In Search of Excellence


It may be more than 30 years old but this study of America’s best-run companies is still a must-have for today’s boardroom, offering eight lessons every senior manager should apply

Amidst the recession era of the early 1980s in the US, two McKinsey consultants, Tom Peters (above) and Robert H Waterman Jr, undertook a research project into the best-run companies in the US.

The pair published their analysis in a breakthrough book, In Search of Excellence, and within four years it had sold three million copies. It was a category-defining tome and in 2002 a panel of Forbes experts voted it the most influential business publication in 20 years.

Peters and Waterman asked: What sets great businesses apart? Their work was based on the study of a long list of large organisations that had shown consistently strong growth and profitability, which they honed down to a group of 43. From there, they dug deeper into the key qualities that they saw as necessary to achieve excellence.

However, like any business bestseller, this book has attracted its fair share of detractors, and the authors have come under fire since for their choice of firms, particularly those that went on to struggle in the years following publication.

This misses the point of the book. The authors’ proxy was clearly to look at the common factors for success embedded within each case study – not to call out the companies that offer shareholders the most promising rewards. Peters and Waterman identified a problem which they called the “rational” view of business – an obsession with numbers and analysis. This scientific approach had sacrificed a key asset of all organisations – people. It follows that their eight lessons are focused on the less scientific, and so tricky-to-measure, qualities of businesses.

True innovation
A whistle-stop tour of these principles begins with ‘A bias for action’, which encourages companies to simply get on with it – to facilitate fast decision-making. This, the authors argue, is the key to avoiding the burden of all big organisations – bureaucracy. Lesson two tells us to “learn from the people served by the business”. Peters and Waterman claim that few companies fully understand their customers but that knowing their preferences, and catering to them, is vital for achieving excellence.

Within great companies we also see this approach applied when staff are treated well. What this really means is that employees should be considered a source of quality, benefiting from management that is hands-on and driven by values. They should believe their best efforts are an essential part of the firm’s success.

Further themes include creating a culture of autonomy and entrepreneurship, which might involve breaking the business down into smaller parts, facilitating competitive thinking. Crucially,
this process will help to foster that golden goal of every business, true innovation.

Some lessons, such as the appeal to “stick to the knitting”, are simple. Essentially, it encourages companies to stay with the business they know. Peters also urges that “structure is not organisation” and that a lean, simple framework is crucial to success. Finally, the pair identified that successful businesses held a common ability to maintain what they refer to as “simultaneous loose-tight properties”, which translates to a level of autonomy in shop-floor activities but with centralised values.

Fundamentally, the book urges us to take a more human view of business, to ask questions rather than seek answers. It also encourages a more entrepreneurial approach – highlighting the need to experiment, take risks and seek out revenue-building activities rather than cost-reducing ones.

We should remember that the familiarity of these lessons don’t negate their value for today’s boardroom where transparency, culture, agility, innovation and insight are highly prized.

What is your favourite business bible? Email Brendan Walsh

Brendan Walsh is Executive Vice President and Head of Global Corporate Payments, International at American Express

In Search of ExcellenceFact file

Published January 1982.

What the Wall Street Journal said: In Search of Excellence is “one of those rare books on management that is both consistently thought-provoking and fun to read”.

High point The book sold three million copies in the first four years and became the most widely held library book in the US from 1989 to 2006.

Low point As early as 1984 some analysts criticised Peters and Waterman for their choice of “excellent” companies, claiming that several were “poor to indifferent”.

Did you know? Peters served in the US navy from 1966 to 1970, making two tours to Vietnam, and later worked in the Pentagon before becoming a management consultant and business author.


About author

Brendan Walsh

Brendan Walsh

Brendan Walsh is Executive Vice President of American Express Global Corporate Payments, Europe, and Chair of American Express's European Governance Board.

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