Over the summer, I read Forbes Editor Rich Karlgaard’s The Soft Edge: Where Great Companies Find Lasting Success and it had some very interesting insights. I have written many blog posts on optimization, how to get the most out of your customers, etc., but Karlgaard points out that all good companies are optimizing. To be great, you have to find transformative gains.
As Karlgaard points out, 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. In great companies, innovation is a natural response to threats. According to Karlgaard, a healthy innovative response comes from a deeper place within your company, what he calls the “Soft edge.”
Soft-edge strength leads to greater brand recognition, higher profit margins, more loyal customers and more committed employees. Soft-edge excellence is the ticket out of merely being a commodity. Companies strong in the soft edge can often survive a big strategic mistake or cataclysmic disruption that would sink companies without a sturdy soft edge. Loyalty, passion and commitment are the dividends of a strong soft edge. Hard-edge strength provides a fleeting advantage. The hard edge is easier to clone than the soft edge, especially as technology and software become cheaper and more widely accessible.
Finding the soft edge is difficult, and Karlgaard quotes Tom Peters and Bob Waterman from In Search of Excellence to point out that dictating strategy or crunching numbers is a lot easier than building trust or driving learning. It requires grit and passion, and importantly in the environment of public companies it requires a long-term perspective over a short-term profit. That is why only the excellent companies do it.
There are five pillars to the soft edge. If you elevate these pillars, you are on the path to create a successful venture.
Trust encompasses whether your external partners (e.g., customers, suppliers) and internal stakeholders (employees, investors and shareholders) trust you. Companies that develop trust have a recruiting advantage. They have a retention advantage and a productivity advantage.
One of the key benefits of trust is improved retention and productivity of employees. Karlgaard quotes Jim Davis, the chief marketing officer of SAS Institute, a data analytics software firm that always makes those best-places lists, as saying,“Magazines like to play up the benefits. It’s always a picture of people jumping in a room full of balls or something. But that’s a fraction of what makes a best place to work.”
What are the important issues? Davis answers with a set of questions. “Does the management convey strategic direction? Is there room for advancement? Have you created an environment that lets employees do their best work? That’s where innovation comes in.”
A key way to build trust with employees is open-book management, which I wrote about in 2012. With open-book management, you share the company’s financial information with employees to devise scorecards and other tools that show staff how their individual efforts help profitability. Additionally, in trustworthy organizations, coworkers believe that others are ethical and the organization as a whole is true to its values and commitments. Data visualization provides the tools to create an open environment with your team. With data visualization, companies and organizations can create a shared language, a common set of understandings, so that employees don’t feel manipulated.
Trust is probably the most important factor in a great place to work; that they trust you. And if you do too much snooping, they’re not going to trust you anymore. Instead of inculcating an environment of fear, build a culture of trust. Everyone should feel confident that they can participate in meetings and projects, say what’s on their mind (if they are prepared) and be respected for their opinions and ideas.
Trust also has a financial value, as research and market results have proven; dignity, respect and pride—and the sense of trust those feelings engender—create real-world returns and measurable increases in productivity. When trust is low, it effectively places a tax on every transaction, communication and decision. This brings down speed and increases costs. The lower the trust, the higher the tax. Conversely, individuals and organizations that foster a culture of trust get a performance multiplier.
Customer trust also increases their likelihood to buy, as they are more likely to have a stronger impulse to purchase products. They are also more likely to cooperate with your organization by sharing personal information or contributing to a marketing study. When your customers trust you, then you can charge higher prices than your competitors do, offer a higher-profit-margin feature set than your customers are looking for, or even require a longer wait for delivery. In August, I wrote about how to build a trustworthy brand and the key is address negative sentiment directly and converse honestly with your customers.
Overall, the first step to building trust is realizing it is not based on what the company does but on what the leadership does. Engaging in moral behavior is one the easiest ways for any leader to demonstrate trustworthiness, while also creating a trusting climate. Leaders also build trust by demonstrating real concern and being predictable. An important part of predictability is integrity and honoring your word.
