structurally unattractive: • Structure erodes. • Demand disappears. Broadly targeted competitors overwhelm the segment: • The segment’s differences from other segments narrow. • The advantages of a broad line increase. New focusers subsegment the industry.
- 62. Level of Strategy •Functional/operational Strategies: Concern with org. internal resources and processes which effectively deliver the corporate and business strategic direction. Functional strategies are interrelated. Functional strategies e.g.: purchasing & materials management, production, finance, R&D, HR, IT, and marketing. 62
- 63. Purchasing & materials management(as example) Buying materials in quantity, quality and cost which correspond with the corp. generic strategies (Business Unit strategies). 63
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- 65. Nonprofit Organizations • Organizationswhich enjoy tax exempt status as a result of being organized to serve a broad public interest.
- 66. Nonprofits and profits Nonprofit organizations are permitted to generate a profit However, nonprofits may not distribute their profits to their staff or directors – nondistribution constraint Surplus must be used to further the mission of the organization
- 67. The nonprofit worldhas been experiencing significant changes Increasing privatization of government services (education, health care, social services, the arts) Increasing financial pressure on nonprofits Increasing concerns about the efficacy of nonprofits Increasing corporate social responsibility initiatives and funds Other trends
- 68. Some of themanagement challenges of the nonprofit enterprise Defining and measuring success (economic stability and growth is a subsidiary goal). Raising funds – cannot sell the company ‘shares’ Attracting and motivating people given the often limited resources and the nondistribution constraint (no profit-based incentives)
- 69. Strategic Planning inNonprofit Organizations
- 70. What is strategy? •Getting critical resource decisions right – allocating time, talent, and money to the activities that have the greatest impact – is what “strategy” is about.
- 71. Strategic Planning The processof developing a comprehensive document that sets forth what and organization is working to accomplish and how it intends to succeed
- 72. The Strategic Plan Connects the mission and the programs Establishing performance measures that are understandable to all Encourages strategic thinking – the best allocation of scarce resources The strategic planning process is as valuable as the end result
- 73. Four main componentsof strategic planning 1. Strategic clarity – – – Mission statement Intended Impact Theory of Change 2. Strategic priorities: What specific actions and activities must take place to achieve the intended impact 3. Resource implications: To pursue the priorities, and the plan to secure them 4. Performance measures: Establishing the quantitative and qualitative milestones to measure progress
- 74. The University forPeace’s Mission Statement: “To provide humanity with an international institution of higher education for peace and with the aim of promoting among all human beings the spirit of understanding, coexistence, to tolerance stimulate and cooperation peaceful among peoples and to help lessen obstacles and threats to world peace and progress, in keeping with the noble aspirations proclaimed in the Charter of the United Nations". Which functions does this mission statement fulfill?
- 75. The Earth CharterInitiative • The mission of the Earth Charter Initiative is, "To establish a sound ethical foundation for the emerging global society and to help build a sustainable world based on respect for nature, universal human rights, economic justice and a culture of peace."
- 76. The mission isthe centerpiece of the nonprofit organization It serves a boundary function Serves to attract and motivate stakeholders (donors, staff, and clients) Should help in the process of evaluation The challenge could be see to create a mission statement that is specific enough to inspire, but sufficiently broad to allow strategic redirection
- 77. A nonprofit’s theoryof change: Theory of Change: Explains how the organization’s intended impact will actually happen. In other words, why will the organization’s approach bring about the desired change.
- 78. To clarify anonprofit’s theory of change, ask: 1. What are the most important elements of our programs? 2. What assumptions led us to choose these particular program element? 3. Are there other ways to achieve the desired outcomes? Why are we not taking that approach?
- 79. A nonprofit’s IntendedImpact provides a bridge between mission and programs Intended Impact: Is a statement about what the organization is trying to achieve and will hold itself accountable for within a period of time. It identifies both the benefits the organization seeks and the beneficiaries.
- 80. To clarify anorganization’s intended impact, ask: 1. Who are the beneficiaries? 2. What benefits do our programs create? 3. What won’t we do?
- 81. 2. Determining strategic prioritiesis the next step • Looking at current programs – How do they align with mission, intended impact and theory of change? – How much do they cost? (per outcome?) – Do they play into the organization’s strengths? – How do they compare with peers? – Changes that should be made? • Modify • Add new ones • Discontinue
- 82. 3. Resource Implications– human and infrastructure What will it cost to implement? What’s the gap? Financial projections for new strategy – Scenario planning UPEACE Strategic Planning…star, constellation, galaxy
- 83. 4. Performance measures Needto collect data – INDICATORS Program milestones – Quantity – Quality Operational milestones – Human resources – Infrastructure Financial milestones – budget In establishing performance measures, it is important to be clear about the timing and ownership
- 84. Measuring success innonprofit organization 1. What makes measuring success particularly difficult in the nonprofit environment? 2. What was the problem with the ‘bucks and acres’ measurement system of the TNC? 3. What approach did the American Cancer Society (ACS) adopt given its challenge? 4. Any questions/points you want to discuss on the reading?
