7s - external & internal business environment – Ligia Hera
External environment: Encompasses all issues, occurrences, trends, etc. that are
peripheral to the corporation and beyond the control of the company. Changes in the external
environment (general & competitive) may require a company to adjust its strategic plans.
These new conditions may present new opportunities or threats thereby necessitation
revision of offensive or defensive strategies.
Internal environment: Relates to all aspects within the confines of the organization and
generally are within the control of the company.
Both environments exert significant influence over the formation of a company’s strategy
and its degree of success.
A company’s macroenvironment:
Environments:
The internal environment goal of analysis:
- Identify and evaluate what’s going on inside the firm.
- Assess what are strengths and weaknesses.
- Critical in making decisions about the future of the organization (also considering its
external environment).
,Strategic managers must evaluate the internal environment of the organization. Identify and
classify variables within an organization as strengths or weaknesses.
Strength = factor that is better than:
- Past performance.
- Key competitors.
- Industry as a whole.
Weakness = factor that is worse than:
- Past performance.
- Key competitors.
- Industry as a whole.
Internal analysis the 7s model:
- The 7-S-model is known as McKinsey 7-S.
- The 2 persons who developed this model, Tom Peters and Robert Waterman, have
been consultants at McKinsey & Co at that time. Thy published their 7-S-Model in
their article “Structure Is Not Organization” (1980) and in their books “The Art of
Japanese Management” (1981) and “In Search of Excellence” (1982).
- The model starts on the premise that an organization is not just structure, but consists
of seven elements (which must be aligned with each other).
- Consultants at McKinsey & Co. recognized a circular problem central to their client’s
failure to effectively implement strategy and co-developed the McKinsey model.
- Successful implementation of strategy requires management of the interrelationships
between seven elements.
7s model to be used for:
- The framework can be used to understand where gaps may appear in a company,
which is creating imbalance and what areas of the business to align and improve to
increase performance. It can be used as a tool in a variety of corporate situations,
like:
o Understanding a system change and the affects to the organization as a
whole.
o Creating strategic and fundamental culture change.
Main goal of the 7s model: To make per ‘S’ an inventory of the strong and weak points on
organization/department level and to draw conclusion regarding the balancing/alignment of
the elements (sinergy).
Applications of the model, to support you in:
- Improve the performance of a company.
- Examine the likely effects of future changes within a company.
- Align departments and processes of a company during its different life cycle phases
or transformations (expansion, acquisition).
- Determine how best to implement a proposed strategy.
How do you go about analyzing how well your organization is positioned to achieve its
intended objective? This is a question that has been asked for many years, and there are
many different answers. Some approaches look at internal factors, others look at external
ones, some combine these perspectives, and others look for congruence between various
aspects of the organization being studied. Ultimately, the issue comes down to which factors
to study. The basic premise of the model is that there are seven internal aspects of an
organization that need to be aligned if it is to be successful.
There are four key insights which can be derived from this model:
1. Five other elements comprise organizational effectiveness in addition to the
traditional strategy and structure.
, 2. The lines connecting each element identify the mutual dependency between each
element.
3. Strategic failure may be attributable to inattention to one or a combination of seven
elements.
4. The circularity of the model focuses the analyst’s attention on the absence of
hierarchical dominance (all elements get the same importance and attention).
Advantages of the model:
- Emphasis on a firm’s strategy implementation.
- First model to meld the “hard” and “soft” aspects of the enterprise.
- Emphasizes coordination of key tasks.
- Model was also one of the first to help connect academic research with managerial
practice.
Effective organizations achieve a harmony between these seven elements; if one
element changes, then this will affect all the others. Placing Shared Values in the middle
of the model emphasizes that these values are central to the development of all the other
critical elements. The company's structure, strategy, systems, style, staff and skills all stem
from why the organization was originally created, and what it stands for. The original vision of
the company was formed from the values of the creators. As the values change, so do all the
other elements.
The seven ‘s’ elements are distinguished in so called hard S’s and soft S’s. The soft
elements are as important as the hard elements if the organization is going to be successful.
Hard S’s elements: Are easier to define or identify and management can directly influence
them.
- Strategy.
- Structure.
- Systems.
Soft S’s elements: Can be more difficult to describe and are less tangible and more
influenced by culture.
- Shared values.
- Skills.
- Style.
- Staff.
,The 7s elements:
1. Structure: The line of reporting, task allocation, coordination and supervision level.
Represents the way business divisions and units are organized and includes the
information of who is accountable to whom. In other words, structure is the
organizational chart of the firm. It is also one of the most visible and easy to change
elements of the framework.
2. Strategy: The top-level plan made to create competitive advantage. Is a plan
developed by a firm to achieve sustained competitive advantage and successfully
compete in the market? In general, a sound strategy is the one that’s clearly
articulated, is long-term, helps to achieve competitive advantage and is reinforced by
strong vision, mission and values.
3. Systems: The supporting systems and processes (information systems, financial
reporting, payment systems, resource allocation). Are the processes and procedures
of the company, which reveal business’ daily activities and how decisions are made?
Systems are the area of the firm that determines how business is done and it should
be the main focus for managers during organizational change.
4. Shared values: Core values of the company that shape its culture. They determine
how the firm behaves or is perceived in a certain environment. They are the norms
and standards that guide employee behavior and company actions and thus, are the
foundation of every organization.
5. Style: Leadership style (relationship between leader & employees). Represents the
way the company is managed by top-level managers, how they interact, what actions
do they take and their symbolic value. In other words, it is the management style of
company’s leaders.