Karlgaard points out that trust is becoming more valuable for the very reason it is declining in society. Trust has two key components: external trust (customers, suppliers, shareholders) and internal trust (employees). Great companies invest in both. Trust, more than pay or perks, is the secret to making a best-places-to-work list. Trust is the bedrock of innovation, because ideas cannot be forcibly pulled from people’s heads. Trust is also the bedrock of sales productivity. Salespeople thrive when they trust the purpose of their career and their company. But trust is easily destroyed by executive hypocrisy.
Smarts in business is more about tenacity and grit than IQ. Grit turns on the adaptive response, which accelerates learning. Karlgaard quotes Tom Georgens, the CEO of NetApp:
“I know this irritates a lot of people, but once you’re at a certain point in your career— and it’s not that far out, maybe five years— all the grades and academic credentials in the world don’t mean anything anymore. It’s all about accomplishment from that point forward. There are members of my staff and I don’t even know where they went to college or what they studied.”
The smartest people in business are not those with the highest grades in college. Instead, they are those who put themselves in situations that require grit. These acts of courage accelerate their learning through adaptation. Salespeople who make more calls will outperform salespeople who make fewer calls. In addition to increasing the sales funnel, the more frequent callers, by facing up to the gritty task of making a call, put themselves on a faster learning curve.
Smart leaders think laterally. They love to learn from innovative thinkers in different industries. They are also willing to make mistakes. Excellence takes risk. And you are not taking enough risks if you are not learning anything by making a mistake. It is essentially a failure. For risk to work, for people to do it, it needs to be okay to fail.
Smart companies build alliances with other smart companies. They’re known by the company they keep. Smart companies don’t deny their challenges. They prefer to run a little bit scared— but not so much that they’re paralyzed. Smart companies encourage people to talk about their mistakes and what they learned along the way. Smart organizations embrace transformative technology, even if it costs them in the short run.
Since collaboration and innovation are a must in the global economy (and I have written about collaboration multiple times), effective teamwork is vital. At a dozen team members or smaller, people are far likelier to share information. They also are far likelier to come to one another’s aid. If the mission is important enough, they’ll even sacrifice themselves. In a previous post, I referred to this as the “Two pizza principle”: If it takes more than two pizzas to feed the team, the team is likely too big. Karlgaard suggests that you work your way to the smallest possible number you think you need, then subtract one, the “minus one.”
Successful teams must go through a process of sharing knowledge , opinions and insights continuously. For teams to overachieve and outperform their rivals, those with differing views and divergent perspectives must be seen as valued group members.
In fact, for successful teamwork you must promote cognitive diversity, having team members with differing forms of generative and relational thinking. Effectively, team members must brainstorm and solve problems differently to optimize the value of the team. This means cognitive diversity includes differences in mental process, perception, and judgment.
Another value of cognitive diversity is it helps your company think like your customers, since they are cognitively diverse. With your team thinking diversely, you are more likely to come up with optimal solutions.
Karlgaard discusses how individual talent contributes far less to team success than you might expect. The best way to build a great team may not be to select individuals for their talents or accomplishments, but instead to learn how they communicate. Teams do their best when they encourage cognitive diversity— that is, diversity in thinking styles as well as in race, gender, and age.
During the last few decades, design has become an increasingly valuable competitive asset in nearly every industry that touches our lives. Karlgaard asserts that taste is much more than just good design. It is a universal sensibility, an emotional engagement, that appeals to the deepest part of ourselves. Taste starts with the big three— function, form and meaning— and smoothly integrates them.
This attention to design has stimulated market growth in many areas by making new products more desirable to consumers. This doesn’t just happen by putting a pretty wrapper around an idea but by imbuing objects with meaning and emotion, something vital to commercial success in today’s crowded marketplace. According to Karlgaard:
It’s giving people a glow. It’s delight and wonderment . It was the word Steve Jobs used to explain what was right with Apple and wrong with others. Something tasteful may be new, even radical, but somehow it’s still deeply familiar. Triggering fascination and desire, true taste kindles a product’s emotional touch points.
- Function When new products miss the mark , it is often because they try to be a better design rather than a better product. That is, it must do the job well. Function is the cornerstone of any successful product or service. When a threshold is met on the functional attributes, we apply a greater weight to a product’s hedonic—or cool, fun, and pleasurable— features like form and aesthetics.
