Archives: November 2006

Event Slides: ONO

Parque de Retiro, Central Path

Today in Madrid, Tom is speaking to ONO, a leading Spanish telecom company. He sent us the photo above, showing the Parque de Retiro in its year-end splendor. There are more photos at Flickr.

If you would like to download the slides, you can do so here:
XAlways, ONO
XAlways, ONO, Long Version

Five Years with Tom, Updated

Two weeks ago we posted a list of Tom's (extensive) speaking engagements for the past five years. He had a chance to revisit it and tweak it a bit, so we offer it again, updated. You can download the PDF here:
Tom's Events 2002–2006

How Flat Is Your World?

I've been listening to Thomas Friedman's book The World is Flat recently (I love books on CD). I have a couple of thoughts: First, I think everyone in business should read it. I think the man is brilliant for packaging such wisdom. I'm recommending it as a "must read" to the audience at my next Brand You seminar.

Second, if companies must be flat (less hierarchical) to thrive in the business environment today and in the future ... how does an existing company go about accomplishing this? (Aside from eliminating "middle management"). I've never worked in a company that didn't have a hierarchical structure (i.e., must be "A" before you can be "B" & up the ladder you go). How does a company free itself of this structure and mindset? Is it possible to get rid of the traditional "organizational chart"? Even if you invert it (leadership on bottom w/ line-level/customer on top), there is still hierarchy, isn't there? There is still a clearly defined path to follow. Isn't that what needs to go away ... the "talent development path"? It implies a straight line to somewhere—don't we have to develop people who can zig and zag?


The Point of the proposed US Airways-Delta merger? (Other than the obvious one, establishing near monopolistic power in an important set of U.S. markets.)

And One More Time …

It's obvious.
It's boring.
But it's also neither of those things.
It's actually stunning.

Headline, right column, page 1, Wall Street Journal, 27 November 2006: "Seeking an Edge, Big Investors Turn to Network of Informants. Mark Gerson Assembles Web of Moonlighting Managers."

I suppose in the old days (pre-1995, say) investors or investors' reps could have hung out at bars near plants to ask hair-down workers or even bosses what was going on inside. In fact, there's no doubt they did just that. So "this" is not new—but as usual these days, "Internet Scale" dwarfs all that came before.

In this case it's Mark Gerson, "a networking wizard who has done for professional investors something akin to what has done for the nation's singles. He hooks up current and former middle managers from hundreds of companies with professional investors desperate for an investing edge." (The Journal reports that Mr G's network includes 180,000 members!)

Needless to say, some employers are duly concerned ... but this is one more genie out of one more bottle that, no matter how intense immediate pushback, is not going to be re-stuffed into said bottle.

Yes, this sort of thing is becoming commonplace. Still, every time I read a story like this, and see yet another barrier to transparency fall, I am both amused and amazed.

Welcome to Web 2.0.
Or Web 3.0.
Or Web 9.83.
What fun it all is!

(NB: Speaking of "transparency," I felt its bite a few days ago. I wrote an email that, I grudgingly admit, contained a "little white lie." Before pushing the send button, I realized that my likely Blog postings would give me away. Fortunately, the hovering finger was withdrawn in time. Yet another "lesson learned, circa 2006.")

Master Slides

A long weekend, some time off, so Tom's been reading and adding to his master slides collection. The result is 180+ new slides, several of which show posts pulled from the comments section of So, take a look. Maybe you'll find your name in here:
XAlways Master, 1724 slides, 3.85MB

Me & My 68,000+ Best Friends & a Couple of Questions

A tailgate party at Gillette Stadium

A Patriots-Bears game at Gillette Stadium was as good a way to end the Thanksgiving holiday as I can imagine. My 21-year-old stepson Ben, at school in Durango, Colorado, declares he may be Durango's only Pats fan out there in the heart of Broncoland—hence I felt the need to deliver a Pats victory for him to take home, or at least a good seat. We got the good seat and the victory in the first visit to spectacular Gillette Stadium for either of us. It was a sloppy game (lots of turnovers), but most games between excellent teams are "sloppy," which is an inevitable product of the best playing each other as hard as is humanly possible.

