Where Did the Excellence Go?

  • James H. Lee

Does anyone remember the 1982 book In Search of Excellence by Tom Peters and Robert Waterman? At the time, it was a huge bestseller that revitalized interest in business management and promised to make American companies more excellent again.

According to Peters and Waterman, the ingredients for success are:

  1. A bias for action
  2. Staying close to the customer
  3. Autonomy and entrepreneurship
  4. Productivity through people
  5. Focus on the core business
  6. Lean staffing
  7. Simultaneous "loose/tight" properties

The original list of companies recognized as "excellent" in the book is still quite recognizable, with names that include 3M, Avon, Boeing, Bristol-Myers, Caterpillar, Disney, DuPont, IBM, Intel, and Wal-Mart. These could still be suggested for any conservative blue-chip portfolio without too many questions being asked. While most of these companies are still well-respected, I suspect that they may no longer be quite as esteemed as they were thirty years ago.  They have simply matured past the stage of unusual growth and opportunity.


A recent McKinsey Quarterly article ("The Strategic Yardstick You Can't Ignore") reveals the fact that exceptional organizations are most typically found in industries experiencing rapidly growing profits.  


After reviewing the economic profiles of 3,000 companies over a fifteen-year period, the McKinsey authors found that 90 percent of the companies that went from the middle to the top quintile of profitability were in industries that were also experiencing similar improvements.   Specifically, 75% of their increased profitability was attributable to improved industry performance. Being in a "good" industry makes it three times more likely to have above-average profitability.


In real estate, they say that location is everything.   For investors in stocks, being in "a nice neighborhood" means getting exposure to the right industries.


This provides a useful background for our focus on finding the next big growth opportunities.  If you show up a few minutes early, people might say that you just happened to be in the right place at the right time.