Strategy: McKinsey 7S Framework and Telenor Example

Posted on March 23, 2010

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I try to explore the McKinsey 7S Framework as a part of case study, in which I have to analyze Telenor, the Norwegian telecommunication company. McKinsey and Company created this 7S framework in the early 1980s. It is well-known for analyzing organizations, for the fact that McKinsey and Company used it to analyze over 70 large organizations in 1980s.

As described in the title, the framework has 7 variables: structure, strategy, systems, staff, skills, style and shared value. These variables are categorized as soft and hard components. The hard components are strategy, structure and systems which are normally feasible and easy to identify in an organisation as they are normally well documented in reports such as strategy statements, corporate plans, organisational charts, etc. The remaining four ones are more difficult to comprehend. It is only possible to understand these aspects by studying the organisation very closely, normally through observations and/or through conducting interview (~Oh no…).

Structure

Structure is the skeleton, the form of shape, of organisations. It dictates the way it operates and performs (Waterman et al., 1980). Traditionally, businesses are structured with divisions, departments and layers, in which the lower layers answer to upper layers. Today, the flat structure, where the work is done in teams of specialists, are more common. The idea is to make the organisation more flexible and devolve the power by empowering the employees and eliminate the middle management layers (Boyle, 2007).

Strategy

Strategy is a plan or course of action in allocating resources to achieve identified goals over time. Unlike tactic, strategy is well thought and often rehearsed. It transforms the organisation from the present position to the new position described in the objectives, subject to constraints of the capabilities (Ansoff, 1965).

Systems

Systems are routine processes and procedures followed within an organisation to implement the strategy and to run day-to-day affairs. These processes are mainly designed to achieve maximum effectiveness. Traditionally, the higher management makes the most decisions. Increasingly, the organisation are using innovation and new technology to make decision-making process quicker.

Staff

Staff are personnel categories within the organization, such as engineers, sales persons, etc. Unlike traditional organisations, new leading organisations put more emphasis on hiring the best staff. They provide their staff with rigorous training and monitoring support, and give incentive for their staff to achieve professional excellence. This forms the basis of these organisations’ strategy and competitive advantage over their competitors (Purcell and Boxal, 2003).

Skills

Skills are the capabilities of the staff within the organisation as a whole.

Style

Style is the way in which key managers behave in achieving organisational goals, that is the management style. It includes the dominant values, beliefs and norms which develop over time and become relatively enduring features of the organisational life. Different from the traditional businesses in which strict adherence to the upper management and procedures was expected from the lower-rank employees, the recent businesses have been more open, innovative and friendly with fewer hierarchies and a smaller chain of command.

Shared Values

Shared value refers to the significant meanings or guiding concepts that organisational members share (Peters and Waterman, 1982). These values and common goals keep the employees working towards a common destination as a coherent team. The organisations with weak values and common goals often find their employees following their own personal goals that may be conflicting with others.

McKinsey 7s Model to Analyze an Organisation

Referring to the second paragraph, it is important to gather as much information as possible from all available sources like organisational reports, news, websites, press releases and (if it is possible) interviews. In addition, it is also noted that the soft components are difficult to change and are the most challenging elements of any change-management strategy. However, if these components are altered, they can have a great impact on the structure, strategies and the systems of the organisation, e.g. changing the traditional culture towards a more open, flexible and dynamic culture where employees are valued and innovation encouraged.

It is important to give more time and effort to understand the real dynamics of the organisation’s soft aspects as these underlying values in reality drive the organisations by affecting the decision-making at all levels. It is too easy to fall into the trap of only concentrating on the hard factors as they are readily available. It is also advisable to highlight how these components interact and affect each other. The “cause and effect” analyses of soft and hard components often yield a very interesting analysis and provide readers with an in-depth understanding of what caused the change.

Telenor (First 3 ‘S’ Example)

I did only the first 3 ‘S’ for Telenor analysis. They were strategy, structure and system. “Telenor Group is the incumbent telecommunications company in Norway, with headquarters located at Fornebu, close to Oslo. Telenor Group is mostly an international wireless carrier with operations in Scandinavia, Eastern Europe and Asia, working predominantly under the Telenor brand. It is ranked as the sixth largest mobile phone operator in the world, with more than 172 million subscribers. In addition, it has extensive broadband and TV distribution operations in four Nordic Countries.” – Wikipedia, as of August 5, 2010.

As on August 5, 2010, two of Telenor strategies were to capture growth in three regions (Asia, Central-Eastern European and Nordic), and to undertake Merger and Acquisition (M&A) activities.  These strategies were understandable, considering the condition of the economy (global financial crisis) and the commoditized telecommunication service (less ARPU), while telecommunication company required a high fixed-asset. But anyway… I am not talking about the industry.

I looked at the structure of the Telenor organization (as of August 5, 2010). Assuming that the link may be broken in the future, I describe the structure. The highest position was, of course, the CEO, Mr. Jon F. Baksaas. The groups under him were: Asia, Center-Eastern European, Nordic, Finance, Communication and Corporate Responsibility, Human Resources, and Business Development and Research. The Asia, Central-Eastern European and Nordic group showed the merger-and-acquisition-and-consolidation-ready structure. When there was a need for Telenor to acquire a new company, Telenor could easily put the company under the regional group. Telenor could also remove the company with ease. Conversely, Telenor could do the same for its consolidation effort. In addition to that, this structure explained that Telenor closely monitored the performance of these three regions, showing how serious Telenor was to capture growth in Asia, Central-Eastern European and Nordic. Realize that if the structure was created based on product groups, it would be more difficult for the management to look at the performance of each region (poor finance team needs to burn more candles at night).

The last but not least was system. I looked at this Accenture-Telenor case study. Accenture is a consulting company, providing management and IT consulting service. “… Up to 98 percent of all wholesale customer orders are now processed online. …; only two hours of training on the system is necessary in order to use the portal effectively. … , Telenor has equipped the wholesale customers with a toolkit to diagnose the faulty lines resulting in cost reduction for Telenor Networks … More complex inquiries can be automatically escalated to the appropriate team for rapid, seamless dissemination and resolution.” As orders were processed online, Telenor could closely monitor and track the performance of the three regions. The IT system would aggregate individual countries revenue contribution into regional level, allowing high-level managers to foresee business risks in advance. Additionally, the availability of the IT system allowed Telenor to fasten the integration of newly acquired companies. The IT system could improve the learning curve of staffs joining Telenor.

Reference

Link: McKinsey 7S Framework

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