Introduction
In the fast-paced world of business, it's easy to get caught up in strategies, numbers, and hard facts. However, Rich Karlgaard's book "The Soft Edge" reminds us that there's more to success than just crunching numbers and executing plans. This insightful work explores the often-overlooked human side of business, which can make all the difference between good companies and great ones.
Karlgaard introduces the concept of the "soft edge" as one of three key elements that form the foundation of successful businesses. Imagine a triangle: the base is strategy, one side is the "hard edge" (measurable aspects like efficiency and logistics), and the other side is the "soft edge" (intangible qualities like trust, creativity, and culture). While many businesses focus solely on strategy and the hard edge, Karlgaard argues that neglecting the soft edge can be a critical mistake.
The Five Pillars of the Soft Edge
Karlgaard presents a model of five pillars that support a company's soft edge:
- Trust
- Smarts
- Teams
- Taste
- Story
Let's dive into each of these pillars and explore how they contribute to a company's success.
Trust: The Foundation of Success
Trust is at the heart of the soft edge. It's not just about customers trusting your brand; it's also about fostering trust within your organization. Karlgaard emphasizes that trust affects a company's reputation more than the quality of its products or services.
Take Northwestern Mutual, for example. As the largest insurance provider in the US, they've spent over 150 years building trust with their customers. Their impressive ratio of insurance contracts to assets (7:1) demonstrates how customers feel secure entrusting their money to the company.
But trust isn't just external. Internal trust is equally important. NetApp, a network storage company, has consistently been recognized as one of the best places to work. Even during tough times when they had to lay off staff, they maintained their reputation for honesty and openness. How? By treating their employees with respect and transparency, even delivering bad news in person.
Building trust takes time and effort, but it pays off in customer loyalty and employee dedication. Companies that prioritize trust in their core values often see long-term success and stability.
Smarts: Continuous Learning and Improvement
When we think of "smart" companies, we might imagine a team of geniuses. But Karlgaard reveals that true business smarts come from hard work, continuous learning, and the willingness to make mistakes.
Smart businesses are always ready to change and improve. They learn from their mistakes and even from other industries. David Chang, the famous chef behind the Momofuku restaurant group, embraces this philosophy. Inspired by Japanese concepts of continuous improvement (kaizen) and acknowledging mistakes (hansei), Chang gives his staff the freedom to experiment and learn from their errors.
The Mayo Clinic provides another excellent example of thinking outside the box. They sent their staff to train with hospitality industry giants to learn how to treat patients as valued customers. This lateral thinking approach helped them improve patient care in ways not typically taught in healthcare.
To cultivate smarts in your organization, encourage experimentation, learn from mistakes, and seek inspiration from unexpected sources. Remember, being smart in business is an ongoing process, not a fixed state.
Teams: Small, Diverse, and Effective
Humans are naturally wired to work well in small groups. Karlgaard suggests that businesses should tap into this instinct by creating small, diverse teams.
Jeff Bezos, CEO of Amazon, famously said that a team should be small enough to be fed with two pizzas – typically about 8-12 people. This size ensures efficient communication and allows everyone to contribute meaningfully.
Porsche implemented this strategy and saw impressive results: production quadrupled, and profitability increased by 19%. Similarly, when SAP, the German software company, scaled down their development teams, they cut their development time in half.
But size isn't everything. Diversity within teams is equally crucial. Nest Labs, known for their smart thermostats, deliberately combines engineers, marketers, designers, and other professionals in their teams. This diversity ensures a range of perspectives, mirroring the diversity of their customer base.
When forming teams, aim for small groups with a mix of backgrounds, skills, and viewpoints. This approach fosters innovation, improves problem-solving, and leads to more well-rounded products and services.
Taste: The Emotional Connection
What makes a product truly great? It's not just about functionality or appearance – it's about taste. Karlgaard defines taste as a combination of function, form, and meaning that creates an emotional connection with customers.
Tony Fadell of Nest Labs understands this well. Their thermostats aren't just functional; they're designed to provide a complete experience. From the clean, buttonless design to the eco-friendly packaging and custom installation tools, every detail is considered to make customers feel smart and excited about their purchase.
Karlgaard points out that people tend to prefer familiar designs because they evoke positive emotions and memories. This is why many successful products draw inspiration from beloved designs of the past. For instance, Apple's design language can be traced back to Dieter Rams' work for Braun and the Bauhaus school of design.
