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McKinsey 7S Model

McKinsey 7S Model

Definition of the McKinsey 7S Model

McKinsey 7S model is a tool that analyzes company’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 the organization to achieve its objectives.

What is the McKinsey 7S Model

McKinsey 7S model was developed in the 1980s by McKinsey consultants Tom Peters, Robert Waterman and Julien Philips with help from Richard Pascale and Anthony G. Athos. Since its 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.

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 the interconnectedness of the elements.

The image shows McKinsey 7s model, where 7 organization elements are interconnected with each other.

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 a new strategy.
  • To identify how each area may change in the future.
  • To facilitate the merger of organizations.

In the 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, although harder to manage, are the foundation of the organization and are more likely to create a sustained competitive advantage.

Strategy is a plan developed by a firm to achieve sustained competitive advantage and successfully compete in the market. What does a well-aligned strategy mean in the 7S McKinsey model?

In general, a sound strategy is one that’s clearly articulated, long-term, helps to achieve a competitive advantage, and reinforced by a strong vision, mission, and values.

But it’s hard to tell if such a strategy is well-aligned with other elements when analyzed alone. So the key in the 7S model is not to look at your company to find the great strategy, structure, systems and etc. but to look if it’s aligned with other elements.

For example, a short-term strategy is usually a poor choice for a company, but if it’s aligned with the other 6 elements, then it may provide strong results.

Structure represents the way business divisions and units are organized and includes the information on 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.

Systems are the processes and procedures of the company, which reveal the 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.

Skills are the abilities that a firm’s employees perform very well. They also include capabilities and competencies. During organizational change, the question often arises of what skills the company will really need to reinforce its new strategy or new structure.

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.

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 the company’s leaders.

Shared Values

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

The authors of the framework emphasize that all elements must be given equal importance to achieve the best results.

Using the McKinsey 7S framework

As we pointed out earlier, the McKinsey 7S framework is often used when organizational design and effectiveness are in question. It is easy to understand the model but much harder to apply it to your organization due to a common misunderstanding of what should well-aligned elements be like.

We provide the following steps that should help you to apply this tool:

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 a strategy that relies on quick product introduction, but the matrix structure with conflicting relationships hinders that, so there’s a conflict that requires a change in strategy or structure.

Step 2. Determine the optimal organizational design

With the help of 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.

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 you would like to do that. Suppose you find that your firm’s structure and management style are not aligned with the company’s values. In that case, you should decide how to reorganize the reporting relationships and which top managers the company should let go or how to influence them to change their management style so the company could work more effectively.

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 a new organizational design. Thus, continuous review of each area is very important.

Example of McKinsey 7S Model

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 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.

So far, the 7 factors are aligned properly. The company is small and there’s no need for a complex matrix structure and comprehensive business systems, which are very expensive to develop.

McKinsey 7S Example (1/3)

Current position #2

The startup has grown to become a large business with 500+ employees and now maintains a 50% market share in the domestic market. Its structure has changed and it is now a well-oiled bureaucratic machine.

The business expanded its staff and introduced new motivation, reward and control systems. Shared values evolved and now the company values enthusiasm and excellence. Trust and teamwork have disappeared due to so many new employees.

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 the 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.

McKinsey 7S Example (2/3)

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 America.

The company introduced new strategic planning systems and hired new management, which brought new analytical, strategic planning, and, most importantly, managerial skills. The organization’s structure and shared values haven’t changed.

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, the company’s structure should have changed from a well-oiled bureaucratic machine to a division structure. The division structure is designed to facilitate 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.

McKinsey 7S Example (3/3)

We’ve shown a 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.

  • GE McKinsey Matrix
  • The Johari Window Model
  • Business Model Canvas (BMC)
  • Elaboration Likelihood Model of Persuasion

4 thoughts on “McKinsey 7S Model”

For sure this article is one of the most useful and complete guidelines on 7S model.

Thanks Alireza Nami

Hello! Thanks for this. The article has explained comprehensively well how the 7S McKinsey framework works. 🙂 The case studies illustrated clearly how alignment should be investigated.

Thank so much. Tina Saulo

Can we adopt McKinsey 7S Model for gap analysis of data generation system or simply for data gap analysis of SDGs?

Very well explained. Very simple to follow.

Wanted to know how does McKinsey 7S Model differentiate from EFQM Model.

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  • Business Essentials

How to Use the McKinsey 7-S Model for Strategic Planning

mckinsey business model framework

Investopedia / NoNo Flores

What Is the McKinsey 7S Model?

The McKinsey 7S Model is a framework for organizational effectiveness that postulates that there are seven internal factors of an organization that need to be aligned and reinforced in order for it to be successful.

Key Takeaways

  • The McKinsey 7S Model is an organizational tool that assesses the well-being and future success of a company.
  • It looks to seven internal factors of an organization as a means of determining whether a company has the structural support to be successful.
  • The model comprises a mix of hard elements, which are clear-cut and influenced by management, and soft elements, which are fuzzier and influenced by corporate culture.

Understanding McKinsey 7S Model

The 7S Model specifies seven factors that are classified as "hard" and "soft" elements. Hard elements are easily identified and influenced by management, while soft elements are fuzzier, more intangible, and influenced by  corporate culture . The hard elements are as follows:

The soft elements are as follows:

  • Shared values

The framework is used as a strategic planning tool by organizations to show how seemingly disparate aspects of a company are, in fact, interrelated and reliant upon one another to achieve overall success.

Consultants Thomas Peters and Robert Waterman Jr., authors of the management bestseller "In Search Of Excellence," conceived of the McKinsey 7S Model at consulting firm McKinsey & Co. in the late 1970s.

A Closer Look at the 7 S's

  • The strategy is the plan deployed by an organization in order to remain competitive in its industry and market. An ideal approach is to establish a long-term strategy that aligns with the other elements of the model and clearly communicates what the organization’s objective and goals are.
  • The structure of the organization is made up of its corporate hierarchy , the chain of command, and divisional makeup that outlines how the operations function and interconnect. In effect, it details the management configuration and responsibilities of workers.
  • Systems of the company refer to the daily procedures, workflow, and decisions that make up the standard operations within the organization.
  • Shared values are the commonly accepted standards and norms within the company that both influence and temper the behavior of the entire staff and management. This may be detailed in company guidelines presented to the staff. In practice, shared values relate to the actual accepted behavior within the workplace.
  • Skills comprise the talents and capabilities of the organization’s staff and management, which can determine the types of achievements and work the company can accomplish. There may come a time when a company assesses its available skills and decides it must make changes in order to achieve the goals set forth in its strategy.
  • Style speaks to the example and approach that management takes in leading the company, as well as how this influences performance, productivity, and corporate culture.
  • Staff refers to the personnel of the company, how large the workforce is, where their motivations reside, as well as how they are trained and prepared to accomplish the tasks set before them.

The McKinsey 7-S Model is applicable in a wide variety of situations where it's useful to understand how the various parts of an organization work together. It can be used as a tool to make decisions on future corporate strategy.

The framework can also be used to examine the likely effects of future changes in the organization or to align departments and processes during a merger or acquisition. Elements of the McKinsey Model 7s can also be used with individual teams or projects.

Frequently Asked Questions

What is mckinsey.

McKinsey & Co. is a global consulting and accounting firm founded by University of Chicago management professor James O. McKinsey in 1926. The firm specializes in management consulting for a wide range of corporations, governments, and other organizations.

What are the 7S Factors?

The seven factors are: strategy; structure; systems; shared values; skills; style; and staff.

Why follow the 7S model?

These 7 factors are used by management to identify where a company excels and where it needs more work, in terms of creating an optimal and efficient workforce. It is also used to evaluate performance following a merger or other restructuring to identify areas that need improvement.

McKinsey. " Enduring Ideas: The 7-S Framework ," Watch "Interactive Video." Accessed July 20, 2021.

McKinsey. " Enduring Ideas: The 7-S Framework ." Accessed July 20, 2021.

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McKinsey 7-S Framework

Making every part of your organization work in harmony.

By the Mind Tools Content Team

mckinsey business model framework

Do you know how well your organization is positioned to achieve its goals? Or what elements influence its ability to implement change successfully?

Models of organizational effectiveness go in and out of fashion, but the McKinsey 7-S framework has stood the test of time.

The model was developed in the late 1970s by Tom Peters and Robert Waterman, former consultants at McKinsey & Company. They identified seven internal elements of an organization that need to align for it to be successful. [1]

In this article, we'll explore the seven elements in detail, and learn how it can be used to improve performance or manage change in organizations by ensuring that they all work in harmony.

Also, we provide a worked example and a downloadable template that you can use to apply the model.

When to Use the McKinsey 7-S Model

You can use the 7-S model in a wide variety of situations where it's useful to examine how the various parts of your organization work together.

For example, it can help you to improve the performance of your organization, or to determine the best way to implement a proposed strategy.

The framework can be used to examine the likely effects of future changes in the organization, or to align departments and processes during a merger or acquisition. You can also apply the McKinsey 7-S model to elements of a team or a project.

The Seven Elements of the McKinsey 7-S Framework

The model categorizes the seven elements as either "hard" or "soft":

The three "hard" elements include:

  • Structures (such as organization charts and reporting lines).
  • Systems (such as formal processes and IT systems.)

These elements are relatively easy to identify, and management can influence them directly.

The four "soft" elements, on the other hand, can be harder to describe, and are less tangible, and more influenced by your company culture. But they're just as important as the hard elements if the organization is going to be successful.

Figure 1, below, shows how the elements depend on each other, and how a change in one affects all the others.

Figure 1: The McKinsey 7-S Model

mckinsey business model framework

Figure reproduced with permission from McKinsey & Company, www.mckinsey.com. Copyright © 2016. All rights reserved.

Let's look at each of the elements individually:

  • Strategy: this is your organization's plan for building and maintaining a competitive advantage over its competitors.
  • Structure: this is how your company is organized (how departments and teams are structured, including who reports to whom).
  • Systems: the daily activities and procedures that staff use to get the job done.
  • Shared Values: these are the core values of the organization and reflect its general work ethic. They were called "superordinate goals" when the model was first developed.
  • Style: the style of leadership adopted.
  • Staff: the employees and their general capabilities.
  • Skills: the actual skills and competencies of the organization's employees.

The placement of Shared Values in the center of the model emphasizes that they are central to the development of all the other critical elements.

