The 7S Framework – An Application to Coca Cola

English: 7 S Scheme from McKinsey Español: Ima...

English: 7 S Scheme from McKinsey (Photo credit: Wikipedia)

I always like to call strategists “organisation tinkerers” because they tinker with the organisation. The most important thing in strategy, especially in charting the direction forward for the entire organisation, is knowing where to tinker in order to get the desired results.

The 7S framework courtesy of the McKinsey consulting firm will help you to do this well. The 7S framework stands for:
  1. Structure
  2. Systems
  3. Skills
  4. Style
  5. Staff
  6. Superordinate goals/Shared Values
  7. Strategy
I’ve applied this to Coca-Cola’s (CC’s) overall company strategy after reviewing their company.

Shared Vision

Double CC’s 2010 system revenue by 2020 by developing new beverage products (NPD), meeting evolving customer preferences by aligning the strategy with their 6P vision. 1.Profit 2. People 3. Portfolio 4. Partners 5. Planet 6. Productivity

The shared vision to achieve these 6Ps will be through:

Strategy (further divided to 5 types of sub-strategies):

i) Corporate Strategy:

1. Building of portfolio – acquisitions of Fruit/Veg and Asian Specialty brand in China to establish foothold in Asia Pac.

2. Riding on HW trend – Convert health switchers towards FVJ

3. Amending of packaging to increase volume per customer

4. Asset expansion with “china-India” focused approach

5. Exploiting cost synergies across its production and bottling facilities thereby ensuring efficiency.

ii) R&C Strategy

Human:

Weak talent management with a high staff turnover rate of 19.1%, when industry average is about 5.7%. Will need to tighten up.

Tangible:

– strong financials:

A+ credit rating (Standard & Poor)

-Debt/ Equity ratio 43% (compare to Pepsico. 99%)

-Total cash and equivalent of $14 billion (compare to Pepsico $4 billion)

-2007-2011 revenue growth from U$ 28.8 billion to U$46.5 billion increase over 61%

-Operating income has increased from U$7 billion to U$10.5 billion from 2007-2011

Good backing of Physical assets:

-Total book value of property, plant and equipment $15 billion

-Total 102 production facilities and manufacturing plants worldwide and 183 distribution warehouses.

-TCC holds majority interest in 97 bottling plants worldwide

Intangible:

– Latest SAP systems to ensure alignment with distributors.

– top brand in the world. -COCA-COLA world’s largest beverage company. Own, license and market more than 500 non-alcoholic beverage brands. Own and market 4 of the world’s top 5 non-alcoholic sparkling beverage brands: Coca-Cola, Diet Coke, Fanta and Sprite. Finished beverage products bearing Coca-Cola trademarks, sold in the United States since 1886, are now sold in more than 200 countries.

– Trademark values at U$6.4 billion

– goodwill consisting of brands, reputation and other intangible values at U$12.2b.

iii) Functional Strategy

Marketing strategy – well supported by the overarching CC brand strength, each product-line across the 7 categories of CC.

Talent management strategy – CC may not have engaged its employees sufficiently and thereby reducing the labour turnover rate. Will need to tighten its retention and development policies.

Production strategy – capitalise on cost synergies by vertically integrating bottling facilities. Supply chain management well supported by latest SAP/ERP software on a global scale.

Distribution strategy – strong distributor relationships, proximity strategy to put a Coke brand within reach though use of vending machines and ensuring good distribution coverage through various means.

iv) Business Strategy

Clearly defined competitors, price-quality points. Adoption of differentiation rather than price leadership clearly stated and critical factors of competition to be worked at clearly indicated.

v) Operational Strategy

What are we good at doing?

– Providing the preferred beverage/drink across 7 product categories.

Advantage?

Yes, this allows for brand momentum to built which translates to revenue and volume growth.

Who will buy it?

Our existing customers as well as new “converts”.

Structure

CC – has head office segment responsible for giving CC overall direction and providing support to the regional structure. Key strategic decisions made by an ExCo of 12 Company Officers. ExCo shapes the 6Ps set out earlier. Chair of the ExCo is figurehead for CC, also the CEO. Other executives are responsible either for the major regions or have an important business specialization e.g. the CFO.

Needs to meet local consumers’ needs – CC therefore organised into a regional structure which combines centralisation and localisation. The Company operates 5 geographic operating segments or SBUs as well as the corporate (Head Office) segment – Latin America, pacific, Eurasia & Africa, RU, N.America.

Each regional SBUs sub-divided into divisions. For Pacific SBU, Singapore fits into the ASEAN business unit. This structure recognises:

– Varying tastes and psychographics, demographics (incomes and consumption patterns)

– markets at different stages of development.

At a more local level CC management involves a number of functional specialisms. management structure for Singapore:

CCS combines elements of centralisation and decentralisation. Divisions and regions operate as business unit teams, with each country Director reports to the Division President.