Starbucks is another excellent example of taste in action. Howard Schultz didn't just create a coffee company; he reimagined the American coffee experience by importing Italian coffee culture. The ambiance, the baristas, even the Italian-inspired size names – all contribute to a unique and appealing taste.
To develop taste in your products or services, think beyond mere functionality. Consider the emotional impact, the user experience, and how your offering fits into people's lives and aspirations.
Story: Giving Purpose to Your Brand
The final pillar of the soft edge is story. A compelling narrative helps people understand your company, giving it purpose and direction. It explains where you came from, what you stand for, and where you're headed.
Northwestern Mutual, for instance, reinforces its story through an annual meeting where over 10,000 financial representatives gather to share experiences and successes. This event is part of their 157-year-long story of trust and reliability. Even their hiring process, with its challenging 10-3-1 sales formula, is part of their narrative of grit and perseverance.
When crafting your company's story, remember that simplicity is key. People respond best to straightforward messages. Avoid making specific predictions about the future, as this can backfire if things don't go as planned. Instead, focus on your core values and be open to the unexpected turns your story might take.
A well-crafted story can inspire employees, attract customers, and differentiate your brand in a crowded market. It's not just about marketing; it's about creating a sense of purpose and identity that permeates every aspect of your business.
The Soft Edge: Your Competitive Advantage
In today's data-driven business world, it's easy to focus solely on hard metrics and short-term gains. However, Karlgaard argues that the soft edge is what truly sets great companies apart from their competitors.
Consider the Swiss Formula One team Sauber. While they use advanced data systems to improve their cars, ultimately, it's the human driver who must innovate and perform at high speeds. Success comes from blending human acumen with helpful data – a perfect illustration of balancing the hard and soft edges.
Wall Street often exemplifies a hard-edge approach, prioritizing speed, execution, and short-term capital efficiency. But companies that neglect their soft edge risk losing touch with their employees' and customers' values. They become indistinguishable from their competitors.
In contrast, companies like Northwestern Mutual and Apple stand out because they prioritize their soft edge. This approach not only strengthens their relationships with customers and employees but also leads to financial success.
Implementing the Soft Edge in Your Business
Now that we understand the importance of the soft edge, how can we implement these ideas in our own businesses? Here are some practical steps:
Build trust: Be transparent with your employees and customers. Communicate openly, even when delivering bad news. Demonstrate your commitment to your values consistently.
Cultivate smarts: Encourage a culture of continuous learning. Allow room for experimentation and learn from mistakes. Look for inspiration in unexpected places, even outside your industry.
Optimize teams: Keep teams small (remember the two-pizza rule) and diverse. Ensure that different perspectives and skill sets are represented in each group.
Develop taste: Think beyond functionality. Consider the emotional impact of your products or services. Draw inspiration from successful designs while creating something unique.
Craft your story: Develop a clear, simple narrative that explains your company's purpose and values. Share this story consistently across all levels of your organization.
Balance the edges: Don't neglect your strategy or hard edge, but make sure to give equal attention to developing your soft edge.
Think long-term: The soft edge often yields results over time. Don't sacrifice these important aspects for short-term gains.
Measure the immeasurable: While soft edge elements can be hard to quantify, look for ways to track progress. This might include employee satisfaction surveys, customer loyalty metrics, or brand perception studies.
Final Thoughts
"The Soft Edge" reminds us that business is fundamentally about people. In a world increasingly driven by data and algorithms, the human elements of trust, creativity, teamwork, taste, and storytelling can make all the difference.
By cultivating these soft edge qualities, companies can create deeper connections with their customers and employees, foster innovation, and stand out in a crowded marketplace. It's not about choosing between hard data and soft skills – the most successful businesses find ways to balance both.
As you reflect on your own business or career, consider how you might strengthen your soft edge. Are you building trust with your stakeholders? Are you encouraging continuous learning and improvement? Do your teams foster diverse perspectives? Does your product or service have that intangible quality of good taste? And finally, what's the story that gives purpose to your work?
Remember, the soft edge isn't a luxury or an afterthought – it's a crucial component of lasting success. In a business landscape where many companies look increasingly similar on paper, it's the soft edge that can truly set you apart.
By embracing these principles, you're not just building a more successful business – you're creating a more meaningful one. And in doing so, you're contributing to a business world that values not just profits, but people, creativity, and purpose. That's the true power of the soft edge.