In Search of Excellence

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

This book, which has become a classic in the genre, talks about the path to success based on simplicity and common sense.

The book presents the results of a study conducted by Thomas Peters and Robert Waterman in 1979-80. During the study, they analyzed the characteristics of the most successful companies in the United States.

After selecting 43 of these companies from six different industries, the authors carefully analyzed their operations.

Although this work is more than 20 years old, the basic principles of business excellence that the authors developed remain relevant today.

These eight principles may seem obvious, but this particular study is the first systematic and methodical approach. This great book has become a classic in business management, and its conclusions are tested in practice on a regular basis.

The Main Ideas

• The McKinsey 7S model includes shared values, systems, leadership styles, employees, a set of skills, strategies and structures.
• Organizations must always keep in mind the unpredictability of human behavior.
• The establishment of open and informal communication channels within the organization will increase its ability to do business.
• The activities of successful companies are largely driven by the needs of their customers, not by the cost or availability of technology.
• Encourage independence and entrepreneurship while being tolerant of mistakes and failure.
• Respect each individual and provide the necessary training and development opportunities.
• Successful companies have a clear set of core values that guide their decisions.
• Do not allow the management team to expand or complicate operations.
• Focus on the core activity, while creating the conditions for the maximum freedom of the employees and a clear identification of the main direction.

The McKinsey 7S Model

When Peters and Waterman began their research, U.S. companies were under a lot of pressure from competitors around the world, especially Japanese companies. They wanted to find out what made some American companies so successful and try to create a system that other companies could use.

To do this, they started by looking at all the important factors that could affect success. They combined them into a list of 7 core principles.

1. Shared values
2. Style
3. Skills
4. Systems
5. Structure
6. Staff
7. Strategy

That’s when they came up with the “The McKinsey 7S model”. It was named for the first letter of each of the 7 principles and the name of McKinsey Consulting, where Peters and Waterman worked at the time.

Using this model, they tried to define what “excellence in business” really meant, so the researchers chose some examples of great business success. They started with a list of companies that were considered by business people, consultants, and industry experts to be leaders and innovators in six different industries.

To determine which companies were “best in business,” the researchers set some criteria. They wanted to find companies that

• Had been growing for more than 20 years.
• Were not struggling financially at the time of the study.
• Regularly offered innovative products and services.
• Adapted quickly to changing markets and external conditions.

The researchers understand that financial metrics are important. You can’t get very far without them. But they don’t tell the whole story.

They selected 75 companies to study. After careful analysis, they narrowed it down to 43. More than 20 years later, many of these companies are still going strong. Some examples include: HP, Intel, P&G, J&J, Caterpillar, 3M, Marriott, McDonald’s, Disney, Boeing, and Bechtel.

It’s unlikely that a company will succeed without a set of values that everyone can respect and understand.

The Importance of Human Factors

All of these companies have discovered one important thing: Effective management doesn’t follow the traditional principle of “cold rationality,” based on business school teaching methods and the search for logical explanations for every decision.

Rather than simply collecting and analyzing data, the leading companies place special emphasis on those difficult-to-define aspects of management that are directly related to people.

In other words, they recognize that there is an “unpredictable human factor” in the organization’s operations.

As a result, all eight principles of effective management involve some aspect of the infamous human element. These principles are the result of a number of important observations about rationality and intuition.

Irrational Thinking

Rational thinking can be a great tool for business, but when misused, it can lead to serious problems. For example:

• It can cause people to become overly pessimistic and critical of everything that happens.
• They may also resist trying new things and rule out the possibility of mistakes.
• In addition, rational thinking can make things unnecessarily complicated and reject anything that is not formal.
• Finally, it may underestimate the importance of sharing values with other team members.

It seems to each of us that we are the best at what we do. We can’t treat ourselves objectively, and that’s a big problem for people management. However, most organizations have a negative view of their employees.

People’s actions, whether they’re employees, customers, or even managers, are often driven by irrational factors rather than rational ones. These irrational thoughts come from the right hemisphere of the brain.

For example, some people prefer to think of themselves as the best employees, when this is not necessarily the case.

Therefore, it’s important to encourage people to stand out and be recognized for their efforts by rewarding them and giving them public recognition.

Simple Systems

It’s easier for many people to absorb knowledge using simple systems and procedures. This means that it is better to reduce extensive lists of goals, guidelines, and recommendations to a few clear and specific principles.

Eight basic operating principles used in successful companies take these patterns into account, and are essentially methods for positive influence, characterized by a more intuitive and right-hemisphere approach to management. These principles are described below.

The most depressing aspect of the fate of large corporations is the loss of an essential quality that has enabled them to maintain a leading position – the ability to innovate.

Eight Principles of Success

The First Principle: Be Ready to Act

Successful companies respond quickly to change and take action. To put their plans into action, they create short-term working teams that tackle specific tasks and start working on them within days of a decision.

This avoids bureaucratic delays and red tape. This is in contrast to the traditional approach, where a large team analyzes a similar task over months and produces a detailed report when the task is complete.

Small working teams typically include specialists from different departments, selected based on the knowledge and skills required for the specific project.

The focus on action also benefits from the “break tasks” approach, which breaks down complex processes and tasks into smaller pieces, making the organization more flexible and efficient.

Building Blocks

There are several ways to implement this approach, including the creation of

• work groups
• project management centers
• “quality circles,” and “think tanks” – specialized, semi-autonomous departments that experiment with new ideas.

Typically, these groups use smaller teams as “building blocks” to create the necessary organizational structures within the company.

By simplifying systems, such as breaking down large plans into smaller steps or milestones, people can clearly understand where to focus and how to achieve their goals.

