The Challenges of Pursuing Organisational Change (Nigel Lake, Part 6 of 10)

Challenges of Organisational Change

(Source: Flickr)

This is the sixth instalment of my conversation with Nigel Lake, CEO of Pottinger, a global corporate advisory firm based in Sydney, Australia. Nigel is the author of The Long Term Starts Tomorrow, a must have book “for any manager, leader or Minister.” The Hon Mike Baird MP, Premier of NSW

Nigel LakeNigel Lake: Major incumbents have historically struggled to reinvent themselves.

The people that made and sold horses and carts didn’t do very well when cars came along, and the people who make cars are not going to do terribly well when electric vehicles come along.

Tom: That’s interesting. Do you think that the problem is that they’re framing what they do in the wrong way, for example they say “I’m a horse and cart company”? Or do you think it’s a lack of capabilities, and companies want to evolve but they are unable to evolve?

Nigel Lake: I think it’s a mixture of things.

I think absolutely it is how they frame what they do. They think they are a horse and cart company, not a person transport company.

If you have a large organisation, the challenge is that you have to switch from investing nearly all of your capital expenditure on things that you’ve done in the past, to invest much more of it on things you don’t yet do. The people who currently run the major bit of the business are suddenly going to be deprived of expenditure and it’s going to go to someone else who’s running something which doesn’t really exist yet. And making that change at an organisational level is incredibly difficult.

We’ve done a variety of pieces of work in the last couple of years with companies where it is abundantly clear that their main prize lies outside their core business. Their core business is great and fantastic, but that’s 1% of their future and 99% of their future is in things they’re not doing.

The other part of it is what my colleague Cassandra Kelly calls the supremacy gene, which is that big companies become very inbred and strongly enamoured with their own wonderfulness, and they can’t see that they have significant inherent weaknesses.

Look at the banking sector and what the likes of Google and Apple and others will do to the payments industry. They will just quietly take over and own payments. And the banks will spend a long time thinking it’s never going to happen, and they won’t stop to think that if you’re Google you can throw 5 or 10 billion dollars at having some fun in payments. There isn’t a bank in the world that can spend 10 billion dollars on payments. None of them have 10 billion dollars of spare capital that they can just burn.

We see this with the Australian banks which are obviously very small in broad terms, but by market value they’re large so that all four of them are in the world’s top 25 banks. I think [the Commonwealth Bank of Australia] understands that you really need to innovate or you will die. As for the other three, sometimes I think that having a fourth weekbix for breakfast is an innovation that they would find hard to stomach.

They really are very very slow moving, but they have tremendously profitable businesses and they will continue to do really well for quite a decent period of time.

McKinsey 7 S Framework

The 7 S Framework can help executives and consultants to understand the inner workings of an organisation, and it provides a guide for organisational change

McKinsey 7 S Framework(Source: Flickr)

1. Background

DEVELOPED around 1978, the 7 S framework first appeared in a book called The Art of Japanese Management by Richard Pascale and Anthony Athos, and also featured in In Search of Excellence by Thomas Peters and Robert Waterman.

McKinsey has adopted the 7 S model as one of its basic analysis tools.

2. Benefits of the 7 S Framework

The 7 S framework is a useful diagnostic tool for understanding the inner workings of an organisation. It can be used to identify an organisations strengths and sources of competitive advantage, or to identify the reasons why an organisation is not operating effectively. As such, the 7 S framework is an important analysis framework for mangers, consultants, business analysts and potential investors to understand.

The 7 S framework provides a guide for organisational change. The framework maps a group of interrelated factors, all of which influence an organisation’s ability to change. The interconnectedness among each of the seven factors suggest that significant progress in one area will be difficult without working on the others. The implication of this is that, if management wants to successfully establish change within an organisation, they must work on all of the factors, and not just one or two.

3. McKinsey’s 7 S framwork explained

The 7 S framework describes seven factors which together determine the way in which an organisation operates. The seven factors are interrelated and, as such, form a system that might be thought to preserve an organisation’s competitive advantage. The logic is that competitors may be able to copy any one of the factors, but will find it very difficult to copy the complex web of interrelationships between them.

McKinsey 7 S model

  1. Shared values (also called Superordinate Goals) refer to what an organisation stands for and believes in. This includes things like the long term vision of the organisations, its charitable ideals, or its core guiding principles. For example, the core guiding principle at McKinsey is professionalism.
  2. Staff refers to the number and type of people employed by the organisation.
  3. Skills refers to the learned capabilities of staff within the organisation.
  4. Style refers to the way things are done within the organisation, that is, the work culture.
  5. Strategy refers to the plans an organisation has for the allocation of its resources to achieve specific goals.
  6. Structure refers to the way in which an organisation’s business units relate to each other. For example, a company may use a centralised system where all key decisions are made at the head office.
  7. Systems are the practices and procedures that an organisation uses to get things done, e.g. financial systems, information systems, recruitment and performance review systems, etc.

As a consultant, you will need to ask targeted questions to identify an organisation’s strengths and weaknesses for each of the above factors.

[For more information on consulting concepts and frameworks, please download “The Little Blue Consulting Handbook“.]