Since the phenomenal success of "In Search of Excellence" in 1982, Tom Peters has been considered the preeminent authority on business management. Here he talks with Peter Lawrence, chairman of Corporate Design Foundation, about the role design can play in business today.

You are best known as a guru of corporate management, so maybe I should start by asking what design encompasses for you?

Literally, everything. I once contributed a little piece called "Design Is " for a book, in which I wrote down 100 things, listing everything from easy-to-fill-out airbills to baseballs, which I consider fabulous turn-ons. Design ranges from the physical layout of a room to the makeup artists who present Larry King to the public. It's Winston Churchill's "spontaneous" witty remarks, all of which he had carefully written out the night before on small scraps of paper and carried around with him. Another huge part of design is usability, which Don Norman discusses so well in his book, "The Design of Everyday Things."

Is design purely practical?

Not really. I saw an article in Fortune recently where Steve Jobs is quoted saying "design is the soul of a manmade creation." There's a part of that I'm attracted to. I also loved Rose Tremain's passage on music in her novel "Music and Silence," which I think is just as true about design. [Reading from book] She writes, " of course, we really do not know where music comes from, or why, or when the first note of it was heard, and we shall never know. It is the human soul speaking without words, but it seems to cure pain." For me, design is elusive, it's soul, it's abstract, and it's all of the opposites of those things.

Design as the "soul" of a product is a switch from Six Sigma methods aimed at zero product defects, which was the corporate mantra of the '90s. Why should business buy into that?

Because as most products work in the Six Sigma quality sense in ways that were unimaginable a few years ago, this thing called design and I refuse to call it the "soft side" has become central to enterprise strategy. The success of Six Sigma has turned quality into a "commodity," so much so that it is no longer the determining factor for which brand to buy. That's why we are so turned on by the iMac and Beetle. Design is "la difference." In a world loaded with stuff that looks like all the other stuff and performs like all the other stuff, it is a way to stand out..

Is design more important for marketing products than services?

No. Paradoxically, I believe that design is more important for services. Harvard marketing expert Ted Levitt pointed out years ago that if your product is tangible (planes, boats, cars, pen knife), you need to distinguish yourself from the herd by emphasizing intangibles i.e., service. If your product is intangible (banking, travel, etc.), distinguish yourself from the masses by emphasizing the tangible to wit, design. FedEx, for example, stands out on the tangibles strong branding, clean trucks, easy-to-use forms. To me a business system, like FedEx's, that works transparently on the surface and offers brilliant simplicity is as much about design as an iMac or a Beetle. If you're a service business, it's important to specifically work on the tangibles.

Does the design industry recognize this fact?

Well, I found it interesting that when ID Magazine published its Top 40 list of organizations that make effective use of design, half of them were service companies. There were as many FedExs, Bloombergs and New York Yankees on the list as there were Gillettes, Caterpillars and Apples.

Designers often claim that corporate executives think differently from them. Assuming there is some truth to that, why do you think it is?

Because we are literalists. We're trained as engineers. We have MBAs. Because we still believe that business is a reductionist activity, rather than a holistic activity.

Do you believe the reductionist approach still works for business? Does it hamper creativity and leaps-of-faith solutions?

I tend to agree with Henry Mintzberg who wrote "The Rise and Fall of Strategic Planning," my favorite business book of the last 15 years. Basically, Mintzberg says that there is obviously a role for planning you have to meet your budget; I have to meet mine. But he argues the fundamental notion is completely reductionist, yet the reality is about leaps and intuitive thinking. After you've reviewed the evidence, you have to trust your intuition..

In his autobiography, ex-Apple CEO John Sculley offered one of the nicest quotes I've ever read on this. He wrote, "I have never seen an effective marketing decision made based on the data." He wasn't making an anti-data comment. He meant that you should collect data by the ton, so that your subconscious is informed by the data. Then you do whatever you ought to do. Certainly design falls into that realm. You can't reduce design choices to a few general principles, but you can inform your intuition.

Can design play a role in modeling the future?

