New Balance & McKinsey's 7S Framework

Summary

In June 1992, New Balance faced significant challenges in a shrinking athletic footwear market dominated by competitors like Nike and Reebok. CEO Jim Davis contemplated a bold strategy to improve profitability and brand awareness without sacrificing the company's core values of quality and American manufacturing. Utilizing the McKinsey 7s framework, he assessed seven interdependent factors—strategy, structure, systems, style, skills, staff, and shared values—critical for navigating organizational change. Davis's commitment to producing high-quality products posed tough questions about manufacturing shifts and leadership style, ultimately balancing profit and integrity in the brand's future.

Takeaways

• 😀 New Balance faced significant challenges in a shrinking U.S. athletic footwear market dominated by Nike and Reebok.
• 😀 The company's commitment to high-quality, USA-made products limited its marketing budget compared to larger competitors.
• 😀 CEO Jim Davis recognized the need for strategic change to improve profitability and brand awareness.
• 😀 The McKinsey 7s framework provides a comprehensive tool for analyzing organizational change through seven interdependent factors.
• 😀 Key factors in the 7s framework include strategy, structure, systems, style, skills, staff, and shared values.
• 😀 Davis contemplated whether shifting manufacturing overseas would compromise New Balance's core values and quality.
• 😀 The potential need for high-profile endorsements raised questions about maintaining New Balance's unique brand identity.
• 😀 Davis's leadership style is described as down-to-earth and relatable, reflecting the company's culture.
• 😀 Aligning all seven factors of the 7s framework is crucial for the success of any significant organizational change.
• 😀 Davis emphasized that while profitability is important, the integrity of producing a product he believes in is paramount.

Q & A

What was the primary challenge faced by New Balance in June 1992?

New Balance faced a shrinking market in the athletic footwear industry, which was dominated by larger companies like Nike and Reebok that could afford extensive marketing and low-cost overseas manufacturing.

How did Nike and Reebok maintain their market dominance?

Nike and Reebok maintained their dominance by spending hundreds of millions on advertising and high-profile endorsements, while benefiting from low-cost manufacturing abroad.

What is the McKinsey 7S framework?

The McKinsey 7S framework is a model that helps organizations assess their ability to implement change by analyzing seven interdependent factors: strategy, structure, systems, style, skills, staff, and shared values.

What are the seven factors in the McKinsey 7S framework?

The seven factors are: 1) Strategy, 2) Structure, 3) Systems, 4) Style, 5) Skills, 6) Staff, and 7) Shared values.

How did Jim Davis plan to change New Balance's strategy?

Jim Davis planned to improve profitability and increase brand awareness by investing in marketing and possibly moving production overseas to compete with larger brands.

What concerns did Davis have regarding New Balance's core values?

Davis was concerned that moving production overseas could sacrifice the quality of New Balance products and contradict the company's commitment to being proudly made in the USA.

What leadership style did Jim Davis embody?

Jim Davis was seen as a down-to-earth CEO who was relatable to his employees, which raised questions about how a shift to a more corporate, cutthroat approach would affect his leadership style.

What is the importance of aligning the seven factors in the 7S framework?

Aligning the seven factors is crucial because significant progress in one area of the organization can be difficult to achieve without corresponding advancements in the others, ensuring cohesive change.

What statement did Jim Davis make regarding overseas manufacturing?

Davis stated that New Balance would be a bigger, more profitable company if it made everything overseas, but emphasized that making a product he believes in is more important than profit.

How might the changes in strategy impact New Balance's employees?

Changes in strategy could lead to layoffs, a shift in employee culture, and the potential replacement of existing staff with employees who prioritize cost-cutting over quality.