According to one estimate, around 12,000 business books are published every year. But back in 1982 this was not the case. That was the year In Search of Excellence: Lessons from America's Best Run Companies was published, long before the terms “business bestseller” or “business guru” became commonplace. In fact, it might have invented those terms and spawned an entirely new industry.
In a genre defining format, two McKinsey consultants, Tom Peters and Robert Waterman, analyzed 43 of the most successful companies at the time to capture the essence of what made these top performers successful.
I am writing this post in 2023, after finally reading my own copy that sat on the shelf for 20 years. I ignored it precisely because of its success, dismissing it as cliched and simplistic. But now with the hindsight of two decades working in corporate, I am realizing simple doesn't mean easy, and is often harder.
Excellence is more mundane than we think — it's the stringing together and execution, of a bunch of mundane actions over long periods of time, longer than most of us would want to or can.
In the 2003 reprint, the authors, Tom Peter and Robert Waterman, added a note that’s a concise capture of their key findings.
The attributes also be read as a list of areas where companies commonly falter. Many organizations still don't get the basics right either due to a lack of attention, lack of competence or plain ignorance.
Three key ideas
First, people and organizations are not “rational” in the ways strategy, business, and organization are typically taught. It’s dangerous to try to force a simplistic and misguided rationality on the way we manage. You cannot just manage “by the numbers.” Don’t even think about it.
Second, most of the management systems that treat people as “factors of production,” as cogs in an industrial machine, are inherently demotivating. People are wonderfully different and complex. Leaders need to set people free to help, not try to harness them.
Third, the world is a confusing place, full of ambiguity. The hardest thing to manage is the “soft stuff,” especially culture. Yet without serious attention to the so-called soft stuff, leaders will fail.
Eight attributes of excellence of the best companies
1. A bias for action
In its simplest terms, this says “get out there and try something.” Just as you don’t learn anything in science without experimenting, you don’t learn anything in business without trying, failing, and trying again. The trick, and it’s a tough one, is a common cultural understanding of what kind of failure is okay and what kind leads to disaster. But don’t kid yourself. No amount of analysis, especially market research, will lead to true innovation.
2. Close to the customer
This may be the hardest to accomplish and perhaps where our sample of excellent companies — IBM, Hewlett-Packard, K Mart, and even McDonald’s — got off the track. It’s hard. There’s so much to pay attention to inside an organization that has time to understand customers, especially when the set of customers includes distributors and wonderfully irrational end users. Yet Procter’s skill at keeping everyone in the organization in close touch with customers, combined with a formidable innovative capability, may explain that company’s incredibly long history of success.
3. Autonomy and entrepreneurship
Even if you’re big, act small. Organizations are simply collections of people, and people don’t relate well to big, abstract entities. If you want to understand the success of Johnson & Johnson, 3M, Wal-Mart, and the original HP, look to the fact that they organize themselves into small, relatively independent units, held together by common goals and cultural norms.
4. Productivity through people
As the youngsters say, “Duh!” What else counts in an organization except people? Everyone gives lip service to the importance of their people, yet only a few really treat them as other than cannon fodder. One of the best examples we’ve ever seen was Delta Airlines with its “family feeling,” which was so special that in 1982 employees banded together to spend a total of $30 million in payroll deductions to give their employer its first Boeing 767, the Spirit of Delta. Sadly, Delta lost that family feeling, maybe when it merged with Western Airlines.
5. Hands-on, value-driven
The idea is simple. Figure out what your company should stand for, what would give your people the most pride. Then actively manage toward that value system. Remember that profit is to business as breathing is to life. The top companies make meaning, not just money.
6. Stick to the knitting
Except for one or two notable exceptions, for example, Warren Buffett’s Berkshire Hathaway and Jack Welch’s GE, business diversity almost never works. Be particularly leery of the word synergy, which sounds great — who doesn’t want 1 + 1 to equal 3? Well, our observation then and now is that big mergers rarely work. Further, nothing screws up a successful business more than hyperfast growth.
7. Simple form, lean staff
Though organizations are inherently quite complicated, one ought not make them more so via complex organizational arrangements. Install a simple and workable structure; people will figure out the rest. Keep staff to a minimum, outsource a lot of staff activities, or use time-limited, project-oriented task forces (another form of the line organization). Big staffs, and most career staff people, always seem to get in the way of the folks in organizations who get the real work done.
8. Simultaneous loose-tight properties
Any well-functioning organization is neither centralized nor decentralized but a wonderful combination of both. Around most dimensions the best companies, then and now, are loose. They give people exceptional freedom to do things their own way. At the same time, the great companies are highly centralized around a few crucial dimensions: the central values that make up their culture, one or two (no more) top strategic priorities, and a few key financial indicators.
One metric for the robustness of a book is whether its ideas withstand the test of time. Going through the list, it's obvious they captured some timeless truths whose simplicity belies their durability.
In the ensuing years after publication, the book has come under a variety of criticism, including the scientific rigor of how the companies were shortlisted and their longevity. But putting that aside, the list is still a veritable checklist of common pitfalls that still ails companies.
Excellence is simple, even mundane, but not necessarily easy or convenient.
Sources and references
- In Search of Excellence: Lessons from America's Best-Run Companies by Thomas Peters and Robert Waterman
- More on the history and criticism of the book: https://en.wikipedia.org/wiki/In_Search_of_Excellence