06 Putting Excellence Into Management

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Putting excellence intomanagement

T h o m a s J Peters

Sophist icated management tools and the up-to- the-minutetechniques of the b usiness scho ols m ay be a help inm an ag ing a large corporation bu t as a study of 37wel l -managed companies shows the t ime-honored s impleand straightforward approaches are sti l l vital prerequisites

for success . In this art icle the author describes the eightdown-to-earth at tr ibutes common to t he m a na g e m e nt ofthese top-performing companies and i l lustrates them withexamples of successful m ana gem ent pract ice .

W hat makes for excellence in the m anagem ent of a company? Is itthe use of sophisticated m anagem ent tec hniqu es such as zero-based

budgeting, management hy objectives, m atrix organ ization andsector, group, or portfolio m anage m ent? Is it greater use of com-puters to con trol companies th at con tinue to grow even larger insize and more diverse in ac tivit ies? Is it a battalion of specializedMBAs, well-versed in the techniques of strategic plann ing?

Probably not. Although most well-run companies use a fair samp-ling of all of the se too ls, they do not use them as sub stitute s for thebasics of good m anagem ent. Indeed, in a study of managementpractices at 37 companies tbat are often used as examples of well-



goals and simple communications. The eight attributes that

characterize their managements are:

• A bias toward action

Simple form and lean staff

• Continued contact with customers

• Productivity improvement via people

i Operational autonomy to encourage entrepreneurship

, Stress on one key business value

^ Emphasis on doing what they know best

• Simultaneous loose tight controls.

Although none of these sounds startling or new, most are con-

spicuously absent in many companies today. Far too many mana-

gers have lost sight of the basics - service to customers, low-cost

manufacturing, productivity improvement, innovation and risk

taking. In many cases, they have been seduced by the availability

of MBAs, armed with the latest in strategic planning tech-niques. MBAs who specialize in strategy are brigbt, but they often

cannot implement their ideas, and their companies wind up losing

the capacity to act. At Standard Brands, for example, chairman

F. Koss Johnson discovered this the hard way when he brougbt a

handful of planning specialists into his consumer products com-

pany. The guys who were bright ftbe strategic planners] were not

the kind of people who could implement pi ograms, he lamented.

Two years later, he removed the planners.

Another consumer products company followed a similar route,



Sales Profits Return on sales Rslurn on equity(S millions) (S millions) ( ) ( )

I B M

Procter & Gamble

3 M

Johnson & Johnson

Texas Inst ruments

Dana

Emerson Electr io

Hew le t t -Packa rd

Dig i ta l Equ ipment

McDona ld ' s

22,862.8

10,080.6

5,440.3

4,211.6

3,224.1

2,789.0

2,749.9

2,361.0

2,031.6

1 937 9

3,011.3

615.7

655.2

352.1

172.9

165.8

208.8

203.0

207.5

188.6

usiness Week composi te of 1 ,200 companies

14.8

5.6

12.2

6.5

5.1

6.1

7.5

8 .2

9 .7

8 .7

5.1

21.6

19.3

24.4

19.6

19.2

19.3

21.5

18.1

19.7

22.5

16.6

it could he put into production. Another company was restructuredrecently into 200 strategic business units - only to discover that itwas impossible to implement 200 strategies. And even at GeneralElectric, which is usually cited for its ability to structure itselfaccording to its management needs, an executive recently com-

plained: '^'^Things become bureaucratic with astonishing speed.Inevitab ly, when we wire thin gs up, we lose vi tal ity . Em ersonElec tric, with a much simpler stru ctu re th an G E, consistently b eatsits huge competitor on costs - manufacturing its products in plantsw ith fewer th an 600 em ployees.

Our study focused on 10 well-managed com panies: Inte rna tion alBusiness Machines., Texas Instruments, Hewlett-Packard, 3M,Digital Equipm ent, Procter & Gamble, John son & John son,M cD ona ld's, Da na and Emerson Electric . On the surface, they have



ias toward act ion

In each of these companies, the key instructions are do it, fix it,try it. They avoid analyzing and que stioning produ cts to death , andthey avoid complicated procedures for developing new ideas.Controlled experiments abound in these companies. The attitudeof m anagem ent is to ge t some data , do it , the n adjust it , rath erthan to wait for a perfect overall plan. The companies tend to betinkerers rather than inventors, making small steps of progressrather than conceiving sweeping new concepts. At McDonald's forexample, the objective is to do the little things regularly and well.

Ideas are solicited regularly and tested quickly. Those that workare pushed fast; those that don't are discarded just as quickly. Att3M, the management never kills an idea without trying it out; itjust goes on the back burner. These managements avoid long,

complicated business plans for new projects. At 3M, for example,new product ideas must be proposed in less than five pages. AtProcter Gamble, one-page memos are the rule, but every figurein a P&G memo can be relied on unfailingly .