- 85. Small group exerciseon developing strategic clarity 1. Select one member in your group to share his/her organization’s mission and main programs 2. Work together and draft the organization’s ‘Theory of Change’ on your ‘flip chart’ 3. Clarify the organization’s ‘Intended Impact’ 4. Discuss what indicators are currently being tracked. What should be added?
- 86. Lessons learned from‘Measuring what matters in Nonprofits’ Measuring mission depends on measurable goals Keep measures simple and easy to communicate Measures are marketable Measures are only as good as the use to which organizations put them
- 87. Returning tothe milestones over time is a sign that your organization is continuing to think strategically
- 88. Managing in ToughTimes 1. Act quickly, but not reflexively, and plan contingencies. 2. Protect the core 3. Identify the people who matter most and keep the group strong 4. Stay very close to your key funders 5. Shape up your organization 6. Involve your board 7. Communicate openly and often How is your organization reacting the ‘financial crisis’?
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- 90. INTRODUCTION McKinsey 7smodel is a tool that analyzes firm’s organizational design by looking at 7 key internal elements: strategy, structure, systems, shared values, style, staff and skills, in order to identify if they are effectively aligned and allow organization to achieve its objectives. Developed McKinsey&Co. consultants , Harvard Business School and Stanford Business School professors.
- 91. INTRODUCTION McKinsey 7smodel was developed in 1980s by McKinsey consultants Tom Peters, Robert Waterman and Julien Philips with a help from Richard Pascale and Anthony G. Athos. Since the introduction, the model has been widely used by academics and practitioners and remains one of the most popular strategic planning tools. It sought to present an emphasis on human resources (Soft S), rather than the traditional mass production tangibles of capital, infrastructure and equipment, as a key to higher organizational performance. The goal of the model was to show how 7 elements of the company: Structure, Strategy, Skills, Staff, Style, Systems, and Shared values, can be aligned together to achieve effectiveness in a company. The key point of the model is that all the seven areas are interconnected and a change in one area requires change in the rest of a firm for it to function effectively.
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- 93. THE FRAMEWORK Belowyou can find the McKinsey model, which represents the connections between seven areas and divides them into ‘Soft Ss’ and ‘Hard Ss’. The shape of the model emphasizes interconnectedness of the elements.
- 94. THE FRAMEWORK Themodel can be applied to many situations and is a valuable tool when organizational design is at question. The most common uses of the framework are: To facilitate organizational change. To help implement new strategy. To identify how each area may change in a future. To facilitate the merger of organizations.
- 95. 1. STRATEGY Waysto achieve competitive advantage. Examples. Low-cost strategy through economic production or delivery Product differentiation through distinct features or innovative sales.
- 96. 2. STRUCTURE Waysin which task and people are specialized and divided, and authority is distributed. Four main structures Functional Structure Divisional Structure Matrix Structure Network Structure
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- 101. 3. SYSTEMS Formalprocesses and procedures to manage the organization. Examples: Performance Measurements Reward Systems Planning Budgeting ResourceAllocation Information System Distribution System
- 102. 4. STAFFING People,their background and competencies. Organization’s approach to recruitment, selection, socialization, training and employee development.
- 103. 5. SKILLS Distinctivecompetencies in the organization. Can be of People, Management Practices, Systems and/or Technologies.
- 104. 6. STYLE Leadershipstyle of top management and overall operating style of organization. Impacts norms followed by people, how they work and interact with each other and customers.
- 105. 7. SHARED VALUES Core values shared in the organization and serve as guiding principles of what is important. Helps focus attention and provides a broader sense of purpose.
- 106. USING THE 7-SMODEL Each S is consistent with and reinforces the other S’s. Recognize the full range of elements that need to be changed and focus on the ones that will have the greatest effects. All seven variables are interconnected- to make progress in one, adjustments need to be made in others also. No natural starting point for a change – it is decided by diagnosis of the alignment of the organization.
- 107. USING THE 7-SMODEL Hard S’s (Easier to change) Strategy Structure & Systems Softer S’s (Harder to change directly and take longer) Staffing Skills Style & Shared Values
- 108. USING THE 7-SMODEL As pointed out earlier, the McKinsey 7s framework is often used when organizational design and effectiveness are at question. It is easy to understand the model but much harder to apply it for your organization due to a common misunderstanding of what should a well-aligned elements be like. Step 1. Identify the areas that are not effectively aligned During the first step, your aim is to look at the 7S elements and identify if they are effectively aligned with each other. Normally, you should already be aware of how 7 elements are aligned in your company, but if you don’t you can use the checklist from WhittBlog to do that. After you’ve answered the questions outlined there you should look for the gaps, inconsistencies and weaknesses between the relationships of the elements. For example, you designed the strategy that relies on quick product introduction but the matrix structure with conflicting relationships hinders that so there’s a conflict that requires the change in strategy or structure.