Small workgroups are a common way to achieve goals.

These smaller groups are the main building block for successful companies, helping them build an organization from the ground up.

Risk taking

Another reason leading companies tend to take action more often is that they like to experiment. They are willing to take the risk of trying new initiatives, even if it means making mistakes.

At Hewlett-Packard, for example, engineers developing new products leave models of what they’re working on on their desks for anyone to see and try out. If the experiments don’t work, the company immediately stops development.

It’s like playing poker, where a good player knows when to fold and when to keep going.

If the innovations are successful, they keep working on them until they create new products, like GE’s many successes in plastics and aircraft engines.

Communication

Finally, better communication plays a big role.

Walt Disney, for example, encourages communication among employees by using first names. Other companies, such as IBM and Delta Air Lines, have an “always open door” policy to the executive suite.

No one is saying that companies shouldn’t plan – there’s no doubt about that. But too much planning can become its own end.

Second Principle: Getting to Know the Customer

Big companies want to make sure they’re doing a good job, so they focus on quality, reliability, and great service.

They don’t do it because of new technology or to cut costs. It’s about being customer-centric. In the ’80s, when IBM was the industry leader, it was all about great service.

Sometimes great service means doing things that aren’t profitable today. But in the long run, it pays off. It means customers will be loyal to you.

Frito-Lay’s success is due to its employees’ desire to go above and beyond for their customers. For example, Frito-Lay employees have helped store employees recover from hurricanes and other disasters.

Don’t Ignore Your Customers

Despite all the noise about being customer focused, customers still get ignored or treated as annoying.

This customer focus shows a commitment to quality and reliability. Like McDonald’s obsession with cleanliness, or HP’s focus on meeting “quality goals”, even if it means they’re behind the competition in technology.

Unfortunately, growth often means more complicated processes. For most companies, focusing on great customer service usually means finding a unique angle that sets them apart from the competition.

This can be anything from using technology in a unique way, to offering great pricing flexibility, or even just better segmentation of customers.

It’s also about focusing on solving problems and being willing to invest in product differentiation.

But for the top companies, cost and technology aren’t the main drivers of success. Instead, they focus on delivering high quality service, reliability, and occupying a “niche with high consumer value”.

Being close to customers means really listening to them and understanding what they want. This information then becomes the basis for future product and service innovation.

The market itself becomes a source of valuable ideas rather than an obstacle to innovation.

The Third Principle: Independence and Entrepreneurship

To develop an entrepreneurial mindset and a sense of independence among their employees, top companies stimulate their desire to innovate. They encourage researchers to come up with new ideas in every possible way.

They want brand managers to actively contribute to the development of new ideas.

These companies recognize the importance of enthusiastic individuals who are obsessed with their ideas and provide support at various levels.

For example, there may be people in the company who have a “passion” for a particular product. Often, they’re individuals who have a strong belief in the success of their beloved creation.

These people are considered pioneers and are given a small research team or team of specialists.

Valuable Failures

Top companies also tolerate failure. They know that not every experiment will succeed, and that it’s okay to make mistakes.

This approach has allowed 3M, for example, to create more than 50,000 product names and launch more than 100 entirely new products each year.

It’s not just about promising to take care of people, it’s about consciously respecting people and their desire to learn, setting reasonable and clear expectations for them, and giving them the freedom to choose how best to do their jobs.

Principle Four: People Drive Productivity

Successful companies truly value the contribution of individuals to the organization. That’s why they create opportunities for personal growth, set clear and reasonable goals, and give people “practical freedom” to do their jobs more efficiently.

Companies such as Delta Airlines and HP take this approach in different ways.

For example, Delta focuses on creating a “family” environment, while HP’s focus is on “communication and collaboration”. Both companies create a comfortable work environment that encourages employees to be more productive.

Sometimes this approach can lead to over-the-top company parties and awards, but it also has a positive side – it makes employees more motivated and satisfied with their jobs.

Fifth Principle: Value Orientation

Leading companies have a set of values that guide their actions. They’re clear about the beliefs that drive their work, and they seriously consider creating a system of shared values for all employees.

All sorts of stories, traditions, and beliefs that support this value system become part of the company’s culture.

But its ideological message is kept simple and focused on a few core principles.

The sixth principle: Loyalty to Purpose

Leading companies remember where they started. That is, they stick to a core thing they’ve excelled at.

For example, 3M is all about products that use its own technology in coatings and materials. It also focuses on building businesses in related areas.

Companies that try to cover a wide range of different industries tend to be less successful.e

According to research, notably by Richard Rumelt of Harvard Business School, companies that stick to their specialties tend to perform better (more here).

Seventh Principle: Simple Structure, Few Managers

Companies try to keep their rules and processes as simple as possible and keep the number of layers of management to a minimum, which makes them more flexible.

This allows them to respond quickly to changing external factors.

Eighth Principle: Discipline Combined with Freedom

The balance between centralized management and individual autonomy is one that leading companies have mastered.

They have strong control mechanisms, but they’re also open to change and innovation.

This principle means that the overall direction of the company is followed, but individual creativity is allowed.

Conclusion

This book is a great resource for anyone who wants to learn more about managing and running a successful business. The book shows that success doesn’t just happen, it’s the result of hard work, smart planning, and continued growth.

If you want to know how successful businesses achieve their goals, check out some of the other articles, tools and book summaries on this site.

I’m constantly adding new content that will help you expand your knowledge and skills in productivity, leadership, and business in general.

Remember, the only way to achieve your career goals and live a fulfilling life is to keep learning and growing.

Stay strong, and see you soon.

Ocwoy.