Even though Peters and Waterman had gotten Hewlett-Packard president John Young and others to answer the question “What do you do to promote excellence at your company?”—a topic they thought would resonate with any executive interested in emulating the success of an iconic American firm—the presentation fell flat.20 The problem: Shell was a confident company. It knew what it knew and didn’t need the anecdotes of Hewlett-Packard executives to show it how to run its business.
“We got an awful response,” recalled Peters. “Gluck was long-winded and Ohmae was talking about the Japanese taking over the world. We had prepared the shit out of the stuff and finished up with twenty minutes. Shell didn’t want to hear it.”21 Luckily, German partner Herb Henzler was in the audience. He liked it. And he sold the idea of the project to the German conglomerate Siemens. Suddenly the work was paying for itself. From the fall of 1979 through the spring of 1980, Peters and Waterman continued conducting research to fill out their theses. But a subsequent presentation to PepsiCo’s top hundred managers in Lyford Cay, Bahamas, in May 1980 also fell flat. Peters said the content was there, but he’d felt his delivery was uninspired.
Still, the work was slowly gaining converts, albeit primarily from outside McKinsey. Bill Matassoni, the firm’s communications chief, set up a meeting with Lew Young, the editor of BusinessWeek, and the next thing they knew, the research was trumpeted on the magazine’s cover on July 21, 1980. Harper & Row then came calling with an offer to publish a book. The consultants jumped at the opportunity, and before long they had a working title: “The Secrets of Excellence.”
Even though a book contract was in hand, however, the project still failed to garner much internal support. “The Secrets of Excellence” was, in part, offensive to the McKinsey mind. Peters and Waterman were suggesting that the secrets to success were not necessarily quantifiable, that they might be impervious to rigorous analysis. They talked of focusing on the customer and on the employee, not just on org charts and spreadsheets.
The project took on a little more momentum when Waterman recruited two professors to aid in the effort, Anthony Athos and Richard Pascale. It was Athos and Pascale who suggested that Peters and Waterman organize their mushy and not always memorable concepts with a series of easy-to-grasp alliterations that came to be known as the 7-S framework. Whereas before, Peters and Waterman had been talking about a range of topics—from people to involvement, trust, listening, and wandering—with this new insight, the ideas now slid off the tongue: skills, staff, style, systems, structure, shared values, and strategy. (And propagating a tradition that has become accepted in most consulting circles but definitely within McKinsey: Every idea needs an odd number of bullet points to be explained.)
In one sense, this seemed right out of kindergarten. Did serious managers require such spoon-feeding? In another sense, though, it was homage to BCG: the virtue of simplicity. In the end, Excellence showcased forty-three American companies going about their business in “excellent” ways. Peters and Waterman cataloged the qualities of excellent firms: They had a bias for action; closeness to the customer; autonomy and entrepreneurship; productivity through people; a hands-on, value-driven emphasis; stick-to-the-knitting persistence; simple form, lean staff; and simultaneous loose-tight properties—new-age management jargon for simultaneously keeping overall control while still letting your top performers roam.
The book hit one notable roadblock. After hearing of the proposed title, Bower decreed that it had to be changed, because it sounded as if they were giving away the secrets of McKinsey’s clients. The compromise: In Search of Excellence. “We were royally pissed off,” said Peters. “But it turned out to be the best thing. In Search of is better than ‘Secrets of’ anyway.”22
In Search of Excellence was published in October 1982. The message on its back cover neatly distilled its appeal: “There is good news from America. There is an ART OF AMERICAN MANAGEMENT—and it works!” The idea was that despite being pinned down on both sides by Japanese and German competitors, American management still had what it took to win.
In many important ways the book really was an attack on McKinsey thinking, on the idea that the secrets of success could be found in an analytical framework or in a new corporate structure. It was an attack on the rationalist idea that businesses were machines that could be fine-tuned. The work of Peters and Waterman served to remind managers about first principles in business: If they didn’t listen to their customers or employees, then the rest was irrelevant. If the strategy revolution was forcing companies to look outward more than they ever had before, what Excellence did was force that gaze right back inside again. And it wasn’t talking only about financial management. It was also talking about how you treated the people who worked for you. It was, in short, the first great manifesto of the idea of corporate culture.
