7s McKinsey Concept & Strategic Management PDF

7s McKinsey concept -Shared Values form the foundation of the other six elements. The way people think, behave, and make decisions within an organization is deeply influenced by its core values and culture. If the organization’s values are clear and well-defined, they help ensure alignment across a...

7s McKinsey concept -Shared Values form the foundation of the other six elements. The way people think, behave, and make decisions within an organization is deeply influenced by its core values and culture. If the organization’s values are clear and well-defined, they help ensure alignment across all the other elements (e.g., strategy, structure, systems, etc.). Without a common set of guiding principles, it becomes much harder for the other elements to work together cohesively. Picture 1: Graphical representation of 7s -Strategic management system concept -The Strategic Management System (SMS) is a comprehensive process that organizations use to formulate, implement, and evaluate strategies to achieve their long-term goals and objectives. It involves systematic planning, monitoring, and aligning of the organization's resources and activities to maintain a competitive advantage, adapt to environmental changes, and fulfill its mission.The strategic management system is a continuous cycle that requires ongoing adjustments based on internal and external factors, market trends, competition, and organizational performance. The goal is to optimize the organization’s efforts to achieve long-term success and sustainability. Step 1. Environmental Scanning (Analysis) -Objective is to assess the internal and external environments that will influence the strategy.  External Environment Analysis: -PESTEL Analysis (Political, Economic, Social, Technological, Environmental, and Legal factors). -Industry Analysis using frameworks like Porter’s Five Forces to understand competition, supplier power, buyer power, the threat of new entrants, and substitute products. -Market Trends and Customer Needs: Analyzing customer behavior, preferences, and demographic changes.  Internal Environment Analysis: -SWOT Analysis (Strengths, Weaknesses, Opportunities, and Threats). -Resource-Based View: Examining organizational resources and capabilities (e.g., financial, human, technological). -Value Chain Analysis: Identifying key activities that add value to the product or service. What’s Done: Managers gather data from a wide variety of sources to understand market conditions, competitive pressures, regulatory factors, and the organization’s internal capabilities. Step 2. 2. Strategy Formulation Objective is to develop strategies that leverage the organization’s strengths and capitalize on opportunities while addressing weaknesses and threats.  Defining Vision and Mission: Reaffirming or redefining the organization’s purpose, values, and long-term aspirations.  Setting Strategic Goals and Objectives: Translating the vision and mission into specific, measurable, attainable, relevant, and time-bound (SMART) objectives. -Business-Level Strategy: Decisions related to competitive advantage, such as cost leadership, differentiation, or focus. -Corporate-Level Strategy: High-level decisions about diversification, mergers and acquisitions, or vertical integration. -Global Strategy (if applicable): Expanding into international markets, adapting to local environments. What’s Done: Based on the insights gathered from the environmental scanning step, leaders choose the most appropriate strategy or strategies that align with the company's resources and market positioning. Step 3. Strategy Implementation Objective is to put the formulated strategies into action by aligning resources, structures, processes, and people.  Resource Allocation: Ensuring that financial, human, and physical resources are allocated in a way that supports strategic goals.  Organizational Structure: Adjusting the company’s structure (e.g., centralized vs. decentralized, functional vs. matrix) to support the strategy.  Leadership and Culture: Developing a leadership style and organizational culture that reinforces the strategy (e.g., innovation-focused, customer-centric).  Operational Plans: Setting specific action plans, timelines, and performance metrics to guide day-to-day operations.  Change Management: Overseeing transitions or transformations required to implement the strategy effectively, which may involve training, restructuring, or shifts in leadership. What’s Done: This phase involves coordinating people, resources, processes, and technologies to carry out the chosen strategies. Effective implementation often requires strong leadership, clear communication, and motivation. Step 4. Strategy evaluation and control Objective is to monitor and assess the effectiveness of the strategy and make necessary adjustments to improve performance.  Performance Measurement: Establishing key performance indicators (KPIs) to track progress toward goals. These could include financial metrics (e.g., ROI, profit margins), market metrics (e.g., market share, customer satisfaction), and operational metrics (e.g., production efficiency).  Feedback Mechanisms: Regular reviews of results, both in terms of outcomes and processes, to identify areas for improvement.  Benchmarking: Comparing performance to industry standards or best practices to gauge competitiveness.   