Mckinsey 7S Baker Hughes Company Analysis

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Baker Hughes Company McKinsey 7S Analysis

Baker Hughes Company Overview

Baker Hughes Company (BKR) was formed in 2017 through the merger of Baker Hughes Incorporated and GE Oil & Gas. Its roots, however, extend much further back, with predecessor companies dating to the early 20th century. Headquartered in Houston, Texas, Baker Hughes operates globally, providing a wide range of products and services to the energy and industrial sectors. The company is structured into four major business segments: Oilfield Services & Equipment (OFSE), Industrial & Energy Technology (IET), Subsea & Surface Pressure Systems (SSPS), and Digital Solutions.

As of the latest fiscal year, Baker Hughes reported total revenue of approximately $25.5 billion, with a market capitalization fluctuating around $30 billion. The company employs roughly 54,000 individuals worldwide. Baker Hughes has a significant international presence, with operations spanning over 120 countries. Its market positioning varies across sectors, holding leading positions in areas such as artificial lift systems, turbomachinery, and digital oilfield solutions.

Baker Hughes’ stated mission is to provide innovative solutions that help customers unlock energy resources efficiently and sustainably. The company’s vision is to be a leading energy technology company that drives the energy transition. Key milestones include the initial formation of Baker Hughes, the GE Oil & Gas merger, and subsequent strategic divestitures to refocus on core competencies. Recent strategic priorities include driving profitable growth, leading in new energy frontiers, and transforming operations through digital technologies. Challenges include navigating volatile energy markets, managing technological disruptions, and addressing environmental sustainability concerns.

The 7S Framework Analysis - Corporate Level

Strategy

Corporate Strategy

Portfolio Management: Baker Hughes employs a diversified portfolio strategy, balancing mature oil and gas businesses with investments in emerging energy technologies. This approach aims to mitigate risk associated with fluctuating commodity prices while capitalizing on long-term growth opportunities in areas like carbon capture, utilization, and storage (CCUS) and hydrogen. The rationale is to create a resilient business model capable of navigating the energy transition.
Capital Allocation: Capital allocation prioritizes investments in high-growth areas aligned with the energy transition, such as CCUS and hydrogen technologies. A disciplined approach to capital expenditure is maintained, with a focus on projects demonstrating strong returns on invested capital (ROIC) and alignment with ESG goals.
Growth Strategies: Growth is pursued through a combination of organic initiatives and strategic acquisitions. Organic growth focuses on expanding market share in core businesses and developing innovative solutions. Acquisitions target companies with complementary technologies or market access, accelerating entry into new energy sectors.
International Expansion: International expansion is guided by a selective approach, targeting markets with favorable regulatory environments, strong growth potential, and alignment with Baker Hughes’ strategic priorities. Market entry strategies vary depending on the specific market, ranging from direct investment to joint ventures and partnerships.
Digital Transformation: Digital transformation is a core strategic pillar, leveraging data analytics, artificial intelligence, and cloud computing to improve operational efficiency, enhance customer service, and develop new digital solutions. Investments in digital technologies are aimed at creating a competitive advantage and driving long-term growth.
Sustainability and ESG: Sustainability and ESG considerations are integrated into all aspects of the corporate strategy. This includes setting ambitious emissions reduction targets, investing in clean energy technologies, and promoting diversity and inclusion. ESG performance is tracked and reported transparently to stakeholders.
Response to Disruptions: Baker Hughes actively monitors industry disruptions and market shifts, adapting its strategy to remain competitive. This includes investing in new technologies, developing innovative business models, and forging strategic partnerships.

Business Unit Integration

Strategic Alignment: Strategic alignment across business units is achieved through a centralized strategic planning process, ensuring that business unit strategies are aligned with the overall corporate strategy.
Strategic Synergies: Strategic synergies are realized through cross-divisional collaboration, leveraging shared resources and expertise. For example, the Digital Solutions business unit provides digital technologies to other business units, enhancing their operational efficiency and customer service.
Tensions and Autonomy: Tensions between corporate strategy and business unit autonomy are managed through a decentralized decision-making model, empowering business units to make decisions that are best suited to their specific markets and customers.
Diverse Industry Dynamics: Corporate strategy accommodates diverse industry dynamics by allowing business units to operate with a degree of autonomy, while still ensuring alignment with overall corporate goals.
Portfolio Balance: Portfolio balance is optimized through regular reviews of the business portfolio, identifying opportunities to divest non-core assets and invest in high-growth areas.