The model states that the seven elements need to balance and reinforce each other for an organization to perform well.

Using the McKinsey 7-S Model

You can use the model to identify which elements of the 7-S' you need to realign to improve performance, or to maintain alignment and performance during other changes. These changes could include restructuring, new processes, an organizational merger, new systems, and a change of leadership.

To apply the McKinsey 7-S Model in your organization, follow these steps:

  • Start with your shared values: are they consistent with your structure, strategy, and systems? If not, what needs to change?
  • Then look at the hard elements – your strategy, structure and systems. How well does each one support the others? Identify where changes need to be made.
  • Next, look at the soft elements – shared values, skills, (leadership) style, and staff. Do they support the desired hard elements? Do they support one another? If not, what needs to change?
  • As you adjust and align the elements, you'll need to use an iterative (and often time-consuming) process of making adjustments, and then re-analyzing how that impacts other elements and their alignment. The end result of better performance will be worth it.

Figure 2 shows a template matrix that you can use to help with your analysis. You can click on the image to download it as a PDF worksheet.

We've also developed a checklist of the right questions to ask, which you can find in the next section. Supplement the questions in our checklist with your own questions, based on your organization's specific circumstances and your own knowledge and experience.

Figure 2: The McKinsey 7-S Matrix Template

mckinsey business model framework

You can use the 7-S model to help analyze your current situation (Point A in the worksheet), your proposed future situation (Point B in the worksheet), and to identify gaps and inconsistencies between them.

To examine where you are now (Point A), use the data that you've learned from your checklist questions to fill in the worksheet grid, putting a tick in any box where the two cross-referenced elements work together well. If the two elements aren't working well together, put a cross.

Point B is an agreed endpoint in the future (in six months or a year, for example). When you reach Point B, revisit the worksheet and fill it in again. If your changes have worked, you'll have a grid full of ticks. If not, you may need to make further adjustments.

The 7-S model is a good framework to help you ask the right questions, but it won't give you all the answers. For that, you'll need to bring together the right people with the right knowledge, skills and experience. Our article, Setting up a Cross-Functional Team , can help you to do this.

Checklist Questions for the McKinsey 7-S Framework

The following questions are a starting point for exploring your situation in terms of the 7-S framework. Use them to analyze your current situation (Point A) first, and then repeat the exercise for your proposed situation (Point B).

  • What is our strategy?
  • How do we intend to achieve our objectives?
  • How do we deal with competitive pressure?
  • How are changes in customer demands dealt with?
  • How is strategy adjusted for environmental issues?
  • How is the company/team divided?
  • What is the hierarchy?
  • How do the various departments coordinate activities?
  • How do the team members organize and align themselves?
  • Is decision-making centralized or decentralized? Is this as it should be, given what we're doing?
  • Where are the lines of communication? Explicit or implicit?
  • What are the main systems that run the organization? Consider financial and HR systems, as well as communications and document storage.
  • Where are the controls and how are they monitored and evaluated?
  • What internal rules and processes does the team use to keep on track?

Shared Values:

  • What are your organization's core values?
  • What is its corporate/team culture like?
  • How strong are the values?
  • What are the fundamental values that the company/team was built on?
  • How participative is the management/leadership style?
  • How effective is that leadership?
  • Do employees/team members tend to be competitive or cooperative?
  • Are there real teams functioning within the organization or are they just nominal groups?
  • What positions or specializations are represented within the team?
  • What positions need to be filled?
  • Are there gaps in required competencies?
  • What are the strongest skills represented within the company/team?
  • Are there any skills gaps?
  • What is the company/team known for doing well?
  • Do the current employees/team members have the ability to do the job?
  • How are skills monitored and assessed?

Example: The McKinsey 7-S Framework in Action

Whitehawk Electronics is a startup with five staff. As a new venture, it is still based firmly on the vision and values of its founder, Alix, and its elements all align. It sells into one market, and uses off-the-shelf IT and accounting systems.

As time goes on, the business grows, employing 30 staff, and diversifying into different markets. New customer requirements demand new skills in marketing, technology, product development, and financial management.

Alix carries out a 7-S analysis. She finds that Whitehawk's developing sales strategy no longer aligns with its small-business skill set.

The rapid influx of new staff members, along with changes in technology, means that some staff don't have the necessary systems skills. Worse still, they're unclear on the organization's values and sense of purpose.

Alix uses the analysis to introduce onboarding and learning programs, bringing all Whitehawk's key elements back into alignment.

For other, similar approaches, see our articles on the Burke-Litwin Change Model , and the Congruence Model . You may also find our articles on the Change Curve , Impact Analysis and Lewin's Change Management Model useful.

You can apply the McKinsey 7-S framework to almost any organizational or team effectiveness issue. The 7-S' refer to:

  • Shared values.

If something within your organization or team isn't working, chances are there is inconsistency between one or more of these seven elements.

Once you reveal these inconsistencies, you can work to align these elements to make sure they are all contributing to your organization's shared goals and values.

The process of analyzing where you are right now, in terms of these elements, is worthwhile in itself. But for it to be truly effective, you'll also need to determine the desired future state for each factor. This will help you make changes and improve performance so that all seven factors are aligned across your organization.

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[1] Waterman, R. H. and Peters, T. (1982). ' In Search of Excellence ,' New York: Harper and Row.

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Guide to the McKinsey 7s model

The Easy Guide to the McKinsey 7S Model

Updated on: 10 January 2023

Although invented in the late 1970s, the McKinsey 7S model still helps businesses of all sizes succeed. A conceptual framework to guide the execution of strategy. 

In this guide, we’ll walk you through the 7S of the McKinsey Framework and how to apply it to evaluate and improve performance. 

McKinsey 7-S Model Definition 

The McKinsey 7S model is one of the most popular strategic planning tools .  Businesses commonly use it to analyze internal elements that affect organizational success. 

The model recognizes 7 of these elements and considers them to be interlinked, therefore it’s difficult to make significant progress in one area without making progress in other areas as well. Accordingly, to be successful, the organization should ensure that all these elements are aligned and reinforced.

The model divides these 7 elements into two categories;

Hard elements – Strategy, Structure, Systems (these are easier to be identified and defined and can be directly influenced by the management)  

Soft elements – Shared Values, Skills, Style, Staff (these are harder to be defined because they are less tangible, but are just as important as the hard elements) 

You can use the framework 

  • To successfully execute new strategies
  • To analyze how different key parts of your organization work together
  • To facilitate changes in the organization 
  • To help align processes during a merger or acquisition
  • To support management thinking during strategy implementation and change management

The 7 Elements of the McKinsey 7-S Framework 

  • Shared values

Let’s dig into these elements in more detail. 

Strategy 

A strategy is a plan the company develops to maintain its competitive advantage in the market. It consists of a set of decisions and action steps that need to be taken in response to the changes in the company’s external environment which includes its customers and competitors. 

An effective strategy would find external opportunities and develop the necessary resources and capabilities to convert the environmental changes into sources of new competitive advantage. 

The structure is the organizational chart of the company. It represents how the different units and divisions of the company are organized, who reports to whom and the division and integration of tasks. The structure of a company could be hierarchical or flat, centralized or decentralized, autonomous or outsourced, or specialized or integrated. Compared to most other elements, this one is more visible and easier to change. 

Organizational Structure Template for McKinsey 7S Model

Systems 

These are the primary and secondary activities that are part of the company’s daily functioning.  Systems include core processes such as product development and support activities such as human resources or accounting. 

Skills are the skill set and capabilities of the organization’s human resources . Core competencies or skills of employees are intangible but they a major role in attaining sustainable competitive advantage. 

The most valuable strategic asset of an organization is its staff or human resources. This element focuses on the number of employees, recruitment, development of employees, remuneration and other motivational considerations. 

This refers to the management style of the company leadership. It includes the actions they take, the way they behave, and how they interact.  

Shared Values

Shared values are also referred to as superordinate goals and are the element that is in the core of the model. It is the collective value system that is central to the organizational culture and represents the company’s standards and norms, attitudes, and beliefs. It’s regarded as the organization’s most fundamental building block that provides a foundation for the other six elements. 

McKinsey 7S Model

How to Use the McKinsey 7-S Model

The model can be used to do a gap analysis or to determine the gap between what the company is currently doing and what it needs to do to successfully execute the strategy. 

Step 1: Analyze the current situation of your organization

This is where you need to understand the current situation of the organization with regard to the 7 elements. Analyzing them closely will give you a chance to see if they are aligned effectively.

The following checklist questions will help you explore your situation. 

Strategy  

  • What’s the objective of your company strategy? 
  • How do you use your resources and capabilities to achieve that?
  • What makes you stand out from your competitors? 
  • How do you compete in the market? 
  • How do you plan to adapt in the face of changing market conditions?
  • What’s your organizational structure ?
  • Who makes the decisions? Who reports to whom? 
  • Is decision-making centralized or decentralized?
  • How do the employees align themselves to the strategy?
  • How is information shared across the organization?
  • What are the primary processes and systems of the organization? 
  • What are the system controls and where are they?
  • How do you track progress?
  • What are the processes and rules the team sticks with to keep on track? 
  • What are the core competencies of the organization? Are these skills sufficiently available? 
  • Are there any skill gaps?
  • Are the employees aptly skilled to do their job? 
  • What do you do to monitor, evaluate and improve skills? 
  • What is it that the company is known for doing well? 
  • How many employees are there? 
  • What are the current staffing requirements? 
  • Are there any gaps in the required resources? 
  • What needs to be done to address them?
  • What is the management style like? 
  • How do the employees respond to this style?
  • Are employees competitive, collaborative or cooperative? 
  • What kind of tasks, behaviors, and deliverables does the leadership reward? 
  • What kind of teams are there in the organization? Are there real teams or are they just nominal groups? 
  • What are the mission and vision of the organization? 
  • What are your ideal and real values? 
  • What are the core values the organization was founded upon? 
  • How does the company incorporate these values in daily life? 

Step 2: Determine the ideal situation of the organization 

Specify where you ideally want to be and the optimal organizational design you want to achieve, with the help of the senior management. This will make it easier to set your goals and come up with a solid action plan to implement the strategy. 

Since the optimal position you want to be in is still not known to you, you will have to collect data and insight through research on the organizational designs of competitors and how they coped with organizational change. Answering the questions above are just the starting point. 

