In Search of Excellence by Tom Peters

The theme we shall return to continually in the book is that it is attention to employees, not work conditions per se, that has the dominant impact on productivity.

He described good managers as value shapers concerned with the informal social properties of organization. He contrasted them with mere manipulators of formal rewards and systems, who dealt only with the narrower concept of short-term efficiency.

We heard talk of organizational cultures

•  the family feeling, small is beautiful, 
• simplicity rather than complexity, 
• hoopla associated with quality products. 
• In short, we found the obvious, that the individual human being still counts. Building up organizations that take note of his or her limits (e.g., information-processing ability) and strengths (e.g., the power flowing from commitment and enthusiasm) was their bread and butter.

Innovative Companies 

• Constantly bringing new products and continually responding to change 

• Tools didn’t substitute for thinking. 
• Intellect didn’t overpower wisdom. 
• Analysis didn’t impede action. 
• These companies worked hard to keep things simple in a complex world. 
• They persisted. 
• They insisted on top quality. 
• They fawned on their customers. 
• They listened to their employees and treated them like adults. 
• They allowed their innovative product and service “champions” long tethers. 
• They allowed some chaos in return for quick action and regular experimentation.

8 attributes that emerged to characterize the excellent, innovative companies 

1. A Bias for Action
2. Close to the Customer
3. Autonomy and Entrepreneurship 
4. Productivity through People 
5. Hands on, Value Driven 
6. Stick to Strengths 
7. Simple form, Lean Staff 
8. Simultaneous Loose Tight 

1. A bias for action, for getting on with it. Even though these companies may be analytical in their approach to decision making, they are not paralyzed by that fact (as so many others seem to be). In many of these companies the standard operating procedure is “Do it, fix it, try it.” Says a Digital Equipment Corporation senior executive, for example, “When we’ve got a big problem here, we grab ten senior guys and stick them in a room for a week. They come up with an answer and implement it.” Constantly experiment and they form bands of 5 to 25 (small teams) and test ideas out on a customer, often with inexpensive prototypes, within a matter of weeks.

2. Close to the customer. These companies learn from the people they serve. They provide unparalleled quality, service, and reliability — things that work and last. They succeed in differentiating — à la Frito-Lay (potato chips), Maytag (washers), or Tupperware — the most commodity-like products. IBM’s marketing vice president, Francis G. (Buck) Rodgers, says, “It’s a shame that, in so many companies, whenever you get good service, it’s an exception.” Not so at the excellent companies. Everyone gets into the act. Many of the innovative companies got their best product ideas from customers. That comes from listening, intently and regularly. 

3. Autonomy and entrepreneurship. The innovative companies foster many leaders and many innovators throughout the organization. They are a hive of what we’ve come to call champions; 3M has been described as “so intent on innovation that its essential atmosphere seems not like that of a large corporation but rather a loose network of laboratories and cubbyholes populated by feverish inventors and dauntless entrepreneurs who let their… Some highlights have been hidden or truncated due to export limits.

4. Productivity through people. The excellent companies treat the rank and file as the root source of quality and productivity gain. They do not foster we/they labor attitudes or regard capital investment as the fundamental source of efficiency improvement. As Thomas J. Watson, Jr., said of his company, “IBM’s philosophy is largely contained in three simple beliefs. I want to begin with what I think is the most important: our respect for the individual. This is a simple concept, but in IBM it occupies a major portion of management time.” Texas Instruments’ chairman Mark Shepherd talks about it in terms of every worker being “seen as a source of ideas, not just acting as a pair of hands”; each of his more than 9,000 People Involvement Program, or PIP, teams (TI’s quality circles) does contribute to the company’s sparkling productivity record. 

5. Hands-on, value driven. Thomas Watson, Jr., said that “the basic philosophy of an organization has far more to do with its achievements than do technological or economic resources, organizational structure, innovation and timing.” Watson and HP’s William Hewlett are legendary for walking the plant floors. McDonald’s Ray Kroc regularly visits stores and assesses them on the factors the company holds dear, Q.S.C. & V. (Quality, Service, Cleanliness, and Value). 

6. Stick to what you can be great at. Robert W. Johnson, former Johnson & Johnson chairman, put it this way: “Never acquire a business you don’t know how to run.” Or as Edward G. Harness, past chief executive at Procter & Gamble, said, “This company has never left its base. We seek to be anything but a conglomerate.” While there were a few exceptions, the odds for excellent performance seem strongly to favor those companies that stay reasonably close to businesses they know. 

7. Simple form, lean staff. As big as most of the companies we have looked at are, none when we looked at it was formally run with a matrix organization structure, and some which had tried that form had abandoned it. The underlying structural forms and systems in the excellent companies are elegantly simple. Top-level staffs are lean; it is not uncommon to find a corporate staff of fewer than 100 people running multi-billion-dollar enterprises. 

8. Simultaneous loose-tight properties. The excellent companies are both centralized and decentralized. 

• Far too many managers have lost sight of the basics: quick action, service to customers, practical innovation, and the fact that you can’t get any of these without virtually everyone’s commitment.
• We are also against situations in which action stops while planning takes over, the all-too-frequently observed “paralysis through analysis” syndrome.

Treating people — not money, machines, or minds — as the natural resource may be the key to it all. Kenichi Ohmae, head of McKinsey’s Tokyo Office, says that in Japan organization and people(in the organization) are synonymous. Moreover, the people orientation encourages love of product and requires modest risk taking and innovation by the average worker. As Ohmae explains: Japanese management keeps telling the workers that those at the frontier know the business best…. A well-run company relies heavily on individual or group initiatives for innovation and creative energy. The individual employee is utilized to the fullest extent of his creative and productive capacity…. The full organization — the proposal boxes, quality circles, and the like — looks “organic” and “entrepreneurial” as opposed to “mechanical” and “bureaucratic.”

Don’t overplan, execute quickly

• “A lot of companies overdo it,” says Ed Wrapp. “They find planning more interesting than getting out a salable product…. Planning is a welcome respite from operating problems. It is intellectually more rewarding, and does not carry the pressures that operations entail…. Formal long-range planning almost always leads to overemphasis of technique.” Fletcher Byrom of Koppers offers a suggestion. “As a regimen,” he says, “as a discipline for a group of people, planning is very valuable. My position is, go ahead and plan, but once you’ve done your planning, put it on the shelf. Don’t be bound by it. Don’t use it as a major input to the decision-making process. Use it mainly to recognize change as it takes place.”
• “It is inherently easier to develop a negative argument than to advance a constructive one.”
• “Creative thought [the precursor to invention] requires an act of faith.”
• Advancement takes place only when we do something: Experimentation is the fundamental tool of science: if we experiment successfully, by definition, we will make many mistakes.
• The excellent company response to complexity is fluidity, the administrative version of experimentation. Reorganizations take place all the time.
• “You’ve got to avoid having too rigid an organization…. If an organization is to work effectively, the communication should be through the most effective channel regardless of the organization chart. That is what happens a lot around here. I’ve often thought that after you get organized, you ought to throw the chart away.”
  • “Most Japanese companies don’t even have a reasonable organization chart. Nobody knows how Honda is organized, except that it uses lots of project teams and is quite flexible…. Innovation typically occurs at the interface, requiring multiple disciplines. Thus, the flexible Japanese organization has now, especially, become an asset.”

The rationalist approach does not celebrate informality. Analyze, plan, tell, specify, and check up are the verbs of the rational process. Interact, test, try, fail, stay in touch, learn, shift direction, adapt, modify, and see are some of the verbs of the informal managing processes. We hear the latter much more often in our interviews with top performers.

While it is true that the good companies have superb analytic skills, we believe that their major decisions are shaped more by their values than by their dexterity with numbers. 

The top performers create a broad, uplifting, shared culture, a coherent framework within which charged-up people search for appropriate adaptations. Their ability to extract extraordinary contributions from very large numbers of people turns on the ability to create a sense of highly valued purpose. Such purpose invariably emanates from love of product, providing top-quality services, and honoring innovation and contribution from all.

• Peer pressure — rather than orders from the boss — as the main motivator.

MOTIVATIONS

1. All of us are self-centered, suckers for a bit of praise, and generally like to think of ourselves as winners. But the fact of the matter is that our talents are distributed normally — none of us is really as good as he or she would like to think, but rubbing our noses daily in that reality doesn’t do us a bit of good. 

2. Our imaginative, symbolic right brain is at least as important as our rational, deductive left. We reason by stories at least as often as with good data. “Does it feel right?” counts for more than “Does it add up?” or “Can I prove it?” 

3. As information processors, we are simultaneously flawed and wonderful. On the one hand, we can hold little explicitly in mind, at most a half dozen or so facts at one time. Hence there should be an enormous pressure on managements — of complex organizations especially — to keep things very simple indeed. On the other hand, our unconscious mind is powerful, accumulating a vast storehouse of patterns, if we let it. Experience is an excellent teacher; yet most businessmen seem to undervalue it in the special sense we will describe. 

4. We are creatures of our environment, very sensitive and responsive to external rewards and punishment. We are also strongly driven from within, self-motivated. 

5. We act as if expressing beliefs are important, yet action speaks louder than words. One cannot, it turns out, fool any of the people any of the time. They watch for patterns in our most minute actions, and are wise enough to distrust words that in any way mismatch our deeds. 

6. We desperately need meaning in our lives and will sacrifice a great deal to institutions that will provide meaning for us. We simultaneously need independence, to feel as though we are in charge of our destinies, and to have the ability to stick out.

• We’re exuberantly, wildly irrational about ourselves. And that has sweeping implications for organizing. Yet most organizations, we find, take a negative view of their people. They verbally berate participants for poor performance. (Most actually talk tougher than they act, but the tough talk nonetheless intimidates people.) They call for risk taking but punish even tiny failures. They want innovation but kill the spirit of the champion. With their rationalist hats on, they design systems that seem calculated to tear down their workers’ self-image. They might not mean to be doing that, but they are.
• The message that comes through so poignantly in the studies we reviewed is that we like to think of ourselves as winners. The lesson that the excellent companies have to teach is that there is no reason why we can’t design systems that continually reinforce this notion; most of their people are made to feel that they are winners. Their populations are distributed around the normal curve, just like every other large population, but the difference is that their systems reinforce degrees of winning rather than degrees of losing. Their people by and large make their targets and quotas, because the targets and quotas are set (often by the people themselves) to allow that to happen.

The systems in the excellent companies are not only designed to produce lots of winners; they are constructed to celebrate the winning once it occurs. 

• Their systems make extraordinary use of nonmonetary incentives. They are full of hoopla. There are other opportunities for positive reinforcement. 
  • The most intriguing finding — in another major area of psychological research, called “attribution theory” — is the so-called fundamental attribution error postulated by Stanford’s Lee Ross. Attribution theory attempts to explain the way we assign cause for success or failure. Was it good luck? Was it skill? Did we goof? Were we defeated by the system? The fundamental attribution error that so intrigues the psychologists is that we typically treat any success as our own and any failure as the system’s. If anything goes well, it is quite clear that “I made it happen,” “I am talented,” and so on. If anything bad happens, “It’s them,” “It’s the system.” Once again, the implications for organizing are clear. People tune out if they feel they are failing, because “the system” is to blame. They tune in when the system leads them to believe they are successful. They learn that they can get things done because of skill, and, most important, they are likely to try again. The old adage is “Nothing succeeds like success.” It turns out to have a sound scientific basis. *Design the system so people feel that success they create is the whole

Researchers studying motivation find that the prime factor is simply the self-perception among motivated subjects that they are in fact doing well.

• Warren Bennis, in The Unconscious Conspiracy: Why Leaders Can’t Lead, finds ample reason to agree: “In a study of school teachers, it turned out that when they held high expectations of their students, that alone was enough to cause an increase of 25 points in the students’ IQ scores.”

• People WANT to be on winning teams (“seek transcendence”); individuals who thrive on the camaraderie of an effective small group or unit setting (“avoid isolation”); creatures who want to be made to feel that they are in at least partial control of their destinies (“fear helplessness”). 
• Excellent companies simply allow for — and take advantage of — the emotional, more primitive side (good and bad) of human nature. They 
  • Provide an opportunity to be the best
  • The pursuit of quality and excellence 
  • Offer support —celebration; they use small, intimate units (from divisions to “skunk works” or other uses of teams);
  • They provide within protected settings opportunities to stand out

Bias: 

1. We don’t pay attention to prior outcomes. History doesn’t move us as much as does a good current anecdote (or, presumably, a juicy bit of gossip). We reason with data that come readily to mind (called the “availability heuristic” by Kahneman and Tversky) even if the data have no statistical validity. When we meet three friends in the space of a week in a hotel in Tokyo, we are more apt to think “how odd” than we are to muse on the probability that our circle of acquaintances tends to frequent the same places we do. 

2. If two events even vaguely co-exist, we leap to conclusions about causality. For example, in one experiment subjects are given clinical data on people and drawings of them. Later, when asked to recall what they have found, they will greatly overestimate the correlation between the way a person looks and that person’s true characteristics — people who are in fact suspicious by nature were judged typically (and erroneously) to have peculiar eyes. 

3. We’re hopeless about sample size. We find small samples about as convincing as large ones, sometimes more so. Consider, for example, a situation in which an individual draws two balls from an urn and finds that both are red. Another person then draws thirty balls and finds that eighteen are red and twelve are white. Most people believe the first sample contains the stronger evidence that the urn contains predominantly red balls, although as a purely statistical matter, the opposite is the case.

SIMPLICITY AND COMPLEXITY 

Most acronyms stink. Not KISS: Keep It Simple, Stupid! One of the key attributes of the excellent companies is that they have realized the importance of keeping things simple despite overwhelming genuine pressures to complicate things.

Eliminate paperwork through their use of quick-hit task forces, and among the paperwork fighters P&G is legendary for its insistence on one-page memos as the almost sole means of written communication.

Patterns: The mark of the true professional in any field is the rich vocabulary of patterns, developed through years of formal education and especially through years of practical experience. This notion ought to be celebrated for, in our minds, it is the real value of experience in business. It helps to explain the importance of management by wandering around. Not only do the employees benefit from being paid attention to. The experienced boss has good instincts; his vocabulary of old-friend patterns tells him immediately whether things are going well or badly. The vocabulary-of-patterns notion ought to do several things for us as we think about its implications for excellence in management. It should help us trust our gut more often on key business decisions. It should lead us to ask the advice of customers and workers more frequently. And finally it should encourage all of us to think hard about the value of experimenting as opposed to merely detached study.

Environment/Structure

• We are all simply a product of the stimuli we get from the external world (feedback loops). Specify the environment enough and you can exactly predict the individual’s actions.
• The most important lesson from Skinner is the role of positive reinforcement, of rewards for jobs well done.
• Positive reinforcement not only shapes behavior but also teaches and in the process enhances our own self-image.
• The perfect failure concept arises from simple recognition that all research and development is inherently risky, that the only way to succeed at all is through lots of tries, that management’s primary objective should be to induce lots of tries, and that a good try that results in some learning is to be celebrated even when it fails.
• Positive reinforcement also has an intriguing Zen-like property. It nudges good things onto the agenda instead of ripping things off the agenda. Life in business, as otherwise, is fundamentally a matter of attention — how we spend our time. Thus management’s most significant output is getting others to shift attention in desirable directions (e.g., “Spend more time in the field with customers”).

POSITIVE REINFORCEMENT

1. First, we attempt through positive reinforcement to lead people gently over a period of time to pay attention to new activities. This is a subtle shaping process.The way the reinforcement is carried out is more important than the amount. First, it ought to be specific, incorporating as much information content as possible.
2. Second, the reinforcement should have immediacy. Thomas Watson, Sr., is said to have made a practice of writing out a check on the spot for achievements he observed in his own peripatetic management role.
3. Third, the system of feedback mechanisms should take account of achievability. Major gold banana events are not common, so the system should reward small wins. Good news swapping is common in excellent companies. The fourth characteristic is that a fair amount of the feedback comes in the form of intangible but ever-so-meaningful attention from top management. When you think about it, with management’s time being as scarce as it is, that form of reinforcement may be the most powerful of all.
4. Finally, Skinner asserts that regular reinforcement loses impact because it comes to be expected. Thus unpredictable and intermittent reinforcements work better — the power of walking the shop floor again. Moreover, small rewards are frequently more effective than large ones. Big bonuses often become political, and they discourage legions of workers who don’t get them but think they deserve them. Remember, we all think we’re winners.

Zen; the use of positive reinforcement goes with the flow rather than against it.

The excellent companies, by contrast, tap the inherent worth of the task as a source of intrinsic motivation for their employees.

Only if you get people acting, even in small ways, the way you want them to, will they come to believe in what they’re doing. Moreover, the process of enlistment is enhanced by explicit management of the after-the-act labeling process — in other words, publicly and ceaselessly lauding the small wins along the way. “Doing things” (lots of experiments, tries) leads to rapid and effective learning, adaptation, diffusion, and commitment; it is the hallmark of the well-run company.

Empowering “Champions” inside of Culture

• The role of the leader, then, is one of orchestrator and labeler: taking what can be gotten in the way of action and shaping it — generally after the fact — into lasting commitment to a new strategic direction. In short, he makes meanings. “The world is an illusion created by a conspiracy of our senses.”

The dominance and coherence of culture proved to be an essential quality of the excellent companies. Moreover, the stronger the culture and the more it was directed toward the marketplace, the less need was there for policy manuals, organization charts, or detailed procedures and rules. In these companies, people way down the line know what they are supposed to do in most situations because the handful of guiding values is crystal clear. 

Poorer-performing companies often have strong cultures, too, but dysfunctional ones. They are usually focused on internal politics rather than on the customer, or they focus on “the numbers” rather than on the product and the people who make and sell it. The top companies, on the other hand, always seem to recognize what the companies that set only financial targets don’t know or don’t deem important. The excellent companies seem to understand that every man seeks meaning (not just the top fifty who are “in the bonus pool”).

Nietzsche believed that “he who has a why to live for can bear almost any how.” John Gardner observes in Morale, “Man is a stubborn seeker of meaning.”

• So strong is the need for meaning, in fact, that most people will yield a fair degree of latitude or freedom to institutions that give it to them. The excellent companies are marked by very strong cultures, so strong that you either buy into their norms or get out. There’s no halfway house for most people in excellent companies.
• Finally, and paradoxically, the excellent companies appear to take advantage of yet another very human need — the need one has to control one’s destiny. At the same time that we are almost too willing to yield to institutions that give us meaning and thus a sense of security, we also want self-determination. With equal vehemence, we simultaneously seek self-determination and security.
• Psychologists study the need for self-determination in a field called “illusion of control.” Stated simply, its findings indicate that if people think they have even modest personal control over their destinies, they will persist at tasks. They will do better at them. They will become more committed to them.
• We need to succeed and stick out — desperately — so we overestimate the possibility of doing the easy task. And to preserve face and ensure security, we underestimate the possibility of getting the difficult task done.

“Transforming Leadership” — leadership that builds on man’s need for meaning, leadership that creates institutional purpose. We are fairly sure that the culture of almost every excellent company that seems now to be meeting the needs of “irrational man,” as described in this chapter, can be traced to transforming leadership somewhere in its history. The transforming leader is concerned with minutiae, as well. But he is concerned with a different kind of minutiae; he is concerned with the tricks of the pedagogue, the mentor, the linguist — the more successfully to become the value shaper, the exemplar, the maker of meanings. His job is much tougher than that of the transactional leader, for he is the true artist, the true pathfinder. After all, he is both calling forth and exemplifying the urge for transcendence that unites us all. At the same time, he exhibits almost boorish consistency over long periods of time in support of his one or two transcending values. No opportunity is too small, no forum too insignificant, no audience too junior.

• [Transforming leadership] occurs when one or more persons engage with others in such a way that leaders and followers raise one another to higher levels of motivation and morality. Their purposes, which might have started out separate but related, in the case of transactional leadership, become fused. Power bases are linked not as counterweights but as mutual support for common purpose. Various names are used for such leadership: elevating, mobilizing, inspiring, exalting, uplifting, exhorting, evangelizing. The relationship can be moralistic, of course. But transforming leadership ultimately becomes moral in that it raises the level of human conduct and ethical aspiration of both the leader and the led, and thus has a transforming effect on both…. Transforming leadership is dynamic leadership in the sense that the leaders throw themselves into a relationship with followers who will feel “elevated” by it and often become more active themselves, thereby creating new cadres of leaders.

• Mao Tse-tung as exemplar, he comments: “His true genius was in understanding the emotions of others.”
• “Managers prefer working with people; leaders stir emotion.”
• The leader arouses confidence in his followers. The followers feel better able to accomplish whatever goals he and they share.
• Leader-followers symbiosis, we find two attributes of that symbiosis especially striking: believability and excitement. “You have to believe in the impossible.”

Warren Bennis has a good metaphor for the transforming leader — the leader as “social architect.”

• Watson (IBM), Kroc (McDonald’s), Marriott, et al., have been pathbreakers in treating people as adults, in inducing practical innovation and contributions from tens of thousands, in providing training and development opportunities for all, in treating all as members of the family.
• On the other hand, all of these gentlemen were tough as nails. All were ruthless when their core values of service to the customer and unstinting quality were violated. They combined, then, a caring side and a tough side. Like good parents, they cared a lot — and expected a lot. 
• chief executive as the shaper and manager of shared values in an organization: “The essential functions [of the executive] are, first, to provide the system of communications; second, to promote the securing of essential efforts; and third, to formulate and define purpose.

The dominant paradigm in this fourth epoch of organizational thought emphasizes informality, individual entrepreneurship, and evolution.

Basic human needs in organizations: 

(1) people’s need for meaning; 

(2) people’s need for a modicum of control; 

(3) people’s need for positive reinforcement, to think of themselves as winners in some sense; 

(4) the degrees to which actions and behaviors shape attitudes and beliefs rather than vice versa.

Leaders creating symbols and imagery to drive meaning 

• “The [leader] not only creates the rational and tangible aspects of organisations, such as structure and technology, but also is the creator of symbols, ideologies, language, beliefs, rituals, and myths.”
• It is not so much the articulation of goals about what an [institution] should be doing that creates new practice. It’s the imagery that creates the understanding, the compelling moral necessity that the new way is right…. It was the beautiful writing of Darwin about his travels on the Beagle, rather than the content of his writing, that made the difference.
• “How clear is the metaphor? How is that understood? How much energy are you devoting to it?”

“Loose-tight”/ Fluid Company Structure 

• we call the “loose-tight” properties of the excellent companies. In the very same institutions in which culture is so dominant, the highest levels of true autonomy occur. The culture regulates rigorously the few variables that do count, and it provides meaning. But within those qualitative values (and in almost all other dimensions), people are encouraged to stick out, to innovate.
• It assumes that organizations are to be sailed rather than driven, and that the effectiveness of leadership often depends on being able to time small interventions so that the force of natural organizational processes amplifies the interventions rather than dampens them.”
• “organizational design is more like locating a snow fence to deflect the drifting snow than like building a snowman.”

• “No one is ever free to do something he can’t think of.” And he provides a description by Gordon Siu of a marvelous experiment to clinch his point: …If you place in a bottle half a dozen bees and the same number of flies, and lay the bottle down horizontally, with its base to the window, you will find that the bees will persist, till they die of exhaustion or hunger, in their endeavor to discover an issue through the glass; while the flies, in less than two minutes, will all have sallied forth through the neck on the opposite side…. It is their [the bees] love of light, it is their very intelligence, that is their undoing in this experiment. They evidently imagine that the issue from every prison must be there where the light shines clearest; and they act in accordance, and persist in too logical action. To them glass is a supernatural mystery they never have met in nature; they have had no experience of this suddenly impenetrable atmosphere; and, the greater their intelligence, the more inadmissible, more incomprehensible, will the strange obstacle appear. Whereas the feather-brained flies, careless of logic as of the enigma of crystal, disregarding the call of the light, flutter wildly hither and thither, and meeting here the good fortune that often waits on the simple, who find salvation there where the wiser will perish, necessarily end by discovering the friendly opening that restores their liberty to them.

• This episode speaks of experimentation, persistence, trial and error, risks, improvisation, the one best way, detours, confusion, rigidity, and randomness all in the service of coping with change. Among the most striking contrasts are those between tightness and looseness. There are differences in the degree to which means are tied to ends, actions are controlled by intentions, solutions are guided by imitation of one’s neighbor, feedback controls search, prior acts determine subsequent acts, past experience constrains present activity, logic dominates exploration, and in the degree to which wisdom and intelligence affect coping behavior.

Learning Organization

• The excellent companies are learning organizations. They don’t wait around for the marketplace eventually to do them in; they create their own internal marketplace.
• They experiment more, encourage more tries, and permit small failures; they keep things small; they interact with customers — especially sophisticated customers — more (all functions of the organization); they encourage internal competition and allow resultant duplication and overlap; and they maintain a rich informal environment, heavily laden with information, which spurs diffusion of ideas that work.
• Structure will become a dynamic enabler of both change and unchange, the ultimate model of ‘organized chaos.’”
• Repeatedly we found things a lot more divided up and a lot less tidy than they should be according to conventional wisdom.
• The common theme, the thread that seems to tie the apparent untidiness together, is the idea that small is effective. We found divisions, plants, and branches that were smaller than any cost analysis would suggest they should be.
• “simulated entrepreneurship”

• We observed less standardization of procedure and a concomitant greater willingness to “let them do it any way they want if it makes sense and works.
• ”We observed more “chunking,” more breaking things up into manageable units than others professedly have. In most of the excellent companies, however, we see various approaches to chunking as a main tenet of effective management practice. Interestingly, the more we look at the phenomenon, the more we see it as a vehicle for enhanced efficiency as well as a vehicle to foster adaptation and survival.
• Tidiness is sacrificed and efficiency is gained. In fact, more than efficiency is gained. Through chunking, a corporation encourages a high volume of rapid action. The organization acts, and then learns from what it has done. It experiments, it makes mistakes, it finds unanticipated success — and new strategic direction inexorably emerges. We strongly believe that the major reason big companies stop innovating is their dependence on big factories, smooth production flow, integrated operations, big-bet technology planning, and rigid strategic direction setting. They forget how to learn and they quit tolerating mistakes. The company forgets what made it successful in the first place, which was usually a culture that encouraged action, experiments, repeated tries.
• Truly adaptive organization evolves in a very Darwinian way. The company is trying lots of things, experimenting, making the right sorts of mistakes; that is to say, it is fostering its own mutations. The adaptive corporation has learned quickly to kill off the dumb mutations and invest heavily in the ones that work. Our guess is that some of the most creative directions taken by the adaptive organizations are not planned with much precision.

The evolutionary biologist Stephen Jay Gould, an undisputed leader in the field, points out that the evolution of the human brain in a random variation, for instance, far from occurring as a tiny or logical next-step advance for the species, was 50,000 or more years ahead of its time; that is, it provided gross overcapacity for caveman’s needs. For that reason, it has not basically changed since then. Of course, major successful mutations are much rarer than small ones. But that, surely, is what we would expect. In any event, the evolutionary model does support the occurrence of big leaps without requiring, in Gould’s words, an all-knowing God or prescient planning.

• It is never the industry leader who makes the big leap. On the contrary, they claim, it is the inventor or small guy who makes the big leap. Most of the big new business breakthroughs, from McDonald’s (breakfast menu items pulling in about 40 percent of the business) to GE (engineered plastics and aircraft engines) have come from small bands of zealots operating outside the mainstream.

Connection with Customers 

• The excellent company solution is that it occurs via a remarkably rich set of interactions with the environment — namely, customers. Here again, conventional theory falls woefully short of excellent company reality.
• analyses of the intensity of customer contact among the better-performing companies. Utterback, for instance, talks about the outreach of innovative firms: “It implies special connections with your environment, not general connections. And connections with particularly creative and demanding users. And it demands that the connection be informal and personal…. A lot of translating and testing goes on between the producer of technology and the customer. Often there is a great deal of interaction between the possible users and the organization that brings a major product change into the market.”
• It’s not just experimenting; it’s thousands of experiments that characterize these operations. It’s not just internal competition; it’s doing virtually all resource allocation by internal competition. It’s not just small is beautiful; it’s hundreds of very small units, a tiny fraction of the technologically attainable size. It’s not just customer contact, but a vast array of devices for getting everyone from the junior accountant to the CEO in regular contact with the customer. In short, the core management practices in the excellent companies aren’t just different. They set conventional management wisdom on its ear.

A Bias for Action

• When you’re there, you feel it. People who’ve been there can hold one another in rapt conversation for hours about it; people who haven’t been there can’t quite imagine it.
• Complexity causes the lethargy and inertia that make too many companies unresponsive.Excellent companies seem to know how to make good use of it. Whether it’s their rich ways of communicating informally or their special ways of using ad hoc devices, such as task forces, the excellent companies get quick action just because their organizations are fluid.
  • HP, talking about that company’s central lab organization, adds: “We aren’t really sure what structure is best. All we know for certain is that we start with a remarkably high degree of informal communication, which is the key. We have to preserve that at all costs.”

Incentives/ Peer Review 

• In general, we observe the tremendous power of the regular, positive peer review. A simple tale comes from Tupperware. Tupperware makes about $200 million in pre-tax earnings on about $800 million in sales of simple plastic bowls. The key management task is motivating the more than 80,000 salespeople, and a prime ingredient is “Rally.” Every Monday night all the saleswomen attend a Rally for their distributorship. At Rally, everyone marches up on stage — in the reverse order of last week’s sales — during a process known as Count Up (while their peers celebrate them by joining in All Rise). Almost everyone, if she’s done anything at all, receives a pin or badge — or several pins and badges. Then they repeat the entire process with small units marching up. On the one hand, this is a fairly punishing drill — straight head-on-head competition that can’t be avoided. On the other hand, it is cast with a positive tone: everybody wins; applause and hoopla surround the entire event; and the evaluation technique is informal rather than paper-laden. In fact, the entire Tupperware system is aimed at generating good news opportunities and celebration. Every week there is an array of new contests. Take any three moribund distributorships: management will give a prize to whichever one has the best sales increase in the next eight weeks. Then there are the thirty days of Jubilee each year in which 15,000 are feted (3,000 at a time in week-long events) with awards, prizes, and ceremonies of all kinds. The entire environment is one that utilizes, in the extreme, positive reinforcement. Above all, when we look at HP, Tupperware, and others, we see a very conscious management effort to do two things: (1) honor with all sorts of positive reinforcement any valuable, completed action by people at the top and more especially way down the line; and (2) seek out a high volume of opportunities for good news swapping.

Communication… Communication… Communication! 

• The name of the successful game is rich, informal communication. The rich informal communication leads to more action, more experiments, more learning, and simultaneously to the ability to stay better in touch and on top of things.
• Chunking. That simply means breaking things up to facilitate organizational fluidity and to encourage action. The action-oriented bits and pieces come under many labels — champions, teams, task forces, czars, project centers, skunk works, and quality circles — but they have one thing in common. They never show up on the formal organization chart and seldom in the corporate phone directory. They are nevertheless the most visible part of the ad hocracy that keeps the company fluid.
• It’s also quite remarkable how effective team use in the excellent companies meets, to a tee, the best academic findings about the makeup of effective small groups. For instance, the effective productivity or new product teams in the excellent companies usually range from five to ten in size. The academic evidence is clear on this: optimal group size, in most studies, is about seven. Other findings are supportive. Teams that consist of volunteers, are of limited duration, and set their own goals are usually found to be much more productive than those with the obverse traits.

At the moment, however, there are four main messages that we want to get across about chunking.

1. Ideas about cost efficiency and economies of scale are leading us into building big bureaucracies that simply cannot act. 
2. The excellent companies have found numerous ways (not just a few) to break things up in order to make their organizations fluid, and to put the right resources against problems. 
3. All the chunking and other devices will not work unless the context is right. Attitudes, climate, and culture must treat ad hoc behavior as more normal than bureaucratic behavior. Finally, 
4. The free-wheeling environments in which ad hoc behavior flourishes are only superficially unstructured and chaotic. Underlying the absence of formality lie shared purposes, as well as an internal tension and a competitiveness that make these cultures as tough as nails.

“chaotic action is preferable to orderly inaction.”

Learning 

• Learning and progress accrue only when there is something to learn from, and the something, the stuff of learning and progress, is any completed action.
• You don’t first start on something which is going to take six man-months before you get to the answer. You can always find something in which, in a few hours of effort, you will have made some little steps.
• Never stop testing and your advertising will never stop improving….
• The obvious one is the cost effectiveness of trying something as an alternative to analyzing everything. Less obvious is the ability of people to think more creatively — and at the same time concretely — with prototype in hand.
• EXPERIMENT to think creatively about a product, or be creative about product uses, if a prototype, which is to say a low level of abstraction, is in hand. Thus, no amount of market research would have predicted the phenomenal success of the Apple II computer. We think it was the combination of a high-quality product and the emergence of an astonishing network of user groups, all playing with the machines and contributing new software almost daily, that made it such a success. No market research would have predicted that a woman we know would be the single biggest user of the Apple in her family; she, least of all, would have predicted that. It was starting her own business, based in her home, and having the Apple there, where she could try it and play with it at leisure, that made all the difference. Beforehand, had you told her about the wonders of word processing, she would have predicted (in fact, did predict) that she wouldn’t use it. The concept was too abstract. Having the machine to play with, though, made her a convert.
• There is a quality in experimentation as a corporate mind set that resembles nothing so much as a game of stud poker. With each card the stakes get higher, and with each card you know more, but you never really know enough until the last card has been played. The most important ability in the game is knowing when to fold.
• Under deadline pressure — and with manageable acts to perform — the impossible occurs regularly, it seems. Lots of people need a way to scrounge money and play at the margin with budgets in order to pursue maverick programs. Finally, and most important, is the user connection. Magic is to let the user see it, test it, and reshape it — very early.
• You start with the easy stuff, the things that are easy to change, and the places where your support base within the company is clear.

Momentum Breeds Momentum 

• The process of building momentum by accumulating small successes is nicely described by consultant Robert Schaffer: The essential idea is to focus immediately on tangible results — rather than programs, preparations and problem-solving — as the first step in launching performance improvement thrusts…. It is almost always possible to identify one or two specific short-term bottom line goals for which the ingredients for success are in place…. The results-first approach changes the whole psychology of performance improvement…. People must ask different kinds of questions…. Not, “What is standing in the way?” but rather, “What are some things we can accomplish in the next little while?”… Instead of trying to overcome resistance to what people are not ready to do, find out what they are ready to do…. Almost inevitably, when the managers successfully complete a project, they have many ideas about how to organize subsequent steps.
• The experimenting process is almost revolutionary. It values action above planning, doing above thinking, the concrete above the abstract. It suggests, in a very Zen-like fashion, going with the flow: doable tasks, starting with the easiest and most ready targets, looking for malleable champions rather than recalcitrant naysayers.
• The management task becomes one of nurturing good tries, allowing modest failures, labeling experiments after the fact as successes, leading the cheers, and quietly guiding the diffusion process.

SIMPLIFYING SYSTEMS 

• Fluidity, chunking, and experimenting are interestingly abetted by the character of the excellent companies’ formal systems.
• “Boil it down to something I can grasp.” If the memo involved a complex situation, he sometimes would add, “I don’t understand complicated problems. I only understand simple ones.” When an interviewer once queried him about this, he explained, “Part of my job is to train people to break down an involved question into a series of simple matters. Then we can all act intelligently.”
• Charles Ames, talking about his earlier experience at Reliance, speaks of the love affair with complex systems that often hides an inability to manage the basics: “We had planning systems of every sort from very long-term strategic systems to short-term ones. But we couldn’t predict what we were going to sell next month. I dismantled the five-year planning system, and went to a one-year planning system, and next to a quarterly system. We ended up running the company on a thirty-day system for a year or so. Only then did we learn to get the numbers right. Eventually we built back up to a long-term system, though never back to the epic proportions of the one we’d had originally.
• Virtually any system can be cleaned up and made simple.
• It’s obvious that no one gets more than a handful of activities done every few months.
• There is no more important trait among the excellent companies than an action orientation.
• Despite their vast size, are seldom stymied by overcomplexity. They don’t give in and create permanent committees or task forces that last for years. They don’t indulge in long reports. Nor do they install formal matrixes. They live in accord with the basic human limitations we described earlier: people can only handle a little bit of information at one time, and they thrive if they perceive themselves as even somewhat autonomous (e.g., experimenting modestly).
• What our research uncovered on the customer attribute is this: the excellent companies really are close to their customers. That’s it. Other companies talk about it; the excellent companies do it.
• IBM measures internal and external customer satisfaction on a monthly basis. These measures account for a large share of incentive compensation, especially for senior management. Employee attitude surveys are taken every ninety days, and a check is kept on employee perceptions of the way customer service is being maintained.

Autonomy and Entrepreneurship 

• The new idea either finds a champion or dies…. No ordinary involvement with a new idea provides the energy required to cope with the indifference and resistance that major technological change provokes…. Champions of new inventions display persistence and courage of heroic quality. — Edward Schon, MIT
• Recently, TI conducted a fascinating survey, reviewing its last fifty or so successful and unsuccessful new-product introductions, and found that one factor marked every failure: “Without exception, we found we hadn’t had a volunteer champion. There was someone we had cajoled into taking on the task.” The executive who told us this added: “When we take a look at a product and decide whether to push it or not these days, we’ve got a new set of criteria. Number one is the presence of a zealous, volunteer champion. After that comes market potential and project economics in a distant second and third.”
• Find a Product Champion: 100 percent (six out of six) Japanese successes had a champion, and three of the four Japanese failures had none.
• Motivated people with limited budgets. “It’s just amazing what a handful of dedicated people can do when they are really turned on. Of course, they had an advantage. Since they were so resource-constrained, they had to design a simpler product in the first place.”

Creativity is thinking up new things. Innovation is doing new things….

• Ideas are useless unless used. The proof of their value is only in their implementation. Until then, they are in limbo. There is no shortage of creativity or creative people in American business. The shortage is of innovators.
• All too often, people believe that creativity automatically leads to innovation. It doesn’t. Creative people tend to pass the responsibility for getting down to brass tacks to others. They are the bottleneck. They make none of the right kind of effort to help their ideas get a hearing and a try…. The fact that you can put a dozen inexperienced people in a room and conduct a brainstorming session that produces exciting new ideas shows how little relative importance ideas themselves have…. Idea men constantly pepper everybody with proposals and memorandums that are just brief enough to get attention, to intrigue and sustain interest — but too short to include any responsible suggestions for implementation. The scarce people are the ones who have the know-how, energy, daring, and staying power to implement ideas…. Since business is a “get-things-done” institution, creativity without action-oriented follow-through is a barren form of behavior. In a sense, it is irresponsible.
• All in all, his intensity leads him to try more things, learn faster, get lots more time and attention from other functions — and eventually to succeed. There is no magic. I can get five guys in R&D together any afternoon and come up with seventy-five to one-hundred plausible new product ideas. The point is to get on with testing and moving ahead. There are no geniuses in this business. You just gotta keep at it. The champion is not a blue-sky dreamer, or an intellectual giant. The champion might even be an idea thief. But, above all, he’s the pragmatic one who grabs onto someone else’s theoretical construct if necessary and bullheadedly pushes it to fruition.
• “One-man shows are seldom effective…. Entrepreneurs often need a sponsor.” The numerous schemes describing systems of championing all come down to the same thing — some form of primary champion plus some form of protector. As we move from consideration of the individual to the organization, we find there is a need for a number of players pushing innovation forward.
• A young engineer or marketer simply does not step out and take risks because of some “good feeling” in the gut. He steps out and takes risks because the history of the institution supports doing so as a way of life that leads to success. And he does so despite the certainty of repeated failure.
• If ten such initiatives are launched, the laws of probability tell us that the odds that at least one thing will work go all the way up to 65 percent. If twenty-five such initiatives are launched, the odds of at least one thing succeeding go up to more than 90 percent (the odds of at least two successes are almost 75 percent). The crystal-clear message is that no matter how small the odds are of any one thing’s working, the probability of something’s succeeding is very high if you try lots of things. According to James Brian Quinn, “Management must allow a sufficient number of projects with a long enough lead time for the characteristic 1:20 success ratio to have effect. Initially, entrepreneurial managers may need to undertake projects in somewhat lower risk ratios in order to build management confidence.”
• Support for Champions. Champions are pioneers, and pioneers get shot at. The companies that get the most from champions, therefore, are those that have rich support networks so their pioneers will flourish. This point is so important it’s hard to overstress. No support systems, no champions. No champions, no innovations. What strikes us most about the excellent companies is the completeness of their support systems for champions. In fact, the excellent companies are structured to create champions. In particular, their systems are designed to “leak” so that scrounging champions can get something done. They often do this in “skunk works.” 
• In our view, there is only one trick to making positions like this work. But it’s a tough one. It involves socializing the managers to believe they are would-be champions, yet at the same time maintaining very substantial control where it counts. Most companies that can’t think beyond such platitudes as “Authority must match responsibility” can’t come to grips with this tough dual task. Many companies introduce brand- or product-management schemes; heaven knows how many have tried to copy P&G. But what they seldom take the time to do is create the mythology, role models, and structure of heroes that transfer the burden (commitment, fire) onto the brand managers. Or if they do transfer the burden onto their brand managers, as some do, then they don’t play the other half of the game well — providing the incredibly tight and regular support systems that silently prop up the P&G brand manager and aid him in getting his job done.

Internal Competition

• The organization becomes driven by internal markets and internal competition. Management decided, even then, that internal competition was “the only way to keep from becoming too clumsy.”
• Internal competition as a substitute for formal, rule- and committee-driven behavior permeates the excellent companies. It entails high costs of duplication — cannibalization, overlapping products, overlapping divisions, multiple development projects, lost development dollars when the sales force won’t buy a marketer’s fancy. Yet the benefits, though less measurable, are manifold, especially in terms of commitment, innovation, and a focus on the revenue line.

Intense Communication.

• Communication systems are informal. Communication intensity is extraordinary.The questions are unabashed; the flow is free; everyone is involved. Nobody hesitates to cut off the chairman, the president, a board member.
• Intel executives call the process “decision making by peers,” an open, confrontation-oriented management style in which people go after issues bluntly, straightforwardly. The main reason people need not hide is that they talk all the time. A meeting is not a rare, formal — and thus political — event.
• Communication is given physical supports.
• The intense, informal communication system acts as a remarkably tight control system, even as it spawns rather than constrains innovation.

TOLERATING FAILURE 

• A special attribute of the success-oriented, positive, and innovating environment is a substantial tolerance for failure.
• The big failures, the ones that really leave scars, are usually the ones in which a project was allowed to go on for years without serious guidance. Such eventualities rarely occur in the no-holds-barred communication environment at the excellent companies. The exchange is frank and honest. You can’t hide the really bad news, and you don’t want or need to.
• Specifically, champions don’t automatically emerge. They emerge because history and numerous supports encourage them to, nurture them through trying times, celebrate their successes, and nurse them through occasional failures. But given the supports, the would-be champion population turns out to be enormous, certainly not limited to a handful of creative marvels.
• New Venture team. It’s a task force with some very special characteristics. The three most important: full-time indefinite assignment from various disciplines; volunteers; and staying power.
• Another marked spur to commitment is that all team members are volunteers. Says a 3M executive, “The team members are recruited, not assigned. There is a very big difference. If I am the marketing person assigned to evaluate the technical guy’s idea, in most companies with the usual incentives I can get myself off the hook by saying the idea is poor, by pointing out all the deficiencies…. That just doesn’t happen if I’m a volunteer team member.” Finally, 3M supports venture team autonomy and staying power. It insists that the team stay together from early in the initiation phase to the eventual rollout.
• The reward system supports both the team and the individual. Everyone gets promoted as a group as their project moves along from hurdle to hurdle. The champion benefits as the group prospers, and vice versa. Here is Roberts again on the subject of the career progress of someone who is a part of a successful venture team:
• 3M’s value system is also specific in indicating that virtually any idea is okay. “We don’t kill ideas, but we do deflect them. We bet on people.” And he adds, “You invariably have to kill a program at least once before it succeeds. That’s how you get down to the fanatics, those who are really emotionally committed to finding a way — any way — to make it work.”
• Mmanaging a paradox: persistent support for a possible good idea, but not foolish overspending because 3M, above all, is a very pragmatic company. It typically works this way: The champion, as his idea moves out of the very conceptual stage and into prototyping, starts to gather a team about him. It grows to, say, five or six people.
• But as the mythology suggests, the champion — if he is committed — is encouraged to persist, by himself or perhaps with one co-worker, at, say, a 30 percent or so level of effort.
• It all works — champions, venture teams, informal communications, voluntary assignment of team members, support for failure, and the like — because of the incessant focus on keeping the bureaucracy limited. The same vice president added: “We don’t constrain ourselves with plans at the beginning when ignorance is highest. Sure we plan. We put together meticulous sales implementation plans. But that’s after we know something. At the very front end, why should we spend time writing a 250-page plan that tries to drive out ignorance before having first done some simple tests on customer premises or in a pilot facility somewhere?”
• But there are a number of traits, more or less structural, that are essential. First, despite a common set of technical disciplines that might lead others to a functional or matrix organization, 3M remains a radically decentralized business.
• the name of the game is creation of new divisions; Spinning things off rather than seeking higher sales volume for one’s division is the time-honored (albeit unconventional) path to success.How does 3M make an approach like this work? Simple: managers are given every incentive to do so. The fellow heading any group gets rewarded in part on the dollar amount of venture activity that he’s funded from outside his group. The same rule is in force among division heads. Straightforward incentives are there pushing you to look any place to sell an idea, and, if you’re a buyer, to look any place to buy one.

But the most important notion, as we’ve said time and again, is that there aren’t any one or two things that make it all work. Sure, the champion, the executive champion, and the venture team are at the heart of the process. But they succeed, when they do succeed, only because: heroes abound; the value system focuses on scrounging; it’s okay to fail; there’s an orientation toward nichemanship and close contact with the customer; there’s a well-understood process of taking small, manageable steps; intense, informal communications are the norm; the physical setting provides plenty of sites for experimentation; the organizational structure is not only accommodating but highly supportive of 3M-style innovation; and the absence of overplanning and paperwork is conspicuous, as is the presence of internal competition. That’s about a dozen factors. And it’s all of them functioning in concert — over a period of decades — that makes innovation work at 3M.

TRUST

• The man who gave us this said there was but one key to a people orientation: trust.
• It all stemmed from his simple belief that people will respond well to being treated as grownups. He traces his beliefs back to an early command assignment:if you want productivity and the financial reward that goes with it, you must treat your workers as your most important asset.
• Thomas J. Watson, Jr., puts it well; “IBM’s philosophy is largely contained in three simple beliefs. I want to begin with what I think is the most important: our respect for the individual. This is a simple concept, but in IBM it occupies a major portion of management time. We devote more effort to it than anything else. This belief was bone-deep in my father.”
• These companies give people control over their destinies; they make meaning for people. They turn the average Joe and the average Jane into winners. They let, even insist that, people stick out. They accentuate the positive.
• We are talking about tough-minded respect for the individual and the willingness to train him, to set reasonable and clear expectations for him, and to grant him practical autonomy to step out and contribute directly to his job.
• Perhaps surprisingly, the people orientation also has a tough side. The excellent companies are measurement-happy and performance-oriented, but this toughness is borne of mutually high expectations and peer review rather than emanating from table-pounding managers and complicated control systems. The tough side is, in fact, probably tougher than that found in the less excellent and typically more formal systems-driven companies, for nothing is more enticing than the feeling of being needed, which is the magic that produces high expectations. What’s more, if it’s your peers that have those high expectations of you, then there’s all the more incentive to perform well. People like to compare themselves to others and they also like to perform against standards — if the standard is achievable, and especially if it is one they played a role in setting.

• Nothing more effectively involves people, sustains creditability or generates enthusiasm than face to face communication. It is critical to provide and discuss all organization performance figures with all of our people • We have an obligation to provide training and the opportunity for development to our productive people who want to improve their skills, expand their career opportunities or simply further their general education • It is essential to provide job security for our people • Create incentive programs that rely on ideas and suggestions, as well as on hard work, to establish a reward pool. (We see that time and again in the excellent companies. They are obsessed about widely sharing information and preventing secrecy. They willingly trade any marginal loss of competitive information for the added commitment.) 

• Obsession is training, continuous self-improvement. Nothing is forced
• Hell Week. Twice a year about a hundred managers get together for five days to swap results and productivity improvement stories. McPherson encouraged the process, because he believes that peer pressure is what makes it all go. He says, “You can always fool the boss. I did. But you can’t hide from your peers. They know what’s really going on.”
• “is you never stop traveling, you never stop listening. You never stop asking people what they think.”

Common Language 

• As we step back from the analysis of people and productivity, we find a number of strikingly similar themes running through the excellent companies data. First is language. The language in people-oriented institutions has a common flavor.
• Once they start talking the philosophy, they may start living it, even if, initially, the words have no meaning. For example, we doubt that “the HP Way” meant very much to anyone in Hewlett-Packard when the language was first introduced. As time went by, we suspect that the phrase took on deeper and richer meanings in ways that no one would have suspected — not even Hewlett or Packard.
• we doubt that a true people orientation can exist unless there is a special language to go with it. Words and phrases like Family Feeling, open door, Rally, Jubilee, Management By Wandering Around, on stage, and so on — all of these special terms show people in the institutions that the orientation is bone-deep. 
• TheMost impressive of all the language characteristics in the excellent companies are the phrases that upgrade the status of the individual employee. Again, we know it sounds corny, but words like Associate (Wal-Mart), Crew Member (McDonald’s) and Cast Member (Disney) describe the very special importance of individuals in the excellent companies.
• Many of the best companies really do view themselves as an extended family. We found prevalent use of the specific terms “family,” “extended family,”
• We see important evidences of informality in many other traits. For example, at the excellent companies the physical configuration of facilities is different. Informality is usually delineated by spartan settings, open doors, fewer walls, and fewer offices. It is hard to imagine a free-flowing exchange of information taking place in the palatial, formal, expensively decorated suites that mark so many corporate or even divisional offices.
• “that by doing one thing together each day, it reinforces the unity of the company. It’s also fun. It gets the blood up.” 
• inevitable emergence of a “private language and set of symbols”: people feel “up” because something has worked, and, if allowed, they start to act in a new way. As they act in the new way, more good things happen. “Peak experiences…lead members to enthuse, bubble, and communicate joy and exultation…. People eat, sleep, and breathe the activity…. A Hall of Fame phenomenon arises…members acquire an aesthetic motivation.” And finally an air of invincibility leads to the same reality.

Training / Development/ Incentives

• excellent companies are far above the norm in the amount of time they spend on training activities. On the other hand, there are enough signs of training intensity to suggest that that might be the case.
• Another striking aspect of the orientation of the excellent companies is the way they socialize incoming managers. The first element, of course, is recruiting. The screening is intense. Many of the companies we talked to are known for bringing potential recruits back seven or eight times for interviews. They want to be sure of the people they hire, and they are also saying to would-be recruits, “Get to know our company. Decide for yourself whether or not you can be a good fit with our culture.”
• “What gets measured gets done.”
• “A man wouldn’t sell his life to you, but he will give it to you for a piece of colored ribbon,”
• the wealth of nonmonetary incentives used by the excellent companies. Nothing is more powerful than positive reinforcement. Everybody uses it. But top performers, almost alone, use it extensively. The volume of contrived opportunities for showering pins, buttons, badges, and medals on people is staggering
• Philosophy The excellent companies have a deeply ingrained philosophy that says, in effect, “respect the individual,” “make people winners,” “let them stand out,” “treat people as adults.”

One reason why the Roman Empire grew so large and survived so long — a prodigious feat of management you could not maintain any illusion of direct control over a general or provincial governor, you could not feel at the back of your mind that you could ring him up, or he could ring you, if a situation cropped up which was too much for him, or that you could fly over and sort things out if they started to get into a mess. You appointed him, you watched his chariot and baggage train disappear over the hill in a cloud of dust and that was that…. There was, therefore, no question of appointing a man who was not fully trained, or not quite up to the job: you knew that everything depended on his being the best man for the job before he set off. And so you took great care in selecting him; but more than that you made sure that he knew all about Rome and Roman government and the Roman army before he went out.

“Substituting rules for judgment starts a self-defeating cycle, since judgment can only be developed by using it.”

VALUES/ GUIDING BELIEFS

• This then is my thesis: I firmly believe that any organization, in order to survive and achieve success, must have a sound set of beliefs on which it premises all its policies and actions. Next, I believe that the most important single factor in corporate success is faithful adherence to those beliefs. And, finally, I believe if an organization is to meet the challenge of a changing world, it must be prepared to change everything about itself except those beliefs as it moves through corporate life. In other words, the basic philosophy, spirit, and drive of an organization have far more to do with its relative achievements than do technological or economic resources, organizational structure, innovation, and timing. All these things weigh heavily in success. But they are, I think, transcended by how strongly the people in the organization believe in its basic precepts and how faithfully they carry them out.
• Virtually all of the better-performing companies we looked at in the first study had a well-defined set of guiding beliefs. The less well performing institutions, on the other hand, were marked by one of two characteristics. Many had no set of coherent beliefs. The others had distinctive and widely discussed objectives, but the only ones that they got animated about were the ones that could be quantified — the financial objectives, such as earnings per share and growth measures. Ironically, the companies that seemed the most focused — those with the most quantified statements of mission, with the most precise financial targets — had done less well financially than those with broader, less precise, more qualitative statements of corporate purpose. (The companies without values fared less well, too.)
• Leaders must invoke an alchemy of great vision. Those leaders who do not are ultimately judged failures, even though they may be popular at the moment.”
• Values are not usually transmitted, as Selznick implies, through formal written procedures. They are more often diffused by softer means: specifically the stories, myths, legends, and metaphors that we’ve already seen. On the importance of myth as a way of transmitting the value system, Selznick is once again instructive: To create an institution you rely on many techniques for infusing day-to-day behavior with long-run meaning and purpose. One of the most important of these techniques is the elaboration of socially integrating myths. These are efforts to state, in the language of uplift and idealism, what is distinctive about the aims and methods of the enterprise. Successful myths are never merely cynical or manipulative…. To be effective, the projected myth must not be restricted to holiday speeches or to testimony before legislative committees. It requires some interpreting and the making of many diverse day-to-day decisions. The myth helps to fulfill the need. Not the least important, we can hope that the myth will contribute to the unified sense of mission and thereby to the harmony of the whole. In the end, whatever the source, myths are institution builders. The art of creative leadership is the art of institution building, the reworking of human and technological materials to fashion an organism that embodies new and enduring values.
• these values are almost always stated in qualitative, rather than quantitative, terms. When financial objectives are mentioned, they are almost always ambitious but never precise. Furthermore, financial and strategic objectives are never stated alone. They are always discussed in the context of the other things the company expects to do well. The idea that profit is a natural by-product of doing something well, not an end in itself, is also almost universal. A second attribute of effective value systems is the effort to inspire the people at the very bottom of the organization.
• David Ogilvy notes, “I want all our people to believe they are working in the best agency in the world. A sense of pride works wonders.” Emerson’s Charles Knight adds, “Set and demand standards of excellence. Anybody who accepts mediocrity — in school, in job, in life — is a guy who compromises. And when the leader compromises, the whole damn organization compromises.”
• “innovative people at all levels in the organization.” The excellent companies recognize that opportunity finding is a somewhat random and unpredictable process, certainly not one that lends itself to the precision sometimes implied by central planning. If they want growth through innovation, they are dependent on lots of people, not just a few in central 
• As the excellent companies are driven by coherent value systems, so virtually all of them were marked by the personality of a leader who laid down the value set:An effective leader must be the master of two ends of the spectrum: ideas at the highest level of abstraction and actions at the most mundane level of detail. The value-shaping leader is concerned, on the one hand, with soaring, lofty visions that will generate excitement and enthusiasm for tens or hundreds of thousands of people. That’s where the pathfinding role is critically important. On the other hand, it seems the only way to instill enthusiasm is through scores of daily events, with the value-shaping manager becoming an implementer par excellence. In this role, the leader is a bug for detail, and directly instills values through deeds rather than words: no opportunity is too small. So it is at once attention to ideas and attention to detail.

“Success in instilling values appears to have had little to do with charismatic personality. Rather, it derived from obvious, sincere, sustained personal commitment to the values the leaders sought to implant, coupled with extraordinary persistence in reinforcing those values. None of the men we studied relied on personal magnetism. All made themselves into effective leaders.”

• Persistence is vital.Leaders implement their visions and behave persistently simply by being highly visible.
• Wandering about is easy for them because they are comfortable in the field. These leaders believe, like an evangelist, in constantly preaching the “truth,” not from their office but away from it — in the field. They travel more, and they spend more time, especially with juniors, down the line.
• leaders unleash excitement.Encourage exuberance.
• Virtually none of the excellent companies spoke of itself as having formal matrix structures, except for the project management companies like Boeing. But in a company like Boeing, where many of the matrix ideas originated, something very different is meant by matrix management. People operate in a binary way: they are either a part of a project team and responsible to that team for getting some task accomplished (almost all the time), or they are part of a technical discipline, in which they spend some time making sure their technical department is keeping up with the state of the art. When they are on a project, there is no day-in, day-out confusion about whether they are really responsible to the project or not.

Clarity on values is also an important part of the underlying touchstone of stability and simplicity as well.

They are rearranging the ornaments, but seldom the branches. (Of course, other attributes help keep the organization fluid; e.g., personnel policies that assure security and make people in the company less dependent on the particular organization box they live in.)

prime needs revealed above: a need for efficiency around the basics; a need for regular innovation; and a need to avoid calcification by ensuring at least modest responsiveness to major threats. Accordingly, we think of the resultant structural “form” as based on “three pillars,” each one of which responds to one of these three basic needs. To respond to the need for efficiency around the basics there is a stability pillar. To respond to the need for regular innovation, there is an entrepreneurial pillar. And to respond to the need for avoiding calcification, there is a “habit-breaking” pillar.

In the diagram on the following page, the stability pillar is based on maintaining a simple, consistent, underlying form, and on developing and maintaining broad yet flexible enduring values. We believe the simple underlying form should generally be the product-based division, that the old, simple, divisionalized organizational structure is probably the best form around — now and for the future. This betrays our clear bias toward the product side, and against the matrix. Everything we have been talking about — entrepreneurship around product and service, a love for the product, quality, a focus on operations and productivity through people — leads us typically to a product or market bias. It is simple, clearer, more direct, more tangible, more honest.

The second feature of the stability pillar is the underlying value system, which encompasses the missionary “form.” It may seem strange to talk about values under the heading of organizational structure, but, remember, structure, most broadly defined, is communications patterns.

The heart of the entrepreneurial pillar is “small is beautiful.” And the way to stay small is constantly to hive off new or expanded activities into new divisions. In this scheme of things, smallness is viewed as a requisite for continual adaptiveness. The cost is occasionally some efficiency; but as we have seen time and again, the efficiency advantage is usually vastly overrated.

The third pillar, the “habit-breaking” pillar, encompasses in particular a willingness to reorganize regularly, and to reorganize on a “temporary” basis to attack specific thrusts

mean: (I) a willingness regularly to “hive off” new divisions as old divisions get big and bureaucratic; (2) a willingness to shift products or product lines among divisions so as to take advantage of special management talents or the need for market realignments (3M is particularly masterful at this, and turf fights seldom ensue when a product is moved from one division to another); (3) a willingness to take the top talent and bring it together on project teams aimed at solving a few central organizational problems or at executing a central organizational thrust, always with the notion that such an accommodation is temporary; and (4) a generic willingness to reorganize and reshuffle the boxes (while maintaining the integrity of the basic, central form) as needs arise.

They believed in granting autonomy, room to perform. They believed in open doors, in quality. But they were stern disciplinarians, every one. They gave plenty of rope, but they accepted the chance that some of their minions would hang themselves. Loose-tight is about rope. Yet in the last analysis, it’s really about culture.

(soft). “People at Digital don’t know who they work for,” says a colleague. But they do know quality: the products they turn out work (hard). So “Soft is hard.”

We have mentioned clubby, campus-like environments, flexible organizational structures (hiving off new divisions, temporary habit-breaking devices, regular reorganizations), volunteers, zealous champions, maximized autonomy for individuals, teams and divisions, regular and extensive experimentation, feedback emphasizing the positive, and strong social networks. All of these traits focus on the positive, the excitement of trying things out in a slightly disorderly (loose) fashion. But at the same time, a remarkably tight — culturally driven/controlled — set of properties marks the excellent companies. Most have rigidly shared values. The action focus, including experimentation itself, emphasizes extremely regular communication and very quick feedback; nothing gets very far out of line. Concise paperwork… Some highlights have been hidden or truncated due to export limits.

customer, is one of the tightest properties of all. In the excellent companies, it is perhaps the most stringent means of self-discipline. If one is really paying attention to what the customer is saying, being blown in the wind by the… Some highlights have been hidden or truncated due to export limits.

And then there is the peer… Some highlights have been hidden or truncated due to export limits.

it is the toughest control of all. As McPherson said, it’s easy to fool the boss, but you… Some highlights have been hidden or truncated due to export limits.

he would pay attention to quality (and housekeeping, safety), and that cost would follow. As he pointed out: “To begin with, if you are making it with good quality, you don’t have to make everything twice.” There is nothing like quality. It is the most important word used in these companies. Quality leads to a focus on innovativeness — to doing the best one can for every customer on every product; hence it is a goad to productivity, automatic… Some highlights have been hidden or truncated due to export limits.

In the excellent companies, small in almost every case is beautiful. The small facility turns out to be the most efficient; its turned-on, motivated, highly productive worker, in communication (and competition) with his peers,… Some highlights have been hidden or truncated due to export limits.

So we find that in this most vital area, there really is no conflict. Small, quality, excitement, autonomy — and efficiency — are all words that belong on the same side of the coin. Cost and efficiency, over the long run, follow from the emphasis on quality, service, innovativeness, result sharing, participation, excitement, and an external problem-solving focus that is tailored to the customer. The revenue line does come first. But… Some highlights have been hidden or truncated due to export limits.

virtually any of the excellent companies, we find that autonomy is a product of discipline. The discipline (a few shared values) provides the framework. It gives people confidence (to experiment, for instance)… Some highlights have been hidden or truncated due to export limits.

Thus a set of shared values and rules about discipline, details, and execution can provide the framework in which practical… Some highlights have been hidden or truncated due to export limits.

The nature of the rules is crucial here. The “rules” in the excellent companies have a positive cast. They deal with quality, service, innovation, and experimentation. Their focus is on building, expanding, the opposite of restraining; whereas most companies concentrate on controlling, limiting, constraint. We don’t seem to understand that rules can reinforce positive traits as well as discourage negative ones, and that the former kind are far more effective.

simultaneously externally focused and internally focused — externally in that they are truly driven by their desire to provide service, quality, and innovative problem solving in support of their customers; internally in that quality control,

The organization thrives on internal competition. And it thrives on intense communication, on the family feeling, on open door policies, on informality, on fluidity and flexibility, on nonpolitical shifts of resources. This constitutes the crucial internal focus: the focus on people.

By offering meaning as well as money, they give their employees a mission as well as a sense of feeling great. Every man becomes a pioneer, an experimenter, a leader. The institution provides guiding belief and creates a sense of excitement, a sense of being a part of the best, a sense of producing something of quality that is generally valued. And in this way it draws out the best

We found that the excellent companies are not really “long-term thinkers.” They don’t have better five-year plans. Indeed, the formal plans at the excellent companies are often marked by little detail, or don’t exist at all (recall the complete absence of corporate level planners in many of them). But there is a value set — and it is a value set for all seasons. (Remember the content areas: quality, innovativeness, informality, customer service, people.) However, it is executed by attention to mundane, nitty-gritty details. Every minute, every hour, every day is an opportunity to act in support of overarching themes.

They are seemingly unjustified in believing that virtually every worker can contribute suggestions regularly. It is simplistic. But it may be the true key to inducing astonishing contributions from tens of thousands of people.

Of course, what one is simplistic about is vitally important. It’s a focus on the external, on service, on quality, on people, on informality, those value content words we noted. And those may very well be things — the only things — worth being simplistic about.