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

Not all of them are top performers today. But in an authors' note for the 2004 edition of the book, Peters and Waterman stick to their guns. They say their ideas on management theory remain relevant whatever the age, and they wouldn't change their eight attributes of excellence.

They weren't writing a book called Forever Excellent, they argue. It'd be absurd to expect any company to have an endless run of success.

Whether you buy this argument or not, we think many of the lessons in the book stand the test of time and can be applied to today's business world.

So who's this book for? Well, if you're a manager – from a CEO down to the head of a small unit – you'd be wise to take a look at it. You may have a stack of management books on your shelves, but In Search of Excellence is pretty much credited with starting the management guru business.

In terms of theory, you'll read why the authors have a problem with the likes of Peter Drucker and Robert McNamara. And practically speaking, there are plenty of tips on keeping a workforce loyal, happy, motivated and brimming with ideas.

If you're not a manager, In Search of Excellence still makes for fascinating reading. You'll be able to spot what your company is doing well and where it's going wrong. Are you getting the encouragement you need? Is an overbearing management structure quashing your enthusiasm and ideas? Do you need more freedom?

And even if you're outside the corporate world, the book could be useful. It's packed with great psychology about what makes people tick, and some of its basic tenets apply to individuals as much as companies.

Take, for example, the idea that too much analysis leads to paralysis, that doing is better than planning, and if you haven't failed much lately then you're not trying hard enough. There are plenty of gems like these to keep the reader engaged.

Now, as you heard earlier, the authors have come in for some criticism over the years. Their research has been called "anecdotal," and, in an interview with Fast Company magazine in 2001, Peters was quoted as saying he faked the company data – a quote he later denied.

Other critics argue that the authors started with preconceived ideas and theories and then found data to fit these, rather than letting the data tell the story.

The style of the book, too, isn't without its faults. It's not a light or easy read. It's densely packed and is pretty long. It's peppered with quotes from other management theorists and company executives, and there'll be too many of these for some readers. It's also repetitive in parts. In short, it requires a lot of concentration.

But if you can get over those style hurdles and down to the substance, it'll be worth it. The authors are, undoubtedly, authorities in their field. At the time of writing, they had a combined 24 years in the management-consulting business under their belts. Much of the information in the book was gathered in face-to-face interviews with top executives, shop-floor staff and the sales forces of some of the world's top-performing companies. Yes, there are anecdotes and references to media articles, but the authors did their legwork too.

So keep listening to hear why it pays to be fanatical about customer service, why it's best to let the mavericks do their thing, and why, in the end, it all boils down to people.

In Search of Excellence didn't start out as a book. It began as a research project back in 1977, a time of doom and gloom in corporate America.

Peters and Waterman, management consultants at McKinsey's San Francisco office, were asked to lead a project called "Organization – Structure and People".

The project came with a generous budget to travel the world and interview executives about teams and organizations. The authors measured companies against seven variables, which became known as the McKinsey 7-S framework: structure, strategy, systems, shared values, skills, style and staff.

On the back of that research, the authors began a new project, examining America's most consistently innovative and profitable companies, to see what traits they had in common.

The companies were selected against certain criteria of financial performance and innovation – marks of "excellence", according to the authors. They began with 62 companies, then whittled their study down to 43 Fortune-500 companies.

From their research, the authors came up with eight principles that were common denominators of these top-performing companies. These became their eight attributes of excellence, which are as follows.

Firstly, "A Bias for Action," for getting on with things. This means quick decision making, less analysis and less bureaucracy.

Next, "Close to the Customer." Learning what customers want and catering to them. It's a company-wide commitment to service, quality and reliability.

Then comes "Autonomy and Entrepreneurship." This is about breaking the big corporation into small units and encouraging independent thinking and internal competition. This leads to innovation.

The fourth is "Productivity through People." IBM is heralded as a master in this field, valuing and respecting every worker, and giving everyone a share in the company's success.

Next, "Hands-On, Value-Driven" describes how some of the best leaders roll up their sleeves and get their hands dirty, ensuring they're in touch with the firm's core business. Some examples are Bill Hewlett and Dave Packard, Levi Strauss, James Cash Penney and Ray Kroc of McDonald's.

The sixth principle is "Stick to the Knitting." Or, in the words of Robert W. Johnson, former chairman of Johnson & Johnson, "Never acquire a business you don't know how to run."

The seventh is "Simple Form, Lean Staff." Keep organizational structure and corporate staff to a minimum. The authors' "excellent" companies favored corporate staffs of less than 100 people.

And finally, "Simultaneous Loose-Tight Properties." In a way, this sums up the rest. It's about striking the right balance between centralization and decentralization, allowing mavericks the space to innovate while running a tight ship and sticking to core values.

The principles and the research method are outlined in the book's first chapter, called Successful American Companies. Before the principles are explored in more depth, there are three chapters on management theory.