Only two things marred the game for me. Fact is, I'd sworn I'd never go to Gillette after the P&G acquisition of the local company. In my opinion, local bias aside, it was yet another totally unnecessary business combination—accomplished primarily because the Gillette CEO won a $165,000,000 personal prize for selling the company. (Mr Kilts gained defining infamy in my book by subsequently threatening Boston with post-acquisition job losses because the local-Boston press had the temerity to wonder whether his personal gain had been on the high side.) But I gave in ... for Ben's sake.

The other dark cloud was a bit more abstract and a lot more mood dampening. When the Pats score at home, a few guys in the endzone in colonial-patriot uniforms fire a volley skyward with copies of period rifles. Good fun! Except those damn guys dressed in their reproduction garb got me thinking about the original ragtag gang at Lexington and Concord. Their unlikely heroics were an essential part of the founding episodes of a nation that had not only come to be an imposing power, but more important, a matchless beacon of liberty and justice around the world. "Little" episodes, we learn these days, can deliver a roundhouse punch to a brand image patiently constructed over decades. As the news from Iraq goes from bad to worse by the day, it would seem clear to me that our misadventure in that country, perhaps legitimately conceived (???), but executed with breathtaking arrogance and incompetence and disdain for the likes of the Geneva Conventions, has not only dangerously destabilized the entire world but also whacked U.S. "brand power" at a very bad time. Market power today, as always, and more so than ever for that matter, from nations to companies, is about character as much as or more than size-of-arsenal. Put it this way, we've got a lot of catch up to do—and thinking about that as I gazed upon our reproduction patriots cast a pall on my day.

Still, it was a good game. For Ben's sake, I'm glad the Pats won—though my heart will always lie with my beloved Johnny Unitas-Ray Berry Baltimore Colts, John Madden-George Blanda Oakland Raiders and Ronnie Lott-Joe Montana San Francisco 49ers.

(Above: Tailgate Nation, Foxboro, MA, style.)


Ice at the end of a downspout

Thanksgiving Day ... first ice—emerging from a downspout.

In Search of Excellence at (Almost) 25 … and Standing Tall

In Search of Excellence will be 25 next year—believe it or not. A few days ago a Web posting suggested that Bob Waterman and I had fudged the data in the book.

It's simply not true.

But if that perception is rumbling around in cyberspace, it's all my fault.

I did an interview on the book with my great pal Alan Webber, Fast Company founder, a couple of years ago. I made the wretched mistake, in casual conversation, of saying we'd "fiddled the data" for In Search of Excellence.

What I meant had nothing to do with "fudging," or "fiddling," but was a comment only on the differences between our methodology for company selection and that of Jim Collins in Good to Great. Jim apparently had no prior convictions about which companies he'd examine, and created his list by applying certain financial criteria to a huge company database—and sight unseen, a set of superb performers emerged. By that standard, Bob Waterman and I did it "backwards." We were enamored of the "excellence idea," wanted to write about it, and thence sought initial "excellent company" nominations based on McKinsey and academic and corporate experts' subjective evaluations; only after getting a "subjective" list of nominees did we apply the financial screens that caused any number—such as GE (this was pre-Welch)—to drop off the list. Thus, by fiddling I simply meant that we hadn't followed a pure model of starting from a big list and using only financial data to extract unforeseen winners.

(Fact is, any like process is about 90% subjective—e.g., if you use-juggle different data screens, different years, you will get wildly different results/lists.)

