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- Herausgeber: John Wiley & Sons
- Kategorie: Fachliteratur
- Sprache: Englisch
What Does it Take to Get Ahead Now--And Stay There? High performance has always required shrewd strategy and superb execution. These factors remain critical, especially given today's unprecedented business climate. But Rich Karlgaard--Forbes publisher, entrepreneur, investor, and board director--takes a surprising turn and argues that there is now a third element that's required for competitive advantage. It fosters innovation, it accelerates strategy and execution, and it cannot be copied or bought. It is found in a perhaps surprising place--your company's values. Karlgaard examined a variety of enduring companies and found that they have one thing in common; all have leveraged their deepest values alongside strategy and execution, allowing them to fuel growth as well as weather hard times. Karlgaard shares these stories and identifies the five key variables that make up every organization's "soft edge": * Trust: Northwestern Mutual has built a $25 million dollar revenue juggernaut on trust, the foundation of lasting success. Learn how to create an environment that engenders trust and propels high performance. * Smarts: In most technical fields your formal education quickly becomes out of date. How do you keep up? Learn how the Mayo Clinic, Stanford University women's basketball team, and others stay on top by relentlessly pursuing an advantage through smarts. * Teamwork: Since collaboration and innovation are a must in the global economy, effective teamwork is vital. Learn how global giant FedEx stays focused and how nimble Nest Labs relies on lean teams with cognitive diversity. * Taste: Clever product design and integration are proxies for intelligence because they make customers feel smart. But taste goes further into deep emotional engagement. Specialized Bicycles calls it "the elusive spot between data truth and human truth." How can you consistently make products or services that trigger these emotional touch points? * Story: Companies that achieve lasting success have an enduring and emotionally appealing story. What's your company's story? How do you tell it your way? Gain the ability to create a powerful narrative in a world where outsiders often exercise the louder voice.
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Veröffentlichungsjahr: 2014
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Contents
Foreword
Preface: A Tale of Transformation—and Lasting Productivity Gains
Chapter 1: A Wellspring of Enduring Innovation: The Soft Edge
How a Simple Triangle Can Predict Long-Term Health
The Triangle of Long-Term Company Success
The Prize Is Continual Innovation and Lasting Success
Why the Soft Edge Now?
Notes
Chapter 2: Hard Versus Soft: The Fight for Resources
The Hard Edge Grew from Resource Scarcity
“In the Future, the System Must Be First”
Backlash Grows Against Lifeless Rationality
How Edwards Deming Found the Magical Balance
Hard-Edge Advantages Are Wonderful But Fleeting
The Soft Edge Is the Key to Enduring Company Health
Notes
Chapter 3: Trust: The Force Multiplier of All Things Good
Trust Is Worth $25 Billion in Sales
Trust Is the Foundation of Greatness
Building Trust Is Strategic—and Rare
Trust Is the Bedrock of Innovation
Trouble in Paradise: NetApp
Does Trust Still Work When Sales Rejection Is the Norm?
How Trust Creates Grit (and Vice Versa)
How to Build a Culture of Trust, Inside and Out
Use Data (Wisely) to Build Trust With Customers and Employees
Data Visualization: A Catalyzer of Trust
Gaining The Edge
Notes
Chapter 4: Smarts: How Fast Can You and Your Company Adapt?
What, Exactly, Are Smarts?
Grit Accelerates Learning
The Knowledge Explosion: Mayo Clinic
Stretch Your Neuroplasticity
Learn from the Best
Learn Fast from Your Mistakes
How a Great Coach Got His Best Idea
Think Laterally
Dr. Watson, I Presume
Can Mayo Learn Fast Enough to Avoid Disruption?
Gaining the Edge
Notes
Chapter 5: Teams: Great Things Come to the Lean and Diverse
Teams Are Old, Teamwork Is New
The Mighty Power of the Two-Pizza Rule
Getting Small and Fast: SAP
If Sharing Is Good, Why Is It So Hard?
Diversity Will Fail If It’s Shallow and Legalistic
Why Cognitive Diversity Works
Seek Different Perspectives, Common Core Values
Three Essentials: Chemistry, Passion, and Grit
Cultivate the Gifts of High Expectations
Create Space for Personal Autonomy (with Boundaries)
How to Use Crowdsourcing to Magnify Your Team
Sociometrics: The Hard Science of Teamwork
Gaining the Edge
Notes
Chapter 6: Taste: Beauty Made Practical, Magic Made Profitable
What Is Taste and Why Is It So Valuable?
