BSML’s Summary of Principles from:

IN SEARCH OF EXCELLENCE

By Tom Peters and Robert H Waterman

1982

From the BSML Business Wisdom Series

Introduction

This book was the result of a research project assigned to Tom Peters and Bob Waterman when they were consultants working for McKinsey’s San Francisco office in the late 1970s.

Their study was one of two set up in 1977 :

– The first, to review thinking on strategy, was done from New York

– The second, aimed at “going back to the drawing board on organizational effectiveness”, became the top selling business book of the next 2 decades.

BSML’s intention in compiling this summary is to share the insights of these consulting legends with our clients and prospective clients, to encourage them to read the full work, and to help them use its principles to improve management practices and business performance. We welcome your feedback.

Please feel free to share this document with your colleagues and friends, who have an interest in the topic.

 

Nick Bentley, Managing Director, BSML

BUY NOW: IN SEARCH OF EXCELLENCE

Contents

  1. Context
  2. Key question
  3. Basis of research
  4. McKinsey 7-S Framework
  5. Findings – the 8 themes
    1. A bias for action
    2. Close to the customer
    3. Autonomy and entrepreneurship
    4. Productivity through people
    5. Hands-on, value-driven
    6. Stick to the knitting
    7. Simple form, lean staff
    8. Simultaneous loose-tight properties
  6. Afterword

1. Context

  • In Search of Excellence was written at a time when the US was traumatised by Japanese manufacturing dominance
  • America was in panic. Faith had been lost in US management’s ethics, processes and systems. Its business schools had been churning out MBAs schooled in “scientific” and “rational” management theories, which taught that professional managers could manage anything. Bitter experience showed this to be a false assumption.
  • Strategy and structure had become the primary levers of performance and change. Belief in economies of scale, diversification and matrix management was high. So was operational complexity.
  • Japanese business practices such as worker-led quality circles, loose organisation structures and singing of company songs, seemed to be the key points of difference between the two industrial juggernauts, but the US was losing the battle
  • What to do?
  • Peters and Waterman went in search of answers

2. Key question

  • The original study’s aim was to “go back to the drawing board on organisational effectiveness” to identify structural solutions and tools to revitalise and re-direct billion dollar organisations.
  • An initial two years focused on “expanding our diagnostic and remedial toolkit” and gradually moved from strategy and structure to principles around “execution and organising”. In the process 7 variables, were identified, which became the McKinsey 7-S Framework
  • The breakthrough to “excellence” came through a search for criteria of success at a workshop with Royal Dutch/Shell on 4 July 1979. Whilst discussing the topic of innovation, two definitions evolved about innovative (later excellent ) companies :
  1. Those with creative people, developing marketable new products and services; and
  2. Those especially adroit at continually responding to change of any sort in the environment… When the environment changes, these companies change too.
  • The key question was … How do they do it?

How do these continuously innovative big companies tack, revamp, adjust, transform and adapt as a whole culture?

3.1 Basis of research

  • 75 highly regarded US companies were selected in the winter of 1979/80 to understand “excellence”
  • Intense structured interviews were conducted with about half
  • The remainder were initially studied through secondary channels, principally press coverage and annual reports for the prior 25 years, with subsequent detailed interviews of around 20
  • Study of under-achievers was limited
  • The most mentioned companies comprise IBM, McDonalds, Proctor &Gamble, Digital, HP, Schlumberger, Texas Instruments, Johnson & Johnson, Blue Bell, Levi, Intel, Mars, Tupperware, Maytag, Caterpillar, Delta Airlines, General Motors, Marriott, Disney, Wal-Mart, Boeing, Bechtel and Amoco
  • The sectors surveyed were categorised into high technology, consumer goods, general industries, services, project management and resource based
  • The findings grouped into 8 general themes. The book begins with the following history and context

3.2 Evolution of management theory

3.3 1970s beliefs in context

  • Big is better – when in doubt consolidate things, eliminate overlap, remove duplication and waste, gain economies of scale, formally co-ordinate everything
  • Low cost producers win in the long run
  • Analyse everything and avoid dumb decisions – market research, discounted cashflows, good budgeting, hard quantitative targets, fat plans, long range forecasts
  • Major R&D labs will deliver product breakthroughs – get rid of disturbers of the peace
  • The manager’s job is decision making – implementation is of secondary importance to making the right calls
  • Control everything – matrix organisation structure, detailed job descriptions, treat people as factors of production
  • Get the incentives right and productivity will follow – over reward top performers, weed out the dead wood
  • Inspect to control quality
  • If you can read the financials you can manage anything
  • Top executives are smarter than the market
  • Its all over if we stop growing

