Peters and Waterman Revisited: The Unended Quest for Excellence

Tom Peters and Robert Waterman's In Search of Excellence' has sold more than five million copies. Rather quickly it has become one of the most often quoted books in the popular management literature. Many business firms reportedly are attempting to conform to the eight principles of excellence the book identifies. Daniel Carroll proposes that it is the informal manner in which Peters and Waterman present what appears to be practical managerial advice that has appealed to business people.2 This style of presentation and relatively uncomplicated approach to "practicality" is carried a step further in the Peters and Nancy Austin sequel, A Passion for Excellence.3 Here the authors suggest that only four-not eight-attributes must be mastered for a firm to achieve excellence. Although this book has been criticized for failing to break much new ground, it has sold many copies. Peter Drucker proposes that it is the reduction of complex business problems to a small number of seemingly practical actions that is attractive to American managers.4 But despite the commercial success and general acceptance of In Search of Excellence, concerns about it have been expressed. Carroll, for example, criticized Peters and Waterman for their failure to specify precisely how the excellent companies were analyzed and how the eight attributes of excellence were identified. He also suggested that the authors' supporting evidence (an occasional reference to financial analysis, a series of anecdotes about companies, and quotes from executives) was incomplete and even wondered if the companies were actually visited and how the judgments and findings were synthesized and corraborated. Carroll concluded his review of the book with the suggestion that the authors' dependence on secondary sources and potentially defective research design disallowed any contribution the work may have made to management theory. Bruce Johnson, Ashok Natarajan, and Alfred Rappaport expressed concern regarding the performance indices Peters and Waterman used.5 They argue that the six items used (compound asset growth, compound equity growth, ratio of market value to book value, average return on total capital, average return on equity, and average return on sales) measure only a firm's financial performance. Further, they propose that "the dominant economic goal of a firm is the creation of shareholder wealth," and suggest that a firm's economic performance is the outcome Peters and Waterman should have examined. They contend that judging corporate excellence solely on financial (accounting-based) measures can be misleading and that return to shareholders is the true measure of a firm's "excellence." Finally, an examination of the "excellent" firms' performance since publication of In Search of Excellence, reported in the November 5, 1984 issue of Business Week, revealed that many companies-such as Johnson & Johnson, Dana, and 3M-have encountered difficulties. One may question whether these companies were in fact "excellent" in the first place. Another fundamental question is whether Peters and Waterman's eight attributes fully explain what is required for a firm to achieve excellence. Under close scrutiny, some of the prescriptions for excellence are not completely consistent with contemporary management thought. Michael Porter emphasizes that firms operating in different competitive environments should formulate and implement strategies that are consistent with their unique situations and conditions. It may be necessary for firms in different environmental settings to develop more (or less) flexible structures. Alfred Chandler adds that a match should exist between a firm's strategy and structural form. In contrast to the contingency management approach, Peters and Waterman propose the same eight principles of excellence for all firms competing in all types of environments.' It is also possible that the Peters and Waterman definition of excellence is too narrow. We've already noted that financial performance alone was examined by the two researchers. Gordon Donaldson and Jay Lorsch found that strategists' decisions are intended at least minimally to satisfy the demands of three constituencies: the capital market-shareholders and major suppliers of debt capital; the product market-primary customers, suppliers, and host communities; and organizational members-employees.7 Barry Baysinger, Gerry Keim, and Carl Zeithaml suggest the importance of a fourth constituency-the political and regulatory one, made up of federal and state governmental agencies.8 Thus, accounting indices and a vague "innovativeness" rating may not adequately capture all the factors associated with a firm's ability to achieve longterm excellence. Finally, while the research design and execution procedures used by Peters and Waterman appear to be rigorous, data were not included in the book for readers to examine. As a result, one cannot review their data analyses to verify the results. It seems, then, that the Peters and Waterman work may be one of advocacy rather than of science. When advocacy dominates