The Big Three: Function, Form, Meaning
Integration and Intelligence: Nest Labs
How Specialized Lost Its Taste
How to Reclaim Your Mojo
Unlocking the Secrets of Taste
Where Taste Meets Data
Finding the Sweet Spot
Gaining the Edge
Notes
Chapter 7: Story: The Power of Story, Ancient and New
Story Is Narrative With Conflict
Why Stories in Business?
Story Gone Wrong: Dell
Leadership and Storytelling
Why Cirrus Pioneered the Whole-Airframe Parachute
Good Stories and Storytelling
When Your Customers Tell a Better Story Than You Can
Technology Changes But Stories Endure
Data Storytelling
Gaining the Edge
Notes
Conclusion: The Sweet Spot of High Performance
Innovation at Two Hundred Miles Per Hour
Afterword
Acknowledgments
About the Author
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Index
End User License Agreement
List of Illustrations
Figure 1.1 Health Triangle
Figure 1.2 Triangle of Long-Term Company Success
Figure 1.3 Strategic Base
Figure 1.4 The Hard Edge
Figure 1.5 The Soft Edge
Figure 1.6 Complete Triangle of Long-Term Company Success
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Guide
Cover
Table of Contents
Begin Reading
Praise for The Soft Edge
“As we shift from the rigid ‘ladder world’ of scale efficiencies to the nimble ‘lattice world’ of scale agility, mastering the soft edge becomes a hard reality. Karlgaard sharpens our grasp of this elusive though vital topic and offers pragmatic, accessible solutions.”
—Cathy Benko, vice chairman and managing principal, Deloitte LLP, and bestselling author of Mass Career Customization
“As a teacher and student of leadership, I’ve long believed the relevance and power of ‘soft side’ economics. (Trust, for example, is a measurable economic driver that makes organizations more profitable and people more promotable.) With The Soft Edge, Karlgaard joins the conversation and makes the bold statement that the soft side is now the only remaining competitive edge in our new economy. Leaders, I recommend that you take full advantage of Karlgaard’s advice—so you can start to reap the dividends.”
—Stephen M. R. Covey,New York Times bestselling author of The Speed of Trust and Smart Trust
“At a time when the stakes couldn’t be higher, many leaders are searching for new ways of competing—with resilience as a top priority. Forbes publisher Rich Karlgaard, a longtime voice for ‘hard edge’ business practices, argues that ‘soft edge’ advantages have enduring power in our knowledge economy. Anyone with a stake in tomorrow’s bottom-line outcomes should take a close look at Karlgaard’s cutting-edge book.”
—Amy Edmondson, Novartis Professor of Leadership and Management, Harvard Business School, and author of Teaming: How Organizations Learn, Innovate, and Compete in the Knowledge Economy
“The Soft Edge is an eye-opener: Rich Karlgaard makes the utterly convincing argument that the soft side of business makes all the difference to a company’s ability to thrive in the long run. Leaders, it’s time to stop polishing your strategy and fine-tuning your execution. Instead, read this critical book—then start investing in the very soul of your company.”
—John Gerzema, bestselling author, including The Brand Bubble and The Athena Doctrine
“Leaders have never had so many opportunities—and pressures. Get to the heart of it with Rich Karlgaard, who has distilled his significant experience into a single argument that works for every organization in today’s times: if you want innovation and lasting success, you must develop your ‘soft edge.’ Exactly. The soft edge is truly as vital now as strategy and execution. So whether you’re a tireless chief, a rising star, or a ‘hard-edged’ business veteran, you owe it to yourself to get a copy of Karlgaard’s compelling new book. Why? Because The Soft Edge will help you find the future—and the future is now.”
—Marshall Goldsmith, Thinkers 50 Top Ten Global Business Thinker and top-ranked executive coach
“Management and leadership thinking has reached a crisis point. The great irony of our age is this: the faster technology progresses, the more crucial it is to organize around timeless human truths. Rich Karlgaard shows the way in his compelling new book, The Soft Edge.”
—Gary Hamel, director of the Management Lab and author of What Matters Now
“At a time when strategy and execution can be bought, your company’s core values are the very accelerators you need for differentiation and innovation. Forbes publisher Rich Karlgaard knows which organizations are now winning the endurance race, and why. He shines a light on an often-overlooked driver: values. The Soft Edge is for forward-thinking leaders dedicated to rising above the competition.”
—Sally Hogshead, author of How the World Sees You: Discovering Your Highest Value Through the Science of Fascination and creator of HowToFascinate.com
“The best companies enchant us with purpose, affection, empathy, coolness, and grit. Rich Karlgaard’s book shows you how to achieve this lofty goal.”