Structure

Corporate Organization

Formal Structure: Baker Hughes employs a matrix organizational structure, with business units reporting to both geographic regions and functional departments. This structure aims to balance local responsiveness with global efficiency.
Corporate Governance: The corporate governance model is based on a board of directors with a majority of independent directors. The board is responsible for overseeing the company’s strategy, risk management, and financial performance.
Reporting Relationships: Reporting relationships are clearly defined, with each business unit head reporting to both a geographic region head and a functional department head.
Centralization vs. Decentralization: The organization is relatively decentralized, empowering business units to make decisions that are best suited to their specific markets and customers. However, certain functions, such as finance and legal, are centralized to ensure consistency and compliance.
Matrix Structures: The matrix structure creates dual reporting relationships, which can lead to complexity and potential conflicts. However, it also fosters cross-functional collaboration and knowledge sharing.
Corporate Functions: Corporate functions provide support to the business units, including finance, legal, human resources, and marketing. Business unit capabilities are focused on delivering products and services to customers.

Structural Integration Mechanisms

Formal Integration: Formal integration mechanisms include cross-functional teams, shared service centers, and common IT systems.
Shared Service Models: Shared service models are used for functions such as finance and human resources, providing economies of scale and improving efficiency.
Structural Enablers: Structural enablers for cross-business collaboration include cross-functional teams, shared service centers, and common IT systems.
Structural Barriers: Structural barriers to synergy realization include siloed organizational structures, lack of communication, and conflicting incentives.
Organizational Complexity: Organizational complexity can hinder agility and responsiveness. Baker Hughes is working to simplify its organizational structure and improve communication to address this challenge.

Systems

Management Systems

Strategic Planning: Strategic planning is a top-down process, with corporate strategy setting the overall direction for the company. Business units develop their own strategic plans that are aligned with the corporate strategy.
Performance Management: Performance management is based on a balanced scorecard approach, measuring financial performance, customer satisfaction, operational efficiency, and employee engagement.
Budgeting and Financial Control: Budgeting and financial control systems are centralized, ensuring that financial resources are allocated efficiently and effectively.
Risk Management: Risk management is a key priority, with a comprehensive framework in place to identify, assess, and mitigate risks.
Quality Management: Quality management systems are based on ISO 9001 standards, ensuring that products and services meet customer requirements.
Information Systems: Information systems are integrated across the company, providing real-time data and insights to support decision-making.
Knowledge Management: Knowledge management systems are used to capture and share best practices, lessons learned, and other valuable information.

Cross-Business Systems

Integrated Systems: Integrated systems span multiple business units, including financial systems, human resources systems, and customer relationship management (CRM) systems.
Data Sharing: Data sharing mechanisms are in place to facilitate collaboration and knowledge sharing across business units.
Commonality vs. Customization: Business systems are standardized where possible, but customization is allowed to meet the specific needs of individual business units.
System Barriers: System barriers to effective collaboration include incompatible systems, lack of data integration, and limited access to information.
Digital Transformation: Digital transformation initiatives are focused on integrating systems and processes across the company, improving efficiency and enhancing customer service.

Shared Values

Corporate Culture

Core Values: Baker Hughes’ stated core values include integrity, teamwork, performance, and learning.
Strength and Consistency: The strength and consistency of corporate culture vary across business units, with some business units having stronger cultures than others.
Cultural Integration: Cultural integration following acquisitions is a key challenge, requiring careful attention to communication, training, and leadership development.
Values Translation: Values are translated across diverse business contexts through training programs, communication campaigns, and leadership role modeling.
Cultural Enablers: Cultural enablers to strategy execution include a strong sense of purpose, a commitment to innovation, and a focus on customer satisfaction.
Cultural Barriers: Cultural barriers to strategy execution include resistance to change, lack of collaboration, and a focus on short-term results.

Cultural Cohesion

Shared Identity: Mechanisms for building shared identity across divisions include company-wide events, employee recognition programs, and communication campaigns.
Cultural Variations: Cultural variations exist between business units, reflecting the different industries and geographies in which they operate.
Tension and Industry Cultures: Tension between corporate culture and industry-specific cultures is managed through a decentralized decision-making model, empowering business units to adapt to their specific markets and customers.
Competitive Advantage: Cultural attributes that drive competitive advantage include a strong focus on innovation, a commitment to customer satisfaction, and a collaborative work environment.
Cultural Evolution: Cultural evolution and transformation initiatives are focused on creating a more agile, innovative, and customer-centric culture.

