Strategy types and Choices

1. STRATEGY TYPES AND
CHOICES

2. Types of Strategies
Level of strategies
2

3. Strategy hierarchy
1. Corporate strategy:
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
Operational Level
Functional Level
Division Level
Corp
LevelA Large
Company

5. Ch 5 -5
Types of Strategies
Functional
Level
Operational Level
companyA small
Company

6. Corporate strategies
• Top level 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:
They result 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 change in 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
Vertical Integration 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
Guidelines for 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
Guidelines for 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
Guidelines for 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
Intensive Strategies
• 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
Guidelines for 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
Guidelines for 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
Guidelines for 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
Diversification Strategies
• 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
Guidelines for 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
Guidelines for 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
Guidelines for 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
Defensive Strategies
• 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
Guidelines for 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
Guidelines for 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
Guidelines for 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
Guidelines for 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
Michael Porter’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 on improving competitive
position of company’s products or
services within the specific industry
or market segment

43. 6-43
Porter’s Competitive Strategies
Competitive Strategy --
–Low cost
–Differentiation
–Direct competition
–Focus on niche

44. 6-44
Porter’s Competitive Strategies
Generic Competitive Strategies --
–Lower Cost strategy
•Greater efficiencies than competitors
–Differentiation strategy
•Unique/superior value, quality, features,
service

45. 6-45
Porter’s Competitive Strategies
Competitive Advantage --
–Determined by Competitive Scope
•Breadth of the target market

46. 6-46
Porter’s Competitive Strategies

47. Ch 5 -47

48. 6-48
Porter’s Competitive Strategies
Cost Leadership --
–Low-cost competitive strategy
–Broad mass market
–Efficient-scale facilities
–Cost reductions
–Cost minimization

49. Michael Porter’s Generic Strategies
• 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
• Striving to 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
• The basic 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 is aimed 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 successful differentiation 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 organizational requirements 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. Focus means 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 strategies are 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
Differentiation Focus –
–Specific group or geographic market
focus
–Differentiation in target market
–Special needs of narrow target market

60. Porter’s Competitive Strategies
Stuck in the middle –
–No competitive advantage
–Below-average performance

61. Risks of Generic Strategies
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

64. Overview of Nonprofit
Organizations

65. Nonprofit Organizations
• Organizations which 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 world has 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 the management
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 in Nonprofit
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 process of 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 components of 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 for Peace’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 Charter Initiative
• 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 is the 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 theory of 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 a nonprofit’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 Intended Impact 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 an organization’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
priorities is 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
 Need to 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 in nonprofit 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 exercise on
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 to the milestones over time is
a sign that your organization is
continuing to think strategically

88. Managing in Tough Times
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’?

89. MCKINSEY’S 7S FRAMEWORK

90. INTRODUCTION
 McKinsey 7s model 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 7s model 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.

92. 7-S FRAMEWORK

93. THE FRAMEWORK
 Below you 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
 The model 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
 Ways to achieve competitive advantage.
 Examples.
 Low-cost strategy through economic production or
delivery
 Product differentiation through distinct features or
innovative sales.

96. 2. STRUCTURE
 Ways in which task and people are specialized and
divided, and authority is distributed.
 Four main structures
 Functional Structure
 Divisional Structure
 Matrix Structure
 Network Structure

97.  Functional Structure

98.  Divisional Structure
GM

99.  Matrix Structure

100.  Network Structure

101. 3. SYSTEMS
 Formal processes 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
 Distinctive competencies in the organization.
 Can be of People, Management Practices, Systems
and/or Technologies.

104. 6. STYLE
 Leadership style 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-S MODEL
 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-S MODEL
 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-S MODEL
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-S MODEL
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-S MODEL
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-S MODEL
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 a simplified 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
The startup 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
The company 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 the simplified 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.