The Soft Edge

Where Great Companies Find Lasting Success

Rich Karlgaard

• Publisher: Jossey-Bass
• Year: 2014
• Print ISBN: 9781118829424
• eBook ISBN: 9781118898079
• Edition: 1
• Topic: Business
• Subtopic: Business General
• Index: Business

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• Smarts: In most technical fields your formal education quickly becomes out of date.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.

Chapter 1
A Wellspring of Enduring Innovation
The 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 ...

Table of contents

• Cover
• Contents
• Title
• Copyright
• Dedication
• Foreword
• Preface: A Tale of Transformation—and Lasting Productivity Gains
• Chapter 1: A Wellspring of Enduring Innovation: The Soft Edge
• Chapter 2: Hard Versus Soft: The Fight for Resources
• Chapter 3: Trust: The Force Multiplier of All Things Good
• Chapter 4: Smarts: How Fast Can You and Your Company Adapt?
• Chapter 5: Teams: Great Things Come to the Lean and Diverse
• Chapter 6: Taste: Beauty Made Practical, Magic Made Profitable
• Chapter 7: Story: The Power of Story, Ancient and New
• Conclusion: The Sweet Spot of High Performance
• Afterword
• Acknowledgments
• About the Author
• Advertisement
• More from Wiley
• Index
• End User License Agreement