To understand what your organization is best at, use the Hedgehog Concept by Jim Collins

Step 3: Develop your action plan

Here you will identify which areas need to be realigned and how you would do that. The result of this step should be a detailed action plan listing the individual steps you need to take to get to your desired situation, along with other important details such as task owners, timeframes, precautions and so on.

Action Plan Template for Applying McKinsey 7S Model

Step 4: Implement the action plan 

Successfully executing the action plan is depended on who executes it. Therefore you need to make sure that you assign the tasks to the right people in your organization. Additionally, you can also hire consultants to guide the process. 

Step 5: Review the seven elements from time to time

Since the seven elements are subjected to constant change, reviewing them periodically is essential. A change in one element will affect all the others, which will require you to implement a new organization design. Review the situation frequently to stay aware of the remedial action you might want to take.

Advantages and Disadvantages of McKinsey 7-S Model 

  • Considers 7 elements of strategic fit, which is more effective than the traditional model that only focuses on strategy and structure
  • It helps align the processes, systems, people, and values of an organization
  • Since it analyzes each element and the relationship between them in detail, it ensures that you miss no gaps caused by changed strategies
  • Helps organizations identify how they should align the different key parts of the organization to achieve their goals

Disadvantages

  • It requires the organization to do a lot of research and benchmarking, which makes it time-consuming
  • It only focuses on internal elements, while paying no attention to the external elements that may affect organizational performance.
  • It requires the help of senior management which may not be readily available depending on how busy they are

To analyze and understand the performance or the functioning of the organization use Weisboard’s six box model framework.

What’s Your Take on the McKinsey 7-S Model? 

The McKinsey 7S model is a proven framework for helping organizations understand how to get from their current situation to the situation they prefer to be in. 

Maybe you are a big fan of the McKinsey 7S model. Maybe you prefer another strategy framework that has worked well for you. We’d love to hear what you feel about the subject; give your feedback in the comments section below. 

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McKinsey 7S Model: Importance & How To Use It (2024)

Download our free Internal Analysis Template Download this template

Managing strategic alignment across various business operations becomes increasingly challenging as organizations pivot through ongoing changes.

One strategic tool used by businesses to manage this complexity and drive consistent alignment through change periods is the McKinsey 7S Model.

In this article, we will guide you through the basic principles of the McKinsey 7S Model and show you how to use it in practice based on a real-life example. And yes, you’ll also get a template that will help complete your own 7S Analysis. ;)

  • The 7S Model is a strategic tool that helps you analyze organizational gaps, inconsistencies, and alignment issues.
  • The framework divides organizations into seven categories and shows how key elements impact one another.
  • Both “hard” and “soft” elements in the 7S Model are equally important when implementing change.
  • Pros: The 7S Model helps you understand the broader impact of change initiatives on the entire organization.
  • Cons: It doesn’t analyze external elements and their impact on organizations.

Free Download Download our Internal Analysis Template Download this template

What Is the McKinsey 7S Model?

The McKinsey 7S Model is a change management tool for analyzing organizational design, alignment, and performance. It offers a simplified method of identifying organizational gaps, inconsistencies, and conflicts. Additionally, it is useful for mapping out various types of change initiatives in complex environments.

As the name implies, there are seven components to the 7S Model—all of which start with an “S.” 

These seven components are grouped into “hard” and “soft” elements. Both are equally important to driving successful change initiatives .

Compressed-McKinsey-7S-model

Hard elements

Hard elements are tangible, easy to identify, and can be directly impacted by management. 

Soft elements

Soft elements are intangible and primarily driven by the organization’s corporate culture .

  • Shared Values

7 Elements Of The McKinsey 7S Model

Let’s look at the different elements of the McKinsey 7S Model in more detail.

1. Structure

This is how the organization is set up for decision-making, ownership, and leadership. It includes hierarchy, the chain of command, and accountability between role players.

2. Strategy

The business’s approach to strategic planning and executing actions that ensure success, sustainability, and competitive advantage.

Systems refers to the processes, infrastructure, and workflows established and utilized within the organization.

Skills are the competencies and capabilities of people within an organization that help it reach business goals and objectives.

Style is the way and manner in which people in the organization operate and interact. This includes interpersonal business relationships, management styles, and codes of conduct.

Staff encompasses human resources and talent management related to company decisions, like hiring, training, retention, and incentives.

7. Shared Values

These are the common objectives and values that help form an organization’s culture and align the other elements within the organization. In and outside of your organization, they influence employee, customer, and work experiences.

How to Use the McKinsey 7S Model? (In 7 Steps)

1. analyze each component of the 7s model.

Here’s how you should take it step-by-step: 

  • Start in the middle and analyze Shared Values . This step should help you to identify if you have a clear understanding of where your company wants to be in the future. 
  • Move into the Hard elements ( Strategy, Structure, and System ).
  • Finish with Soft Elements ( Skills, Staff, and Style ).

>>> Download your 7S Model template here .

You can use the following questions during your review process (also included in the template): 

  • How should we proceed to resolve the specific business problem?
  • What is our strategy and its priorities?
  • How will we achieve our strategic objectives?
  • How do we compete in the market? What are our competitive capabilities? 
  • How does the organization respond to changes in customer demand or the business environment? 

Structure: 

  • How is our organization organized? 
  • How are reporting and working relationships structured (hierarchical, flat, silos, etc.)? Who reports to whom? 
  • How are our employees aligned with the strategy? 
  • How do our teams align and collaborate on shared goals?
  • What is our process for making decisions? Is it through centralization, empowerment, decentralization, etc.?
  • How does the organization share information (formally and informally)?
  • Can we execute the strategy with the existing business system or do we have to develop a new one?
  • How do we track progress and performance? 
  • What internal processes and guidelines do we have in place to stay on track? 

Shared Values: 

  • What principles help us to achieve our goals? 
  • What makes us do what we do in the way we do it?
  • What is our vision for the future? What is our mission to get there?
  • What are our core values? How are we incorporating them into daily activities? 
  • What are our strongest skills within the organization? What are our weaknesses? 
  • How are we going to fill the skill gap? Which skills are required?  
  • Is the current employee's skill set sufficient for the job?
  • How do we monitor, assess, and improve skills?
  • What leadership style and cultural qualities will help us to achieve a strategic objective?
  • What is our current management approach?
  • How are our employees respond to it? 
  • Is there anything we can do to support the growth of our team members?
  • What are the current staffing needs?
  • Are there any gaps in required capabilities or resources?
  • What is our plan for addressing those needs?

Remember, you may already be able to identify some of the issues in your organization. However, some problems may be less obvious. 

An exercise like this can help you gain a better understanding of all the issues that are impacting alignment and organizational effectiveness.

2. Identify areas that are misaligned with your vision and strategy

Review your findings and use them to find gaps and inconsistencies in the organization. Create a list of these existing issues. 

“If you want to go to the moon, you need to understand the distance you need to bridge to go from here to there.” – Thibault Mesqui, Managing Director, Heineken

Additionally, speak to other key stakeholders and get their opinions on different business areas and processes in your organization. 

“When you involve people, when you ask them their opinions, they feel a lot more inclined to actually execute the thing later on.” - Ilana Rosen , Director of Strategy and Head of Enterprise Innovation at Old Navy

3. Define the desired state

You’ll then need to identify and articulate the organization's ideal alignment. Go through each “S” and use this question:  “What do we need to change in each element so we can execute our strategy?”.  

This will likely require additional research and consultations with external experts to understand what an optimal organizational design can look like and the possible obstacles that might stand in its way.  

Remember, your “ideal” state should be informed by your company’s long-term strategic goals , conversations with role players, and other internal analyses . 

Once you’re done, review everything and ensure it aligns with your company’s vision and strategy.

4. Prepare your change management plan

Analysis of the 7S Model holds no value if you don’t map out a change management action plan. Your organization needs a clear roadmap to get where it needs to be. Without it, you will either miss growth opportunities or continue to be stagnant. 

As part of this step, clearly define your strategic objectives , key projects or initiatives, and KPIs. Co-create an action plan with the owners who will be responsible for executing it. This collaborative approach is essential if you want to get buy-in and maintain momentum. 

Strategic planning can be challenging depending on your organization's size and existing processes. 

An all-in-one strategy execution platform, like Cascade , can help simplify the strategic planning process with tools to lead, monitor, and manage key change initiatives and projects.

5. Execute your plan

Now it’s time to turn your plans into reality. Execution is the most crucial step in the change process. 

Getting it right will result in impactful changes and help your organization reach important milestones. Getting it wrong will mean delays, lackluster outcomes, and failure. 

But, strategy execution in a complex business environment can be tricky. Especially if you don’t have the right tools to align efforts, ensure accountability, and manage change initiatives. 

Get ahead of the problem. Check out Cascade’s robust transformation management features and see how they can help you drive strategy execution to get results faster.

6. Review your progress against set targets

Monitoring progress is vital if you want your change initiative to have maximum impact. 

Continually review the performance of your teams and projects to ensure your organization is constantly aligned and on track.

Cascade is one of the few platforms that make oversight and monitoring easy. Its focus on strategic alignment, powerful real-time reporting features , and drill-down capabilities give organizations a holistic overview of progress.

7. Adapt your plans and strategy if needed

Any good strategy will change, iterate, and adapt. Don’t be afraid to change your plans and approach as you progress. 

Using insights, knowledge, and new information to improve your approach is important. Plans must be adjusted or refocused as your organization progresses toward its goals. 

“The True North should not change that much, that frequently, but the components of the pillars that make up for the solution might evolve.” - Carlos Trad , Director of Global Business Strategy, Google.

McKinsey 7S Model Example: Chick-fil-A

Chick-fil-A is a popular fast-food restaurant with over 2000 locations in the US, Canada, and the UK. Here’s an example of how a McKinsey 7S Model might look for Chick-fil-A:

  • A private family-owned fast-food franchise. 
  • Wholly-owned subsidiaries that supply franchisee restaurants.
  • Individual Chick-fil-A restaurants are owned and operated by franchisees.
  • Franchise owners (Operators) manage day-to-day operations in their stores.

When it comes to growth, Chick-fil-A pursues a market development strategy . They are expanding into new markets with existing products through franchising. They also pursue international expansions by opening new locations outside the US, including Canada and UK. And they are planning to enter new markets, such as Asia. 

  • Franchise and licensing business with corporate offices to manage broad strategic initiatives.
  • Corporate control of food production and distribution channels.
  • A rigorous vetting process for all prospective franchise owners.

