In Search of Excellence: Lessons from America's Best-Run Companies

by Thomas J. Peters

the excellent companies were, above all, brilliant on the basics. Tools didn’t substitute for thinking. Intellect didn’t overpower wisdom. Analysis didn’t impede action. Rather, these companies worked hard to keep things simple in a complex world. They persisted. They insisted on top quality. They fawned on their customers. They listened to their employees and treated them like adults. They allowed their innovative product and service “champions” long tethers. They allowed some chaos in return for quick action and regular experimentation.

Many of the innovative companies got their best product ideas from customers. That comes from listening, intently and regularly.

Says Michael Thomas, former successful investment banker and, of late, inspired author: “[They] lack liberal arts literacy…need a broader vision, a sense of history, perspectives from literature and art… I’d close every one of the graduate schools of business….” Practitioner-observers make similar points. From one at National Semiconductor we hear, “People with degrees like a Harvard BA and a Stanford MBA last about seventeen months. They can’t cope [with the flexibility and lack of structure].”

Now, why is all of this important? Because so much of excellence in performance has to do with people’s being motivated by compelling, simple — even beautiful — values. As

One commentator noted: “The productivity proposition is not so esoterically Japanese as it is simply human…loyalty, commitment through effective training, personal identification with the company’s success and, most simply, the human relationship between the employee and his supervisor.”

Our only natural resource is the hard work of our people.” Treating people — not money, machines, or minds — as the natural resource may be the key to it all.

Planning is a welcome respite from operating problems. It is intellectually more rewarding, and does not carry the pressures that operations entail…. Formal long-range planning almost always leads to overemphasis of technique.” Fletcher Byrom of Koppers offers a suggestion. “As a regimen,” he says, “as a discipline for a group of people, planning is very valuable. My position is, go ahead and plan, but once you’ve done your planning, put it on the shelf. Don’t be bound by it. Don’t use it as a major input to the decision-making process. Use it mainly to recognize change as it takes place.”

But let us stop for a moment and ask: What exactly do we mean by the fall of the rational model? We really are talking about what Thomas Kuhn, in his landmark book The Structure of Scientific Revolutions, calls a paradigm shift. Kuhn argues that scientists in any field and in any time possess a set of shared beliefs about the world, and for that time the set constitutes the dominant paradigm. What

After a paradigm shift begins, progress is fast though fraught with tension. People get angry. New discoveries pour in to support the new belief system (e.g., those of Kepler and Galileo), and scientific revolution occurs. Other familiar examples of paradigm shift and ensuing revolution in science include the shift to relativity in physics, and to plate tectonics in geology. The important point in each instance is that the old “rationality” is eventually replaced with a new, different, and more useful one.

The rationalist approach takes the living element out of situations that should, above all, be alive.

John Steinbruner makes a similar point commenting on the role of staffs in general: “It is inherently easier to develop a negative argument than to advance a constructive one.” In

Advancement takes place only when we do something: try an early prototype on a customer or two, run a quick and dirty test market, stick a jury-rig device on an operating production line, test a new sales promotion on 50,000 subscribers.

This is especially ironic because the most noble ancestor of today’s business rationality was called scientific management. Experimentation is the fundamental tool of science: if we experiment successfully, by definition, we will make many mistakes. But overly rational businessmen are in pretty good company here, because even science doesn’t own up to its messy road to progress. Robert Merton, a respected historian of science,

Cary did what he was told. Years later, when he became chairman himself, one of his first acts was to get rid of the laborious product development structure that he had created for Watson. “Mr. Watson was right,” he conceded. “It [the product development structure] will prevent a repeat of the 360 development turmoil. Unfortunately, it will also ensure that we don’t ever invent another product like the 360.”

After all, who in his right mind would establish Management By Wandering Around as a pillar of philosophy, as HP does? It turns out that the informal control through regular, casual communication is actually much tighter than rule by numbers, which can be avoided or evaded. But you’d have a hard time selling that idea outside the excellent companies.

