One day, one of my students asked me to explain the term “difference”. Wow, what an interesting question! Of course, we’re not talking here about a mathematical definition understood as the “subtraction result”. In management, this question means something much more than that. It touches the bottom line of every business venture.
In 1982, Tom Peters and Robert Waterman published the results of their research in the book, with the extraordinary title: “In search of Excellence. Lessons from America’s Best-Run Companies” (By the way, it is one of the biggest selling and most widely read business books ever!). The research has presented 43 “excellent” American companies publicly traded on the stock market. They tried to find the formula that makes companies extraordinary ones. To measure the “excellence”, they adopted six financial ratios of the long term superiority: Compound ASSETS growth, Compound EQUITY growth, Ratio of MARKET VALUE to BOOK VALUE, Average return on TOTAL CAPITAL, Average return on EQUITY, Average return on SALES.
What did they discovered? 8 Principles (Eight Themes) of EXCELLENCE: 1) A bias for ACTION (I like this the most), active decision making – 'getting on with it’. 2) Be CLOSE to the customer – learning from the people served by the business; 3) AUTONOMY and entrepreneurship – fostering innovation and nurturing 'champions’; 4) Productivity through PEOPLE – treating rank and file employees as a source of quality; 5) HANDS-ON, value-driven – management philosophy that guides everyday practice – management showing its commitment; 6) Stick to the KNITTING (be an EXPERT or, at least, be a little better) – stay with the business that you know and like; 7) SIMPLE form, lean staff; 8) Simultaneous loose-tight properties – in shop-floor individual activities plus centralized values.
What is the difference? If you invested $10,000 in the „Excellence Index” companies in 1982 and then did nothing at all, you would have $140,050 20 years later. An equal investment in the Dow index would have yielded just $85,500. This is the difference!