Shared values

Christian and family values play a large part in Chick-fil-A’s corporate identity. For example, all Chick-fil-A restaurants are closed on Sundays. 

Chick-fil-A’s core values also play a big role in shaping their culture, work, and customer experience:

  • “We are better together” 
  • “We're here to serve.”
  • “We are purpose-driven.”
  • “We pursue what's next.”

These values drive their presence and approach in the fast-food industry. And it proves to be worth the investment. Chick-fil-a is one of the most beloved fast-food chains in America, and it enjoys a reputation for providing the best customer service. 

The company invests heavily in upskilling franchise owners through training, support, and investments. 

They also provide staff members with opportunities to grow and move into new roles. For example, in 2019, Chick-fil-A gave employees $15.3 million in educational scholarships.

In the fast-food industry, Chick-fil-A is known for its unique management style and the trust it places in franchise owners. 

  • Known for its servant-leadership style of management.
  • The corporate office is known as the “Support Center.”
  • Franchisees are known as “Operators,” and employees are known as “Team members.”

Chick-fil-A represents over 170,000 Team Members, Operators, and Staff. This is how the

  • Corporate: Strategy, licensing, business development, marketing, compliance, and human resources.
  • Franchise owners: Business management, operations, and people management.  
  • Restaurant staff: Food preparation, front-of-desk service, customer relations, cleaning, and team management.

Now let’s take a look at the 7S Model in action…

The example above suggests Chick-fil-A's operations are aligned and efficient. But what happens if Chick-fil-A decides to enter a new market with a new product? For the sake of example, let's ignore the fact that a diversification strategy like this would be a bold and risky move based on the Ansoff matrix.  

Using the 7S Model, they might realize that they lack the right management staff to help them through this transition. In terms of Staff , they will need to hire people with the right skills and experience to fill these gaps. Looking at Skills , they might even identify that franchise owners and restaurant staff will need additional training because the new product requires new processes and workflows. 

Strategy is another area they should consider.

Their strategy needs to change and it might even require a new approach to strategic planning. They might also realize that their current approach to strategy execution isn’t fast enough and it will need to change if they want to outperform competitors and stay relevant. 

A McKinsey 7S Framework forces leaders to do their homework and identify gaps that could result in a failed strategy execution. As a leader, you don't want to be in that 90% of strategies that fail.

Note: The above is just an example illustrating different scenarios. You should do your own research and apply the model to your organization.

What Are The Benefits Of Mckinsey 7S Model?

The key benefits of the 7S model framework are:

  • It shows the wider impacts of changes on organizations.
  • Simplifies the process of planning and executing change initiatives.
  • Helps align different segments of business units during periods of change. 
  • Useful for different types of change initiatives. 

As with every strategy framework , it also has some disadvantages:

What Are The Disadvantages Of Mckinsey 7S Model?

The disadvantages of the 7S Model are: 

  • It requires a lot of research and benchmarking to be used effectively.
  • Ignores the impact of the external environment on businesses.

When Should You Choose the McKinsey 7S Model? 

The McKinsey 7S Model is a simplified method of understanding organizational structures and how they impact one another. It is beneficial for identifying key organizational elements impacting performance, such as gaps, inconsistencies, and misalignment.

The 7S Model is a great strategic tool for analyzing organizational design and change management in complex environments. It can be used for various types of organizational change initiatives, such as:

  • Diversity, Equity, and Inclusion (DEI) initiatives
  • Digital transformation
  • Restructuring due to M&A
  • Market Development 

Organizations embarking on any transition, reinvention, or reorganization can use this model to bolster strategic planning and execution .

McKinsey 7S Model + strategy execution =  🔥 

7S Model analysis it’s not enough. Yes, you get insights into business areas that need to improve or change within the organization. But that’s just a starting point. 

You need to create your action plan and execute it to close the gap between misaligned elements and your strategy. This is the only way you can create a well-oiled machine that drives business results. And you need the right tools that will help you measure and monitor performance. 

Recommended reading: 23 Best Strategy Tools For Your Organization in 2022

FAQs about the McKinsey 7S Model

Is the mckinsey 7s model still relevant.

Yes, the McKinsey 7S Model remains relevant for businesses and NGOs. It is an important strategic framework for analyzing an organization's alignment and potential future obstacles.

What is the difference between a hard strategy and a soft strategy?

Hard strategies involve planning, executing, and monitoring systems, processes, and structures. The benefits of these initiatives are usually clear and measurable. Soft strategies focus on changes in management style, work culture, and people.

Who introduced the 7S Framework?

The Mckinsey 7S Framework was introduced in the late 1970s by Tom Peters and Robert Waterman, who worked as consultants at McKinsey & Company.

What is the difference between the McKinsey 7S Model and a SWOT analysis?

The difference between McKinsey 7S Model and SWOT Analysis involves each model’s focus and analytical approach. The 7S Model is internally focused and looks at seven elements that affect business performance. SWOT is internally and externally focused and analyses the potential impact of four factors on organizations.

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Home » Change Management » The McKinsey 7-S Model: A comprehensive guide

The McKinsey 7-S Model: A comprehensive guide

The McKinsey 7-S Model: A comprehensive guide

Companies must adapt to change to stay competitive and grow in today’s challenging market. Change is crucial for keeping pace with the industry, but it’s important not to impose it abruptly on employees and teams. 

Forced or unexpected changes often meet with resistance. Organizations can adopt change management models , like McKinsey’s 7-S framework, to navigate this transformation smoothly. 

This model, developed in the 1980s by McKinsey & Company, is particularly effective for companies undergoing change and restructuring. 

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It moves beyond traditional methods, focusing mainly on structure and strategy. 

The McKinsey 7-S Model is designed to set clear objectives, ensure better alignment across the organization, and boost overall performance, making it a valuable tool for managing change.

By the end of this article, you will understand the following:

  • What the McKinsey 7-S Model is and its seven elements
  • Its benefits and limitations
  • The best way to implement it within your organization
  • How to build a checklist for this model, together with some practical examples

What is the McKinsey 7-S Model?

The McKinsey 7-S Model serves as a guide for managing organizational change , focusing on the design of a company. It emphasizes the interplay of seven crucial components: structure, strategy, system, shared values, skills, style, and staff.

This model underscores the ripple effect caused by altering any single element, necessitating a rebalancing of the whole system. 

What key elements of the McKinsey 7-S Model do you need to consider?

key elements of the McKinsey 7-S Model

The McKinsey 7-S Model comprises seven core elements, grouped into ‘hard’ and ‘soft’ categories:

Hard elements:

  • Easily identified and influenced by management.
  • Includes Structure, Strategy, and Systems.

Soft elements:

  • Intangible, culture-driven aspects.
  • Encompasses Shared Values, Skills, Style, and Staff.

Below, we have outlined explanations of each of the seven elements, as well as questions to answer:

This involves a comprehensive plan for implementing a successful change process and achieving a competitive advantage. It should align with the other six elements and align with a clear vision, mission, and values. 

Types of questions you need to consider to assess whether you need any changes to your existing strategy include:

  • What type of customers does the business possess?
  • What kind of markets does the company operate in?
  • What are the organization’s current competitive benefits, and will these change?
  • What are the organization’s main strategic priorities?
  • What resources does the organization need to remain competitive?

This element refers to the organizational framework and hierarchy. It’s vital for maintaining order, clarifying roles, and ensuring employee accountability. 

The type of questions that your business needs to answer before assessing whether there are any necessary changes to its existing structure are:

  • What is the organizational structure of the company?
  • What levels of leadership exist, and how are they structured?
  • How do different departments collaborate and coordinate their efforts?
  • How do team members work together towards common goals?

These are the daily processes and procedures that govern business operations. Systems, including Standard Operating Procedures (SOPs), significantly affect productivity and decision-making.

The types of questions that you should be using to evaluate current systems are:

  • What essential management procedures do senior leaders use to manage the company? How would you describe the distinct features of these management processes, i.e., informal vs formal?
  • Which key metrics or variables receive the most attention and management?
  • What are the current lines of communication that exist between management and staff?

Shared values

This involves the core values that dictate an organization’s ethos. Effective change management relies on these values to foster desired employee behavioral changes.

When evaluating existing shared values, your organization should aim to answer the following:

  • What are the company’s core values? Are these values the ones that the current organization was built on?
  • Do you see these core values implemented within the inner workings of each team?
  • Describe the organization’s overall culture.

This element relates to the management approach within an organization, influencing employee productivity measurement and satisfaction.

Measuring the current impact of style on your company involves responding to these questions:

  • Describe your company’s contemporary management style. 
  • Is there managerial effectiveness ?
  • How does staff react to this style?
  • What achievements, behaviors, duties, or tasks does management typically reward?
  • What types of employees exist within your organization? Do they like to collaborate, compete, or cooperate? 

This focuses on the workforce, including talent needs, workforce size, employee motivation, training, and reward systems.

Using the staff element of this model involves asking questions like:

  • What demographics does the management team comprise (educational background, age, gender, etc.), and how is this developing?
  • What are the notable characteristics and achievements of the current senior managers compared to the emerging management group?
  • How much emphasis does the company place on its human resources (employee development, training, etc.)?
  • What types of positions or knowledge are present across teams within the company?

This last element concerns the abilities of employees to perform tasks. Addressing skills gaps is crucial, as they can cause productivity losses and increased pressure on experienced staff. Identifying and bridging these gaps through targeted training is essential.

The questions that need to be answered as part of this element are:

  • Which teams possess the employees with the most helpful skill sets?
  • What critical business activities necessary for the firm’s success are currently areas of weakness?
  • What is the organization best known for in the industry (customer service, marketing, etc.)
  • What are the critical business activities essential to the company’s success at which it excels, and how are these strengths developing?

Benefits of the McKinsey 7-S Model

Benefits of the McKinsey 7-S Model

The benefits of the McKinsey 7-S Model include highlighting the extensive effects of changes within an organization, assisting in planning the necessary steps to achieve desired organizational goals , ensuring the alignment of various departments, processes, and less tangible factors.

Next, this model promotes cohesive and unified actions across different company segments. It also facilitates efficient monitoring of changes’ effects on crucial elements.

Limitations of the McKinsey 7-S Framework

Despite its strengths, the McKinsey 7-S Framework also presents several drawbacks. It is seen as a model suited for long-term application, raising questions about its adaptability in the rapidly evolving business landscape.