6. Staff: Number and type of employees. Element is concerned with what type and how
many employees an organization will need and how they will be recruited, trained,
motivated and rewarded.
7. Skills: Core competences organization / USP etc. Are the abilities that makes the
firm’s competitive strategy. Think of them as their USPs; which skills makes them
perform better than competitors. They also include capabilities and competences.
During organizational change, the question often arises of what skills the company
will really need to reinforce its new strategy or new structure.
The 8th s? Social relations & solidarity: Social relations could be enbedded in the staff
element. Solidarity focuses on the loyalty issues in a company (can also be enbedded in the
staff element).
Shared values:
- Identify the core values.
- Identify the corporate company’s culture.
- What are the values the company was built on?
- Are these still alive?
- What are the issues that connect the employees of the organisation?
- What is the conclusion to be drawn in terms of strenghts and weaknesses?
Strategy: Ways to achieve competitive advantage (through tangible and intangible assets).
Example: Low costs through economic production and delivery; or product differentiation
through distinct features or innovative sales.
- What is the vision, mission and goals of the company?
- What is the reaction of the company on societal changes?
- What is the company’s view on the future?
- What is the relationship between strategy and the operational activities?
- What is the relationship between strategy and shared values?
- What is the conclusion to be drawn in terms of strenghts and weaknesses?
,Structure: Ways in which task and people are specialized and divided and authority is
distributed.
- How is the company/team divided?
- What is the hierarchy?
- How do the various departments coordinate activities?
- How do the team members organize and align themselves?
- Is decision making and controlling centralized or decentralized? Is this as it should
be, given what the company is doing?
- Where are the lines of communication? Explicit and implicit?
- What is the relationship between structure and shared values?
- What is the conclusion to be drawn in terms of strenghts and weaknesses?
Functional structure: A functional structure is one of the most common organizational
structures. Under this structure, the organization groups employees according to a
specialized or similar set of roles or tasks. While functional structures operate well in
stable environments where business strategies are less inclined to changes or dynamism,
the level of bureaucracy makes it difficult for organizations to respond to changes in the
market quickly.
Strengths:
- Specialization as people with similar knowledge and skills are grouped together.
- Productivity: due to specialization people perform tasks more quickly and efficient and
increase firm’s productivity.
Weaknesses:
- Rigid communication between firm’s departments, due to bureaucracy and ways of
operation.
- This might slow down the decision-making process.
- Due to lack of overall involvement, restricted views on firm goals and due to too much
focus the employees could get demotivated.
Divisional structure: It consists of several parallel teams (divisions) focusing on a single
product or service line (example: brands under Microsoft software platform). The divisions
are more autonomous, each having its own top executive.
Strengths:
- The divisions work well, allow the people to focus on a single product/line.
- Having its own leader allows to build a common culture/knowledge which contributes
to a better knowledge of portfolio.
Weaknesses:
- The danger that a division acts sometimes undermining the other division.
,Matrix organization structure: Is usually defined as one where there are multiple reporting
lines (people have more than one formal boss). The reporting relationships are set up in the
form of a grid/matrix. Employees usually to 2 people (example: geographical manager and
product manager or product manager and general manager).
Strengths:
- The resources can be used efficient as they are shared across projects.
- It is adaptable to changes.
- Employees are in contact with many people with whom they share info.
- Info flows both across and up through organization.
Weaknesses:
- Very expensive, most of the people are expensive specialist.
- Lots of paperwork.
Network structure: Refers to a system of delegating and coordinating tasks among a
number of partner, companies or business entities with the common goal of producing a
specific product.
Style:
- Identify the management style.
- How effective is the leadership?
- Competitiveness or cooperation between employees?
- What are the norms and values of the company?
- What is de relationship between style and shared values?
- What is the conclusion to be drawn in terms of strenghts and weaknesses?
, Staff:
- What are the positions or specializations that are represented in the team? What are
the vacancies?
- Number of employees working for the company and their background.
- What are the important competencies for the company? Are there gaps in
competencies and how to fill these in?
- What are the requests that management has for its employees?
- How are the emplyees motivated?
- What are the reasons of staff to work for the company?
- What about the work conditions?
- What is the relation between staff and shared values?
- What is the conclusion to be drawn in terms of strenghts and weaknesses?
Skills:
- What are the strongest skilss represented within the company? Are there gaps in
skills?
- What is the company knowns for doing outstanding?
- How are the skills mantained, assessed?
- Is the organisation a ‘learning organisation’? (BSC)
- Is is thought about the professional developments of staff?
- Is is thought about innovation aspects?
- What is the relationship between skills and system?
- What is the conclusion to be drawn in terms of strenghts and weaknesses?
Systems:
- What are the main systems that run the organization (financial systems,
communication systems, etc.) How are these systems monitored and evaluated?
- What are the rules and procedures that are used in the communication among staff?
- How is the quality of the products and services monitered and controled within the
organization?
- What for systems are used in order to evaluate the employees?
- What is the relationship between system and skills?
- What is the conclusion to be drawn in terms of strengths and weaknesses?
Strategy – McKinsey 7’s – Esther Nieuwenhuizen
Learning objectives:
- Student understands the links between vision, mission and strategy.
- Student identifies the different levels of strategy of a company.
- Student can analyze which strategy is defined by a company (corporate, business or
functional).
- Able to apply the S from Strategy from the Mc Kinsey 7s model to internally research
and analyze an (inter)national fashion company.
- Student come to see themselves as persons who can analyze a company’s strategy
and can discuss this in a meaningful way with other people.
- Be more interested in a company’s strategy and getting excited about developing
strategy’s in the future.