3.4 Implications of these beliefs

  • High focus on the cost side of the profit equation – revenue enhancement, quality, reliability and service take a back seat
  • Numerical analytics has a built in conservative bias that kills things that can’t be proven or are unusual – lots of death to good ideas
  • Analysis leads to a heartless, abstract philosophy and lifeless rationality
  • Management becomes judge and jury, so tends to veto the impractical idea, rather than dealing in acts of faith
  • Mistakes are abhorrent and punished
  • Complexity and inflexibility provide barriers to avoid risk of failure
  • A super weapon mentality pervades – single big bets rather than small and pervasive experimentation
  • Paperwork and formality become ends in themselves and immobilize progress
  • Values and initiative are denigrated in favour of procedure and control
  • Large central “staff” functions rule the roost and enforce discipline
  • Orders from the boss are the primary motivator
  • Internal competition in the market place is avoided, but information is power and secrecy underlie the culture
  • Large staffs and middle management layers stifle innovation and service

3.5 Paradoxes from social theory

  • We are self-centred, suckers for praise from authority, yet generally see ourselves as winners and in the top 10% in our field
  • Our imaginative, symbolic right brain is at least as important as our rational, deductive left brain. We reason by stories, with our intuitive side, perhaps more than with our logical side, trust our gut and go with associations and ways that have worked for us before
  • We need to stick out but also belong; we want fame and fortune but not risk
  • As information processors, we are simultaneously great with patterns and bad with complexity and quantity
  • We are creatures of our environment, highly sensitive to reward and punishment, yet self motivated and driven from within
  • Our actions do not always match our words, yet we act as if express beliefs are important
  • We desperately need meaning in our life, yet sacrifice self determination for security

 

“A man won’t sell his life to you, but he will give it to you for a piece of coloured ribbon….

Napoleon was a master ribbon granter”

3.6 On leadership

Transactional leadership – the necessary activities that take up most of a leader’s day… boring coalition building, purposeful seeding of cabals that one hopes will ferment in the bowels of the organisation, meticulously shifting the attention of the institution through the mundane language of management systems, altering agendas so that new priorities get attention, being visible when things are going awry, and invisible when they are working well, building a loyal team at the top that speaks more or less with one voice, listening carefully, frequently speaking with encouragement and reinforcing words, with believable action, being tough when necessary, the occasional naked use of power or the subtle accumulation of nuances, a hundred things done a little better – Henry Kissinger

Transformational leadership – concerned with minutiae as well, but different minutiae. The tricks of the pedagogue, metaphor, mentor, linguist…the value shaper, exemplar, maker of meanings, the true artist, true pathfinder, exemplifying the urge for transcendence that unites all, instils purpose, inseparable from followers’ needs and goals. At the same time he/she exhibits almost boorish consistency over long periods of time in support of one or two transcending values. No opportunity is too small, no forum too insignificant, no audience too junior to make conscious what lies unconscious – James MacGregor Burns

4. A new framework and organising theory

Mckinsey 7-S Framework

Described as “a useful way to think about organising”

Developed to identify more levers than purely strategy and organisation, including the soft S’s (skills, style and shared values)

Identified the complexity and interactive nature of factors to be taken into account in managing successful change

5. Findings – the 8 themes

  1. A bias for action
  2. Close to the customer
  3. Autonomy and entrepreneurship
  4. Productivity through people
  5. Hands-on, value-driven
  6. Stick to the knitting
  7. Simple form, lean staff
  8. Simultaneous loose-tight properties

5.1.1 A bias for action

  • Wide range of action devices , experiments, fluidity, speed, simplification
  • Open informal communication – first names, open door policy, regular contact, physical layout, cross functional problem solving/complaints resolved fast, one page reports/plans
  • Simplification – ready, fire, aim, no judging/hurdles, small teams, ad hoc task forces, fluid resources/teams, focus and disband, chunking problems and sorting them quickly, blitzing, adhocracy, small groups, simplicity, one or two key numbers/objectives, do stuff, have fun, grow!
  • Fluidity – task forces, volunteers, limited duration, less than 10 people, at client sites, set their own goals, positive re-enforcement, multi-functional, full authority, no formal chartering, no staff, scant documentation, exciting, fluid
  • Experimenting – succeed or fail fast , willingness to try things, competitive, right people/resources, small bets, action learning better than analysis, in the field trials, see something tangible, fetish for testing, cheap learning, prototypes, minimum paperwork, numbers game, quick in quick out, “under deadline pressure the impossible occurs regularly”, know when to fold
  • Culture – positive, encourages mistakes, champions, bootlegging, spirit, excitement, let people stick out, celebrate success, learn from failures

5.1.2 Contrast behaviours

  • Ensnared in massive reports, “paper and process, not new products”
  • Control by hundreds of staffers, judgement, death to creativity
  • All life and personality pressed out of the organisation
  • Formality, hurdles, approvals, lack of urgency or excitement
  • Absence of realism, not close to customers, no hands-on perspective
  • Large, long term task forces; integrating committees; bureaucracy
  • Lethargy and inertia, complex processes and systems, many checks and balances, negative and theoretical culture
  • Fear of failure, no champions, safe solutions
  • Transfixed by organisation charts, job descriptions, authority lines
  • Love of complex systems, theory, process
  • Many objectives and measures, unclear priorities

5.2 Close to the customer

  • Listening to customers
  • Service obsession
  • Quality obsession
  • Nichemanship
  • Low emphasis on cost leadership and technology
  • Intensity

