"Tolerate nothing less than 'Departmental excellence and coolness.'" Tom Peters
Almost 25 years ago, working with his good friend and colleague, Tom Peters, Bob Waterman coauthored In Search of Excellence. A few months after its publication, Excellence reached the top of the New York Times Best-Seller List, and then improbably stayed on top for a year and a half.
His next book, The Renewal Factor, a book about maintaining excellence, was featured as a BusinessWeek cover story and also became a NYTimes bestseller. Since Renewal, Bob has written two other books, Adhocracy: the Power to Change, a short book about managing teams, and What America Does Right (Frontiers of Excellence in Europe), a book that looks at fewer companies than In Search of Excellence did, in more depth.
From 1964 to 1985, Bob was with McKinsey & Company, where he met and collaborated with Tom. After a stint with McKinsey in Australia and a break for world travel with his family, Bob rejoined the San Francisco office in 1977. Not too long thereafter, he started working with Tom and Julien Phillips on an internal project to beef up that firm's skills in organizational consulting. The work resulted in their landmark 7S framework. This in turn triggered the research that led to In Search of Excellence, published in late 1982. When Bob left McKinsey in 1985 he was both a senior director and a member of the Firm's Executive Committee.
On leaving McKinsey Bob continued to write, but his activities took several new directions. He joined the boards of McKesson, Boise Cascade, and ASK Computer. Of particular importance, he became a founding board member of the then tiny Applied Energy Services Corporation (AES). When Bob retired from the AES board in 2003, the company had become the largest independent power producer in the world.
Bob has also been very active in the world of nonprofit organizations, as a board or council member for several, including San Francisco Symphony, U.S. Ski Team, World Wildlife Fund, National Academies of Science, and National Center on Sleep Disorders Research, and as a volunteer for others. Over the last decade one of Bob's major commitments has been to the Restless Leg Syndrome (RLS) Foundation. RLS is something that Bob has been fighting since childhood, a neurologic disorder that can seriously impair sleep when one's legs demand activity when the rest of the body is demanding rest. Fourteen years ago, he had a crisis in London where he was suffering from severe lack of sleep, partly due to medications that were supposed to help but, instread, badly exacerbated his condition. He recalls that he could barely get himself organized enough to cancel his business obligations and get home. "It was terrifying," he comments. It was shortly thereafter that he discovered the then tiny RLS Foundation, got involved, and eventually served for nine years as its Chair. He has lead the Foundation to a commitment to good science as well as good medicine. Research has subsequently identified four suspect genes and an understanding of the difference in brain iron chemistry between those who have RLS and those who do not.
Outside his professional commitments, Bob's major interest is painting. When home, he teaches a drawing and painting course for interested friends and neighbors. An erstwhile ski racer, Bob still skis and plays tennis and golf. His wife is also an author who writes about career and life planning. Their two children and their spouses are all active in the music world and/or environmental causes. Bob tells us that his big share of mind is taken up by spending time with family and most especially doting on his four grandchildren.
tompeters.com asks ...
First of all, my apologies for not interviewing you sooner. We're long overdue. Let's start with In Search of Excellence. Or maybe you never want to talk about In Search of Excellence again?
BW: I love to talk about it. It was a great experience.
Tell us about it.
BW: My fondest recollection is of putting together that research. First there was the research that led to the 7-S framework, and as an offshoot of that we started asking ourselves what a truly innovative company would look like if we saw one. We meant innovative in the sense of creating lots of new products and services, and how they responded to changes around them.
At first, we thought of it as innovative company research. I had done some work like that when I was with McKinsey in Australia. We were trying to understand why one of our clients was spending a lot of money on minerals exploration and wasn't finding much of anything. We spoke to the explorers who were good and compared the differences. I thought we might be able to do something similar with organizations.
Quite frankly, I was tired of working with big, slow companies. You made a lot of money consulting with them because they didn't move very fast. [Laughter] But I had worked with a few that were really good, like Ore-Ida. They were terrific marketing people and fun to work with because you hardly got an idea out of your mouth before they were trying it. I thought, man, I would really like to have more clients like this.