Strategic Adjustments: Based on feedback and analysis, leaders may modify strategies, set new goals, or shift resources. What’s Done: Managers review the success of the strategy against the set objectives. If the strategy is not working as expected, they make adjustments. This could mean refining tactics, revisiting assumptions, or even changing the strategic direction. Step 5. Strategic Renewal / Re-formulation (if necessary) Objective is to revisit and adjust the strategy if the market or internal conditions change significantly.  Strategic Drift: If the company has been following the same strategy for too long without adaptation, it risks becoming less relevant in a changing environment.  Pivoting: Companies might pivot or modify their strategy due to disruptive technologies, new competitors, or shifts in consumer behavior.  Innovation: Pursuing new product development or market entry to ensure growth and sustainability. What’s Done: Based on the ongoing evaluation of the environment, leadership may initiate a strategic renewal process. This could involve revising the mission and vision, exploring new business models, or undertaking major organizational changes. Definition of strategic management strategy map - A Strategy Map is a visual tool used in strategic management to represent the cause-and-effect relationships between the key objectives of an organization’s strategy. It is a one-page diagram that helps to clearly articulate the strategic goals across various perspectives of the organization and aligns them to support the overall strategy. The strategy map typically illustrates how achieving objectives in one area (e.g., financial performance, customer satisfaction) drives performance in other areas (e.g., internal processes, learning and growth), ensuring that all parts of the organization are working in concert towards common goals. Internal processes - Internal Processes refer to the key activities and operations that take place within an organization to deliver value to customers and stakeholders. These processes are essential for the effective and efficient execution of the organization’s strategy and contribute directly to achieving the company’s objectives, especially those related to operational efficiency, innovation, and customer satisfaction. -The Internal Process Perspective is one of the four key perspectives of the Balanced Scorecard (BSC) framework, and it focuses on the internal processes that organizations need to excel at in order to meet customer expectations and financial goals. - Key Characteristics of Internal Processes:  Efficiency: Internal processes need to be streamlined to minimize waste and optimize resource utilization.  Effectiveness: Processes must be aligned with strategic objectives to ensure they deliver the desired outcomes.  Innovation: Continuously improving or creating new processes that enable the organization to stay competitive and meet changing market demands.  Customer Value: Internal processes must be designed with the goal of improving the customer experience, whether by reducing costs, improving quality, or accelerating delivery times. Mission and vision statement -Mission Statement focuses on what the organization does now and for whom. -Elements of a Mission Statement:  Purpose/Reason for Existence: The core reason why the organization exists.  Business/Industry: What products or services does the organization offer? In what industry or market does it operate?  Target Audience: Who are the organization’s customers or beneficiaries (e.g., specific demographics or market segments)?  Values/Beliefs: The fundamental principles that guide the behavior and culture of the organization.  Scope: The boundaries of the organization’s operations (e.g., geographical focus, service offerings, target markets). -Vision Statement describes where the organization wants to go in the future. -Elements of a Vision Statement:  Future Aspirations: A clear picture of where the organization wants to be in the future.  Inspiration: It should motivate and inspire employees, customers, and other stakeholders.  End State: What does success look like for the organization? What does it aim to accomplish or contribute to society in the long run?  Strategic Direction: It can signal the long-term strategy the organization will follow to get there - Abele's Model is often used for strategic planning, helping organizations understand their internal and external environments, assess their strategic position, and make informed decisions regarding competitive strategy. In broader management terms, it may involve evaluating the organization’s mission, vision, and strategic goals to ensure they align with operational realities. -5I model - 5I Model is generally focused on providing a systematic approach to understanding key areas of organizational performance and behavior, particularly when it comes to business strategy, leadership, and organizational change.The 5I model can be used in contexts such as innovation management, performance improvement, change management, and leadership development. -Elements:  Intent: Defines the strategic goals and vision.  Input: Assesses the resources and capabilities needed to execute the strategy.  Innovation: Focuses on creativity and new solutions to stay competitive.  Implementation: Ensures that strategies and innovations are effectively executed.  Impact: Measures the outcomes and success of the strategy. -Why Use the 5I Model?  Holistic View: The 5I model offers a broad framework for evaluating all aspects of strategy and execution, from defining goals to measuring results. It ensures that no important area is overlooked.   Alignment: It ensures that the strategy (Intent) is aligned with available resources (Input) and innovation, which ultimately needs to be successfully implemented to achieve the desired Impact.  