Lecture 7:

Globalization –
Impacts on
organizations
 Contents

I. McKinsey 7S model

II. Different structures in organizations

III. McKinsey 7S model applied to large

global organizations
 I. McKinsey 7S model
1. Definition

• 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. (Jurevicius, 2013)
• 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.
 I. McKinsey 7S model
2. Uses of 7S model

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.
 I. McKinsey 7S model
3. The 7 components of 7S model

In McKinsey model, the seven areas of organization are

divided into the ‘soft’ and ‘hard’ areas.
Strategy, structure and systems are hard elements that are
much easier to identify and manage when compared to soft
elements.
On the other hand, soft areas of skills, styles, staff, and
shared values, although harder to manage, are the
foundation of the organization and are more likely to create
the sustained competitive advantage.
 I. McKinsey 7S model
3. The 7 components of 7S model

Source: (Jurevicius, 2013)

 I. McKinsey 7S model
3. The 7 components of 7S model

a. Strategy
Strategy 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
 I. McKinsey 7S model
3. The 7 components of 7S model

b. Structure
Structure 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
 I. McKinsey 7S model
3. The 7 components of 7S model

c. Systems
Systems 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.
 I. McKinsey 7S model
3. The 7 components of 7S model

d. Skills
Skills are the abilities that firm’s employees perform very
well. 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.
 I. McKinsey 7S model
3. The 7 components of 7S model

e. Staff
Staff element is concerned with what type and how many
employees an organization will need and how they will be
recruited, trained, motivated and rewarded.
 I. McKinsey 7S model
3. The 7 components of 7S model

f. Style
Style 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.
 I. McKinsey 7S model
3. The 7 components of 7S model

g. Shared values
Shared Values are at the core of McKinsey 7s model. They
are the norms and standards that guide employee behavior
and company actions and thus, are the foundation of every
organization.
 I. McKinsey 7S model
4. 7S model application example

• Strategy:
– Imagine that your organization is planning to implement lean
culture.
– Focus on the firms core competencies and deploying lean
manufacturing principles throughout the firm, targeting and
eliminating waste.
• Structure:
A small hierarchy is needed, which encompasses self directed work
teams. Daily interdepartmental stand up meetings to be held daily.
• Systems:
A bonus system which supports Lean improvement and the new
ways of working, a pay grade structure that is aligned to the new
team structure.
 I. McKinsey 7S model
4. 7S model application example
• Skills:
Develop new team skills, problem solving, waste elimination and
process analysis skills, empowerment to make decisions, the ability
to run and close out Kaizen.
• Staff:
Team players, goal sharing, acting as change agents and driving
improvements on an individual level.
• Style:
Leadership that is trained in Emotional Intelligence and the courage
to delegate and empower subordinates. Leadership that leads by
example and can coach and mentor employees in Lean techniques.
• Shared Values:
Creating an organization that respects each and every employee,
committed to the environment and continuously strives for waste
elimination and perfection in everything it does.
 II. Different
organizational structures
1. Definition
• The typically hierarchical arrangement of lines of authority,
communications, rights and duties of an organization.
– Organizational structure determines how the roles, power and
responsibilities are assigned, controlled, and coordinated, and
how information flows between the different levels of
management.
• A structure depends on the organization's objectives and
strategy.
– In a centralized structure, the top layer of management has most
of the decision making power and has tight control over
departments and divisions.
– In a decentralized structure, the decision making power is
distributed and the departments and divisions may have different
degrees of independence.
 II. Different
organizational structures
2. Different types of
organizational structures
• Departmentalization:
– By geography
– By function
– By product/brand
– By customer/market segment
• Flat vs. tall
• Matrix/hybrid (also called as product/team or multi-
functional team structure)
• Multidivisional structure
 III. McKinsey 7S model
applied to large global
organizations -
Starbucks as an example
• Strategy:
– The company’s objective is to establish Starbucks at the most
recognized and respected brand in the world.
– Further, Starbucks hopes to achieve this goal by “continuing to
rapidly expand its retail operations, grow its specialty operations
and selectively pursue other opportunities to leverage the Starbucks
brand through the introduction of new products and the
development of new distribution channels”.
– Starbucks has aggressively expanded throughout North American
and to locations around the world. The number of retail locations
increased by 35% from 1998 to 2000.
– In bringing the Starbucks experience to consumers world wide, the
company has decided that it must focus on its core competency;
namely coffee.
 III. McKinsey 7S model
applied to large global
organizations -
Starbucks as an example
• Structure:
– Starbucks has a functional structure that can be defined as unstructured.
– This emphasizes the need for new ideas and employee input.
– Starbucks refers to its employees as partners, and extends to all of them (even
part time help working at least twenty hours a week), benefits such as health
coverage and stock options.
• Systems:
– The firm has several important systems in place within the organization. These
deal primarily with product knowledge, and product development.
• Training: Starbucks trains its staff extensively on the intricacies of coffee beans
including where they are grown, how they are roasted, how they should be
ground, and how they should be filtered to optimize taste.
• Roasting coffee: Starbucks roasts all of its own coffee. This allows the company
to deliver a product consistently matches customer expectations.
• Purchasing coffee: As a large coffee retailer, Starbucks has the economies of
scale needed to purchase coffee directly from growers and regional
associations, rather than rely on import brokers.
 III. McKinsey 7S model
applied to large global
organizations -
Starbucks as an example
• Shared values:
– The organization constantly refers to the “Starbucks experience”,
and rallies employees behind delivering and satisfying this notion.
– Any retailer can sell coffee; Starbucks sells an experience. This
experience includes coffee, friendly staff, interesting music, and a
comfortable meeting place.
• Skills:
– Starbucks has a distinct competitive advantage with its front line
employees who are knowledgeable and friendly.
– Further, the Starbucks coffee experience is reinforced through
strategic alliances with major grocery stores, hotels, and airlines.
 III. McKinsey 7S model
applied to large global
organizations -
Starbucks as an example
• Staff:
– Through generous benefits packages, and comprehensive training,
Starbucks is able to have high quality employees in a retail
environment, while minimizing the challenges facing many other
traditional retailers including employee turnover or employee
motivation.
• Style:
– The style for the organization is defined as innovative, flexible and
team orientated.