Stanford’s Harold Leavitt has a wonderful way of explaining this point. He views the managing process as an interactive flow of three variables: pathfinding, decision making, and implementation. The problem with the rational model is that it addresses only the middle element — decision making. In

Leavitt has his classes first think of political leaders whose stereotypes most neatly fit the categories. For example, a typical class would suggest President John Kennedy as a pathfinder. For the decision-making stereotype, they might pick Robert McNamara in his role of Secretary of Defense or Jimmy Carter as President. For the prototypical implementer, everyone thinks of Lyndon Johnson (“Let us reason together,” or “I’d rather have him inside the tent pissing out, than outside the tent pissing in.”) To

Leavitt has his class associate various occupations with his three categories. People who fall into the decision-making category include systems analysts, engineers, MBAs, statisticians, and professional managers — strange bedfellows, but very much alike in their bias for the rational approach. Implementing occupations would be those in which people essentially get their kicks from working with other people — psychologists, salesmen, teachers, social workers, and most Japanese managers. Finally, in the pa...

The point of all this is that business management has at least as much to do with pathfinding and implementation as it does with decision making. The processes are inherently different, but they can complement and reinforce one another.

Their populations are distributed around the normal curve, just like every other large population, but the difference is that their systems reinforce degrees of winning rather than degrees of losing.

The systems in the excellent companies are not only designed to produce lots of winners; they are constructed to celebrate the winning once it occurs.

The total of left- and right-brain research suggests simply that businesses are full (100 percent) of highly “irrational” (by left-brain standards), emotional human beings: people who want desperately to be on winning teams (“seek transcendence”); individuals who thrive on the camaraderie of an effective small group or unit setting (“avoid isolation”); creatures who want to be made to feel that they are in at least partial control of their destinies (“fear helplessness”). Now, we seriously doubt that the excellent companies have explicitly proceeded from right-brain considerations in developing their management practices. But the effect is such that it appears they have, especially in relation to their competitors. They simply allow for — and take advantage of — the emotional, more primitive side (good and bad) of human nature. They provide an opportunity to be the best, a context for the pursuit of quality and excellence.

But as we pointed out in connection with scientific paradigm change, logic is not the true engine of scientific progress. Here’s how James Watson, co-discoverer of the structure of DNA, described the double helix the night he finished his research: “It’s so beautiful, you see, so beautiful.” In science the aesthetic, the beauty of the concept, is so important that Nobel laureate Murray Gell-Mann was moved to comment, “When you have something simple that agrees with all the rest of the physics and really seems to explain what’s going on, a few experimental data against it are no objection whatsoever.”

Two experimental psychologists, Amos Tversky and Daniel Kahneman, are the leaders of a principal thrust of experimental psychology called “cognitive biases,” started about fifteen years ago.

Simply said, we are more influenced by stories (vignettes that are whole and make sense in themselves) than by data (which are, by definition, utterly abstract).

And so it goes through a wealth of experimental data, now thousands of experiments old, showing that people reason intuitively. They reason with simple decision rules, which is a fancy way of saying that, in this complex world, they trust their gut. We need ways of sorting through the infinite minutiae out there, and we start with heuristics — associations, analogues, metaphors, and ways that have worked for us before.

The mark of the true professional in any field is the rich vocabulary of patterns, developed through years of formal education and especially through years of practical experience. The experienced doctor, the artist, the machinist, all have rich pattern vocabularies —

The implications of this line of reasoning are clear: only if you get people acting, even in small ways, the way you want them to, will they come to believe in what they’re doing. Moreover,

Moreover, our excellent companies appear to do their way into strategies, not vice versa. A leading researcher of the strategic process,

One of our colleagues is working with a big company recently thrown together out of a series of mergers. He says: “You know, the problem is every decision is being made for the first time. The top people are inundated with trivia because there are no cultural norms.”

The excellent companies are marked by very strong cultures, so strong that you either buy into their norms or get out. There’s

But we would argue that in general the excellent company values almost always stress being close to the customer or are otherwise externally focused. Intense customer focus leads the prototypical excellent company to be unusually sensitive to the environment and thus more able to adapt than its competitors.

Leadership is many things. It is patient, usually boring coalition building. It is the purposeful seeding of cabals that one hopes will result in the appropriate ferment in the bowels of the organization. It is meticulously shifting the attention of the institution through the mundane language of management systems. It is altering agendas so that new priorities get enough attention. It is being visible when things are going awry, and invisible when they are working well. It’s building a loyal team at the top that speaks more or less with one voice. It’s listening carefully much of the time, frequently speaking with encouragement, and reinforcing words with believable action. It’s being tough when necessary, and it’s the occasional naked use of power — or the “subtle accumulation of nuances, a hundred things done a little better,” as Henry Kissinger once put it.