In a chapter called the Rational Model, the authors describe pretty much everything they see as wrong with American business. They argue that the rational approach is negative, cautious, analytical and dry. Where's the gut feeling, the instinct, the excitement, the passion and the chaos that can often produce brilliant results?

In the preface to the 1982 edition, the authors suggested the reader could skip the next two chapters. But in the 2004 edition, they take this back. They say chapters three and four are a must-read, and are as relevant today as they were when first written.

We'd have to agree. These chapters – called "Man Waiting for Motivation" and "Managing Ambiguity and Paradox" – stand the test of time and are a fascinating read, even for those not in the management business. They talk about the complexities of human nature, how we all want to be winners, how we need positive reinforcement and we all search for meaning.

While these chapters are quite dense, they're also easy to relate to. We're encouraged to think about what makes us all tick and how that knowledge can be translated into better results and a happier workforce.

The rest of the book is divided into eight chapters, one for each principle.

We don't have time to examine every principle at length here, so we'll just pick out a few examples. It's also important to note that there's lots of overlap between the eight attributes of excellence.

Let's take a look at the "Close to the Customer" principle. One of the companies the authors choose to illustrate this is Walt Disney Productions – a company they say provides one of the best examples of service through people.

So how does Disney do it? Well, first, they break down the barriers between management and the customer. Once a year, for one week, Disney executives throw off their usual business garb and don a character costume, say Mickey Mouse, and head to the theme park. They sell popcorn, serve hot dogs, load up rides and mingle with the customers.

Like many of the 'excellent? companies in the book, Disney has its own vocabulary. Workers are "cast members," when they're out talking to the public they're "on stage," and customers are Guests with a capital G.

Employees attend the Disney University to learn how the company's various divisions work together, to learn about its ethos and to know where they fit in.

Similarly strong on customer service is McDonald's, with its own university too, underlining the point that customer satisfaction begins with excellently trained staff.

IBM is also cited here as a company with a near-perfect record of customer service. The authors interviewed past and present IBM executives and IBM customers. They all agree that IBM might not be the most advanced company technologically or the first to the market with a new product, but it always comes first on service and reliability.

Let's look now at the principle of autonomy and entrepreneurship. This chapter's all about how to be big but act small, and how to give free rein to the dreamers, the innovators, the mavericks.

The authors found that top-performing companies push autonomy right down the line and favor small groups of workers, say a band of eight or 10. These offshoots often work in a corner or in a basement, and are outside the formal corporate structure. The authors call these groups "skunk works."

They found that 3M embodies a lot of the elements essential to entrepreneurship. The physical office space has plenty of sites where people can experiment. Informal communications are the norm, the innovators or champions are supported, internal competition is encouraged, and it's OK to scrounge ideas from other groups. Failure isn't a problem and there's an absence of planning and paperwork.

Sound like chaos? Well, it works. As the organizational theorist Karl Weick once said, "Chaotic action is preferable to orderly inaction."

Finally, let's look at the principle of "Productivity through People". Now, it may seem obvious that the most important component of any organization is its people. But the authors argue this concept has been buried by an emphasis on financial performance and cost effectiveness, and by complex organizational structures.

Treat people as adults and as the primary source of growth and your company might just fly, they say.

In this section, we hear about the hoopla that goes on at the top-performing companies. Success is celebrated, particularly small successes, so everyone feels like they're a winner. The excellent companies give out lots of rewards, not just a few big ones – pins, buttons, badges and ribbons.

Hewlett-Packard, for example, has "The HP Way," a culture in which individuals are valued and made to feel part of the team. So, in 1970 when the company was hit by recession, Hewlett, Packard and everyone else in the company took a 10 percent cut in pay, rather than see people laid off.

Now, you may be thinking this is all very touchy-feely, the idea of putting people first. Well, that's the very point the authors are trying to get across. It's the soft stuff – the people, the values, the culture – that makes these companies great. It's not the hard stuff, like numbers, statistics or analysis. So yes, it does all boil down to people.

Now, given the book's age, some of the tales and anecdotes do seem outdated and the reader may think the ideas are no longer relevant. But look beyond the stories and examples at the unifying themes and the theory and we think you'll learn some valuable lessons.

Peters has continued musing on many of the points made in In Search of Excellence – and on other topics – in his blog. And a large number of his postings have recently been released in a book called "The Little Big Things, 163 Ways to Pursue Excellence."

Generally, his observations and ideas are both insightful and valuable, but that doesn't mean they work as well in book format as they did in the bite-size, drip-feed blog format for which they were originally written.

Plus, the new book is not at all easy on the eye, combining a bright orange cover and a plethora of font sizes and typefaces. So we feel that getting to grips with the eight principles of excellence in Peters' first book is not only easier, but it's also a more worthwhile task.

"In Search of Excellence," by Tom Peters and Robert Waterman, was first published in the United States in 1982 by Harper & Row. The 2004 edition was published by HarperBusiness Essentials in the U.S. and by Profile Books in the U.K.

That's the end of this episode of Book Insights. Thanks for listening.