The framework focuses predominantly on internal factors and processes, which might be less effective when external forces significantly impact an organization. Implementing this model can be complex, necessitating extensive research and benchmarking.

Additionally, its successful application often depends on the backing of top-level management.

Implementing the McKinsey 7-S Framework within your organization

the steps needed to implement the mckinsey framework within the organization

You can use the McKinsey 7-S Model to pinpoint which framework aspects require realignment for enhanced performance or to preserve alignment and performance amidst various changes.

Such changes encompass organizational restructuring, implementation of new organizational change processes , mergers, introduction of new systems, or shifts in leadership.

To effectively apply the 7-S model for organizational improvement and alignment, consider the following action steps:

  • Identify gaps and align processes with your overarching business strategy

This phase involves aligning new strategic initiatives with the organization’s overall objectives. It’s not just about setting new priorities but ensuring they resonate with the company’s long-term goals. 

This step requires thorough analysis and reevaluation of current projects and activities, determining their relevance to the new strategy. It’s about ensuring that every initiative undertaken adds strategic value and contributes significantly to the organization’s growth and success.

  • Ensure your budgets and performance data work with these processes

Once the initiatives are aligned, the next step is ensuring that the budgets and employee performance metrics align with these initiatives. This means reallocating resources, both financial and human, to areas that are critical to the new strategy. 

Departments must manage their budgets effectively and set performance targets that reflect the strategic priorities. This alignment ensures the organization’s resources are optimally utilized to support the strategic direction.

  • Restructure your organization to become more agile

A strategic shift often necessitates an organizational restructuring. The structure of the company must facilitate the smooth implementation of the strategy. This might involve redefining roles, establishing new departments, or altering communication channels. 

The aim should be to create an organizational structure that is agile and flexible, capable of supporting and enhancing the strategy rather than hindering it.

  • Create an action plan to engage staff

Develop a detailed change management action plan guide for rolling out the identified changes to staff. The success of any strategy largely depends on the people who implement it. This phase focuses on getting the staff on board with the new strategy. 

It involves educating and training employees, ensuring they understand the strategy’s ‘what’ and the ‘how’ and the ‘why.’ Staff engagement also means addressing concerns, inviting feedback, and fostering a culture where employees are compelled to contribute to the strategic goals.

  • Continuously monitor progress and adapt if needed

The final phase is an ongoing process. Strategies must not be static but develop with the changing business environment. Regularly monitor these elements and their interrelationships to sustain the momentum of change and ensure performance and business realignment if necessary.

It’s also about proactively identifying areas where the strategy may not deliver as expected and being ready to adapt and make changes as necessary. This phase ensures the strategy remains relevant and effective in achieving the desired outcomes.

McKinsey 7-S Model practical examples

When an organization undergoes changes that impact its shared values, the McKinsey 7-S model is beneficial. 

Here are three examples of how the McKinsey 7-S Model can work in practice, with two real-life scenarios: 

Example 1: A company planning a merger 

A merger will inevitably influence the organization’s structure as it onboards new staff members. The merger also impacts the company’s strategic direction, bringing fresh perspectives and ideas.

In this scenario, the McKinsey 7-S model aids in pinpointing areas of inconsistency, which, in the case of a merger, typically includes the structure, staff, and strategy.

The company can make informed decisions to effectively reorganize and assimilate the changes by identifying these critical areas. This process involves thorough research and analysis to understand and mitigate the impact of organizational change , thereby facilitating a smoother merger process.

Example 2: A company dealing with the different stages of growth

As another example, let’s use the scenario when a company launches as a startup with only five employees. This early phase is strongly influenced by the founder’s vision and values, with a cohesive approach. The startup operates in a single market, using standard IT and accounting systems.

As the company developed, it expanded to 30 employees and ventured into various markets. This growth necessitates new expertise in marketing, technology, product development, and financial management to meet diverse customer needs.

The founder, observing these changes, conducts a 7-S analysis. They discover that the company’s developing sales strategy is misaligned with its original small-business capabilities.

The influx of new employees and technological advancements reveal gaps in system skills among some staff members. There needs to be more clarity regarding the company’s core values and mission.

Now, the founder can leverage the McKinsey 7-S Framework to implement effective onboarding and learning programs, realigning the organization’s key elements.

Example 3: How Ithaca Beer company success can be seen through the McKinsey 7-S Framework

This analysis of the growth of Ithaca Beer company using the McKinsey 7-S Framework by J. Bruce Tracey and Brendan Blood for the Cornell Hospitality Report show that the model is an excellent tool for evaluating what a company needs for success and growth. But it also indicates that each company’s unique context will require a tailored approach to this framework. 

This example reveals that certain factors are more crucial than others. Specifically, four of the 7-S elements are particularly relevant: one hard skill—strategy, and three soft skills—staff, skills, and shared values.

Overall, IBC’s strategy of community orientation and brand-focused growth, coupled with its emphasis on people, are the main drivers of its success. These factors align with the 7-S model’s premise, demonstrating that while strategy, staff, skills, and shared values are paramount in IBC’s competitive environment, other 7-S elements also support the company’s ongoing success.

The future of the McKinsey 7-S Framework

The McKinsey 7-S Model evaluates an organization’s alignment and efficiency by scrutinizing seven internal aspects to manage complex change . This model examines strategy, structure, systems, skills, staff, style, and shared values to assess organizational coherence and performance.

To apply this model within an organization, the process involves gathering information, conducting a 7-S analysis, assessing alignment, developing an action plan, identifying areas of alignment, involving stakeholders, monitoring progress, and reviewing outcomes.

While the model offers a comprehensive examination of various organizational facets, its complexity lies in effectively evaluating each of the seven elements, which can be challenging. You might also find that not all seven elements are relevant to the change you are going through, so you must tailor this framework to your needs.

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The Compendium of Strategy Frameworks is 168 PowerPoint slides of strategy frameworks, worksheets, charts , templates, icons, and professional graphics. Developed by a McKinsey alum and the founder of Stratechi.com, this is your one-stop shop for the top-used strategy frameworks for your strategic planning and analysis needs. Below you can view the preview of the deck, the table of contents, and each individual slide.

Included are many of the most used strategy frameworks covering competitive dynamics , market analysis , decision-making , strategic dynamics, growth strategies , organizations , strategic planning , McKisney-style charts and graphs, process strategy , problem solving , business models , management & leadership , goals & metrics , a ton of the Stratechi.com content, and so much more. Below you can instantly download the strategy frameworks to save a ton of your valuable time.

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The 168 slides in the Strategy Frameworks Compendium template includes:

4. STRATEGY FRAMEWORKS 5. BCG Growth Share Matrix 6. McKinsey Three Horizons of Growth 7. SWOT Analysis 8. SWOT Analysis Worksheet 9. Porter’s Five Forces 10. Porter’s Five Forces Worksheet 11. Adoption Curve Growth Markets 12. Adoption Curve Customer Segments 13. Ansoff Growth Matrix 14. PESTLE Analysis 15. PESTLE Analysis Topics 16. PESTLE Analysis Worksheet 17. Balanced Scorecard 18. Balanced Scorecard Worksheet 19. Balanced Scorecard Template 20. Prioritization Matrix 21. Prioritization Matrix Template 22. The 5Ws and 1H of Strategy 23. The 5Ws and 1H Worksheet 24. The 4Ps of Marketing 25. The 4 Ps of Marketing Worksheet 26. The 8Ps of Marketing 27. The 8Ps of Marketing Worksheet 28. Net Promoter Score 29. Change Management Model 30. Change Management Template 31. Minto Pyramid Principle 32. Customer Purchase Funnel 33. Customer Journey Template 34. Profit Tree 35. Will Skill Matrix 36. High-Performing Team Conditions 37. Project Management Triangle 38. SMART Goals 39. STRATECHI FRAMEWORKS 40. The Definition of Strategy 41. The Core of Business Strategy 42. Business Model Framework

85. 3 Strategy Yin Yang Slide 86. 4-Part Puzzle Piece 87. Roadmap Slide 88. 4-Part Flower Framework 89. 8-Part Flower Framework 90. Speedometer Slide 91. Pyramid Framework 92. 3-Ellipse Framework 93. Funnel Framework 94. Alternative Funnel 95. Project Template 96. Performance Template 97. 3-Box Framework 98. Staircase Framework 99. Org Chart 100. US Map 101. Global Map 102. Downward Flow Template 103. 4-Piece Process Framework 104. Core Initiative Framework 105. Milestone Framework 106. 4-Box Framework 107. 3-Box Framework 108. 3-Box Segmented Framework 109. KPI Template 110. KPI Goal Template 111. STRATEGY ICONS 112. Light Blue Background 1 of 3 113. Light Blue Background 2 of 3 114. Light Blue Background 3 of 3 115. Dark Blue Background 1 of 3 116. Dark Blue Background 2 of 3 117. Dark Blue Background 3 of 3 118. White Icons 1 of 3 119. White Icons 2 of 3 120. White Icons 3 of 3 121. Dark Blue Icons 1 of 3 122. Dark Blue Icons 2 of 3 123. Dark Blue Icons 3 of 3 124. CHARTS 125. Donut Chart 126. Pie Charts

125. Donut Chart 126. Pie Charts 127. Historical Column Chart 128. Stacked Column Chart 129. 100% Stacked Column Chart 130. Alternative Stacked Column 131. 100% Stacked Bar Chart 132. Waterfall Chart 133. Bubble Chart 134. Radar Chart 135. Process Map Icons 136. Process Map Example 137. OTHER FRAMEWORKS 138. Problem Statement Worksheet 139. Hypothesis Tree Template 140. Decision Matrix 141. Process Maturity Worksheet 142. 8 Forms of Waste Worksheet 143. Comprehensive SWOT Analysis 144. ROLES Framework 145. ROLES Worksheet 146. Project Team Charter 147. Strategic Alignment Charter 148. Culture Charter 149. Governance Worksheet 150. Meeting Charter 151. SMART Goals Worksheet 152. Change Mgmt. Worksheet 153. Will Skill Assessment 154. 7 Sources of Power 155. Personal Power Plan Worksheet 156. Functions Framework 157. Product Roadmap 158. Alternative Product Roadmap 159. Project Plan Template 160. Project Management Scorecard 161. KPI Worksheet 162. Analytical Model Template 163. Negotiation Worksheet 164. Service Benchmarking 165. Product Benchmarking 166. Service Idea Template 167. Product Idea Template

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What Is The McKinsey Horizon Model And Why It Matters In Business

The McKinsey Horizon Model helps a business focus on innovation and growth . The model is a strategy framework divided into three broad categories, otherwise known as horizons. Thus, the framework is sometimes referred to as McKinsey’s Three Horizons of Growth.