So Tom and I ventured that it might be fun to talk to Hewlett-Packard with our 7-S framework in hand and see whether we were modelling what they were doing. What we found was a lot more difference between our standard client and Hewlett-Packard than we ever imagined. That led us to start interviewing at a lot more places, like 3M, J&J, Procter and others. Eventually that led to the full-blown research on innovation and excellence.
On July 4, 1979 we made a presentation at Royal Dutch Shell about our findings on innovation. It was something of a disaster because we were talking HP language, and we were trying to combine the 7-S framework and all the stuff we thought we knew about innovation. It was long, complicated, and just wasn't very good at that stage. We sure weren't talking the language of a half-English, half-Dutch, very non-California board.
Later on, with some help from Siemens, and a lot of help from our internal research budget, we started saying it much better. Tom published that article in BusinessWeek outlining the eight basics [Tom Peters, "Putting excellence into management," BusinessWeek, 21 July 1980: 186+]. Harper came to us and said, "You guys ought to write a book." We said, "Sure." We had no idea how hard it was to write a book.
I didn't realize the article in BusinessWeek led to the book deal.
BW: We were making lots of presentations at the time. There was a book that we put together called Three Yards and a Cloud of Dust. It was a big long set of slides and presentations, much like what Tom does now. People had seen those presentations and the BusinessWeek article, and that's how the book deal came about.
We wrote something like 25 drafts and each one got better. The first ones were awful.
You were continuing to do your regular consulting work at McKinsey while you wrote the book?
BW: Yes and no. At one point I figured that unless I took six plus months off and did nothing but devote myself to the book, we weren't going to get it done. By that time Tom had left McKinsey.
Oh, I thought he was there through the publication of the book.
BW: No, he left partway through. We were going to get it done come hell or high water. At that point McKinsey and the publisher had lost faith in our ability to ever get it done or say anything interesting. [Laughter] Tom and I were convinced that we were onto something really important.
Tom and I admired the same authors, people like John McPhee and E.B. White and others who are great essayists. We tried to emulate them. We were also giving a lot of talks. Tom spoke most frequently, but I did too, as well as a few of the others inside McKinsey. So we knew what phrasings and what ways of saying things came across well with people. We knew which stories worked. Tom used to talk about the importance of "zibits" and "zamples." Unless we had a good exhibit or example that made an idea concrete, we just weren't communicating the way we wanted to.
I was trying to write in non-McKinsey language, so that someone like my father-in-law, who was a steamfitter, could understand it. We didn't want it to be just for top management.
The upshot of that year was that McKinsey took a pretty dim view of my shenanigans, and I got a big salary cut. At that point we decided that if the book sold over a certain number of copies—I've forgotten what it was, maybe 100,000, which would have been a huge sale for a business book—then Tom ought to have a share in the royalties. We never imagined that it would get into the millions.
What did you learn from writing the book?
BW: I think most of what we learned is in the first three chapters of the book. We put them upfront on purpose and warned the reader that they really should read them, but they didn't have to. What we were saying, in essence, is that human beings are very different from "factors of production." Unless you understand humans and how they work—all their idiosyncrasies, ambiguities, and so on—you won't understand how to think about organizing. Trying to say that well was a learning experience for both of us. Any time you're trying to teach, I think you learn more. That's what we were doing with the research, putting the book together, and making the language in the book broadly accessible so that people would enjoy it.
Tom tells a story about the night before going on some national news show and you guys having to toss a coin over who was going to tell the Hewlett-Packard Managing By Walking Around story. Is that how it happened?
BW: Probably. I think the first big show was The Today Show with Bryant Gumbel. I was scared to death because I had never been on a big national program before. Tom was looking forward to it.
After a while we got used to touring together. We missed it when we couldn't do it anymore. It was fun. There was one radio show where the interviewer had our names mixed up. He kept saying, "Tom" to me and "Bob" to Tom. [Laughter]
We were on Larry King one night; that was when he was just radio.
