McKinsey 7-S: is your business ready for the climb?

Seven parts of an organisation that must fit together. Use them as a readiness check before you add outlets, launch your own brand or start a new product.

Where it comes from. Robert H. Waterman Jr., Thomas J. Peters and Julien R. Phillips set out the seven factors in “Structure Is Not Organization”, Business Horizons, volume 23, issue 3, 1980 (the article on Tom Peters’ site). All three were then at McKinsey & Company, which is why it is called the McKinsey 7-S. The article called the seventh factor “superordinate goals”; most later versions call it shared values.

What it is

The 7-S says an organisation is more than its organisation chart. Seven parts have to fit:

Strategy: the plan to win: which customers, which products, how.
Structure: who reports to whom, and who decides.
Systems: the daily processes: billing, stock, accounts, hiring, quality.
Shared values: what everyone believes the business stands for.
Style: how the owner and managers actually lead.
Staff: the people, and how they are hired, trained and kept.
Skills: what the business as a whole is good at.

The first three are often called the “hard” S’s and the last four the “soft” ones. The point of the original article is that changing one, usually structure, rarely works unless the others change with it.

When to use it: before a climb

A climb changes the business’s size and shape, and the owner can no longer do everything. Run the 7-S before:

adding outlets: a multi-outlet dealer group (2.4) needs managers, systems and shared ways of working in each outlet;
launching your own brand: an own-brand OEM (3.5) needs marketing, sales and dealer-management skills a contract maker doesn’t have;
starting a new product (level 4): a new team, new systems and a culture that can test and learn.

Worked example: a dealer planning three outlets

Hypothetical An authorised dealer (2.2) scoring its readiness for 2.4

Score each S from 1 (not ready) to 5 (ready):

Strategy 4, structure 2, systems 2, shared values 4, style 3, staff 2, skills 3
Total: 4 + 2 + 2 + 4 + 3 + 2 + 3 = 20 out of a possible 35
Readiness: 20 ÷ 35 × 100 = 57.14%

The low scores, structure, systems and staff (2 each), are exactly what a second outlet strains: who runs it, how stock and cash are tracked across outlets, and who is trained to sell and service. The plan: appoint an outlet manager, put both outlets on one billing and stock system, and train staff six months before opening.

The numbers are judgements. Their use is to show which S’s to fix first.

Own-brand OEM and Level 4

For a contract manufacturer moving to its own brand (3.5), the usual gaps are skills (marketing, dealer management) and systems (warranty, service, collections from many dealers). For a new product, the usual gaps are staff (people who can do research and selling) and style (an owner who lets the team test ideas and fail quickly).

Common mistakes

Only redrawing the organisation chart. That is structure alone; the other six decide whether it works.
Ignoring the soft S’s. Shared values and style are hard to see but often decide whether managers in a new outlet act like owners.
Scoring yourself alone. Ask your managers and staff to score too; the differences are the interesting part.
Climbing anyway. If several S’s score low, close those gaps first with a GAP analysis.

Related: SWOT and TOWS and SOAR.

The 7-S framework is from Waterman, Peters and Phillips's 1980 Business Horizons article, linked above. The explanation and the examples are ours.