Table of Contents

Understanding the McKinsey Horizon Model

The McKinsey Horizon Model was developed after two decades of extensive research on high-growth companies.

At this point, it is useful to make the distinction that McKinsey’s growth strategy should not be confused with an innovation strategy .

Instead, the three horizons model should be used to implement a growth strategy – which in turn drives future strategies centered on innovation .

McKinsey’s model is also ideal for large businesses with expansive member boards that have different visions for the future of the organization.

Here, the model seeks to create a united and cohesive plan for growth over time. Ideally, milestones are set regarding investments, results, and profits.

Ultimately, the McKinsey Horizon Model is an adaptable future tool. It identifies short, medium, and long term changes to an industry and details how a business might react to these changes.

Using the McKinsey Horizon Model in practice 

Imagine that three horizons are plotted on a graph, with time on the x-axis and the potential growth of the company on the y-axis.

Let’s take a look at each horizon according to its position on the graph.

First horizon

At the bottom left of the graph, a business is at the start of its journey with low potential growth .

As a result, the first horizon usually describes activities that currently contribute to revenue generation and company stability. 

Once stability has been achieved, the business can look at short-term projects that will deliver growth in the next 1-3 years – but actual timeframes will vary from industry to industry.

For example, a tech start-up might experience higher initial growth than a new café. 

Second horizon

In the middle of the graph, several years have passed and the business has experienced a moderate amount of growth .

Second horizon growth strategies should ideally span 2-5 years and often relate to adopting processes, revenue streams, or technologies from other industries. 

Therefore, the chance of successful growth is relatively high, despite the longer time frames.

Third horizon

After a significant amount of time has passed, the company now has more resources to devote to large and complex strategies that may take 5-15 years to materialize.

These strategies may relate to research, pilot programs, and brand new product offerings. 

Given their large upfront cost, third horizon strategies often have a focus on incremental improvements.

But because of their longer time frame and a large number of variables, many strategies are risky and can become unprofitable.

Case Studies

  • First Horizon (Short Term): Focus on improving user experience and increasing market share through regular software updates and enhancements.
  • Second Horizon (Medium Term): Explore partnerships with other tech firms to integrate complementary technologies or services, expanding the product ecosystem.
  • Third Horizon (Long Term): Invest in research and development for emerging technologies, such as artificial intelligence or blockchain, to create entirely new product lines.
  • First Horizon (Short Term): Optimize inventory management and supply chain processes to reduce costs and improve margins.
  • Second Horizon (Medium Term): Launch new store formats or online sales channels to reach untapped customer segments.
  • Third Horizon (Long Term): Experiment with innovative retail concepts, such as cashier-less stores or personalized shopping experiences, to shape the future of retail.
  • First Horizon (Short Term): Streamline production processes to increase efficiency and reduce production costs.
  • Second Horizon (Medium Term): Invest in electric and hybrid vehicle technologies to meet evolving consumer preferences and regulatory requirements.
  • Third Horizon (Long Term): Explore autonomous driving solutions and mobility-as-a-service platforms for the future of transportation.
  • First Horizon (Short Term): Enhance customer service and digital banking capabilities to improve customer retention.
  • Second Horizon (Medium Term): Expand into new geographic markets with tailored financial products and services.
  • Third Horizon (Long Term): Investigate blockchain technology and decentralized finance (DeFi) solutions to transform traditional banking practices.
  • First Horizon (Short Term): Streamline research and development processes to accelerate drug development timelines.
  • Second Horizon (Medium Term): Explore partnerships with biotechnology firms to access innovative drug candidates.
  • Third Horizon (Long Term): Invest in gene therapy and precision medicine research for groundbreaking treatments.
  • First Horizon (Short Term): Optimize production and distribution to reduce waste and improve sustainability.
  • Second Horizon (Medium Term): Launch new product lines or acquire brands that cater to health-conscious consumers.
  • Third Horizon (Long Term): Research alternative protein sources and sustainable packaging solutions to address future food industry challenges.

Key takeaways

  • The McKinsey Horizon Model is a strategy that is particularly beneficial for mature companies that tend to devote fewer resources to growth .
  • The McKinsey Horizon Model helps large businesses with different points of view settle on a unified direction for the future of the company.
  • The McKinsey Horizon Model offers a framework of three horizons. These act as stepping stones for businesses that want to balance current profitability with future growth .

Key highlights of the McKinsey Horizon Model:

  • Framework for Growth: The McKinsey Horizon Model, also known as McKinsey’s Three Horizons of Growth, is a strategy framework designed to help businesses focus on innovation and growth . It provides a structured approach to planning for the future.
  • Three Horizons: The model divides growth strategies into three broad categories or horizons, each with its own time frame and focus. These horizons represent different stages of a company’s growth journey.
  • Not an Innovation Strategy: It’s important to note that the McKinsey Horizon Model is not an innovation strategy in itself. Instead, it is a tool to implement a growth strategy that can drive future innovation efforts.
  • Large Business Focus: This model is particularly useful for large businesses with diverse stakeholders and visions for the future. It helps create a unified and cohesive growth plan that aligns with the organization’s goals and objectives.
  • Adaptability: The model is adaptable and can be applied to various industries and business types. It identifies short-term, medium-term, and long-term changes in the industry and guides how a company can respond to these changes.
  • First Horizon: The first horizon represents the initial stage of a company’s journey, where there is low potential for growth . This phase typically involves activities that contribute to revenue generation and stability. Short-term growth projects (1-3 years) are considered here.
  • Second Horizon: In the second horizon, the company has experienced moderate growth . This phase spans 2-5 years and often involves adopting processes, revenue streams, or technologies from other industries. The likelihood of successful growth is relatively high in this horizon.
  • Third Horizon: The third horizon is characterized by significant time passing and the availability of more resources. Strategies in this horizon may take 5-15 years to materialize and often involve research, pilot programs, and the development of brand -new product offerings. Due to the longer time frame and complexity, these strategies can be riskier.
  • Balancing Profitability and Growth: The McKinsey Horizon Model helps businesses balance current profitability with future growth . It allows companies to allocate resources strategically across the three horizons based on their growth potential and risk.
  • Alignment of Stakeholders: For companies with diverse stakeholder perspectives, the model serves as a tool to align these perspectives toward a common vision for the company’s future.
  • Resource Allocation: The model guides decision-makers in setting milestones, making investments, and measuring results across the three horizons, ensuring that resources are allocated effectively.

McKinsey’s Related Frameworks

GE McKinsey

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McKinsey Horizon Model

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McKinsey’s Seven Degrees of Freedom

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Minto Pyramid

minto-pyramid-principle

McKinsey Organizational Structure

mckinsey-organizational-structure

Connected Business Frameworks

  • Porter’s Five Forces

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SWOT Analysis

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Balanced Scorecard

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Blue Ocean Strategy 

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GAP Analysis

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Scenario Planning

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Read also :  Business Strategy, Examples, Case Studies, And Tools

Connected resources:

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  • Business Strategy Frameworks
  • Blue Ocean Strategy
  • Competitive Moat
  • Profit Margins

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Unleash Your Greatest Leadership Potential

The McKinsey 3 Horizon Framework for Business Growth Explained

McKinsey 3 Horizon Model

“Long range planning does not deal with future decisions, but with the future of present decisions.” — Peter Drucker

I learned about the 3 Horizon framework some years ago as a way of planning business growth and aligning innovation for the future business.

It’s a simple model, and that it’s strength.  And it creates a common language for talking about business investments up and down the chain.

The problem is that I see a lot of leaders misunderstand it or misuse it.

The most common way I see people misuse it is to simply stick a bunch of big interesting projects in Horizon 3 and call it the future.

I think more people would use the McKinsey 3 Horizon model better if they read the McKinsey article, Enduring Ideas: The three horizons of growth ,  read the article by Steve Blank, The Fatal Flaw of the Three Horizons Model , and read THE book by the original McKinsey team, The Alchemy of Growth that explains the model, its origins, its intent, and its use in detail.

That said, let’s take a quick tour of the 3 Horizon model and why it’s a big deal for business leaders…

What is McKinsey’s 3 Horizon Model for Business Growth?

The 3 Horizons of Growth was developed by Steve Coley at McKinsey as a way to think about business growth

Here is a visual of the McKinsey 3 Horizon framework:

McKinsey 3 Horizon framework

  • Horizon 1 = Extend and defend core businesses
  • Horizon 2 = Build emerging businesses
  • Horizon 3 = Create viable options

It’s a way to align innovation efforts with future challenges and opportunities to grow the business–“changing the plane, while flying the plane”.

You use the 3 Horizon framework to evaluate your future plans for your product and service strategy.  When you implement this framework, you create a common language that you can use from top to bottom in the organization to describe how you are investing and preparing for growth.

The 3 Horizon Framework Combines S-Curves with Weed, Seed, and Feed

According to Steve Coley, the 3 Horizon framework emerged from two different strands of thought:

  • S-Curves of Business Life .   First, S-Curves of business life.  In the very beginning, a lot of investment and very little progress and then there’s a period of accelerating growth. At the top of the S, revenue and profit growth slows down or declines.
  • Weed, Seed, and Feed .  Second, more often than not, companies that had been growing for a long time of time, were reinvigorating their portfolio through some sort of a weed, seed, and feed process and we put those two ideas together.

If you add up S-curves for different time frames, you get what looks to be like the 3 Horizon framework.

Metrics, People, and Capabilities Vary by Horizon

Each horizon within the 3 Horizon framework has different metrics, people, and capabilities.

Here’s a summary per Steve Coley:

According to Steve Coley:

“It does take a different kind of leadership and organizational approach to make it work. The same performance metrics and organizational style for Horizon 1 businesses are not the same that are appropriate for Horizon 2 and Horizon 3 — it’s important to differentiate where you manage the initiatives in each one of these horizons.”