Was he wearing suspenders while on radio?
BW: Yeah, I think so. I don't remember him looking any different, but that time is quite a ways back. Anyway, it was a long, long show. He had an all night program, so he really got into depth. I don't think he read the book. I think part of his shtick was to get us to explain it to somebody who wasn't that familiar with business or hadn't read it.
It must have been a good exercise for you.
BW: Oh sure. All those attempts to try to elaborate on the book were fun. Eventually I got tired of being in an airplane all the time. During that first year—my wife Judy and I counted it up—I was only home about 12 nights.
That was '82 or '83?
BW: It would have been '83, because the book came out in late '82.
Twelve nights, that's not much.
BW: I got burned out on traveling and the demand. By then McKinsey had found out what a success it was, of course, and loved it. I became their spokesperson. So between the normal outside demand for speeches, and then speeches to give to clients of McKinsey all around the world, I was being doubly booked.
How much longer did you remain at McKinsey?
BW: I left in '85. I had a very nice contract to do two more books with nice advances. I wanted to just take that and do it inside McKinsey as if it were client revenues. But I didn't want all the ambiguity that still existed over who owned what in terms of the royalties, copyrights, and electronic rights. McKinsey's view was, "Well, that's easy, we own it."
I can imagine.
BW: It boiled down to either signing the contract or leaving McKinsey.
So you left reluctantly.
BW: McKinsey didn't want me to leave either, but they'd taken a hard line, and I took a pretty hard line, and we just couldn't get the two sides together.
I left with a small team of people who had worked with me on Excellence, a couple of researchers, Gates McKibbin and Sally Hudson, my assistant Kay Dan, an editor, David Graulich, and one or two others. We worked on The Renewal Factor, which was a good book. It got a cover story in BusinessWeek [John A. Byrne, "How the best get better: Robert Waterman and his new book, The Renewal Factor" BusinessWeek 14 Sept 1987: pp98(2). Book excerpts also in this issue.] and shot to the top of the New York Times list almost right away. It was published in '87. Along came the recession of '87, and everybody lost interest in Renewal, including the publisher. They stopped pushing it. When the recession turned out to be not that bad, I thought the publisher would get right back in and start plugging it. But by that time their minds were onto something else and they really didn't do it.
Talk about short attention spans.
BW: It's still one of my favorites. It's up there with Excellence. Among the people who know the book, it's right up there in the same category.
Renewal was asking the question how do good companies stay that way over time? In a way we were following John Gardner's [mid-1950s head of the Carnegie Foundation for the Advancement of Teaching] example. He was the first one who had written about Excellence. [Excellence by John W. Gardner was published in 1961.]
That was the part I didn't tell you. I said in our minds, originally, the book was about innovative companies. The word Excellence came along and just stuck. And it was a damn good title.
We're working on a new book with Tom. The question came up of whether we should include Excellence in the subtitle. The fact remains, everybody understands Excellence.
BW: The foreign publishers including the U.K. publisher of my book What America Does Right called it Frontiers of Excellence, which in retrospect I think is a better title.
I like that.
BW: With Renewal, we were following John Gardner's example, because his original book was Excellence and then he wrote Self-Renewal. Renewal was always his favorite subject. I thought I could take some of his ideas about personal renewal and apply them to corporate renewal. He loved it. He just thought that was the niftiest thing in the whole world.
Along the way there was demand for a small book on teams and working with teams. My view is that companies use too many consultants on stuff they should do for themselves. So I wrote a book on running teams called Adhocracy. It's a pretty good small book.
You're a founding director at AES Corporation [a global power corporation]. Roger Sant, in an interview in the Harvard Business Review, with Suzy Wetlaufer—now Suzy Welch—back in '99, credits you with providing some of the basic ideas for how they wanted to make this company.
BW: We started AES in '82, at the same time we were publishing Excellence. We had a power company in mind. Sant had come from what became the Department of Energy. He knew a lot about how cogeneration might work, but we didn't really have a company. We got a little bit of financing. I joined the board after I left McKinsey, along with a few other boards.