This is great

The clear starting point is acceptance of the limits of rationality, the central theme of the last two chapters. Building on that, four prime elements of new theory would include our observations on basic human needs in organizations: (1) people’s need for meaning; (2) people’s need for a modicum of control; (3) people’s need for positive reinforcement, to think of themselves as winners in some sense; and (4) the degrees to which actions and behaviors shape attitudes and beliefs rather than vice versa.

It is not so much the articulation of goals about what an [institution] should be doing that creates new practice. It’s the imagery that creates the understanding, the compelling moral necessity that the new way is right…. It was the beautiful writing of Darwin about his travels on the Beagle, rather than the content of his writing, that made the difference. Because the evolutionary idea had really been in the air for a while. Not only were there parallel mentions of it, but Darwin’s uncle had done some of the primary work on it…. Thus, if I were to give off-the-cuff advice to anyone trying to institute change, I would say, “How clear is the metaphor? How is that understood? How much energy are you devoting to it?”

Adaptation is also too complex to manage by rules in a big enterprise, so astute managers simply make sure that enough “blind variations” (i.e., good tries, successful or not) are going on to satisfy the laws of probability — to ensure lots of bunt singles, an occasional double, and a once-a-decade home run.

Burton Klein and others have demonstrated in scores of studies that, in industry, it is never the industry leader who makes the big leap. On the contrary, they claim, it is the inventor or small guy who makes the big leap, even in stodgy industries like steel and aluminum in which one wouldn’t expect to find many inventors around.

The name of the successful game is rich, informal communication. The astonishing by-product is the ability to have your cake and eat it, too; that is, rich informal communication leads to more action, more experiments, more learning, and simultaneously to the ability to stay better in touch and on top of things.

Learning and progress accrue only when there is something to learn from, and the something, the stuff of learning and progress, is any completed action.

At P&G the language of action — the language of the systems — is the fabled one-page memorandum

There is no more important trait among the excellent companies than an action orientation. It seems almost trivial: experiments, ad hoc task forces, small groups, temporary structures.

A simple summary of what our research uncovered on the customer attribute is this: the excellent companies really are close to their customers. That’s it.

The excellent companies are better listeners.

The best companies are pushed around by their customers, and they love it.

So the excellent companies are not only better on service, quality, reliability, and finding a niche. They are also better listeners. That is the other half of the close to the customer equation. The fact that these companies are so strong on quality, service, and the rest comes in large measure from paying attention to what customers want. From listening. From inviting the customer into the company. The customer is truly in a partnership with the effective companies, and vice versa. Among

Freeman and his colleagues noted: “Successful firms pay more attention to the market than do failures. Successful innovators innovate in response to market needs, involve potential users in the development of the innovation, and understand user needs better.”

Recently, TI conducted a fascinating survey, reviewing its last fifty or so successful and unsuccessful new-product introductions, and found that one factor marked every failure: “Without exception, we found we hadn’t had a volunteer champion. There was someone we had cajoled into taking on the task.” The executive who told us this added: “When we take a look at a product and decide whether to push it or not these days, we’ve got a new set of criteria. Number one is the presence of a zealous, volunteer champion. After that comes market potential and project economics in a distant second and third.”

The champion is not a blue-sky dreamer, or an intellectual giant. The champion might even be an idea thief. But, above all, he’s the pragmatic one who grabs onto someone else’s theoretical construct if necessary and bullheadedly pushes it to fruition.

The product champion is the zealot or fanatic in the ranks whom we have described as being not a typical administrative type. On the contrary, he is apt to be a loner, egotistical and cranky. But he believes in the specific product he has in mind. The successful executive champion is invariably an ex-product champion. He’s been there — been through the lengthy process of husbanding, seen what it takes to shield a potential practical new idea from the organization’s formal tendency toward negation. The godfather is typically an aging leader who provides the role model for championing. The mythology at 3M, HP, IBM, Digital, TI, McDonald’s,

A young engineer or marketer simply does not step out and take risks because of some “good feeling” in the gut. He steps out and takes risks because the history of the institution supports doing so as a way of life that leads to success. And he does so despite the certainty of repeated failure.