Silicon Valley March 2001

Forget the Yellowfin

How much does a company's culture really contribute to its success?
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Illustration by Gregory Manchess

Over the past twenty years the United States has enjoyed successive booms of light, clean, "interesting" industry. First came semiconductors (epitomized by Intel), then personal computers (Apple and Compaq), and then software (Microsoft). Until recently the Internet and communications in general were booming, epitomized by Amazon.com and AOL. Next up: further pharmaceutical and biotech wonders.

During those twenty years the prevailing way of talking and writing about business achievement shifted in a correspondingly light, clean, interesting direction—with less emphasis on details of production and distribution, and more fascination with the "culture" of a company as the root of failure or success. For a long time I happily went along with this trend, both in what I chose to read about companies and in what I noticed and sometimes wrote about them. But as I've watched the ups and downs of the Internet-and-venture-capital complex that is based in the San Francisco area, I've started to have some doubts.

It isn't often that one can trace a decades-long intellectual shift to a single book, but in this case the connection is inescapable. The change in business analysis began with In Search of Excellence, by Thomas J. Peters and Robert H. Waterman Jr., which was published in 1982 and has sold some three million copies since. Although the authors had both been consultants at McKinsey & Company, the book they wrote departed radically from the dry, sanitized tone of most consulting documents. Peters and Waterman identified forty-three large American companies that exemplified "excellent" practice; they told real stories, with real names and dates and inside details, to illustrate how those companies made their choices and did their work; and they extracted eight broad themes that, they said, distinguished a successful company, whether it made blue jeans (Levi Strauss), airplanes (Boeing), or candy (Mars). Some of these themes, such as "a bias for action" and sticking "close to the customer," have become such staples of discussion about business that it's startling to realize that the terms were coined only twenty years ago.

There were many reasons for the vast ripple effects of the book, including Tom Peters's tremendous gifts as a proselytizer and a showman. Journalists took naturally to the concept and message, which resembled and seemed to validate what journalists themselves do. We have long been accustomed to judging, say, a government agency or a political campaign by details of its "culture"—how committed underlings are to the larger goal, how much time and energy power struggles consume—and the book suggested that we could look at companies in a similar way. I first read In Search of Excellence after an unforgettable business-reporting experience. I had spent a week in Detroit, in midwinter, listening to auto-company executives snarl about labor and labor leaders snarl back—and then I went to Silicon Valley. There, in the balmy sunshine, I interviewed people at Hewlett-Packard and Intel and the relatively young Apple. They were full of theories about how every member of a company had to share in its success. At General Motors, Roger Smith, the head of the company, worked in an enormous top-floor office with knee-deep carpeting; at Intel, Andrew Grove and Gordon Moore, two of the company's founders, toiled in cubicles alongside everyone else. No wonder these new companies were thriving! When I came across Peters and Waterman's book, soon afterward, I felt as if I'd found the explanatory key to what I had observed.

It's hardly the case, of course, that other means of business analysis have disappeared in the years since Excellence was published. The business pages still contain articles about distribution issues and product placement. The rise of spreadsheet programs in the mid-1980s inaugurated the age of "quants" (analysts who judge companies strictly by the numbers), and vastly more-powerful computers have since made the financial markets quant heaven. But the cultural approach still plays a large role in the way in which people write about business and, even more important, the way in which many people in business understand their companies and themselves.

Elsewhere on the Web
Links to related material on other Web sites.

"Interview with Google's Sergey Brin" (Linux Gazette, November 2000)
The transcript of an interview with one of Google's founders.

"The Anatomy of a Large-Scale Hypertextual Web Search Engine" (Computer Networks, 1998)
The original academic paper by Larry Page and Sergey Brin proposing their new "Google" search system. Posted at Stanford University's Web site.

Nowhere has this been truer than in the Internet economy—and nowhere are the limitations of the cultural approach more evident at the moment. I was reminded of this late last year, when I visited the headquarters of Google, the designer of the hottest Internet search engine. At a time of general gloom amid dot-com start-ups, many of which were going under, Google was a cheerful exception. It was founded in 1998 by two graduate students at Stanford, Larry Page and Sergey Brin, who set up operations in a friend's house. (They moved some desks and computers to the garage and took pictures of themselves working there, so that they could claim to have started the company in a garage—the tech world's equivalent of "born in a log cabin.") By the end of last year the company had nearly 200 employees, conducted 60 million searches a day, and was winning every award in sight for the precision, speed, and convenience of its searches. It even claimed to be close to making money, by licensing its technology to others and by selling ads.

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James Fallows is a national correspondent for The Atlantic and has written for the magazine since the late 1970s. He has reported extensively from outside the United States and once worked as President Carter's chief speechwriter. His latest book is China Airborne. More

James Fallows is based in Washington as a national correspondent for The Atlantic. He has worked for the magazine for nearly 30 years and in that time has also lived in Seattle, Berkeley, Austin, Tokyo, Kuala Lumpur, Shanghai, and Beijing. He was raised in Redlands, California, received his undergraduate degree in American history and literature from Harvard, and received a graduate degree in economics from Oxford as a Rhodes scholar. In addition to working for The Atlantic, he has spent two years as chief White House speechwriter for Jimmy Carter, two years as the editor of US News & World Report, and six months as a program designer at Microsoft. He is an instrument-rated private pilot. He is also now the chair in U.S. media at the U.S. Studies Centre at the University of Sydney, in Australia.

Fallows has been a finalist for the National Magazine Award five times and has won once; he has also won the American Book Award for nonfiction and a N.Y. Emmy award for the documentary series Doing Business in China. He was the founding chairman of the New America Foundation. His recent books Blind Into Baghdad (2006) and Postcards From Tomorrow Square (2009) are based on his writings for The Atlantic. His latest book is China Airborne. He is married to Deborah Fallows, author of the recent book Dreaming in Chinese. They have two married sons.

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