A huge role. In the forward I wrote for Michael Schrage's book, "Serious Play: How the World's Best Companies Simulate to Innovate," I talk about how Michael has operationalized the points that Bob Waterman and I covered in "In Search of Excellence" e.g., that the No.1 trait of excellent companies is a bias for action. That action is being manifested in the design of prototypes. Michael's premise is that "the reaction to the prototype is innovation." In other words, when you have real things to play with, you have something to talk about.

Is that arriving at the solution through the process of elimination?

Years ago a guy at Cadbury introduced me to the phrase "Ready. Fire. Aim." which I've always loved. As a young Navy midshipman, I learned that was what the military does. You fire to the left, you fire to the right, then you figure out how to hit the ship broadside.

What mistakes have you seen managers make in terms of understanding and using design?

Mistake No.1 is treating design as a veneer issue rather than a soul issue. The dumbest mistake is viewing design as something you do at the end of the process to "tidy up" the mess, as opposed to understanding that it's a "day one" issue and part of everything.

How important is design in e-commerce?

It is e-commerce. Period. All stop. Whether it is the look of the screen, the innards, the delivery mechanism that actually makes the stuff come to fruition after you punch your one-click button, or the look-feel-taste-touch of the site itself, the Internet is a pure, unadulterated design medium.

It's interesting that so much of the truly innovative Internet work is originating with the Gen-X crowd and startup companies.

Yes, in the San Francisco area, much of the Internet innovation is being led by cool kids with dreadlocks and lots of body piercings. I'm not sure what that means, but I think it goes back to Michael Schrage's point about "serious play." The Internet game involves pieces on top of pieces on top of pieces, and it is literally played at warp speed. It's a screw-around business, where you have to be flexible enough to change it tomorrow. You can't wait for corporate decisions in the traditional sense.

Do you consider the physical manifestation of a brand important?

Infinitely. I read a comment in a book, can't remember which, that there's nothing distinctive about the Kodak identity except Kodak yellow. There's some truth to that. Kodak yellow. Shell yellow. Time red. Coke red. The physical manifestation of a brand is shockingly important, if it is consistent with what's going on inside..

To what extent is the design of the workplace important?

I think space design is arguably the most powerful organizational, culture-shaping tool. In "In Search of Excellence," we included just one graph. It was an exponential curve from Tom Allen at MIT showing the effect of location on communication. It showed that if team members are situated within 30 feet of each other, they communicate like crazy. More than that and it might as well be 3,000 miles..

I witnessed this first-hand years ago when we did some consulting for a little unit of Pitney Bowes, which had done some fabulously cool things. A secret to their success was that when a little restaurant near their headquarters went out of business, the division rented it for $2000 a month and put a team there. For all kinds of reasons, like distance from the corporate headquarters, like shabby surroundings, like proximity to one another, it was enormously powerful.

Are traditional corporate settings suited to the way we work today?

I have been appalled by the sterility of corporate settings. The real world of enterprise, whether it's serving customers or developing products, is about risks and blood and passion and life and human beings. It makes no sense to me that the places where we are supposed to do productive work are incredibly impersonal.

Do you think the corporate managers overseeing design have to have an artistic sense?

No, but they need to appreciate the importance of design. Years ago the powers that be at my former employer, McKinsey & Co., spent a year and a half redoing the typeface, the letterhead and so on. I thought they were crazy, until I realized that I was crazy for not seeing they were right. Among them, they had probably zero artistic skill, but they understood that a well-designed identity was the essence of who they were, just as IBM has since the early Tom Watson, Jr. days.

How can non-designers hone their design awareness?

I think 99% of us appreciate design on a personal level. Why else do we agonize over what color car to buy and what style reflects who we are? But we turn it off when we come to the office. In working with people on this, including myself, I found the only practical exercise is to carry a notebook and pay attention to stuff that turns you on or turns you off and don't worry about why. You'll begin to find that your preferences go from the deep soul aesthetic stuff to [Don] Normanesque "usability" features.