Looking back on it, Peters thinks the book was misperceived as a Pollyannaish take on American business. “Consultants live with problems,” he later said. “That’s what they get paid for. So we were always working with broken things. In Search of Excellence was the first book written about things that work. It was purposeful. Admittedly, the logic of the book was that American management was fucked up. It was a brutal, upfront attack on American management and McKinsey thinking. Okay, it was 75 percent about islands of hope, but that was what they were: exceptional. I consider In Search of Excellence a bad news book.”23 Bad news or good, it was roping in a whole new contingent of fans: If traditional management literature was about how to get ahead, Peters and Waterman were now telling readers how not to get left behind.24
The first piece Peters had nationally published on the subject—well before the book came out—was an op-ed in the Wall Street Journal, in which he stressed the importance of execution and dismissed the whole idea of strategy. “Far too many managers have lost sight of the basics—service to customers, low-cost manufacturing, productivity improvement, innovation, and risk-taking,” he wrote. “In many cases, they have been seduced by the availability of MBAs, armed with the ‘latest’ in strategic planning techniques. MBAs who specialize in strategy are bright, but they often cannot implement their ideas, and their companies wind up losing the capacity to act.” This was not an oblique attack on McKinsey thinking; it was a frontal assault. Mike Bulkin, then running the New York office, demanded that Daniel fire the heretic. “Why there should have been so much friction, I cannot tell you,” recalled Peters. “But I clearly irritated a lot of people.”25
The management elite, including Peter Drucker and the academics at Harvard Business School, attacked the book. It was called “careless, anecdotal stuff” and “strikingly banal.” It was also full of what Matthew Stewart, author of The Management Myth, referred to as nonfalsifiable truisms. The authors cited a “bias for action” (who would vote for inaction?) and advised one to “stay close to the customer” (who would advise otherwise?). “Since Peters, it has become clear that the market for inanities masquerading as profound insights knows no limits,” wrote Stewart. “Aspiring gurus seem to understand that the road to riches is paved with garbled clichés and transparently unsubstantiated pseudotheories. No sentiment is too obvious or banal to count as management wisdom, provided it makes use of one or two bits of jargon and is followed by an exclamation point!”26
Stewart was not the only critic who condemned the book’s “scientific findings” as practically tautological, at least to anyone who has ever worked with a group of people. Most were banal. You might want to pay attention to people when they have something to say, for example. Teamwork is a good thing, for another. Helping people find meaning in their work will have positive results, a third. Maybe the most autocratic of CEOs had lost sight of how to manage people during the postwar boom, but the book could hardly surprise anyone who had ever stopped to think about such things. Still, people loved it, and you could hardly board a business class section of a plane without seeing someone reading it voraciously. The economy was in the dumps at the time�
�with 10 percent unemployment—and readers were hungry for any way forward.
In December 1981, Peters left McKinsey, eight months before the book even landed on shelves. Indeed, both he and Waterman had realized that they no longer fit in the McKinsey scheme of things. At that point, in fact, it was obvious to everyone. “Tom got to be more and more independent of the firm, to the point of wearing shorts to work and little hats with propellers on them,” recalled Waterman. “It was like a child saying, ‘I will get away with this stuff as long as you don’t discipline me.’ Eventually, I said that if he kept behaving like that, he was going to get us both fired.”27 Waterman helped Peters negotiate an exit package that included a $10,000 monthly retainer to finish the book (which he was obligated to pay back) and a 50 percent share of royalties with McKinsey. It turned out to be a very good deal.
No one had any idea how big In Search of Excellence was going to be. This wasn’t like signing up Jack Welch to write Straight from the Gut and ordering a first printing of a million copies. Outside McKinsey, Peters and Waterman were nobodies. The first printing was five thousand copies. Three years later the book had sold five million, the first management book to ever top the bestseller list. Peters’s next book, A Passion for Excellence, was the second.