Continuous Improvement: The focus on Impact means the organization regularly evaluates the results of its actions, making it easier to adjust strategies or operations for continuous improvement.  Focus on Innovation: The 5I model emphasizes the importance of innovation in a competitive environment. It encourages organizations to continually develop new ideas and technologies to drive growth and differentiation. Financial perspective-Financial terms (basic) Revenue (Sales): The total amount of money generated by the sale of goods or services before any expenses are deducted. Profit: The financial gain after subtracting all expenses (like production costs, operating costs, taxes) from total revenue. Gross Margin: The percentage of revenue remaining after subtracting the direct costs of producing goods or services, showing how efficiently a company produces. Operating Margin: The percentage of revenue remaining after covering operating expenses, excluding interest and taxes, indicating operational efficiency. Net Profit Margin: The percentage of revenue that represents a company's profit after all expenses, taxes, and interest have been deducted. Return on Assets (ROA): A measure of how efficiently a company uses its assets to generate profit, calculated by dividing net income by total assets. Return on Equity (ROE): A profitability ratio that measures how effectively a company uses shareholders' equity to generate profit. EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization): A measure of a company's profitability that focuses on its operational performance by excluding non-operating costs. Earnings Per Share (EPS): The portion of a company’s profit allocated to each outstanding share of common stock, often used to gauge company profitability on a per-share basis. Cash Flow: The total movement of cash into and out of the business, indicating liquidity and the ability to cover expenses and investments.  Debt-to-Equity Ratio: A financial ratio that compares a company’s total debt to its shareholders’ equity, showing the level of financial leverage. Return on Investment (ROI): A measure of the profitability of an investment, calculated as the gain from the investment minus its cost, divided by the cost. Working Capital: A measure of a company's short-term financial health, calculated by subtracting current liabilities from current assets to assess liquidity. SWOT ( strenghts, weaknesses, opportunities, threaths) -SWOT analysis is a versatile and effective tool for assessing both the internal and external factors affecting an organization’s performance. It provides insights that guide strategic planning, helping businesses capitalize on strengths, address weaknesses, explore opportunities, and protect themselves from threat. -Internal Analysis (Strengths and Weaknesses):  Strengths: These are the internal factors that give an organization an advantage over competitors, such as strong brand reputation, skilled employees, unique products, or efficient operations.  Weaknesses: These are internal factors that hinder the organization’s ability to achieve its goals, like lack of innovation, outdated technology, or poor customer service. -External Analysis (Opportunities and Threats):  Opportunities: External factors that the organization can exploit to its advantage, such as emerging markets, new technologies, or changes in consumer trends.  Threats: External factors that could negatively impact the organization, like increasing competition, economic downturns, or regulatory changes. SMART concept -The SMART framework ensures goals are clear, actionable, and trackable, improving the chances of success by making them well-defined and time-sensitive. S - Specific: The goal should be clear and unambiguous, answering the who, what, where, when, and why. M - Measurable: The goal should have clear criteria to track progress and determine when the goal is achieved. A - Achievable: The goal should be realistic and attainable, considering available resources and constraints. R - Relevant: The goal should align with broader business objectives and be meaningful to the organization or individual. T - Time-bound: The goal should have a clear deadline or timeframe to provide a sense of urgency and focus. Porters five forces model -Michael Porter's Five Forces Model is a framework used to analyze the competitive forces that shape an industry and determine its profitability. The model identifies five key factors that influence competition within a market:  Threat of New Entrants: The likelihood that new competitors will enter the market and increase competition. Barriers to entry, such as high startup costs or strong brand loyalty, can reduce this threat.  Bargaining Power of Suppliers: The power that suppliers have over the prices and quality of inputs. When there are few suppliers or unique resources, their bargaining power increases.  Bargaining Power of Buyers: The influence that customers have on the prices and terms of products or services. Buyers have more power when there are many alternative products or when they can easily switch between suppliers.  Threat of Substitute Products or Services: The likelihood that alternative products or services will replace or reduce demand for a company’s offerings. High availability of substitutes increases competition.  Industry Rivalry: The intensity of competition among existing companies in the market. High rivalry often results from many competitors, slow industry growth, or little differentiation between products.