Cost Transformation Model – McKinsey Framework

What is it?

The McKinsey 7-S framework was developed by Tom Peters and Robert Waterman at McKinsey & Company. It argues that organisational effectiveness involves more than simply putting in place the right command and control structure to coordinate the delivery of an organisation’s strategy. Instead, the framework maps a constellation of seven interacting factors that are key to helping people function effectively together, in order to achieve a high performance organisation.

What each element means:

1. Style

   Also referred to as culture, this represents the way things are done and, particularly, the way the leadership team conducts itself in the organisation. The leadership’s style will influence how the rest of the employees behave. Therefore, if the leadership visibly embraces, champions and demonstrates cost transformation and management, then people around the organisation will typically follow.

2. Skills

   Refers to the skills needed to deliver the cost transformation and management strategy. Having the right skills to deliver the strategy is vital and skills gaps can pose a risk to achieving cost competitiveness objectives.

3. Systems

   These are the activities, processes and procedures that people engage in to do their work. It also includes software systems, which are increasingly automating activities, processes and procedures.

4. Structure

   The hierarchy of control exercised through delegated responsibility. The structure should be as simple as possible to help people understand who is accountable for specific results.

5. Staff

   This includes the inherent talents of the organisation’s people, the number of staff and the diversity needed in each area to optimise organisational capability and capacity.

6. Strategy

   Organisations need to compete in volatile, uncertain, complex and ambiguous environments. So, strategy needs to respond to this with agility. Organisations must constantly adapt to strategies to succeed.

7. Shared values

   These encapsulate the organisation’s purpose or its societal mandate. The organisation’s purpose tends to remain a fundamental constant over time and this purpose shapes the organisation’s values.

Having shared values at the centre of the constellation emphasises that it is the core values of the organisation, aligned to the organisation’s purpose, that shape the remaining elements.

What benefits does McKinsey 7-S provide?

Perhaps strategy is changing and execution requires new delivery platforms. McKinsey’s 7-S framework provides a useful approach to organisational design, specifically for:

• Facilitating organisational change

• Aligning the organisation to new strategy

• Aiding the merger or acquisition of organisations

• Improving the performance of a company

• Modelling the likely effects of future changes within a company.

Implementing McKinsey 7-S? Questions to consider:

• Is there senior support to review the organisation’s design?

• Are the seven elements of the framework aligned with each other?

• What is the best organisational design to support the objectives?

• What needs to change to achieve the best organisational design?

• Do you have the necessary resources to bring about the changes identified?

Template

The example questions above aim to illustrate how the elements of the McKinsey 7-S model’s interact with one another. In doing so, they are designed to help you with deploying the 7-S framework.

The framework consists of two main sets of factors: first, the ‘hard’ elements (strategy, structure and systems) that management can directly control; and second, the 'soft' elements (shared values, style, staff and skills) which managers need to influence indirectly.

The questions included in this template are examples designed to help users better understand the framework. They could also be used as starter questions for their businesses. We encourage you to modify or supplement them to better suit your own situations or, if you prefer, to change them to open-style questions.