—Guy Kawasaki, author of APE: Author, Publisher, Entrepreneur and former chief evangelist of Apple
“Rich Karlgaard puts the entire subject of culture and corporate character into a totally new context—a powerful framework proven with example after example. A great read for any business leader.”
—John Kennedy, senior vice president of marketing, IBM Global Business Services
“For decades I have witnessed the power of teams, trust, and smarts in the most disruptive startups in Silicon Valley. The Soft Edge makes a powerful argument for why great businesses and products repeatedly derive from the creative friction, small teams, and minimally invasive management which the best leaders employ to achieve breakout success. I want to thank Rich Karlgaard for a wonderfully readable and actionable exploration of these too often overlooked skills.”
—Randy Komisar, partner, Kleiner Perkins Caufield, and Byers lecturer, Stanford Business School
“The Soft Edge is crystal clear, deeply substantial, and alarmingly concrete. It illumines what an organization might be—what it must be if it is to impact the world and elevate the human spirit (and run a profit). To read it is an exercise in conviction.”
—John Ortberg, senior pastor of Menlo Park Presbyterian Church and author of Who Is This Man?
“I love this book. From the first page to the last it’s a real pleasure to read, and without a doubt the most enjoyable business book in a very, very long time. It’s smart, intelligent, and fun. That’s because Rich Karlgaard understands the craft of writing and the art of business. He treats us to great stories and in-depth case studies that often read like edge-of-your-seat thrillers. And don’t let the title fool you. Sure, it’s about things like trust and teams and taste and stories, but it’s rich in tangible, hard evidence that proves the power of these qualities. The Soft Edge is on my short list of best business books of the year. I think it’ll end up on yours, too.”
—Jim Kouzes, coauthor of The Leadership Challenge and Dean’s Executive Fellow of Leadership, Leavey School of Business, Santa Clara University
“The workplace is facing unprecedented global challenges. Tomorrow’s leaders must inspire their teams across a host of new boundaries—geographic, generational, economic, cultural, and technological—to name a few. The greatest will be those who can leverage their soft skills to motivate. In the world of big data, human skills will be the big differentiator! Learn more about twenty-first-century leadership in The Soft Edge—a wonderful, easy-to-read, and insightful corpus by longtime business innovator Rich Karlgaard. It’s hard to find a more experienced, intelligent guide to help you and your company make the necessary leaps.”
—Ross Smith, director of test, Skype Division, Microsoft
“Entertaining, magnificent, enlightening, and so relevant to the future.”
—Vivek Wadhwa, vice president of research and innovation at Singularity University; fellow at Stanford University’s Center for Corporate Governance; research director at Duke University’s Center for Entrepreneurship and Research Commercialization
“There has never been a more challenging (but potentially rewarding) time to lead. As is often the case, Rich Karlgaard once again successfully ‘zigs’ with his clever premise of The Soft Edge. Flush with innovative ideas collected from his unique vantage point, he offers countless refreshing tips for tomorrow’s leaders. Net—a terrific blueprint for a wide range of executives who are serious about leading teams to victory in the new frontier. A must-read!”
—Greg Welch, senior partner, Spencer Stuart, marketing and board recruiting practice
THE SOFT EDGE
WHERE GREAT COMPANIES FIND LASTING SUCCESS
Rich Karlgaard
FOREWORD BY TOM PETERS
AFTERWORD BY CLAYTON M. CHRISTENSEN
Copyright © 2014 by Rich Karlgaard. All rights reserved.
Published by Jossey-Bass
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Library of Congress Cataloging-in-Publication Data
Karlgaard, Richard.
The soft edge : where great companies find lasting success / Rich Karlgaard.—First edition.
pages cm
Includes bibliographical references and index.
ISBN 978-1-118-82942-4 (cloth); ISBN 978-1-118-89803-1 (pdf); ISBN 978-1-118-89807-9 (epub)
1. Organizational behavior. 2. Organizational effectiveness. 3. Strategic planning. 4. Management. I. Title.
HD58.7.K3764 2014
658.4—dc23
2014001623
This book is dedicated to . . .
Great coaches and overachieving teams
Employers who give dignity with pay
All who show courage and grace
Foreword
Bob Waterman and I were hard-nosed guys. Both McKinsey consultants. Both engineers (Bob, mining; me, civil). Both Stanford MBAs. Life for us began and ended with beady-eyed analysis. We also had a McKinsey-ite’s view of corporate America. Among other things, we worked in McKinsey’s San Francisco office, on the forty-eighth floor of what was then the Bank of America headquarters. A couple of floors above us were the palatial offices of the bank’s CEO. Oaken doors, as I recall, that reached into the city’s fabled fog. The chief was protected from humanity by a phalanx of underlings in Savile Row attire.
