In Search of Excellence
First published in 1982, it is one of the biggest selling business books ever, selling 3 million copies in its first four years, and being the most widely held monograph in the United States from 1989 to 2006 (WorldCat data).
The book purports to explore the art and science of management used by several 1980s companies.
In Search of Excellence did not start out as a book, as Tom Peters explained when interviewed in 2001 to mark the 20th anniversary of In Search of Excellence. In the same interview, Peters claims that he and Waterman were both consultants on the "margins" of McKinsey, based in the San Francisco office.
In 1977 McKinsey director Ron Daniel launched two projects; the first and major one, the Business Strategy project, was allocated to top consultants at McKinsey's New York City corporate HQ and was given significant resources, but could not manage to effectively implement strategy.
Peters states that directly after graduating with a PhD from Stanford, and returning to McKinsey, Daniel handed him a "fascinating assignment." Motivated by the new ideas coming from Bruce Henderson's Boston Consulting Group, Peters "was asked [by Daniel] to look at 'organization effectiveness' and 'implementation issues' in an inconsequential offshoot project nested in McKinsey's rather offbeat San Francisco office." While Daniel's first project was focused on Business Strategy, this second project was concerned with Organization, which Peters defined as involving "the structure-and-people side." This "Organization" project was seen as less important, according to Peters in a Fast Company interview.
Despite being described as "marginal," the project "had an infinite travel budget that allowed [Peters] to fly first class and stay at top-notch hotels and a license from McKinsey to talk to as many cool people as [he] could all around the United States and the world." Peters admits that "There was no carefully designed work plan. There was no theory that I was out to prove. I went out and talked to genuinely smart, remarkably interesting, first-rate people." In addition to Karl Weick and Einar Thorsrud, Peters notes that Douglas McGregor's theory of motivation known as Theory X and Theory Y was directly influential on the direction of the project.
In a 1978 article, "Symbols, Patterns and Settings," Peters argued that "shifting organizational structure" and "inventing new processes" - structure and system, respectively - were only two tools of organizational change. Peters then outlines eight "mundane" tools that every manager has at their fingertips. He described this article as a "tentative presentation" and "the first public expression of these ideas."
In 1979 McKinsey's Munich office requested Peters to present his findings to Siemens, which provided the spur for Peters to create a 700-slide two-day presentation. Word of the meeting reached the US and Peters was invited to present also to PepsiCo, but unlike the hyper-organised Siemens, the PepsiCo management required a tighter format than 700 slides, so Tom Peters consolidated the presentation into eight themes. These eight would form the chapters of In Search of Excellence.
In 1980, Waterman joined Peters, and, along with Waterman's friend Tony Athos and Richard Pascale - both academics - came together at a two-day retreat in San Francisco to develop what would become known as the 7-S Framework, the same framework that would organize In Search of Excellence. In June 1980, Peters published an op-ed in the Manager's Journal section of the Wall Street Journal titled "The Planning Fetish." In this article, he "stressed the importance of execution and dismissed the whole idea of strategy." As strategy was McKinsey's main operation at the time, this was seen as a "frontal assault" on the company, leading Mike Bulkin, the head of the New York office, to demand that Daniel fire Peters.
The primary "innovative" theme that under-girded what would become In Search of Excellence was that "structure is not organization." This also happened to be the title of a 1980 journal article authored by Bob Waterman, Tom Peters, and Julien Phillips in which they argue that the "picture of the thing is not the thing...An organizational structure is not an organization." This article also introduced what would become the McKinsey 7-S Framework.
In December 1981, Peters left the company, after agreeing to a fifty percent royalty split with McKinsey. Later co-author Waterman stayed at the firm for three more years, but received no royalties from In Search of Excellence
A list of companies covered in the book, and their subsequent financial performance. This list includes only publicly traded companies.
Peters and Waterman found eight common themes which they argued were responsible for the success of the chosen corporations. The book devotes one chapter to each theme.
- A bias for action, active decision making - 'getting on with it'. Facilitate quick decision making & problem solving tends to avoid bureaucratic control
- Close to the customer - learning from the people served by the business.
- Autonomy and entrepreneurship - fostering innovation and nurturing 'champions'.
- Productivity through people- treating rank and file employees as a source of quality.