To ens ure th at they ac hieve res ults , these companies set a few w ell-defined goals for their managers. At Texas Instruments, for one, atypical goal would be a set date for having a new plant operating

or for having a designated percentage of a salesforce call oncustomers in a new mark et. A TI executive explained: W e'veexperimented a lot, but the bottom line for any senior manageris the maxim that more than two objectives is no objective.

These companies have learned to focus quickly on problems. Onemethod is to appo int a c z a r who has respon sibility for oneproblem across the company. At Digital Equipment and Hewlett-Packard, for example, there are software czars, because customer

demand for programming has become the key issue for the futuregrowth of those companies. Du Pont, when it discovered it was



room for a week. They come up with an answer and implement it .All members are volunteers, and they tend to be senior managersrather than junior people ordered to serve. Management espousesthe busy-member the ory : W e do n't want people on task forceswho want to become permanent task force members. We only putpeople on them who are so busy that their major objective is to getthe problem solved and to get back to the ir m ain jo bs . Every tas kforce at TI is disbanded after its work is done, but within threemonths the senior operations committee formally reviews andassesses the resu lts . Texas Instrum ents demands tha t the m anagerswho requested and ran the task force justify the time spent on it.If the task force turns out to have been useless, the manager ischided publicly, a painful penalty in TI's peer-conscious culture.

Sim ple form lea n staff

A lthou gh all 10 of these co mp anies are big - the s m allest, M cDon-ald 's , has sales in excess of SI.9 billion - they are structured along' 'sm all is bea utifu l lines. Em erson Ele ctric, 3M, J& J and H-P aredivided into small entrepreneurial units that - although smallerth an economies of scale m ight suggest - manag e to get thing s done.No H-P division, for example, ever employs more than 1,200 people.Texas Instrum en ts, with 90 prod uct custom er cen ters, keeps eachnotably autonomous.

Within the units themselves, activities are kept to small, manage-able groups. At Dana, small teams work on productivity improve-m ent. At the high-technology companies, small autonom ous team s,headed by a product ch am pio n, shepherd ideas throu gh thecorporate bu reau crac y to ensure th at they quickly receive a tten tionfrom the top.

Staffs are also kept small to avoid bureaucracies. Eewer than 100people help ru n D ana, a $3 billion corpo ration. Digital Equ ipmen t



fessor at Massachusetts Institute of Technology, found that 100percen t of the major new pro duc t ideas and 80 percen t of theminor new product variatio ns came directly from custom ers.

At both IBM and Digital Equipment, top management spends atleast 30 days a yea r conferring w ith top custom ers. No mana ger atIBM ho lds a staffjoh for more tha n th ree y ears , except in the legal,finance and personnel depa rtme nts. The reason: IBM believes th at

staff people are out of the mainstream because they do not meetwith customers regularly. Both companies use customer-satis-faction surveys to help determine management's compensation.A noth er company spends 12 percen t of its resea rch and develop-ment budget on sending engineers and scientists out to visitcustomers. One R&D chief spends two months each year witbcustomers. At Lanier Business Products, another fast growingcompany, the 20 most senior executives make sales calls every

month.

Staying close to tbe customer means sales and service overkill. A ssistan ts to at IBM are assigned to senior executives withthe sole function of processing customer complaints within 24hours . At Digital Equipment, J&J, IBM and 3M, immense effort isexpended to field an extraordinarily well-trained salesforce.Ca terpillar T ractor, a noth er company considered to have excellentmanagement, spends much of its managerial talent on efforts tomake a reality of its motto: ' '24-hour parts delivery anywhere inthe world.

These companies view the customer as an integral element of theirbusinesses. A bank officer wbo started his career as a J&J accoun-tant recalls that he was required to make customer calls eventhough he was in a financial department. The reason: to ensurethat he understood the customer's perspective and could handle a

proposal witb empathy.



The key is to motiva te a ll of th e people involved in eac h pro cess. At3M, for example, a team that includes technologists, marketers,production people and financial types is formed early in a newpro du ct ven tu re . It is self-sufficient and stays toge the r from theinception to the national introduction. Although 3M is aware thatthis approach can lead to redundancy, it feels that the team spiritand motivation m ake i t worthwhile.

Almost all the companies use corny but effective means to rewardtheir workers. Badges, pins and medals are all part of such recog-nition programs. Outstanding production teams at TI are invitedto describe their successes to the board, as a form of recognition.Significantly, the emphasis is never only on monetary awards.

ntrepreneurial autonomy

A company cannot encourage entrepreneurship if it holds itsmanagers on so tight a leash that they cannot make decisions.Well-managed companies authorize their managers to act likeentrepren eurs. Dana calls this method the ' ' s tore m an ag er con-cept. Plant managers are free to make purchasing decisions and tostart productivity programs on their own. As a result, these mana-gers develop unusual programs with results that far exceed thoseof a division or corporate staff And the company has a grievance

rate that is a fraction of the average reported by the United AutoW orkers for all the plants it rep resen ts.