Style

Leadership Approach

Leadership Philosophy: The leadership philosophy of senior executives is based on empowerment, collaboration, and accountability.
Decision-Making: Decision-making styles and processes are decentralized, empowering business units to make decisions that are best suited to their specific markets and customers.
Communication: Communication approaches are transparent and open, with regular communication from senior executives to employees.
Leadership Variation: Leadership style varies across business units, reflecting the different industries and geographies in which they operate.
Symbolic Actions: Symbolic actions, such as town hall meetings and employee recognition programs, are used to reinforce the company’s values and culture.

Management Practices

Dominant Practices: Dominant management practices across the conglomerate include performance management, budgeting, and strategic planning.
Meeting Cadence: Meeting cadence and collaboration approaches are structured to facilitate communication and decision-making.
Conflict Resolution: Conflict resolution mechanisms are in place to address disagreements and resolve conflicts.
Innovation and Risk Tolerance: Innovation and risk tolerance are encouraged, with a focus on developing new products and services.
Performance Pressure: A balance is maintained between performance pressure and employee development, ensuring that employees are challenged but also supported.

Staff

Talent Management

Talent Acquisition: Talent acquisition strategies are focused on attracting and retaining top talent, with a focus on diversity and inclusion.
Succession Planning: Succession planning is a key priority, ensuring that there is a pipeline of qualified candidates to fill leadership positions.
Performance Evaluation: Performance evaluation and compensation approaches are based on a balanced scorecard approach, measuring financial performance, customer satisfaction, operational efficiency, and employee engagement.
Diversity and Inclusion: Diversity, equity, and inclusion initiatives are focused on creating a more diverse and inclusive workforce.
Remote/Hybrid Work: Remote/hybrid work policies and practices are in place to support employee flexibility and work-life balance.

Human Capital Deployment

Talent Allocation: Talent allocation patterns across business units are based on strategic priorities and business needs.
Talent Mobility: Talent mobility and career path opportunities are encouraged, with employees given the opportunity to move between business units and functions.
Workforce Planning: Workforce planning and strategic workforce development are used to ensure that the company has the right skills and capabilities to meet its strategic goals.
Competency Models: Competency models and skill requirements are defined for each job role, ensuring that employees have the skills and knowledge they need to succeed.
Talent Retention: Talent retention strategies and outcomes are monitored, with a focus on reducing employee turnover.

Skills

Core Competencies

Organizational Capabilities: Distinctive organizational capabilities at the corporate level include project management, supply chain management, and customer relationship management.
Digital Capabilities: Digital and technological capabilities are a key competitive advantage, with a focus on data analytics, artificial intelligence, and cloud computing.
Innovation Capabilities: Innovation and R&D capabilities are focused on developing new products and services that meet customer needs.
Operational Excellence: Operational excellence and efficiency capabilities are focused on improving productivity and reducing costs.
Customer Relationships: Customer relationship and market intelligence capabilities are focused on understanding customer needs and developing solutions that meet those needs.

Capability Development

Building New Capabilities: Mechanisms for building new capabilities include training programs, mentoring programs, and knowledge sharing initiatives.
Learning and Knowledge Sharing: Learning and knowledge sharing approaches are used to capture and share best practices, lessons learned, and other valuable information.
Capability Gaps: Capability gaps relative to strategic priorities are identified and addressed through training programs, recruitment efforts, and strategic acquisitions.
Capability Transfer: Capability transfer across business units is encouraged, with employees given the opportunity to move between business units and functions.
Make vs. Buy: Make vs. buy decisions for critical capabilities are based on a careful analysis of costs, benefits, and risks.

Part 3: Business Unit Level Analysis

For this analysis, we will select three major business units:

Oilfield Services & Equipment (OFSE): This is the core business, providing a broad range of services and equipment for drilling, evaluation, completion, and production of oil and gas wells.
Industrial & Energy Technology (IET): This segment focuses on providing turbomachinery and process solutions for the energy, industrial, and infrastructure sectors.
Digital Solutions: This unit provides digital solutions and software to improve efficiency and productivity across the energy value chain.