For me, this was the ideal experiment. For them, they thought, "Wouldn't it be fun to build a company that's based on the stuff these guys Waterman and Peters write about?" We actually used the 7-S framework and talked about it all the time. They tried to simplify it, but we ended up using most of it in terms of how we built the company. We used a lot of the stuff that we talked about in Excellence and Renewal, the ideas about managing people and keeping things small. Most of the stuff that appears in Excellence we tried with AES quite successfully.
My reaction was, "My God, it works!" Their reaction was, "Of course it works, you wrote about all this stuff."
"But we were consultants! We didn't know if it was really going to work." [Laughter]
BW: We had a great time with that. Then we grew too fast, which I had also written about the dangers of. We just got carried away with ourselves. There was huge momentum for growth. What happened is, we ran a string of "cogen" plants, and those all went nicely. Then we found that we could take over nationalized plants in other parts of the world. The first was in Northern Ireland, then Kazakhstan, Brazil, and Argentina. Anyway, we found that we could run power plants much more safely, productively, cleaner, name your metric, with about half the labor force as formerly nationalized plants. So with the wave of Thatcher/Reagan deregulation, which affected the power industry all over the world, we started owning plants all over the world. We outgrew our ability to pass on the culture, so we made some really bad deals.
The Enron collapse almost took us out of business. We weren't doing anything illegal, but we were a complex company. People figured that if Enron had gone belly up, something must be wrong with AES too. Our stock went from 60 bucks a share, which I always thought was too high, to 70 cents. [Laughter] Man, did that hurt.
I guess you can laugh about it now.
BW: Well, it came back. We didn't go into bankruptcy. We were on the hairy edge of it. I went from advisor to full time director. Basically some of us almost moved in with Roger. We said, "We know we talked about all this Excellence stuff, but right now cash is the only thing that we care about." We saved it.
The technique sounds remarkable, with the teams at each plant and all the decision-making happening very close to the action. It sounds like there are very few layers of bureaucracy.
BW: We had a very small corporate headquarters in Arlington [VA]. All the action was in the field at the plants. We tried to keep it that way. That's one of the reasons we could turn these formerly nationalized plants into such effective operating units, because we could cut out all those layers.
Two of the most important chapters in What America Does Right are those first two chapters on Procter & Gamble and self-directed work. We were busily putting those ideas into effect. P&G had told me they hadn't let anybody in to see their system and write about it before. They first installed that self-directed system because they had such bad work conditions in plants.
What they found was that they could increase productivity by 25 or 30 percent, a huge number. More than you could imagine doing with any piece of machinery or technical improvement. They declared it a trade secret and wouldn't talk about it for years. I was the first one to go in there and examine it in great depth. Those two chapters in that book are among my very favorites.
You got to do that because you had been a coauthor of In Search of Excellence, or was there—
BW: And Renewal by that time. At that point, P&G's model had gotten out and it was being used elsewhere. So they weren't as protective of it. They wanted it to be talked about. At AES, we were busily trying the same kinds of things.
I recall years ago seeing a Fast Company article about AES. Around the same time I saw a picture of Roger Sant with buttons that had the red circle with a slash through it. They was printed in the circle.
BW: The Anti-They campaign.
Right. A campaign against saying, "They told us to do it, or I did it because of what they said." I love that!
BW: The idea was that companies shouldn't take themselves too seriously and should have a sense of humor about themselves. We had one executive, Bob Hemphill, who just loved to take those ideas, write them up, make fun of them, and spread them around the company. He was the source of the buttons and the Anti-They Liberation Army. [Laughter]
I read that one of the four tenets of the corporation was having fun. But as Roger Sant pointed out, it wasn't fun in the sense of having parties, it was fun because people were responsible for the work and they could really become engaged with it. I think one definition of happiness is when you're doing something slightly beyond your grasp, but it's a manageable challenge. You have control of what you're doing and the ability to learn to do it. I think that's what Roger was calling fun.