5.3 Autonomy and entrepreneurship

  • Champions – entrepreneurship, customer solutions, innovation, service, passion
  • Championing systems – let them loose, provide money, resources and encouragement, demonstrate faith, tolerance of failure
  • Play the numbers – “we have many ducks, but every now and again we get a swan and it pays for all the ducks” (3M)
  • Loose organisation/fluid structure – new venture teams, sub-optimal divisions, internal competition, overlap, control through values, intense communication, autonomy, trust, key metrics, challenge and support

 

3M’s innovation model is a volunteer champion, supported by a team of 5 to 8 specialists in marketing, design, production, sales, finance etc for 3-6 months, plus a client. The proposal is a one page document, the default answer is yes, detractors have the burden of proof to abort, not the other way round. The project team takes the product to market (may take 20 years) and when the product reaches $20m turnover the product becomes a division. The team ride the wave with the product throughout and become VPs of the division at the end. They share the gains

5.4 Productivity through people

  • Respect for the individual, philosophy of treating people like adults, people orientation, language of family and inclusion
  • Make people winners
  • Smallness, human scale, let people stand out, less is more
  • Success stories, legends, hoopla
  • Absence of rigid chain of command, the unseen hand
  • Results by passion, personal standards, enablement and positive peer pressure
  • Intense focus on recruitment/selection, cultural alignment, fit to company values
  • Socialising “new recruits on how we do it round here”, indoctrination, aligning to values system, being part of something great
  • Information openness, availability, lack of secrecy

5.5 Hands on value driven

  • Value driven – explicit attention to values, what the organisation stands for , common cause, “grooved” beliefs and value system
  • Pride – inspiring at bottom as well as at top, standards of excellence
  • Dominant beliefs
  1. Being the best
  2. Importance of execution/nuts and bolts being done well
  3. Importance of people as individuals
  4. Superior quality of service
  5. Innovation and willingness to support failure
  6. Informality of communication
  7. Recognition of the importance of profit
  • Visible management – role models, heroes, evangelists, unleashers of excitement

5.6 Stick to the knitting

  • Never acquire a business you don’t know how to run
  • Home grown growth
  • Core skills, windows into new skills
  • Experiment, but keep failures small
  • Avoid vanity acquisitions
  • No shortcuts
  • Be willing to get out before getting in too deep

5.7 Simple form lean staff

  • The economics of big are not real, due to complexity entering the system
  • People operate in a binary way; they can’t handle complexity well
  • Complex organisations require complex systems, so small is beautiful even within big
  • Key principles for managing complexity are :

    – Divisional integrity – all functions included in a division (including product  development, finance, personnel etc)

    – Constant hiving off as a reward for success, when a unit becomes too big, monolithic and unresponsive

    – Turnover guidelines for when a new product requires to become a stand-alone division

    – Regularly shifting people and even products between divisions to keep them fresh

  • The pillars of organisation structure in the 1980s are

    – Stability

    – Entrepreneurship

    – Breaking habit formation and atrophy

  • HQs should be kept small

5.8 Simultaneous loose-tight properties

  • Balance central direction and individual autonomy to get innovation
  • Culture of faith based on shared values, beliefs and behaviours
  • External, visionary focus and attention to detail
  • Discipline and autonomy
  • Short term and long term focus
  • Soft and hard traits
  • Listening and delivering
  • Smart and dumb
  • Meaning and money
  • Small and efficient
  • Ideas and quality products
  • Simple and effective
  • Personal and organisational standards
  • Security and standing out
  • Being an individual and also part of something great

5.9 Summary - cultures of excellence

  • Digital – do it, fix it, try it. We have a fetish for reliability. When we have big problems here, we stick 10 senior guys in a room for a week. They come up with an answer and implement it
  • IBM – we get our best product ideas from our customers. Our principles are respect for the individual and that every worker is a source of ideas and productivity
  • 3M – a loose network of laboratories and cubby holes populated by feverish inventors and dauntless entrepreneurs, who let their imagination fly in all directions. Barely organised chaos around its product champions
  • TI – every product failure we ever had was marked by one factor – the absence of a volunteer champion
  • Caterpillar – reliability, quality and uniformity
  • MacDonalds – quality, service, cleanliness and value (QSC&V)
  • Proctor and Gamble – the customer comes first, second and third

6. Afterword

  • Peters and Waterman created the bridge between strategy, structure and culture. Culture was the unifying S in the McKinsey 7-Ss; the philosopher’s stone :

“Excellent companies had gotten the way they are because of a unique set of cultural attributes that distinguish them from the rest… Many have taken on their basic character under the tutelage of a very special person… And thus those shared values can be seen to survive for decades after the passing of the original guru.”

  • Peters and Waterman identified the 7-Ss as a model to understand and improve organisations, and manage change
  • They also re-cast the real role of the chief executive , which they concluded was “to manage the values of the organisation”
  • The book is full of anecdotes and examples – good and bad
  • Very cool stuff and as relevant today as in 1982.

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