- 109. USING THE 7-SMODEL Step 2. Determine the optimal organization design With the help from top management, your second step is to find out what effective organizational design you want to achieve. By knowing the desired alignment you can set your goals and make the action plans much easier. This step is not as straightforward as identifying how seven areas are currently aligned in your organization for a few reasons. First, you need to find the best optimal alignment, which is not known to you at the moment, so it requires more than answering the questions or collecting data. Second, there are no templates or predetermined organizational designs that you could use and you’ll have to do a lot of research or benchmarking to find out how other similar organizations coped with organizational change or what organizational designs they are using.
- 110. USING THE 7-SMODEL Step 3. Decide where and what changes should be made This is basically your action plan, which will detail the areas you want to realign and how would you like to do that. If you find that your firm’s structure and management style are not aligned with company’s values, you should decide how to reorganize the reporting relationships and which top managers should the company let go or how to influence them to change their management style so the company could work more effectively.
- 111. USING THE 7-SMODEL Step 4. Make the necessary changes The implementation is the most important stage in any process, change or analysis and only the well-implemented changes have positive effects. Therefore, you should find the people in your company or hire consultants that are the best suited to implement the changes. Step 5. Continuously review the 7s The seven elements: strategy, structure, systems, skills, staff, style and values are dynamic and change constantly. A change in one element always has effects on the other elements and requires implementing new organizational design. Thus, continuous review of each area is very important.
- 112. Example We’ll use asimplified example to show how the model should be applied to an existing organization. Current position #1 We’ll start with a small startup, which offers services online. The company’s main strategy is to grow its share in the market. The company is new, so its structure is simple and made of a very few managers and bottom level workers, who undertake specific tasks. There are a very few formal systems, mainly because the company doesn’t need many at this time. Alignment So far the 7 factors are aligned properly. The company is small and there’s no need for complex matrix structure and comprehensive business systems, which are very expensive to develop.
- 113. Example McKinsey 7s Example(1/3) Aligned? Strategy Market penetration Yes Structure Simple structure Yes Systems Few formal systems. The systems are mainly concerned with customer support and order processing. There are no or few strategic planning, personnel management and new business generation systems. Yes Skills Few specialized skills and the rest of jobs are undertaken by the management (the founders). Yes Staff Few employees are needed for an organization. They are motivated by successful business growth and rewarded with business shares, of which market value is rising. Yes Style Democratic but often chaotic management style. Yes Shared Values The staff is adventurous, values teamwork and trusts each other. Yes
- 114. Example Current position #2 Thestartup has grown to become large business with 500+ employees and now maintains 50% market share in a domestic market. Its structure has changed and is now a well-oiled bureaucratic machine. The business expanded its staff, introduced new motivation, reward and control systems. Shared values evolved and now the company values enthusiasm and excellence. Trust and teamwork has disappeared due to so many new employees. Alignment The company expanded and a few problems came with it. First, the company’s strategy is no longer viable. The business has a large market share in its domestic market, so the best way for it to grow is either to start introducing new products to the market or to expand to other geographical markets. Therefore, its strategy is not aligned with the rest of company or its goals. The company should have seen this but it lacks strategic planning systems and analytical skills. Business management style is still chaotic and it is a problem of top managers lacking management skills. The top management is mainly comprised of founders, who don’t have the appropriate skills. New skills should be introduced to the company.
- 115. Example McKinsey 7s Example(2/3) Aligned? Strategy Market penetration No Structure Bureaucratic machine Yes Systems Order processing and control, customer support and personnel management systems. No Skills Skills related to service offering and business support, but few managerial and analytical skills. No Staff Many employees and appropriate motivation and reward systems. Yes Style Democratic but often chaotic management style. No Shared Values Enthusiasm and excellence No
- 116. Example Current position #3 Thecompany realizes that it needs to expand to other regions, so it changes its strategy from market penetration to market development. The company opens new offices in Asia, North and South Americas. Company introduced new strategic planning systems hired new management, which brought new analytical, strategic planning and most importantly managerial skills. Organization’s structure and shared values haven’t changed. Alignment Strategy, systems, skills and style have changed and are now properly aligned with the rest of the company. Other elements like shared values, staff and organizational structure are misaligned. First, company’s structure should have changed from well- oiled bureaucratic machine to division structure. The division structure is designed to facilitate the operations in new geographic regions. This hasn’t been done and the company will struggle to work effectively. Second, new shared values should evolve or be introduced in an organization, because many people from new cultures come to the company and they all bring their own values, often, very different than the current ones. This may hinder teamwork performance and communication between different regions. Motivation and reward systems also have to be adapted to cultural differences.
- 117. Example McKinsey 7s Example(3/3) Aligned? Strategy Market development Yes Structure Bureaucratic machine No Systems Order processing and control, customer support, personnel management and strategic planning systems. Yes Skills Skills aligned with company’s operations. Yes Staff Employees form many cultures, who expect different motivation and reward systems. No Style Democratic style Yes Shared Values Enthusiasm and excellence No
- 118. Example We’ve seen thesimplified example of how the Mckinsey 7s model should be applied. It is important to understand that the seven elements are much more complex in reality and you’ll have to gather a lot of information on each of them to make any appropriate decision. The model is simple, but it’s worth the effort to do one for your business to gather some insight and find out if your current organization is working effectively.