Interestingly, Waterman got nothing for Excellence beyond his McKinsey compensation, which the firm had even cut while they were finishing the book, a result of the fact that Waterman’s own client billings had fallen off. When the book started to sell like gangbusters, he began to agitate about how it was Peters and McKinsey splitting royalties. McKinsey tried to mollify him by boosting his pay—in one year he made more than Ron Daniel—but partners groused about Waterman’s special treatment. When Bantam Books offered Waterman a multimillion-dollar deal for two more books in 1984, Daniel urged him not to sign the contracts until the firm could sort out how profits might be shared. After a meeting with Jim Bennett, Daniel, and Waterman failed to come to any conclusion, Daniel told Waterman, “If you sign those contracts, you’re going to have to leave.” Waterman saw his only course: “I told him I knew that, and I went ahead and signed them anyway. And that was that.”28
Both men were in such demand on the speaker circuit that they rarely made it home. Waterman said he slept in his own bed just fourteen days in the first year after the book came out. Both went on to hugely successful careers as speakers and authors, with Peters becoming the world’s most successful management guru.
There’s a question about which effort—Gluck’s strategy work or Peters’s and Waterman’s organizational work—had the bigger effect on McKinsey and its newfound love for knowing what it knew. You can split the difference. McKinsey obviously valued Gluck’s more—witness his eventual election as managing director—and it’s likely that his work led to more actual billings for McKinsey than Peters and Waterman did. On the other hand, In Search of Excellence was the opening bell of the age of corporate culture, and McKinsey took massive advantage of that. “Whatever is finally written on the 7-S tombstone about its real value, it certainly seemed to be an invaluable revenue generator in the 1980s,” said one ex-McKinseyite. “The fact that ‘serious’ consultants thought the ideas were too soft and squishy to be legitimate manly fare didn’t stop them from capitalizing on their almost magical ability to generate work.”
While sales of the book have held up well over time, many of the “excellent” companies have not. BusinessWeek, which helped launch the book into the stratosphere in the first place, came back two years later to perform a drive-by shooting on Excellence: In a cover story titled “Oops!” (inside headline: Who’s Excellent Now?”), the magazine suggested that two-thirds of the forty-three companies profiled were no longer “excellent.” From Atari to IBM, many were in serious trouble. It says something about McKinsey’s status at the time that this was new BusinessWeek editor Steve Shepard’s first cover story. McKinsey was officially a target worth aiming at.
Peters still has a testy relationship with the firm. “McKinsey has a stratospheric belief in itself,” he has said. “If intellectual arrogance had not yet been invented,” he continued, “it would have been invented for that crew. But let me tell you this: I am sixty-seven years old, and I have had the luck of God smile on me, but I am still scared shitless of McKinsey people.”29 The firm even found a way to needle him in its privately published internal history. “There’s a caption under a picture of me that made me laugh hysterically,” he said. “I am described as undisciplined but brilliant. I have no problem with ‘brilliant,’ but ‘undisciplined’ made me turn purple in the face. You don’t write sixteen books, give three thousand speeches, and work eighteen hours a day for thirty years and be undisciplined. It’s typical fucking McKinsey. Why do you need to say things like that?”30 (A McKinsey partner responded: “He just said it. Three thousand speeches and sixteen books is exactly what we meant. He’s undisciplined. He should have focused on two clients and one book.”)31
Waterman has fonder memories. “Marvin Bower scared the hell out of me at first,” he recalled. “I was not much in his eyes until I made director. After that we got to be close friends. He was absolutely in love with In Search of Excellence. He was in his nineties when he called me up and said, ‘Do you mind if I quote you?’ I said, ‘God, Marvin, you can quote me on anything you want to.’ ”32 Still, Waterman could be as dismissive as Peters. “For what it does, McKinsey is probably the best in the world. But in the grand scheme of things, maybe what it does just isn’t as important as it thinks. . . . McKinsey thinks it sells grand strategies and big ideas when really its role is to keep management from doing a lot of dumb things. They do great analysis, but it won’t get your company to the top.”33 Of course, there is a large contingent that thinks In Search of Excellence was mere pap. McKinsey may spread pap in the corporate suite, but management gurus can be accused of committing a similar crime in book form.