BW: Roger has had fun on his mind ever since I first met him. I met him through our wives. Our wives were in the Junior League together. I've known him since maybe the mid-sixties, long before I met Tom. Roger has always talked about the importance to him personally of not just doing business, but having fun doing business. He was complaining at the time that he wasn't having much fun and he wanted to do something else. So when he started AES, fun was one of the central values that he wanted to build. We talked about the values all the time, and fun was the hardest to define.
He and I never quite saw eye-to-eye on what we call fun because he had a more business-like description of it. Do what you really enjoy doing. I agreed that that's part of it. But the other part that I thought was quite important was don't take yourself too seriously. I got that from a lot of talks with one of Tom's favorite researchers and mine, Karl Weick. A lot of this stuff, like the Anti-They campaign came out of that definition of fun which Bob Hemphill understood thoroughly. You know, Roger could see the value of it. He could see the real value of what Hemphill was doing. Having both definitions of fun available and ingrained in the culture was very useful to all of us.
When we were very small, we had food fights at the annual board retreats. We lobbed innocuous things, bread balls, quail eggs. Probably not fun for all of us but the main message—don't take yourself too seriously—came through.
What have you been up to since then?
Later, I left the board work because with the advent of Sarbanes-Oxley and such, it became legalistic and less strategic. I got more and more involved with nonprofit boards. That included the San Francisco Symphony and World Wildlife Fund. It's evolved. These days it's a combination of environmental stuff, healthcare, and health research.
I have Restless Leg Syndrome. Have you ever heard of it?
BW: Whenever you want to be still, to sleep or sit in a theatre, your legs are saying to your body, "If you don't move me, I'm going to drive you nuts." The more you don't move, the more you have to move. Instead of sleeping, you have to be up walking around. It just drives you crazy.
So I got involved with the RLS Foundation. At that time Collins had published Built to Last, and he talked about BHAGs [Big Hairy Audacious Goals]. I said, "That's what we need." We brainstormed and came up with universal awareness as a top goal.
An awful lot of people have this. I think it's about 7 percent of the population, nationwide, which is a big, big number. In terms of a seriously life-disturbing form of it, like I have, it's maybe only half a percent of the population, but that's still a big number. People weren't taking it seriously. Doctors really don't understand it.
Our goals became universal awareness, finding better treatments—particularly in view of the bad ones that some of us have been given—and finding a cure. It led me to form a scientific advisory board and get myself on one of the boards of the National Academy of Sciences, called The President's Council, and then on one of the boards of the National Institutes of Health. I was on what the NIH calls NINDS, the Council for Neurological Disorders and Stroke. In the past, RLS was treated as a sleep disorder; this was before it was identified as mainly a neurologic thing.
We've made big progress. We found that people who have it have dramatically less iron in the brain. We're not sure yet why that happens. We've discovered four genes that appear to be causal. So we're working like mad trying to find out what the genes do, and how the genes might relate to the iron problem.
The reason I've been so involved is that RLS is hereditary, and our kids or grandkids are going to have it. It's a big deal for our family. It gets worse as you get older. We do have better medications to deal with it now that we've convinced the drug companies to take it seriously. We convinced them that there was a big market out there, and they found it.
So that's taken up a lot of my time. I still do a lot of painting. I teach a watercolor course.
BW: I have a lot of fun with that. One of the reasons I teach is that I learn a lot myself.
In The Sot-Weed Factor by John Barth, the main character decides to teach a musical instrument for the same reason, because the only way he's going to learn it is to teach it. That's a great life lesson.
BW: I go to one of the continuing education programs at Stanford every Monday night. This one is on particle physics. I was a physicist originally and I love that stuff. The guy who teaches it is really brilliant. Someone asked him last night why he was teaching. He said, "Simple. It's the way I learn."
Exactly. Bob, it's been a great pleasure speaking with you.
BW: Thank you. It's been fun.
Email: bobw (at) watermangrp (dot) com