The Importance Of Being Excellent

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Just when you were getting used to Theory Z and the Japanese style of management, along come Thomas Peters and Robert Waterman to say that some Americans know a thing or two about management, too. Their best-selling book, In Search of Excellence (Harper & Row, $19.95), examines 62 of the best-run companies in the United States. Out of this study emerges a fascinating portrait of U.S. business "excellence" and the qualities that foster it: a bias toward action, a closeness to the customer, an environment that encourages entrepreneurship, an emphasis on productivity through people, and so forth.

Ultimately, of course, the importance of these qualities can be measured in dollars and cents, and all of the companies surveyed are successful -- and large. "[Our] major concern was and is with how big companies stay alive, well, and innovative," write Peters and Waterman. Nevertheless, the lessons they draw have obvious relevance for businesses of every size. And so, when Peters passed through town recently, we took the opportunity to talk with him about excellence and the growing company.

INC.: How have people in smaller, growing companies responded to your book?

Peters: Overall, they have been extremely positive, and the reason, I think, is that they are sometimes more aware than big companies of the degree to which all of this stuff is absolutely vital to their existence. I'm talking especially about the importance of innovation and action, of staying close to customers, and of treating your people right. The toughest part is to get them to understand how easy it is to lose that touch. When an entrepreneur goes from a 3-person organization to a 10-person organization in less than a year, he usually realizes he's not in touch with his customers as much as he was even six months before.

INC.: Where have you encountered resistance?

Peters: Well, we sometimes run into a kind of engineering hubris in young technology companies that tend to be more engineer-driven, a sense that technology can conquer all. And it's true that, in an immature industry, there's often a very legitimate technology edge. For two or three years, the "gee whiz" factor alone will carry a product to success in the marketplace. That's how Texas Instruments made it for many, many years.

Then more products enter the marketplace, and issues such as service, quality, and distribution become the dominant factors. This happens even in new categories; personal computers are an ideal example. But you find in places like Silicon Valley that a lot of these technology-driven companies don't give much credence to that stuff, particularly responsiveness of service. I try to point out that IBM's genius has not been their technology. I mean, they have good machinery, but whenever you talk with an IBM customer, he almost invariably tells you about some magical act involving 100 people from IBM who drove through rain and sleet and snow to get 73 machines up online between Saturday at 2 a.m. and Monday at 6 a.m.

INC.: Are there any other sticking points?

Peters: Yes. I sometimes get a hassle on the issue of duplicative product development, of not depending on the genius of the chairman for the second or third product. You see this in high tech all the time. Some guy gets lucky on the first product and proceeds to bet the whole company on his knowing exactly what the second product will be. He starts thinking he's capable of understanding all the market forces and all the thousands of things that really went into making the first product a success. Well, it doesn't work that way. Nothing gets invented in the right place. The only way to replicate the first experience is to get enough prototypes built and enough experiments going on with users to beat the normal 9-out-of-10 failure rate. You've got to place multiple bets. I push very, very hard on that.

INC.: And how do people respond?

Peters: A lot of people say, "That's fine for Hewlett-Packard and IBM, but you can't afford to do it if you're small." I might add that we don't get that from people out of HP. They usually start duplicative development at the $4 million mark.

INC.: So how do you handle that argument?

Peters: It's a fairly lengthy process. I try to get people to go back through their own experiences there and in other companies and look at what really happened. You find that the revenue never came the way it was supposed to. Usually what happened is that seven guys got tired of waiting for Joe Jones to do something and went off and invented it themselves. Time and again, you see a process of the small guy becoming the new thorn in the side of the bigger guy. And you see this at the $5 million or $10 million level. It doesn't wait for the $500 million level.

The next step is to talk about breaking projects into pieces you can handle. A lot of people think of duplicative development in terms of $30 million projects. I find that, no matter how sophisticated a project, you can probably do a piece of a prototype for $50,000 or $75,000, and that begins to be manageable.

INC.: In the book, you put a lot of emphasis on the importance of a company's culture -- its shared values, myths, ideals -- in promoting excellence and success. Does that apply to small companies as well?

Peters: Absolutely. We found that the culture was an implicit or explicit preoccupation of the leader from the very start. And he didn't learn it in a management development course. It comes to him intuitively, and he starts living it on day one. What's magic about a Tom Watson, for example, is that he made 900 statements a day about service, 898 of them without thinking. The same thing can be said about Bill Hewlett and his "philosophy of management by wandering around." The geniuses pick the right issues, issues that have to do with building viable institutions, and they are obsessive about them. And out of that obsession comes the corporate culture.

INC.: So where does the professional manager fit into all this?

Peters: That's the scary part. I don't think culture can come in through a professional manager, almost by definition. This is not to say you don't need a good chief financial officer. You've got to do planning and market research and all that stuff. You can't run a $50 million company out of a shoe box. But I couldn't disagree more with the business-school idea that you have to get professionalized early and learn to accept bureaucracy with a smile. I resent the whole undertone that growth companies should give up what they've been doing and adopt systems.

INC.: Can anything be done to counteract that thrust?

Peters: I hope that our book will help to do that. To a large extent, I see our role as legitimizing the behavior of people who skipped business school. The best example is the notion of management by wandering around [MBWA]. I've had literally scores of people come up to me and say, "This was the greatest thing, to read about a company like Hewlett-Packard using MBWA as an explicit part of their philosophy. That's what I do, wander around, but I've always been embarrassed by it because I've been told the exact opposite for so long." So maybe we can help just by giving people labels for the good things they already do.