Nonetheless, we found ourselves one afternoon in 1977 driving thirty miles down U.S. 101, turning onto Page Mill Road, and turning in to another corporate headquarters. That of Hewlett-Packard. HP had just crossed the $1 billion revenue threshold at the time. We had an appointment, gained without the least bit of bureaucratic folderol, with HP president John Young. Upon our arrival, John trotted out to greet us and ushered us to his office. Or is that the wrong word? It was in fact a half-walled cubicle, about ten feet by ten feet, that he shared with a secretary.
Hmmmm.
A half hour later, lightning struck. Mr. Young introduced us to what became a life-altering idea. Within the scope of the fabled HP Way, it was a notion fondly called “MBWA.” Or Managing By Wandering Around. Get the hell out of the office, hang out with the engineers (or purchasing guys or whomever), exchange ideas, and take the pulse of the enterprise where the work was actually done.
Now jump ahead five years. Bob and I have written a book titled In Search of Excellence, and though it was the early days after publication, a lot of folks seemed to be buying it. We were in New York, heading for an early morning Bryant Gumbel interview on the Today Show. In the so-called green room, Bob looked at me with a wry smile and said, “Okay, who gets to say ‘MBWA’ on national TV?” He was my senior and I demurred.
We called MBWA part of the “soft stuff.” It stood for being in touch with your customers, in touch with your employees in even a big firm. It stood for high-speed innovation fueled by a willingness to cobble together a quick prototype and get everybody playing with it at a fast clip. It was a long way from those mighty BofA oaken doors and assistants to assistants who still resided two floors above us in our San Francisco digs.
We were still engineers. We still analyzed the hell out of any data we could unearth. But now—thanks to HP and 3M and Johnson & Johnson and about forty others of their ilk—we had a fuller picture of sustaining excellent performance. Yes, the “hard stuff” damn well mattered. But it turned out, to horridly mix a metaphor, that the “bedrock of excellence” was that “soft stuff.” The values around engaging 100 percent of our staff’s effort and imagination, of intimately hooking up with and co-inventing with our customers, trying out cool stuff in a flash without a thousand pre-clearances and shrugging off the inevitable screwups and getting on with the next try posthaste.
Bob and I had discovered things we hadn’t expected and that messed with our preconceptions. The ideas and stories from In Search of Excellence were hardly “the answer,” but we did help nudge a new model of enterprise management toward the forefront.
Times have changed—or have they? To be sure, the HP Way took a wrong turn with a succession of CEOs that managed by the numbers and strangled the essence of HP. As illustrated in the 1990s by Enron and WorldCom, and then in the early 2000s by sub-prime fiascos, and now by too many reality-free, numbers obsessed, models-r-us gangs, companies can ascend high up the economic pyramid before it all collapses.
Time for a reset?
I think it is high time for a reset, and that brings me to the delightful task of cheering on the birth of a new and necessary revolution heralded by Rich Karlgaard’s magisterial The Soft Edge. As publisher of Forbes, Rich, not unlike Bob Waterman and me, brings impeccable logic and hard economics credentials to his task. And also like Bob and me, or even more so, in The Soft Edge he hardly runs away from the analytical side of things.
Rich offers and defends a balanced triangle of forces: “hard edge” (the systems and processes that guide complex execution tasks); “strategic base” (you stumble and tumble fast if you don’t have a clear strategic direction); and, his focus in this book, “soft edge” (oft ignored or underplayed, it provides human values and resilience in a mind-bogglingly nutty world).
The heart of the book, not unlike the “eight basics” at the heart of In Search of Excellence, consists of chapters that examine in colorful and instructive detail the principal components of the soft edge:
Trust
Smarts
Teams
Taste
Story
Of the five components that make up the soft edge (or five pillars as Rich calls them), the basic element labeled “taste” (which clearly underpins the likes of Apple’s mind-warping success), is where Rich offers an example that pulls the entire book together for me. Though the author lives and plies his trade at the center of Silicon Valley, he purposefully reached out to every corner of the economy. Consider this telling remark by Robert Egger, the chief designer of Specialized Bicycles. Egger calls “taste” the “elusive sweet spot between data truth and human truth. . . . You want something that works great and is really emotionally charged.” The hard edge and strategic base are indeed required—but they amount to little more than a piffle without the more-or-less sustainable differentiation contributed by the soft edge.