Oilfield Services & Equipment (OFSE)

Strategy: Focuses on optimizing existing oil and gas production while integrating digital solutions to enhance efficiency. Faces pressure to adapt to the energy transition.
Structure: More hierarchical, reflecting the operational nature of the business. Strong regional structure to cater to local market needs.
Systems: Heavily reliant on operational systems for logistics, maintenance, and field service management.
Shared Values: Safety is paramount, alongside operational excellence and customer focus.
Style: Directive leadership style, emphasizing execution and adherence to procedures.
Staff: Skilled field service technicians, engineers, and project managers.
Skills: Expertise in drilling, completion, and production technologies.

Industrial & Energy Technology (IET)

Strategy: Diversifying into new energy applications, such as hydrogen and CCUS, while maintaining a strong presence in traditional energy markets.
Structure: More matrixed, with global product lines and regional sales teams.
Systems: Complex engineering and manufacturing systems, with a focus on quality and reliability.
Shared Values: Innovation, engineering excellence, and customer partnership.
Style: Collaborative leadership style, emphasizing technical expertise and problem-solving.
Staff: Highly skilled engineers, scientists, and project managers.
Skills: Expertise in turbomachinery, process engineering, and advanced materials.

Digital Solutions

Strategy: Driving digital transformation across Baker Hughes and for external customers, leveraging data analytics, AI, and cloud computing.
Structure: Agile and decentralized, with cross-functional teams focused on specific digital solutions.
Systems: Cloud-based platforms, data analytics tools, and software development environments.
Shared Values: Innovation, agility, and customer-centricity.
Style: Empowering leadership style, encouraging experimentation and rapid iteration.
Staff: Data scientists, software engineers, and digital marketing specialists.
Skills: Expertise in data analytics, AI, cloud computing, and software development.

Alignment Assessment:

OFSE: Strong alignment within the business unit, but potential misalignment with the corporate strategy of transitioning to new energy sources.
IET: Good alignment with the corporate strategy, but challenges in integrating new energy technologies into existing product lines.
Digital Solutions: Strong alignment with the corporate strategy, but needs to ensure that its solutions are effectively integrated into the other business units.

Part 4: 7S Alignment Analysis

Internal Alignment Assessment

Strategy & Structure: The matrix structure supports the diversified strategy, but can lead to complexity and slower decision-making.
Strategy & Systems: Digital transformation efforts are aligning systems with the strategic goal of improving efficiency and innovation.
Strategy & Shared Values: The emphasis on sustainability and ESG is reinforcing the strategic shift towards new energy sources.
Structure & Systems: Shared service centers and common IT systems are improving efficiency and reducing costs.
Structure & Shared Values: The decentralized structure empowers business units to adapt to their specific markets and customers.
Systems & Shared Values: Data-driven decision-making is reinforcing the company’s commitment to performance and accountability.
Style & Staff: Leadership development programs are focused on building the skills and capabilities needed to execute the company’s strategy.
Skills & Strategy: Investment in R&D and innovation is driving the development of new technologies and solutions.

External Fit Assessment

The 7S configuration is generally well-suited to the external market conditions, but there are some areas for improvement.
The company is adapting its elements to different industry contexts, but needs to ensure that it is not over-diversified.
The company is responsive to changing customer expectations, but needs to continue to invest in innovation and customer service.
The company’s competitive positioning is strong, but needs to continue to differentiate itself from its competitors.
The regulatory environment is becoming increasingly complex, and the company needs to ensure that it is in compliance with all applicable laws and regulations.

Part 5: Synthesis and Recommendations

Key Insights

Baker Hughes has a diversified business portfolio, balancing mature oil and gas businesses with investments in emerging energy technologies.
The company’s matrix organizational structure supports its diversified strategy, but can lead to complexity and slower decision-making.
Digital transformation is a key strategic pillar, leveraging data analytics, artificial intelligence, and cloud computing to improve operational efficiency, enhance customer service, and develop new digital solutions.
Sustainability and ESG considerations are integrated into all aspects of the corporate strategy.
The company’s culture is based on integrity, teamwork, performance, and learning.

Strategic Recommendations

Strategy: Focus on optimizing the business portfolio, divesting non-core assets and investing in high-growth areas.
Structure: Simplify the organizational structure, reducing the number of layers and improving communication.
Systems: Integrate systems across the company, improving efficiency and enhancing customer service.
Shared Values: Reinforce the company’s values, promoting a culture of innovation, collaboration, and customer-centricity.
Style: Develop a more empowering leadership style, encouraging experimentation and rapid iteration.

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