The Occasional Guru
The popularity of In Search of Excellence alerted McKinsey to the possibility that not all publicity was bad publicity. The firm had long practiced its nonmarketing approach to marketing—the writing of papers for the Harvard Business Review, the providing of background for the occasional reporter, the publication of the occasional informational brochure—while adhering to a strict prohibition on outright self-promotion. But maybe it was time, the consultants told themselves, to be a little more proactive about burnishing their public reputation as management thinkers. They had already brought on Bill Matassoni, a Harvard Business School grad turned marketing expert, to serve as communications chief in 1979. True to form, McKinsey described the job as “reputation building”—the firm didn’t like the term “marketing”—but Matassoni was a marketer through and through.
Peters and Waterman weren’t the first employees known to the outside world. Arch Patton, for one, had developed a following as a business philosopher of sorts. “But he’d written the same article twenty-seven times for the Harvard Business Review,” said Matassoni, who helped push for new public profiles. He helped shepherd into the Wall Street Journal an op-ed from John Sawhill about breaking up big oil. “It wasn’t about managing big oil,” recalled Matassoni, “but within weeks, John was in the boardroom of every big oil company, at their invitation. Because they respected him.”34 And once you’re in the boardroom, the engagement dollars start to flow.
Singling out individuals didn’t come naturally to a firm that had always sold itself as a collective. When you hired McKinsey, you weren’t supposed to ask for a certain consultant; you were supposed to think that whatever team was assigned to you, the work would be superlative. But the rise of BCG had challenged that orthodoxy. Books were now a big part of the game. Between 1960 and 1980, McKinsey published just two books. Since then, it has published close to a hundred, with titles ranging from the vague (Knowledge Unplugged, in 2002) to the precise (Say It with Charts, 1985; Achieving Excellence in Retail Banking, 2003) to the perennially salable (The Power of Productivi
ty, 2004). There have been two big changes since the days of In Search of Excellence. One: McKinsey now retains control over any book written by a consultant. And two: Unlike most consulting firms, McKinsey, after several disastrous experiences of senior partners taking months off to write books that neither sold nor moved the needle in management thinking, does not give partners time off from their day jobs to write books.
Likewise, the firm embarked on a more open relationship with the press. While McKinsey still tended to avoid having its consultants quoted, it began to accede to the occasional profile—every two or three years—in the likes of Fortune or BusinessWeek. Later, the firm also began engaging the international media to give McKinsey’s ideas more prominent play overseas—in the Financial Times, the Economist, and overseas versions of the Wall Street Journal. There were so many conversations going on between McKinsey and top media platforms in the mid-1990s that one editor in chief of a major publication demanded to know of his own editors what McKinsey’s influence was on their pieces. Sometimes journalists would approach the firm to write about its workings, not its ideas; and every now and then—say, around the time of a managing director’s retirement—the firm would cooperate. And if such coverage wasn’t always positive, the power and influence of McKinsey was never seriously dented.
Consultants embraced the idea of getting their writing out in public so much that the firm had to eventually tighten the portal to the outside world. Under the aegis of Alan Kantrow and Partha Bose, the McKinsey Quarterly became the platform to which the best writing got steered, so much that one editor in chief of the Harvard Business Review bemoaned that McKinsey had cut HBR out of the loop and was offering only its second-tier work to external publications. One consultant who’d had a piece turned down by HBR was advised by its editors to submit the piece to the McKinsey Quarterly. “Are you kidding?” he asked them incredulously. “They turned me down months ago.”
The Firm: The Story of McKinsey and Its Secret Influence on American Business Page 15