I must admit, in the softest of language, that I nothing less than love this book. I have been fighting the “soft edge war” since 1977—that is, thirty-seven bloody years. It is in fact a war that cannot be won. I fervently and unstintingly believe in balance (as embodied in Karlgaard’s triangle of forces). But I also believe that the default position will always favor the strategic base and the hard edge, and that the soft edge, without constant vigilance, will always be doomed to the short (often very short) end of the resource and time-and-attention stick. And yet, as is demonstrated here so brilliantly, in general and perhaps today more than ever, only a robust and passionately maintained commitment to a vibrant soft edge will up the odds of sustaining success and, yes, excellence, in these days of accelerating change.
In short, ignore the argument in this marvelous book at your peril.
PrefaceA Tale of Transformation—and Lasting Productivity Gains
In business, marginal gains add up. That’s why we spend so much time looking for them. If we can reduce costs by 2 percent here and cut development time by a month there, it makes a difference. Good companies relentlessly seek these kinds of improvements and never stop. But great companies do more than that. They dig deeper to find transformative gains. Let me illustrate this by way of an amazing story of one person’s transformation.
In October 2001, Roberto Espinosa, a thirty-one-year-old resident of San Antonio, Texas, stepped onto the platform of the service elevator at Manduca, his restaurant in the city’s fashionable River Walk district. It was like stepping into air. The platform suddenly gave way. It plunged thirty feet to the basement and slammed onto concrete.
Dazed, Espinosa crawled out of the elevator shaft. He slipped in and out of consciousness. He barely remembers the arrival of first responders. They carefully immobilized Espinosa’s neck, strapped him onto a gurney, and drove him the five miles to Brook Army Medical Center. Six hours of intensive care followed. Espinosa survived, but his road to recovery proved long and painful.
Espinosa had always sought an independent life. He had a natural predisposition for business. His family ran a furniture shop called De Firma in Mexico. It soon expanded into San Antonio under the name Home Emphasis. Growing up, Espinosa assumed he would go into the family business. But as time passed, he had an urge to prove himself outside the family cocoon and take on new risks.
So he started Manduca. This declaration of independence was either brave or dumb. Restaurants, with a three-year failure rate of 60 percent, are among the riskiest of businesses. Espinosa’s wife, Lourdes, insisted they mitigate their risk by purchasing life and disability insurance for Roberto. “I didn’t know much about insurance. So I called somebody I knew, Fernando. I trusted Fernando.”
The trust paid off. After Espinosa’s elevator crash and near death, Fernando Suarez was a frequent visitor to the hospital, visiting almost as often as Espinosa’s family. “He was always there,” said Espinosa. “As a friend, not a salesman.”
Selling would have been futile, anyway. Espinosa had no money to buy more insurance policies. The 9/11 terrorist attacks had turned a mild 2001 recession into something worse. The travel and hospitality business was particularly hard-hit. In 2002 the physically fragile Espinosa was forced to close Manduca. He had never experienced failure like that.
Suarez noticed the drain on Espinosa’s wallet, the decline in his confidence. He invited Espinosa to try out as a representative at his insurance company, Northwestern Mutual. Espinosa accepted.
But what does it mean, really, to accept a job selling insurance? These jobs pay only on commission. Is this a real career? Or is it a foolish gamble at a vulnerable point in one’s life? “The first three years were very difficult,” admitted Espinosa. “I had trouble making the sales phone calls. My prospects sensed my lack of conviction. I was so discouraged that I cleaned out my desk three times.”
Coaching and mentorship got Espinosa through that rough beginning. Income started to trickle in. Still, it was tough to survive, to pay the bills and keep going. Then came a turning point that changed Espinosa’s career forever. “I was at a funeral for a client,” he said. “The deceased man’s eight-year-old daughter got up and said she missed her daddy. Then she said her family would be okay. I got tears hearing that from an eight-year-old girl. I suddenly knew that what I was doing was very important work.”
That day, Espinosa found his conviction. In a few short years he became one of Northwestern Mutual’s top recruiters of new reps in San Antonio. Espinosa estimates his productivity increased roughly fivefold when his conviction switch turned on. That is not a marginal gain. It is something far bigger. For Espinosa and the company he represents, the gains are still adding up, still compounding.
Most companies hope for transformative events like these. Great companies, I’ve observed, know where to plant the seeds.
Rich Karlgaard
Palo Alto, California
February 2014
Chapter 1A Wellspring of Enduring InnovationThe Soft Edge
Innovate or die. The choice is not optional. The clock is ticking. If this sounds a bit melodramatic, it is also the truth. Disruptive waves seem to hit our companies more frequently than before. If we are to survive and prosper, innovation needs to be more than a one-time event. It must be perpetual, built-in, an automatic response to challenges and changes.