However, there is a matrix structure for each function e.g. the Finance Director in the CCS Division reports to the CCS President, but also to (dotted line) the Finance Director of Pacific Division. In addition, functions within the Company operate across geographical boundaries to share best practice.

local decision making at a regional (local) level the various SBUs are responsible for region-specific market research, and for developing local advertising, e.g. using the languages of the countries in which CC operates. A major region like Asia Pac has its own marketing structure, organised as shown on the diagram.

Key challenges in structural alignment (noting Cooperation vs Coordination Problems)

Cooperation Problems:

Agency problems

Global Integration

Organizational Culture

Solutions (in combination):

Control mechanisms

Institute HR policies including incentivizing to encourage teamwork.

Reinforce Shared Values (Culture)

Coordination Problems:

Functional silos – given the structural setup of CC, silos may result.

Communication Channel – integration of information

Solutions (in combination)

Rules and directives.

Routinize work. Implication: mechanistic approach can result in higher staff turnover.

Reliance on ERP, SAP, and staff channels.

Systems

Directional systems: to monitor 6Ps with following objectives to align to vision 2020

Process systems: each sub-division to break these into manageable tasks and provide milestones for initiatives to achieve the 6Ps.

Day to day management systems: at the managerial level, procedural measures to be set in place along with frequent feedback and reports given at the subordinate level to provide knowledge of results. Along with rewards and incentives to tie in performance to alignment to objectives.

Style

Culture of Coke – forward looking and driven, emphasizing oneness. One Company. One Team. One Passion.

As One Company, meaningful and accelerated learning opportunities are provided to staff to contribute to the greater good of CC.

One Team, CC ties in relationships built to career success.

One Passion goes farther than the portfolio of brands, to sustainability, and supporting the communities and preserving and protecting the planet.

Staff

Benchmarked attraction and retention policies against industry. Providing Career development pathways.

Performance management systems to be better managed in order to lower the turnover rate of 19.1%.

Given the silo nature of some staff functions, EIP practices have to be incorporated to tap on innovation and to also engage staff. This provides recognition.

Financial rewards of stock ownership at CC. Encourages employee to build along with the company.

Skill

Applied to all the other 6Ss.

In terms of Shared Vision, Vision 2020 requires innovative approaches in reaching the goal, particularly to do with product content (new tastes, riding the health-wellness trend), volume, and efficiency innovation. Targets clearly set as to what primary actions for CC to take and what needs to be achieved for each level.

In terms of Strategy, resource commitment towards innovation in product content (R&D centres to be set up), volume (new packaging to incorporate at least 10% more volume), and efficiency (lighter weight packaging to encourage more take-up rate, clearer health information).

In terms of Structure, R&D division is to be closely linked with all other geographical divisions to incorporate feedback on tastes, packaging, etc. based on real time information provided by the ERP and SAP systems in the backdrop.

In terms of Systems, allocation of staff and technological resources to provide innovative ideas is required.

In terms of Staff, the recruitment and using staff to spinoff creative ideas, and to work closely with the R&D centres.

Finally, in terms of Style, to inculcate a forward looking and driven culture of CC, setting pace for innovation.

=====

In order to go through this exercise for your own company, you will have to tear it apart first and examine each of the Ss of the company and see how they fit and interact with one another. To ensure holistic coordination to help you to exploit synergies from within, this 7S framework is critical for you as you evaluate the company and take steps forward.

J.CJ, Editor, BusinessLeadershipManagement

J.CJ, Editor, BusinessLeadershipManagement

J.CJ

All Rights Reserved, 2013.
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13 thoughts on “The 7S Framework – An Application to Coca Cola

  1. Good afternoon.
    I’m Andree from Petra Christian University Indonesia.
    I’ve read your article in wordpress.com about ‘The 7S Framework – An Application to Coca Cola’.
    I’m interested in your article and want to know more about it.
    May I ask you a question? In your opinion, what advantages and disadvantages Coca Cola can get from implementing 7S McKinsey?
    Thank you for attention 🙂

    • Dear Andree,

      Coca Cola would have already have hired consultants who would either use this framework or similar ones to ensure the smooth running of its processes. When I applied the 7S framework to Coke, it was with the objective obtaining a helicopter view of the Organisation to ensure strategic fit. Now there may be of course, areas that only those working within Coca Cola would have greater detail of, but as I took the company apart in my analysis, with existing data sets that have been compiled, company reports, etc., this framework was the eventual fruit of the journey.
      In short, the advantage is clearly for strategic fit because if you are a CEO of an Organisation, you would want to ensure that all parts of the 7S work together to give you the greatest leverage. It can also be employed situationally. For e.g., if Coke now wants to buy over a bottling company, it would have to use this framework to see where there are fits and cost synergies. The disadvantage however, is that the framework has to be viewed alongside other horizon-charting frameworks in order to help the business leaders plot a way forward. 7S itself cannot give a futuristic view and thus the combination.

      J.CJ (MBA), Editor, BLM

  2. Hi,I check your blog named “The 7S Framework – An Application to Coca Cola | BusinessLeadershipManagement (BLM)” like every week.Your doing what you’re doing! And you can look our website aboot the north face outlet

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