For what it's worth, Bob and I subjected our subjectively determined candidates to six tough financial hurdles (see In Search of Excellence, page 22 et seq.), three representing growth, three representing absolute financial returns. Growth measures: compound asset growth; compound equity growth; average ratio of market value to book value. The "absolute" measures were: average return on total capital; average return on equity; average return on sales. We did our research in 1980, and arbitrarily used data covering 1961–1980. To qualify, a company had to have been in the top half on at least four of the six measures for the full 20-year period. Most handily exceeded this standard, but 19 of our original 62 company nominees dropped out, and we concentrated our research on the remaining 43.

Far more interesting, I think, is that given our subjective nomination process, we ended up examining companies that, in 1980, virtually no one had looked at. Absurd as it may seem, these "stealth" "cool" companies, circa 1980, included: Emerson Electric, Texas Instruments, Hewlett-Packard (then a $1-billion firm), Frito-Lay/PepsiCo, Johnson & Johnson, 3M, Caterpillar, Marriott, McDonald's, Intel, Disney, Delta Airlines, and, yes, little Wal*Mart.

While I'm on the topic of In Search of Excellence and retrospective perceptions thereof, I'll deal with the second "charge" against the book; namely, that several of "our" companies "failed." (For some wholly unknown reason, some people say "most of" "our" companies failed????) To be sure, the likes of Wang and Atari and Kmart are today embarrassments. Nonetheless, the overall performance of "our" firms has been little short of stunning. In 2002, on the 20th anniversary of the book, held our publicly traded companies up to a high-amp searchlight:

One remarkable fact about In Search of Excellence remains: Its list of companies have held up quite well over time. The book, which our panel of experts recently voted the most influential business title in the last 20 years, focuses on 43 "excellent" companies. The list contains just a few arguably embarrassing picks, Atari and Wang Labs being the most prominent. But overall, the companies Peters and Waterman called excellent have easily outperformed the market averages any way you slice it.

In Search of Excellence didn't name the biggest companies and ride with winners: In 1982, when the book was published, just three of the 43 companies ranked among the top 25 by sales on The Forbes 500s. And just 22 of the 32 public companies were among the 500 largest. Those 22 ranked, on average, 125th on The Forbes 500s by sales.

Over the years, the companies grew. By 2002, 24 of the firms were among the largest 500 public companies, with an average Forbes 500s sales rank of 99.

The authors picked big companies considered "innovative and excellent" in a variety of industries that had shown strong growth and profitability between 1961 and 1980. The book doesn't purport to be an investment guide, but investing in these excellent companies would have been a very wise choice both in the short run and the long run.

Over a five-, 10- or 20-year period, the Excellence Index—an unweighted basket of the 32 public companies among Peters and Waterman's 43—substantially outperformed the Dow Jones Industrial Average and the broader S&P 500. Since October 1982, when the book was published, the companies on the authors' list earned an average total return of 1,305%, or 14.1% annually. This return outdistanced the DJIA companies, which earned an average annual return of 11.3%, and the S&P, whose companies earned an average annual return of 10.1%.

In other words, if you invested $10,000 in the Excellence Index 20 years ago and then did nothing at all, you would have $140,050. An equal investment in the Dow would have yielded just $85,500.

The Excellence index gets a boost from star performers such as Wal*Mart Stores and Intel. But its median company performance also easily bests the averages for each of the five-, 10- and 20-year periods.

Some might assume it easy to pick 30 or 40 companies that would outperform the Dow. But precious few mutual fund managers do it—even though that's their job and they can change their mix of companies at will. ...

Mistakes in In Search of Excellence? Absolutely. Things I'd say differently? Absolutely. But overall ... coulda been a lot worse. (And, boy-o-boy, do I ever wish I'd invested in "our" companies in 1982! Frankly, I considered it, but decided that such a move would destroy my credibility.)

Congratulations, Tom!

I just organized sending flowers for Thanksgiving to about 20 people. And you?

(It's better than Christmas in a way, because it's more or less expected then. Oh, and the "other part": It was great fun to concoct the list—it kept me awake for a couple of hours last night. Giving and saying "thanks" does, indeed, beat the hell out of receiving.)