99% of the Norm Focus on Horizon 1 Core Businesses

Another aspect of the 3 Horizon framework is to manage all 3 horizons concurrently.   The challenge is that the norm is for 99% of the organization to focus on Horizon 1 core businesses:

3 Horizon - 99 Percent Norm

“Another aspect is to manage all 3 of these horizons concurrently as opposed to the norm where 99% of the focus of the organization is on horizon 1 core businesses.”

CEOs and Senior Leaders Need to Focus More on Horizon 2 and 3

What McKinsey also learned is that Horizons 2 and 3 need more CEO and senior level support.

Otherwise, Horizons 2 and 3 end up starved for resources (and ultimately, starving the future of the company):

3-Horizon-where-CEO-Needs-to-Focus

“Counterintuitively, we found that Horizons 2 and 3 need more senior management and CEO attention than what you would commonly expect.

Initiatives in Horizons 2 and 3 are the ones that are often times spending money and sucking up cash flow that the organization will inevitably starve these initiatives and not make resources available to them in order to make their annual budget.

Only with very senior leadership can you overcome those instinctive organizational attitudes towards starving what is ultimately going to be the future of the company .”

Neglecting Horizon 2 (Spending All Their Time in Horizons 1 and 3)

Another pattern of mistakes that business leaders make is to focus on Horizon 1 and Horizon 3, but neglect Horizon 2.

The issue is that Horizon 2 is where the emerging businesses are.

Business leaders will focus intensely on Horizon 1 to try to get the most out of their core businesses, and only loosely coordinate in Horizon 3:

Horizon 3 - intense focus horizon 1

According to Stev Coley:

“An example of the value of this framework is a large tech company found they were spending all their time on Horizon 1 and Horizon 3 and neglecting Horizon 2.

They were intensely focused on managing their core businesses and trying to get the most out of them.

And they had an enormous number of initiatives and experiments that were only loosely coordinated if at all in Horizon 3.”

Cluster Horizon 3 Initiatives and Move Some to Horizon 2 for Commerical Viability

What business leaders need to do to ensure their future is to cluster Horizon 3 initiatives and move some of them to Horizon 2 as quickly as possible to turn them into commercial businesses:

3 Horizon - Move to Horizon 2

“They had to begin to take control of all the initiatives in Horizon 3 and start clustering them and move some of them as quickly as possible into Horizon 2, so they actually had some commercial viability.

If the organization is not managing these horizons in a concurrent way, you’re not preparing for your future.

What companies do wrong is they will have a lot of activity in horizon 1 and a 1ot of activity in Horizon 3.   What they need to do is cluster activity in Horizon 3 and start turning the opportunities into viable commercial businesses.”

Steve Blank on the Fatal Flaw of the 3 Horizons Model

While Steve Blank is a fan of the3 Horizon model, he says there’s a fatal flaw in that the model was based on time, but now time no longer applies:

“Today, disruption – Horizon 3 ideas – can be delivered as fast as Horizon 1 ideas.”

In his article, The Fatal Flaw of the 3 Horizon Model , Blank  writes:

“In the past we assigned relative delivery time to each of the Horizons.

For example, some organizations defined Horizon 1 as new features that could be delivered in 3-12 months; Horizon 2 as business/mission model extensions 24-36 months out; and Horizon 3 as creating new disruptive products/business/mission models 36-72 months out.

This time-based definition made sense in the 20th century when new disruptive ideas took years to research, engineer and deliver.”

Blank describes the 3 Horizons this way:

  • Horizon 1 ideas provide continuous innovation to a company’s existing business model and core capabilities.
  • Horizon 2 ideas extend a company’s existing business/model and core capabilities to new customers, markets or targets.
  • Horizon 3 is the creation of new capabilities to take advantage of or respond to disruptive opportunities or to counter disruption.

Steve Blank writes:

“However, in the 21stcentury the Three Horizons model has a fatal flaw that could put companies out of business and government agencies behind their adversaries.

While traditional analysis suggests that Horizon 3 disruptive innovations take years to develop, in today’s world this is no longer the case. The three horizons are not bound by time. Horizon 3 ideas – disruption – can be delivered as fast as ideas for Horizon 1 – existing products.

In order to not be left behind, companies / government agencies need to focus on speed of delivery and deployment across all three horizons.”

Interestingly, for me, I hadn’t actually associated the horizons with time.   Maybe because of my introduction to the model, I just imagined Horizon 3 as “outside the core”, while Horizon 1 was “core”.     That said, I do see a lot of confusion as business leaders interpret the model in different ways, and I can easily see how any business leader would naturally associate Horizons to a time frame.

Read The Alchemy of Growth (The Book on the McKinsey 3 Horizon Model)

A friend pointed me to The Alchemy of Growth early on when I was first learning the 3 Horizon model.

It helped me learned from the original team and understand the original intent of the model so this gave me a much better foundation for using the model.

The Alchemy of Growth by Mehrdad Baghai, Steve Coley, and David White (Amazon)

The Alchemy of Growth

Call to Action

  • Read the article Enduring Ideas: The three horizons of growth.
  • Read Steve Blank’s blog post, The Fatal Flaw of the Three Horizons Model.
  • Read the book The Alchemy of Growth by Mehrdad Baghai, Steve Coley, and David White

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Research-Methodology

BYD McKinsey 7S Model

BYD McKinsey 7S model illustrates the ways in which seven elements of businesses can be aligned to increase effectiveness. According to the framework strategy, structure and systems represent hard elements, whereas shared values, skills, style and staff are soft elements. McKinsey 7S model stresses the presence of strong links between elements in a way that a change in one element causes changes in others. As it is illustrated in Figure 7 below, shared values are positioned at the core of BYD McKinsey 7S model, since shared values guide employee behaviour with implications on their performance.

BYD McKinsey 7S Model

McKinsey 7S model

Hard Elements in BYD McKinsey 7S Model

Strategy. BYD business strategy integrates cost leadership and extensive vertical integration. This strategy allows lowering dependence on external vendors and optimizing resources within the company and having tighter control over the entire production process ensures consistent quality standards. Moreover, one of the leading rechargeable battery manufacturers in the global arena maintains an accelerated pace of new model development as one of its core competitive advantages.

Structure.  Organizational structure of BYD is complex and it is difficult to classify it according to conventional categorizations. Nevertheless, it is closer to matrix structure combining functional departments (e.g., R&D, Sales) with product-based divisions (e.g., Dynasty, Ocean, Commercial Vehicles) than alternative structures.

Systems.  The electric automaker depends on a wide range of systems for its business operations. These include manufacturing systems such as vertical integration, lean manufacturing, robotics and automation, as well as, R&D systems. Moreover, supply-chain management, information, quality management, financial and HR systems are also critrically important for the EV giant.

BYD Company Limited Report contains a full analysis of BYD McKinsey 7S Model. The report illustrates the application of the major analytical strategic frameworks in business studies such as SWOT, PESTEL, Porter’s Five Forces, Ansoff Matrix and Value Chain analysis on BYD . Moreover, the report contains analyses of BYD leadership, business strategy organizational structure and organizational culture. The report also comprises discussions of BYD marketing strategy, ecosystem and addresses issues of corporate social responsibility.

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Achieving extraordinary growth: Myths and realities

As India anticipates a century of independence in 2047, it is committing to sustainable and inclusive growth in its goal of becoming a developed economy. This ambition is likely to see 600 million jobs created, income rising sixfold to over $12,000 per capita and GDP growing to $19 trillion. 1 India’s century—achieving sustainable, inclusive growth , a joint report from McKinsey and the Federation of Indian Chambers of Commerce and Industry, December 2022. In realizing this goal, the private sector is an indispensable partner.

We set out to understand how Indian enterprises can achieve the extraordinary growth necessary for them to propel India towards its centennial aspirations. We analyzed the performance of 837 Indian publicly traded companies between 2012 and 2022. 2 We looked at companies with revenue exceeding INR 750 crore (approximately $90 million) in 2022. The results of the research were clear. Most companies performed in line with national economic growth, over the period. 3 McKinsey analysis. However, what’s impressive is that one in every five companies (top quintile) were able to double their revenue every five years and quadruple it in ten, achieving revenue growth of 15 percent or more, compounded annually. This extraordinary growth rate is more than two and a half times 4 The nominal GDP growth rate for India during the same period was around 10 percent and therefore revenue growth would be 1.5 times higher when compared with nominal GDP growth. the GDP growth rate during the same period, and it has the potential to act as a GDP growth catalyst (Exhibit 1).

Our research clearly indicated that extraordinary growth rates such as these are achievable for Indian enterprises, but persistent myths abound that deter companies from pursuing such growth. This article debunks those myths and proposes enablers for companies aspiring to such growth.

The top quintile companies also delivered nearly double the total shareholder returns (30 percent) over five years compared to the Nifty 50 benchmark index of 14 percent total shareholder returns. 5 McKinsey analysis. Total shareholder returns includes both dividends and higher stock prices. The Nifty 50 index is the Indian stock exchange index of the 50 largest companies in India by market cap. We deem this as extraordinary growth, and companies achieving this as “growth champions.” Higher returns are important because when compounded over a ten-year period, this increase could create ten times more wealth for shareholders compared to the benchmark index.

Our analysis identifies common misconceptions surrounding growth champions, providing a roadmap for others to follow. A more nuanced understanding of sustained high growth could help to recognize champions, identify best practices, and provide both a benchmark to measure progress and a roadmap for others to follow.

Myths about growth can prevent companies from aiming high

While most companies aspire to growth, misperceptions of leaders can keep them from setting high growth targets. Leaders may believe growth depends on size, on being in the right industry, that growth comes at the expense of profit, or that a low-growth company cannot dramatically turn around performance. Lessons learned from the companies in our sample shed light on these four common myths around growth outperformance:

Myth 1: Size matters. Only large companies can outperform in uncertain times

Indian companies have had to overcome considerable uncertainty over the past few years, such as the impact of COVID-19, supply chain disruptions, and severe weather events—and it’s likely that uncertainty will continue. In this environment, business leaders could well believe that success is the domain of large, established companies. However, our study revealed that 36 percent of smaller companies, with revenue less than INR 1,500 crore (approximately $180 million) in 2022, were classed as growth champions. 6 Crore is a unit of measurement denoting ten million. Only 10 percent of mid-sized firms (revenue between INR 1,500—4,000 crore) and 11 percent of large firms (revenue greater than INR 4,000 crore) showed similar growth (Exhibit 2). While it is true that some of this high growth can be attributed to the low base effect, the difference in average growth rate between these categories is too significant to overlook.