The successful companies will rarely force their managers to goagain st the ir own judgm ent. At 3M, TI, IBM and J & J , decisions onproduct promotion are not based solely on market potential.An important factor in the decision is the zeal and drive of thevolunteer who champions a product. Explains one executive at TI:

In every ins tan ce of a new prod uct failure, we had forced someoneinto championing i t involuntari ly.



Almost all these companies strive to place new products intoseparate startup divisions. A manager is more likely to be recog-nized and promoted - for push ing a ho t new prod uct out of hisdivision to enable it to stand on its own than he is for simplyletting his own division get overgrown.

Possibly most important at these companies, entrepreneurs areboth encouraged and honored at all staff levels. Texas Instrumentshas created a special group of lis te n er s - 138 senior tech nica lpeople called indiv idua l co ntr ibu tor s - to assess new ideas.Junior staff members are particularly encouraged to bring theirideas to one of these individuals for a one-on-one evaluation.Each co ntrib uto r has tbe autho ri ty to approve substan tialstartup funds (S20,000 to $30,000) for product experimentation.TI's successful Speak'n'Spell device was developed this way.

IBM's Fellows Program serves a similar purpose, althougb it isintended to permit proven senior performers to explore their ideasrather than to open communications lines for bi-ight comers.Sucb scientists have at their beck and call thousands of IBM'stechnical people. The Fellows tend to be highly skilled gadflies,people who can shak e thing s up - almost inv ariably for the goodof the company.

The operating principle at well-managed companies is to do onething well. At IBM, the all-pervasive value is customer service.At Dana it is productivity improvenu'nt. At 3M and H-P it is newproduct development. At P&G it is product quality. At McDonald'sit is customer service - quality, cleanliness and value.

Pr inc ipa l focus

At ail these companies, the values are pursued with an almostreligious zeal by th e chief exec utive officers. Rene Mc Ph erso n, now



Such single-minded focus on a value becomes a culture for thecompany. Nearly every IBM employee has stories about how heor she took great pains to solve a custo m er's problem. New prod uctthemes even dominate 3M and H-P lunchroom conversations.Every operational review at H-P focuses on new products, with aminimum amount of time devoted to financial results or projections- because President John Young has made it clear that he believesthat proper implementation of new-product plans automaticallycreates the right numbers. In fact, Young makes it a point to startnew employees in the new-product process and keep them therefor a few yea rs as pa rt of a so cia liza tion pa ttern . ' ' I do n't careif they do come from the Stanford B usiness Sch oo l, he say s. For a few years they get their hands dirty, or we are not inter-este d. At M cD onald's the com pany's values are drummed intoemployees at Hamburger U., a training program every employeegoes throu gh.

As the employees who are steeped in the corporate culture move upthe ladd er, they become role models for newco m ers, and th e processcontinues. It is possibly best exemplified by contrast. AmericanTelephone . Telegraph, which recently began to develop a m arket-ing orientation, has been hamstrung in its efforts because of alack of career telephone executives with marketing successes.When Archie J. McGill was hired from IBM to head AT&T's

marketing, some long-term employees balked at his leadershipbecause he w as n 't one of the m , and so was not regarded asa model.

Another common pitfall for companies is sending mixed signals toline managers. One company has had real problems introducingnew products despite top management's constant public stress oninno vation - simply because line man agers perceived the rea lemphasis to be on cost-cutting. They viewed top management asaccountants who refused to invest or to take risks, and they con-



they said: "Of course he's for quality, but he's for everything else,

too. We have a theme a month here." The outstanding companies,

in contrast, have one theme and stick to it.

uilding on strength

Robert W. Johnson, the former chairman of J&J, put it this way:

"Never acquire any business you don't know how to run." Edward

G. Harness, CEO at P&G, says: "This company has never left its

base." All of the successful companies have been able to define

their strengths marketing, customer contact, new product

innovation, low-cost manufacturing and then build on them.

They have resisted the temptation to move into new businesses that

look attractive but require corporate skills they do not have.

Control with flexibility

While this may sound a contradiction, it is not. The successful

companies control a few variables tightly, but allow flexibility and

looseness in others. 3M uses return on sales and number of em-

ployees as yardsticks for control. Yet it gives management lots of

leeway in day-to-day operations. When McPherson became

president of Dana, he threw out all of the company's policy manuals

and substituted a one-page philosophy statement and a control

system that required divisions to report costs and revenues on adaily basis.

IBM probably has the ( lassie story about flexible controls. After

the company suffered well-publicized and costly problems with its

System 138 computer several years ago - problems that cost

hundreds of millions of dollars to fix - Watson ordered Frank T.

Cary, then a vice president, to incorporate a system of checks and

balances in new-product testing. The system made IBM people so

cautious that they stopped taking risks. When Cary becamepresident of IBM, one of the first things he did to reverse that



Excellence in management takes brute perseverance - timerepetition and simplicity. The too ls include plant visits internalmemos and focused systems. Ignoring these rules may mean thatthe company slowly loses its vitality its growth flattens and itscompetitiveness is lost.

06 Putting Excellence Into Management

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