- Hands-on, value-driven - management philosophy that guides everyday practice - management showing its commitment.
- Stick to the knitting - stay with the business that you know.
- Simple form, lean staff - some of the best companies have minimal HQ staff.
- Simultaneous loose-tight properties - autonomy in shop-floor activities plus centralized values.
As early as 1984 it was apparent, to certain analysts, that the book's choice of companies was poor to indifferent. NCR, Wang Labs, Xerox and others did not produce excellent results in their balance sheets in the 1980s.
Rick Chapman titled his book on high-tech marketing fiascoes, In Search of Stupidity, as a nod to Peters's book and the disasters that befell many of the companies it profiled. He notes that "with only a few exceptions... [the excellent companies were] large firms with dominant positions in markets that were senescent or static."
In an article in Fast Company, cited below, Peters remarked that the criticism that "If these companies are so excellent, Peters, then why are they doing so badly now," in his opinion "pretty much misses the point."
The research methodology employed by the authors of this book is also severely criticized by Phil Rosenzweigh in his book "The Halo Effect"  as the "Delusion of Connecting the Winning Dots". Rosenzweigh opines that it was not possible to identify the traits that make a company perform simply by studying already-performing companies which Peters and Waterman did.
Peters' "confession" of "faked data"
In December, 2001, Fast Company printed an article, crediting Tom Peters as author, entitled "Tom Peters's True Confessions". Most of the "confessions" were humorously self-deprecating remarks (In Search of Excellence had been "an afterthought... a hip-pocket project that was never supposed to amount to much"). One of them, however, used the term "faked data:"
- This is pretty small beer, but for what it's worth, okay, I confess: We faked the data. A lot of people suggested it at the time. The big question was, How did you end up viewing these companies as "excellent" companies? A little while later, when a bunch of the "excellent" companies started to have some down years, that also became a huge accusation: If these companies are so excellent, Peters, then why are they doing so badly now? Which I'd say pretty much misses the point.
- [In] Search [of Excellence] started out as a study of 62 companies. How did we come up with them? We went around to McKinsey's partners and to a bunch of other smart people who were deeply involved and seriously engaged in the world of business and asked, Who's cool? Who's doing cool work? Where is there great stuff going on? And which companies genuinely get it? That very direct approach generated a list of 62 companies, which led to interviews with the people at those companies. Then, because McKinsey is McKinsey, we felt that we had to come up with some quantitative measures of performance. Those measures dropped the list from 62 to 43 companies. General Electric, for example, was on the list of 62 companies but didn't make the cut to 43 -- which shows you how "stupid" raw insight is and how "smart" tough-minded metrics can be.
- Were there companies that, in retrospect, didn't belong on the list of 43? I only have one word to say: Atari.
- Was our process fundamentally sound? Absolutely! If you want to go find smart people who are doing cool stuff from which you can learn the most useful, cutting-edge principles, then do what we did with Search: Start by using common sense, by trusting your instincts, and by soliciting the views of "strange" (that is, nonconventional) people. You can always worry about proving the facts later.
BusinessWeek ran an article about Fast Company's article. As related by BusinessWeek, the article was actually written by Fast Company founding editor Alan M. Webber, based on a six-hour interview with Peters. Peters reviewed and approved the article prior to publication, but the actual phrase "we faked the data" was Webber's, and Peters had not actually used these words during the interview. BusinessWeek quoted Peters as saying "Get off my case. We didn't fake the data." According to BusinessWeek, Peters says he was "pissed" when he first saw the cover. "It was his [Webber's] damn word," he says. "I'm not going to take the heat for it."
- Peters, T. (1980). The Planning Fetish. Manager's Journal," Wall Street Journal.
- Waterman, R. H., Peters, T. J., & Phillips, J. R. (1980). Structure is not organization. Business Horizons, 23(3), 14-26.
- Tom Peters (November 2001). "Tom Peters's True Confessions". Retrieved 2008-07-17.
- Rosenzweig, Phil (2007). The Halo effect and Eight Other Business Delusions That Deceive Managers (1st ed.). US: Free Press. ISBN 978-0-7432-9126-2.
- "The Real Confessions of Tom Peters". 2001-12-01. Retrieved 2015-04-04.