Myth 2: Companies must either choose growth or profits, not both

Many firms may consider growth and profitability as trade-offs. After all, growth plans frequently incur sizeable costs as companies expand capacities, enter new markets, introduce new product lines, or invest in brands. But our research confirms that revenue growth and profit growth have a high correlation coefficient of 0.95, which shows a strong relationship between the two variables (Exhibit 3). Companies with extraordinary growth in revenue also saw gross profit increasing in parallel, with an average of 20 percent profit growth compounded annually, compared to less than 9 percent profit growth for peers over the same period.

Growth provides scale benefits, but that only explains part of this correlation. Growth champions reduce costs and pursue value engineering to open new markets and create surplus profits for investing in future growth. 7 Value engineering refers to prioritizing cost optimization. This may include investing in distribution networks that increase their access to customers, investing in their brand and marketing, or tightly managing their pricing strategy.

Would you like to learn more about our Growth, Marketing & Sales Practice ?

Myth 3: extraordinary growth is only possible in high-growth industries with tailwinds.

Higher revenue is easier to unlock when companies are fortunate enough to be in high-growth industries. Financial services, IT, and healthcare companies in our sample have all grown revenue at double-digit rates over the past decade (Exhibit 4). But it’s also true that while tailwinds matter, extraordinary growth is possible in almost every industry. Hence, a company in an industry facing headwinds should not be limited by the belief that growth is beyond reach.

In almost all sectors, the top quintile of our sample has grown revenue by more than 15 percent over the past decade, indicating consistent outperformance. The only exception was the energy sector.

Myth 4: Once a low-growth company, always a low-growth company

Companies that trail their peers can turn around performance. In fact, companies can stage a significant recovery within a ten-year horizon. When we analyzed the performance of sample firms between the first and second half of the past decade, we found that one in two trailing companies were able to leapfrog from the bottom two quartiles into the top.

Performance turnaround is much more prevalent in high-growth sectors. Almost 50 percent of companies who ended the decade in the top quintile for the financial and real estate industries were not in this position in the first half of the past decade (Exhibit 5). This figure was much lower in slow-growing industries, where less than half of the companies had overturned performance to gain a top-quintile position.

Extraordinary growth, while challenging, has been achieved by companies across industries, regardless of size and even their performance relative to their peers. Understanding how these companies have outperformed is interesting—but will be truly valuable only if other companies follow suit. What, then, can we offer as a roadmap?

Extraordinary growth demands bold choices

Fast-growing companies typically make the explicit choice to grow, and follow that up with bold, deliberate actions. The core elements are an ambitious mindset, the right internal enablers, and clear pathways for action founded on growing revenue .

Previous McKinsey research identified a consistent growth framework for companies with success indicators. Analyzing the growth patterns within the sample allowed us to recognize seven levers for high growth that may apply to Indian companies. Organizations can pull these levers to accelerate their core, through digital technology and data, agile resource reallocation, and investing in leadership capabilities. Additionally, four more levers encourage companies to diversify beyond core business, including the pursuit of adjacent opportunities, the creation of new breakout businesses, global ambitions, and a strategic approach to acquisitions. Research has found that high-growth companies execute along not just one, but several, distinct growth levers (Exhibit 6).

Accelerating the core

While pursuing sustained growth, outperforming companies also recognize the need to fortify their core operations. Here, companies have three paths for higher growth, including the adoption of digital technologies and data, agile resource allocation for the highest returns, and investing in leadership development. 8 McKinsey analysis. By investing in both systems and people, companies can enhance their overall potential.

Unleashing the full potential of digital and data

In financial services, IT, and healthcare, around 40 percent of companies studied were growth champions—and digital transformations were a common accelerator. Using data and advanced analytics can streamline processes and enhance capabilities across the board, including pricing, marketing, and decision making. An Indian multinational electrical equipment company deployed digital technologies in fulfilment, pricing, and marketing functions to deliver triple growth in e-commerce sales in a few months.

In another example, a leading commercial vehicle manufacturer seized the opportunity to build a breakout business by recognizing that overall lifetime spending on a commercial vehicle is ten times the cost of the vehicle itself. It launched a full stack solution for customers, which included driver skilling, vehicle health monitoring, and fuel monitoring. The driver skilling module alone accounted for between 7 and 10 percent of fuel savings for the customer.

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Courageous growth: Six strategies for continuous growth outperformance

Reallocating resources with agility.

Companies that expand by maintaining or increasing their exposure to fast-growing, profitable segments can outperform their peers. And organizations facing market headwinds may need to reallocate their resources aggressively. This reallocation could include segments, geographies, channels, or timing. Growth champions often assess opportunities with a microscopic view of neighborhoods at a pin-code or district-level, rather than a macro state-level lens. 9 McKinsey analysis.

A decade ago, newer channels such as e-commerce and social media commerce had limited penetration in India. 10 “Retail & E-commerce,” Invest India, accessed December 2023. With the Indian e-commerce market estimated at over $55 billion in gross merchandise value in 2021, it is forecast to reach $350 billion by 2030, growing at a 23 percent rate compounded annually. 11 “Retail & E-commerce,” Invest India, accessed December 2023. Large companies would therefore need to think differently in terms of resource allocation as they build their presence and capabilities in these channels.

To expand its geographical footprint, a leading cement brand in India reassigned technical officers from other regions to prioritize newer markets, as well as markets where it wanted to improve its brand. This reallocation helped it to achieve its objectives quickly and effectively.

Investing in the next line of leaders

Empowering leadership throughout the organization can enhance operational efficiency as top executives are better able to focus on strategic initiatives, propelling the organization towards innovation and growth. Previous analysis has shown that investing in culture and leadership can contribute to overall organizational health and performance within six to 12 months.

An Indian construction conglomerate invested in a multiyear, next-generation leadership program for 45 leaders. The program focused on building leadership skills and business acumen through a combination of in-class modules and on-job trainings. Following this program, the company realized significant incremental revenue through over 200 breakthrough projects in one year.

The key lies in fostering a consistent strategic direction by leadership, with an emphasis on supportive and consultative leadership styles, and developing and deploying strong leaders at all levels. Organizations that do this may be more likely to improve overall health, establishing a robust foundation for continuous growth and success.

Looking beyond core business

Our research found growth champions frequently choose to grow competencies beyond their core business, transferring the skills, expertise, and market knowledge acquired in one sphere to new markets and geographies. There are four key growth drivers that high-growth companies typically pursue as they look beyond their core businesses, including the pursuit of adjacent opportunities, creating new breakout businesses, pursuing global expansion, and mergers and acquisitions. 12 McKinsey analysis. Diversifying beyond the core can be a valuable growth strategy for any company, regardless of industry. Fast-growing businesses can consolidate their position, with opportunities for slow cultivators too.

Pursuing adjacent opportunities

Firms can use their existing assets and capabilities to venture into adjacencies. For example, a longtime industrial switchgear producer used its technical expertise and distribution network to expand into an adjacent market segment—consumer durables such as kitchen appliances, fans, and water purifiers. By 2022, 20 percent of its revenues came from this work (from 15 percent in 2017), and it is now one of the largest incumbents in the sector.

Creating new breakout businesses

New breakout businesses offer a pathway to growth that involves both disruptive innovation and the establishment of newer categories . This dynamic approach requires a firm commitment to innovation, a deep understanding of customer needs, and the willingness to make big bets. It goes beyond simply creating unique products, to paying careful attention to customer centricity and operational capabilities, and a willingness to embrace change through the fail-fast model, where failures are quickly identified and learned from.

One of India’s largest healthcare organizations followed this route to growth. Starting with a single hospital, the company strategically expanded into pharmacy, insurance, and retail healthcare while continuing to grow its hospitals offering. It now has over 10,000 beds, alongside thousands of pharmacies across India. Its retail healthcare offering includes several different revenue categories from diagnostics labs, dialysis centers, and dental clinics to specialized care centers for maternity and neonatal, day surgery, and diabetes, among others.

Building new export markets worldwide

Companies that demonstrate strong growth locally could find similar success internationally if they have a clear competitive advantage. India’s exports were forecast to reach $770 billion in 2023 with a target of $2 trillion by 2030. 13 Adrija Chatterjee and Anup Roy, “India seeks $2 trillion exports by 2030 in supply chain push,” Bloomberg, March 31, 2023. Commodities, healthcare, and IT service sectors, in particular, have seen exports soar. 14 Adrija Chatterjee and Anup Roy, “India seeks $2 trillion exports by 2030 in supply chain push,” Bloomberg, March 31, 2023. Growth champions in these sectors have benefited from lower production costs and higher availability of skilled labor. 15 Adrija Chatterjee and Anup Roy, “India seeks $2 trillion exports by 2030 in supply chain push,” Bloomberg, March 31, 2023. One of the largest diversified Indian conglomerates has tripled exports as a share of total sales, from 4 percent in 2012 to 13 percent in 2023.

Strategic mergers and acquisitions

Mergers and acquisitions (M&A) are powerful tools for growth, and 30 percent of growth champions in our sample have undertaken substantial M&A activity. Strategic acquirers build organizational capabilities and best practices across all stages of the M&A process to successfully integrate the two businesses. A leading chemical company has made more than 40 successful acquisitions in the last 25 years. By acquiring businesses that already have a significant presence, it has increased market share from approximately 15 percent to 25 percent, growing revenue by 20 percent compounded annually over the last ten years.

Strategic acquirers often execute acquisitions systematically which enables them to better navigate industry headwinds, possibly because of their agile organizational culture. They also outperform peers that focused on organic growth, delivering total shareholder returns that were almost four percent higher.

As India aspires towards its centennial ambition of becoming a $19 trillion economy by 2047, companies across all sectors can build their own recipe for growth outperformance. The seven growth levers we described could help create superior value for shareholders and drive broader economic prosperity for the nation. Ultimately, it is up to company leaders to decide whether they wish to pursue extraordinary growth. If they do, these levers may provide the direction they seek.

Jaidit Brar is a senior partner in McKinsey’s Gurugram office, Raunak Shah is an associate partner in the Mumbai office, and Shivanand Sinha is a partner in the Mumbai office.

The authors wish to thank Harsh Agrawal, Oorvi Batra, Shourya Gupta, Anamika Mukharji, and Rishabh Sinha for their contributions to this article.

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