The “innovation response” in companies is very much like a healthy immune response in living organisms. People who enjoy long-term health don’t have episodic bursts of health. They are healthy nearly all the time. Their immune systems routinely fight off most threats. Can the same be true of companies? The analogy fits. In great companies, innovation is a natural response to threats.
Why, then, do some companies have a more robust innovation response than others? From where does such vitality come? From the chief executive? This might be true in a small percentage of companies. But even for those relatively few, it is worth noting that CEOs don’t stay on the job forever.
From clever strategy? If you think so, then you must believe your strategy will always be the correct one. But in all of industrial history, you will not find a single company that has always had a great strategy. History is littered with apparently solid companies suddenly undone by wrong strategic assumptions and bad bets. Eastman Kodak, Digital Equipment, MySpace anyone?
From flawless execution? Dell, with the fastest-growing stock in the 1990s, is legendary for its tight control of costs, mastery of supply chain, speed of delivery, and other flawlessly executed skills. Dell’s smooth operations worked brilliantly in an era of PCs and laptops and corporate information technology departments that purchased both types of product for company employees. Then Dell’s perfect execution model was suddenly not enough to sustain greatness. It was trumped by a shift toward smart phones and tablets and by employees’ bringing their own technology to work.
Maybe it comes from large bets on research and development? That’s certainly implied when you read an annual report and the company brags about the size of its R&D budget. (What company doesn’t brag about this?) But R&D, while critically important to an innovative response and future health, is not sufficient by itself.
Finally, how about having an army of technology wizards to apply the latest cutting-edge advantages in big data, cloud, mobile, social, and so forth? Ah, that must be it! Think again. A technology advantage doesn’t last as long as it once did. Consider weeks and months, not years and decades.
A healthy innovative response comes from a deeper place within your company. But it begins somewhere, and that somewhere is what I call the soft edge.
HOW A SIMPLE TRIANGLE CAN PREDICT LONG-TERM HEALTH
In the biological world, we know that a healthy organism has a better chance of surviving and adapting to change than an unhealthy one. No news here. Now let’s suppose we want to predict any person’s chances for long-term health. Can we do it? One framework for doing so is a simple equal-sided triangle like the one in Figure 1.1.
Figure 1.1 Health Triangle
A person with the best chances of enjoying long-term health is one who is healthy on all sides of the triangle. Such a person will possess physical health—robust energy, few illnesses, and easy mobility, whether for work or leisure. Good mental and emotional health is a second component of well-being. This does not equate to a life of bliss, of course. It means a person will have a balanced perspective, understand cause and effect, have the ability to plan ahead, and be able to function even in difficult circumstances. The triangle’s third side, social health, implies that people have a better shot at living a healthy life when surrounded by family, friends, and colleagues, in environments with low crime and stable rule of law, social cohesion, and economic opportunity. Remove any of these social pillars—live in a war-torn country, say—and your health prospects will be jeopardized, even if you’re currently physically and mentally strong.
Seen this way, a trip around the health triangle can quickly reveal where a person would be at risk of not enjoying long-term health.
THE TRIANGLE OF LONG-TERM COMPANY SUCCESS
Now let’s get down to business. Suppose we drew a triangle similar to the one that predicts long-term personal health. Only this triangle would predict a company’s chances for lasting success. In its most basic form, it would look like Figure 1.2.
Figure 1.2 Triangle of Long-Term Company Success
Here’s a quick trip around the triangle, starting with the bottom, the strategic base. How important is getting your company’s strategy right? When I visited Fred Smith, the founder, CEO, and chairman of FedEx, at his Memphis headquarters, he said it was his company’s top priority.
The Strategic Base—Fundamental
As Fred Smith told me: “The number one thing that every organization has to get right is strategy. You can have the best operations. You can be the most adept at whatever it is that you’re doing. But if you have a bad strategy, it’s all for naught. Think Digital Equipment. Think Wang. Think Lockheed in the commercial airplane business. There were forks in the road where these companies chose the wrong strategy. Absent a viable strategy, you’re in the process of going out of business.”
