Large Assets, Low Profitability: Why Are Iran's Major Companies Loss-Making? A Look at Iran Khodro, HEPCO, and Tobacco Through McKinsey's 7S Model

Iran's major companies continue to face losses despite significant assets, infrastructure, and human resources. An examination of Iran Khodro, HEPCO, and Iran Tobacco Company using McKinsey's 7S model sheds new light on the role of management and governance in these firms' performance.

Ambassador Arjan; Akbar Ebrahimi* - The honorable president recently mentioned an important issue in his speech: there are companies in the country that, despite having significant capacities and assets, are still unprofitable and need to be organized.

This statement, if it is to be followed beyond an administrative order or a temporary reform program, requires an answer to a basic question:

Why can't a company that has property, human resources, brand, market, technical knowledge and infrastructure create value and profit from these capacities?

This question is not just a theoretical question for me.

In different years, I have directly worked in three big and deep-rooted Iranian companies, i.e. Iran Khodro, Hepco and Iran Tobacco Company; Three companies, each of which were once important and influential players in their industry, and still have assets and capacities that many other companies lack.

But their common denominator is: "companies with great capacities, but performance lower than their actual capacity." In the meantime, the experience of Iran Khodro puts a very important point in front of us.

Iran Khodro has been dealing with structural problems, accumulated losses, high costs and management challenges for years. After the transfer of management to the private sector, it is still not possible to talk about the complete solution of the company's problems, but the performance of 1404 showed signs of a change of direction and the company was out of losses at the level of the main company. In the annual assembly, a set of measures such as reducing the cost price, organizing subsidiary companies, reducing the variety of parts and optimizing purchases were proposed as effective factors for this change.

But the more important questions are:

· Did Iran Khodro suddenly find a new asset?

Were new factories built?

Has the company's workforce changed fundamentally?

Did the Iran Khodro brand become more valuable overnight?

Was its supply chain redesigned from scratch?

The answer is definitely no. Much of the same assets, the same factories, the same brand, the same manpower, the same market and the same infrastructure already existed.

So what has changed? In my opinion, here we should use an important concept in organization management: the quality of governance and leadership.

Mackenzie 7S model; The problem is not only the structure

McKenzie's 7S model considers the organization as the result of the interaction of seven elements:

Strategy - Structure - Systems - Shared Values - Skills - Style - Staff

Strategy, structure, systems, shared values, skills, leadership style and staff.

The key point of this model is that the performance of the organization cannot be analyzed by changing one component separately; These seven elements must be in line with each other. But in the experience of Iran Khodro, an important hypothesis can be put forward:

Sometimes a change in "leadership" can move other parts of the organization as well.

· New leadership, by changing the way of looking at the company, can change the strategy

The new strategy changes the priorities of the organization

New priorities affect structure and systems

And finally, the behavior of managers and employees and how resources are used will also change

In other words, many components of the organization may be the same on paper, but the logic governing their use has changed.

And this is the point that, in my opinion, should be taken seriously in the discussion of organizing loss-making companies.

Maybe the issue is not "lack of capacity"; The issue is "quality of governance and leadership capacities".