- Form Since George Santayana’s 1896 book, The Sense of Beauty, researchers and theorists have argued that beauty is an inherent property of objects and that certain proportions, shapes, and colors are universally attractive . Likewise, we know that aesthetics arise from a product’s sensorial characteristics; things like its appearance, sound, touch, smell and feel.
- Meaning Meaning refers to the significance and associations customers experience with a product. This experience is a result of the interaction between a company, through its product and marketing, and its customers, through their interpretations of the product.
Create a compelling product is not simply a combination of the above but the ability to make something that is familiar and easy for the customer: simple, clean and clear. Taking stuff out, limiting the buttons and features, keeping things off the package: Those are the hard decisions.
Soft skills, like design and creativity, have always been seen as the province of intuitive geniuses. An exquisite sense of taste, the ability to invent both the object and purpose: those are talents bestowed on a few lucky people. The real question for the rest of us then becomes, is data going to democratize this intuitive genius? The awkward answer: Well, sort of. It’s always a balancing act, weighing something that’s beautiful with something that functions perfectly.
So, as a product develops and grows, you face a whole set of data-driven decisions. But you also face a whole set of opinion-based decisions. That is where the two worlds run into each other. And, even today, the outcome is dominated by human insight and ingenuity.
Taste is more than design. It’s a sensibility that appeals to the deepest part of ourselves. Taste is uncluttered and purposeful. Taste-driven products will be natural, instinctual, innate. Taste need not be original. It often borrows from successful products and services of the past. Taste always has a touch of irrationality, a hint of an idealized world. Taste is not the result of random genius. It takes hard work, discipline and patience. Taste signals the deep intelligence of a product or service. Most customers will pay more to feel smart.
Stories are a universal human activity. They express how and why life changes. They affirm who we are, that our lives have meaning. Stories are a powerful leadership tool. The key is that stories affirm who we are, that our lives have meaning. We’re naturally compelled to make reason out of chaos and assign causality to all the random events that make up our lives. Stories help us do that. Stories shape our world, who we are and how we should behave. So if you want to understand what’s going on in an organization, you just need to listen to the stories. Moreover, if you want to get anything done in an organization, you need to know how to use story to motivate people.
Persuasion is at the very core of business. Stories go across everything we do in business. They’re the key to a strong culture. They stick in the memory in a way that bullet points and spreadsheets do not. Stories can turn customers into apostles and advocates. Stories need to be fought for. Ironically, the best company stories typically have to run the longest gauntlet of corporate communications and legal departments.
Realism helps listeners and audience members suspend disbelief. It helps draw them into your world and your product or game’s world. Sometimes it is a carefully chosen detail; sometimes it’s a cultural reference; sometimes it is just being honest about why you or your company did something. Stories can capture the imagination and make things real in a way that cold, hard facts cannot, but only if they contain the seeds of authenticity.
Stories are often better told by your customers, and sometimes your critics, than by your own employees. Embrace these outsider stories. Stories in the age of data will require statisticians with the skills of an anthropologist or artist.
Story can be a very powerful leadership tool. Great leaders know this, and many top CEOs today use stories to illustrate points and sell their ideas. Persuasion is at the very core of business activity.
Winning with the soft edge
As mentioned at the start of this post, the soft edge is the way for you and your company to separate and excel. While everyone is using analytic tools, integrating them with the soft edge gives you a competitive advantage. Our chances of finding and operating in the sweet spot are vastly improved when we have that soft edge: We trust our colleagues, even when their race, gender, age and thinking styles are different from ours. We apply grit to constantly test ourselves and learn. We keep our teams lean and organize them around the elusive sweet spot. We get truly excited by the products and services we deliver. We tell a compelling, purposeful and authentic story.
- All good companies constantly optimize their metrics and make data-driven decisions. This is the cost of doing business now and not a competitive advantage. To be great, you have to find transformative gains by leveraging the soft edge.
- There are five pillars of the soft edge: trust, smarts, teams, taste and story.
- Cognitive diversity is a strong tool to optimize the value of teams; get people who think differently on the team.