This isn’t a book on strategy. But you won’t be able to understand the difference between the soft edge and strategy unless you have a clear understanding of what strategy really is. So let’s take a quick look. When you talk to the best CEOs—who, like Smith, have proven themselves over several business cycles and market shifts—and when you further read classic business strategy books such as (to name only three of the best) Competitive Strategy by Michael Porter, The Innovator’s Dilemma by Clayton Christensen, and Playing to Win: How Strategy Really Works by A. G. Laffley and Roger Martin, you keep coming back to the five pillars of strategy illustrated in Figure 1.3. To take them each in turn:
Figure 1.3 Strategic Base
Market: What markets are you in now? Are they the right markets for your business? Should you enter some or exit others? What are the adjacent markets? What are the forces shaping these markets? Which of your markets are growing, and which are stagnating?
Customers: Who are your customers? Why do they buy your product? Who are your potential customers? Why have they not yet bought your product? Are your products priced right for your customers? How would your customers respond to higher prices? Lower prices?
Competitors: Who are your direct competitors? How do your competencies and products match up to theirs? Where are you better and where are you worse? What is your market position relative to theirs?
Substitutes: Who are your indirect competitors? Where would your customers go if you didn’t exist? Do these substitutes threaten to become direct competitors? Or do they suggest an opportunity for you to expand and acquire?
Disrupters: What are the technological game changers in your industry? Do you see new emerging players offering vastly cheaper or more convenient products than you can offer, even if these disrupters are not yet your direct competitors? Are these disruptive products finding new customers who were previously ignored? Are you losing valuable employees to these disrupters? When will you start to lose them?
These are vital considerations for your company, but they’re not the questions that get asked at the soft edge. As important as they are, I must leave them now, because—as I said—this isn’t a book on strategy. (For my top picks of great strategy books, please go to my website, richkarlgaard.com.)
The Hard Edge—Precise Execution
When Apple became the world’s most valuable company in September 2012—a title it lost a year later, but may yet claim again—its CEO was Tim Cook, who had been in the job for only thirteen months. Prior to that, Cook had been Apple’s chief operating officer since 2007.
Cook was widely considered the best large company COO in the world. What made Cook so effective? One, he was (and is) a workhorse. He typically begins e-mailing colleagues at 4:30 AM. He often skips meals, munching on energy bars throughout the day. On Sunday night, he convenes an Apple managers’ meeting (by phone, thankfully) to talk about the week. Cook pushes himself to excellence and expects the same of his colleagues. For example, when an Apple manager described a problem with a factory in China, Cook’s response was to stare incredulously. Why, then, are you here? Cook asked. Go to the airport now, get on a plane, and solve the problem. The manager didn’t even bother to pack.1
The second reason Cook was such a great COO is that he was a master of what I call the hard edge of business, as shown in Figure 1.4.
Figure 1.4 The Hard Edge
Cook himself calls it the execution side. Hard-edge execution is all about managing exactly to the numbers. The people who live on the hard edge of business are good at making the trains run on time. They focus on profit. Their language is time, money, and numbers. Every company in the world needs these employees, these Tim Cook types. Companies that fail to execute precisely on the hard edge of business will ultimately fail.
These are the five pillars that undergird the hard edge:
Speed: When FedEx promises overnight delivery, it has to make it happen or the brand will suffer. The same thing goes with Amazon, which now is offering daily delivery in certain markets. The execution needed to make this happen is the sum of a lot of numbers. Are the airplanes on time? How fast is each plane unloaded? How fast are the conveyor belts moving? Speed is also crucial to new product development. In Chapter Five, I describe how giant software firm SAP blew up and then reconfigured its team approach to cut product development time by 60 percent.
Cost: Not all companies compete on having the lowest price, but no company will succeed for long if it continually leaves money on the table because its costs are poorly managed. That’s money not available for R&D, for more salespeople, for higher bonuses for deserving employees, and for shareholders.
Supply Chain: Harvard Business School professor Michael Porter, the dean of strategy thinkers, would put suppliers into the strategy category. In his most famous book, Competitive Strategy, he asks two related questions: What leverage do your suppliers have over you? What leverage do you have over them? What has changed since Porter’s seminal 1980 book, of course, is technology that can monitor and report supply chain changes in real time. That’s why I put supply chain on the hard-edge side.
Logistics: Norman Schwarzkopf, who was commander-in-chief of the U.S. Central Forces Command in the Persian Gulf War, told a TV interviewer, “Armchair generals talk strategy. Real generals talk logistics.”2 Logistics overlaps with supply chain, but logistics is really the how of the supply chain. Where are the trucks? What is fuel availability? How much is this costing? Are we operating fast enough? All great companies have a firm grip on their logistics.
