A popular urban myth persists to this day which says that automotive visionary Henry Ford chose to pay his workers above market wages so that he could sell those same workers Ford cars. Missed by those who promote what’s false is that employee sales alone could never have authored
In truth, Ford’s softer side was a function of his unrelenting drive for profits. 317 percent annual turnover among his employees proved a big negative for the company’s bottom line, so with profits in mind, Ford offered higher wages with survival and growth very much in mind. Ford was arguably one of the original “hard edge” businessmen who employed “soft edge” tactics to boost company earnings.
In his excellent and entertaining new book, The Soft Edge, Forbes publisher Rich Karlgaard makes a very important case for businesses focusing more of their energies on the human, more creative aspects of business. No mushy Alan Alda type, through his veneration of hard edge profits, Karlgaard has concluded that lasting businesses positively exploit the “tough to measure” soft edge on the way to abundant profits.
For background, the “hard edge” of business is perhaps what most readers would expect it to be. It concerns speed, cost, supply chain, logistics, and capital efficiency. All are much easier to measure, they’re the lingo of so much business and business school discussion and instruction, and as Karlgaard makes plain, it’s what CEOs are most comfortable talking about.
Conversely, Karlgaard notes that that “most CEOs and board chairmen are not comfortable talking in the language of the soft edge.” Importantly, Karlgaard doesn’t assert the latter in negative tones. As he explains, “excelling at the soft edge is not easy,” and “That’s why only the excellent companies do it.” Because they do, CEOs need to figure it out.
Karlgaard bluntly asserts that ompanies “won’t thrive for long if they suffocate the soft edge.” Karlgaard writes of
So what exactly is the “soft edge” that successful companies employ? It’s surely many things, it varies with companies, but Karlgaard breaks it down to trust, smarts, teams, taste, and story.
In the trust category, Karlgaard offers many interesting anecdotes about the venerable life insurance firm Northwestern Mutual. The latter screams trust, firstly because it’s been around since 1857. Through a once flailing Northwestern employee by the name of Roberto Espinoza, Karlgaard also reveals the “story” side of the “soft edge."
Northwestern succeeds in the area of trust because the solid ground on which it stands means that it salespeople can always answer in the affirmative the inevitable client question after the loss of a loved one, “Will we be ok?” In Espinoza’s case, he finally achieved clarity about the very important work he was doing while at a funeral for a client. As he explained to Karlgaard, “The deceased man’s eight-year old daughter got up and said she missed her daddy. Then she said her family would be ok.” Espinoza’s career took off after this experience. He got the story.
Probably my favorite part of the book was Karlgaard’s discussion of “smarts.” He asserts that too often “we in business propagate this witless idea that the only people fit to hire are those who scored an 800 on math on their SATs.” As Tom Georgens, CEO of
Karlgaard prefers “grit,” as do some of the businesses featured in The Soft Edge. He writes that “Much of what makes us smart is due to what we learn, or put another way, what we’ve learned the hard way.” Smarts are attained by doing as it were, and there Karlgaard channels George Gilder’s proper elevation of information as the driver of economic advancement. Gilder disliked the bank bailouts of 2008 for many reasons, but a factor that loomed large was that the papering over of mistakes robs individuals of the tough experiences that for being difficult, will make them better at what they do.
Easily the most interesting aspect of The Soft Edge is Karlgaard’s visit to Memphis, TN, and the headquarters of
The FedEx logistics boggle the mind, and they speak to Karlgaard’s elevation of the importance of “teams” in any successful company, not to mention the root of all economic advancement, human capital. Economists so often focus on durable goods, and plant & equipment orders, but as FedEx reveals, its greatest assets are human; the planes and trucks truly commodities that animate a staggering daily delivery achievement driven by teams.
Karlgaard is based in Silicon Valley, so in the area of “taste” he brings a great deal of local knowledge. The late Steve Jobs stressed taste, and his focus on aesthetics arguably played a major role in the Apple iPod’s crushing of the Microsoft Zune. Both products were musical in nature, but there’s something about the look and feel of Apple gadgets that take the consumer well beyond the functional. It’s excitement vs. “Commodityville.”
Entertaining there is Karlgaard’s profile of Tony Fadell, who helped design the iPod, but in his next career is bringing taste to something as prosaic as the thermostat. The latter is in so many ways the living and breathing definition of commodity, but Fadell’s intent is to bring an odd beauty to it.
No doubt a Honda Civic is in so many ways every bit as functional and reliable as a BMW, but there’s something about a BMW…Karlgaard recalls an interview with former BMW CEO Helmut Panke, who closed his eyes and told him, “I want to be able to blindfold someone, put them in the right seat of a BMW, drive them around, and have them know by all their other senses that they are in a BMW.” Absolutely. Taste in products is the difference between winning sales with cost, and winning customers willing to throw cost to the wind.
With “story,” it’s once again the countless times Northwestern Mutual clients knew they would be taken care of during times of intense grief, with Nike it “isn’t just the shoes, it’s stories of iconic athletes,” and it’s also about practice. Karlgaard asked Fadell about Steve Jobs’ legendary speaking ability that annually had MacWorld attendees mesmerized, but as Fadell explained about Jobs, “By the time Steve got up at MacWorld, he’d given that talk five thousand times.” The practice helped Jobs tell a wildly intriguing story.
In the “no one reads the same book” category, while discussing the “cost” side of the “hard edge,” