Two years ago, the book "In Search of Excellence" burst on the scene, offering an inside look at the success formulas of the best-run corporations in America. This "how-to-do-it" lesson book by business consultants Thomas J. Peters and Robert H. Waterman Jr. was a smash hit, selling 2.8 million copies in this country at last count, achieving widespread influence and launching the authors on lucrative careers as gurus of management.
Now comes Business Week with a report that fully one-third of the 43 "best-run" companies on Peters' and Waterman's list aren't doing so well or looking so excellent lately. In its cover story headlined "Oops!", Business Week wryly questions whether the gurus had it right, after all: "Were these companies so excellent in the first place? Are the eight attributes of excellence the only eight attributes of excellence? Does adhering to them make a difference?" the magazine asks.
There's little argument that the 14 companies cited by Business Week have slipped off the top-most rungs in their industries. But the reasons vary. Some of them -- Texas Instruments, Revlon, Fluor Corp. and Avon Products -- got in trouble in part because they strayed from the principles of "Excellence."
"Stick to the knitting," was Rule No. 6. Peters and Waterman cited Robert W. Johnson, former Johnson & Johnson chairman, who said, "Never acquire a business you don't know how to run." Excellent companies aren't conglomerates -- they stick to what they know and don't jump into strange businesses. Fluor, a leading construction and engineering firm, broke that rule by spending $2.3 billion for St. Joe Minerals Corp. in 1981, just before the minerals market collapsed.
But other companies adhered closely to the Peters-Waterman prescription only to have it backfire on them, Business Week concluded. Disney Productions remained fixed so firmly on its traditions that it missed the video cassette boom, opted out of Saturday children's television and found its movie studio thoroughly eclipsed as a family entertainment power by the productions of George Lucas and Steven Spielberg. Hewlett-Packard's close ties to the engineering fraternity has proved a handicap now that it must master the mass-marketing of computer products to non-technical business executives.
"Stay close to the customer" was Rule No. 2, one of the most important. But Avon Products and Dart & Kraft's Tupperware stumbled when millions of housewives who had been their customers left home to pursue outside employment, leaving the firm stuck to the wrong customers, Business Week said.
The Business Week article is an appropriate jab at the cult of "Excellence," a word of wisdom for any who take the Peters-Waterman rules as true, all-inclusive gospel. That is something the authors say they never intended, although their heavy-duty campaigning to capitalize on the book's success indicates otherwise.
It turns out that the eight criteria are not nearly enough.
These attributes, after all, were not much more than managerial common sense: know your customer; practice hands-on management; stick to the knitting; respect your employes and listen to their ideas; keep a lean headquarters staff with a bias for action; try to create an intense sense of what the company is all about.
"Most of these eight attributes are not startling. Some, if not most, are 'motherhoods,' " the authors acknowledged. What gave the book its impact was that the principles were ignored so repeatedly by big business in the 1970s -- the period of corporate erosion on which the authors focused.
But the authors gave short-shrift to the conditions that are dominating the business world in the mid-1980s. In fairness, no one writing in 1980 could have reasonably anticipated the depth of the recession that began the following year, or the cutthroat international competition that would batter American producers, or the crippling impact of the overvalued dollar on the price of American exports, or the rise of Japan and its Asian neighbors as the chief trade challengers to the United States. (Thanks largely to these conditions, the U.S. trade deficit with Taiwan in September was almost as large as the deficit with the entire Organization of Petroleum Exporting Countries, an unimaginable relationship four years ago.)
In an apparent afterthought, tucked into a footnote early in the book, Peters and Waterman acknowledged this turn of events: "by mid-1981 it was clear that mature industries were not the only ones in trouble" from foreign competition. High-tech companies were threatened, too, they noted.
The authors also failed to deal with another huge reality of the mid-1980s -- the impact of technology on business strategies and performance. A competitive edge from a successful new product now may last months, or at best, a few years and then it is gone. General Electric Co. could ride its leading position in the X-Ray machine business for a decade. It knows the new medical diagnostic wonder machines it is developing will have a competitive life far shorter.
The Peters-Waterman prescriptions focused managers inward, on the need to tighten, revitalize and concentrate a company's efforts on its goals. There is nothing wrong with that. But the lesson some companies have drawn about the 1980s is an equally compelling need to look outside, at how the battle is changing and where the next punch is coming from.