Capital Efficiency: This hard-edge advantage is crucial to success. Are you using your capital to the best advantage? Say you are Southwest Airlines. How should you hedge your fuel purchases? This one decision can make or break airline profitability for the next five years. Or say you are a fast-growing start-up but not yet profitable. Should you raise money by issuing stock? By expanding your credit line with your bank (assuming you can)? Should you go the high-yield-bond route? Great companies think about their capital structure. Tax strategies would also fall under capital efficiency.
I discuss the hard edge more in the next chapter. But now it’s time to introduce the central theme of this book—the soft edge.
The Soft Edge—Expression of Your Deepest Values
The soft edge is the most misunderstood side of business. It also tends to be neglected and underfunded in too many companies. Several reasons explain this: One, the soft edge is harder to measure. Two, because it is tough to measure, it’s more difficult to attach an ROI (return on investment) figure to any investments made in it. Three, most CEOs and board chairmen are not comfortable talking in the language of the soft edge.
Figure 1.5 sets out the soft edge as this book describes it.
Figure 1.5 The Soft Edge
The rest of this book, with the exception of Chapter Two, focuses on the soft edge and the enduring company advantages to be found there. Here are the five pillars of the soft edge, along with some of the lessons presented later in the book:
Trust
Smarts
Teams
Taste
Story
Trust
Trust is the foundational soft-edge advantage. It starts with two questions: Does your external market, your customers and shareholders, trust you? And two, does your internal market, your employees and suppliers, trust you? Let me illustrate the importance of trust by asking you to imagine a career that most people would be loath to try. That would be a commissioned sales job, selling to people who balk at buying your product. Life insurance fits this description. Yet Northwestern Mutual has built a $25 billion revenue juggernaut on that one word, trust. Remember Roberto Espinosa from the Preface? He saw his productivity jump fivefold when he began to trust his career.
Within an organization, trust begins with culture and values. There are reasons why companies that make the best-places-to-work lists published by magazines actually do perform better than their peers. Companies that develop trust have a recruiting advantage. They have a retention advantage and a productivity advantage. Externally, trust means that your product or service is authentic and robust enough to withstand the immediacy of today’s media. When things go wrong, customers and stakeholders believe you’ll do the right thing. Trust buys grace.
Trust may seem like a blurry concept in terms of ROI. But research and market results have proven that deep trust creates measurable real-world returns. Trust underlies effective working relationships. It improves group effectiveness and organizational performance. Maybe most important, trust underpins innovation by facilitating learning and experimentation. Chapter Three discusses ways to create an environment that engenders this kind of trust, including keys for developing a higher purpose and building a safe organizational culture.
Smarts
In most technical fields, from medicine to software, formal education quickly becomes out of date. How do you keep up? How do teams and entire companies learn and become smarter over time? What is organizational smarts, anyway—processing speed, memory, pattern recognition? Chapter Four discusses how Mayo Clinic, Stanford University women’s basketball, and others stay on top by relentlessly pursuing an advantage through smarts.
But what, exactly, does it mean to be smart in the world of business? Unlocking knowledge and supporting learning are pivotal to success. But there’s another dimension to being smart: one that relates to a few old-fashioned-sounding concepts like grit, perseverance, and hard work. These traits are fundamental to accelerating learning and helping you adapt more quickly to disruptive trends.
Chapter Four ventures to deepen understanding of what it means to be smart in today’s complex world. It also explores a group of habits—like establishing beneficial relationships, learning from mistakes, and thinking laterally—that are sure to help you gain an edge over your competitors.
Teams
How does FedEx’s Fred Smith manage 300,000 worldwide team members who move more than 2.5 billion packages in a year? What balance of central authority and peripheral autonomy works in such a logistically complex organization? Or why, in an entirely different industry, did German software giant SAP blow up the management framework for its 20,000-person development department and replace it with small teams?
Since collaboration and innovation are a must in the global economy, effective teamwork is vital. Yes, we humans are imperfect. We have different needs, roles, and perspectives that we bring to every interaction or team effort. But when we work together, we make each other better. We increase accountability, passion, and effort: we facilitate learning and catalyze innovation.
In Chapter Five, the focus is on small, high-performing teams of eight, ten, or twelve people. By exploring the best ways to identify optimal team members, as well as how to push those chosen few to the next level of performance, the chapter offers a powerful framework for managing flexible, fast, and creative teams.
Taste
Taste is the word Steve Jobs used when he described Apple’s unique but universal aesthetic appeal. Jobs felt taste came from his own understanding of the yin-yang of science and humanity. The chief designer of Specialized Bicycles, Robert Egger, called it “the elusive sweet spot between data truth and human truth.” Nest Labs co-founder Tony Fadell said, “If you don’t have an emotionally engaging design, no one will care.”
