McKinsey 7S model: check whether your organisation fits your strategy

A year ago, the board of a refrigeration manufacturer decided to stop selling machines and start selling cooling as a service: customers pay a monthly fee, the company keeps ownership and takes care of maintenance and breakdowns. Today the salespeople still sell machines. Nobody is sabotaging the plan. Their bonus depends on units sold, planning works per project and cannot schedule maintenance contracts, the technicians were never trained to talk to customers, and the culture is built on making the best machines. This is the gap the McKinsey 7S model is designed to expose.

The model tests whether seven elements of an organisation fit each other and the strategy: before a change, a merger or a growth spurt, or when a chosen strategy fails to take off. In a McKinsey survey of 1,034 people who had recently been part of a transformation, 55% of the value loss occurred during and after implementation (source: McKinsey, December 2021). An organisation that was never adjusted to the plan is an obvious place for value to leak away.

Where the McKinsey 7S model comes from

The model first appeared in "Structure Is Not Organization" by Robert Waterman, Tom Peters and Julien Phillips in Business Horizons (June 1980). Peters later described how it grew out of work with Anthony Athos and Richard Pascale, and how "shared values" started life as "superordinate goals". The title makes the point: redrawing the organisation chart is not the same as changing the organisation. McKinsey still presents the framework as a set of interrelated factors without a hierarchy, so progress in one area is hard without attention to the others.

The seven S's: three hard, four soft

Hard elements are tangible and can be changed by decision. Soft elements concern people and behaviour, and change slowly. Peters' own lesson was that the soft side is the harder one to move, so plan most of your time for style, staff, skills and shared values.

It is about fit, not seven lists

The value of the model lies in the connections. Porter made the same point about activities in "What Is Strategy?" (Harvard Business Review, November 1996): fit between the parts makes a strategy stronger and harder to copy. Check at least these pairs:

• Strategy and systems: do targets, bonuses and reports reward the new direction or the old one?
• Strategy and skills: can people do today what the strategy asks of them?
• Structure and style: does the structure ask for cooperation while managers still run their own departments?
• Staff and shared values: do the people you hire and promote reflect what the company says it stands for?

How to run a seven S diagnosis in five steps

1. 01

   Start with the change

   Describe in one sentence what must change and why. Without that, the diagnosis has nothing to measure against.

2. 02

   Describe each S as it is

   Use evidence: the organisation chart, bonus rules, meeting agendas, where managers spend their time, staff surveys.

3. 03

   Describe what the strategy requires

   Write down per element the state that follows from the chosen strategy.

4. 04

   Rate the fit

   Fits, partly fits or clashes. Let participants score on their own first and then compare; differences of opinion are information.

5. 05

   Choose the order and record it

   Fix the breaks that block everything else first, give each an owner and a date, and take them into change management.

Example: from selling machines to cooling as a service

Polar Systems, the refrigeration manufacturer from the opening, has 120 staff. This is its diagnosis one year after the decision.

Fictitious Firmfocus example.

Three breaks stand out. Systems is the most urgent and the quickest to fix: as long as the bonus rewards units sold, salespeople will sell units. Skills takes longer, because pricing a five-year contract means estimating failure rates, energy use and maintenance costs, which the company has never had to do. Structure follows: someone must own the customer across sales and service. Shared values is a starting point rather than an obstacle, since pride in good machines becomes an asset once the company pays for every breakdown itself.

The change also reaches the balance sheet. An installation costs Polar €55,000 to build and install. Sold outright, it brought in €80,000 at once. As a service it brings €1,900 a month for five years, €114,000 in total including maintenance. Twenty-five contracts in the first year means €1,375,000 to pre-finance, while the fees arrive over sixty months. That belongs in the financial analysis before the first contract is signed.

Fictitious Firmfocus example. The logic works in any currency.

The seven S's in a merger or acquisition

When two organisations come together, the hard S's are visible in the due diligence and the soft ones cause the trouble afterwards. Before an acquisition or alliance, compare at least:

• Style: how decisions are made and how much freedom managers have. Differences here cause the first conflicts.
• Systems: bonus rules, IT and reporting. Integrate them deliberately and in an agreed order.
• Shared values and staff: what people are proud of, and which informal leaders you cannot afford to lose.

Limits: when the model is the wrong tool

The model looks inward and says nothing about markets, competitors or customers. It gives no weights, so it cannot tell you which break matters most, ratings are partly subjective, and the result is a snapshot. You do not need it when the problem clearly sits in one element, such as an outdated IT system. When the uncertainty lies in the market rather than in the organisation, scenario planning is the better tool.

Pitfalls in a seven S diagnosis

• Seven separate lists: each S described, but the fit between them never rated.
• Only the hard S's: structure and systems changed on the assumption that behaviour will follow.
• Management view only: no input from the people who do the work.
• Values as a slogan: a new value statement without changes in rewards, promotions or style.
• No owner: a good diagnosis that ends in a report rather than in actions with names and dates.

Small business or larger organisation

Turn the breaks you find into a plan with strategy implementation and change management. All analysis tools are in strategic analysis, and the full theme is under Strategy.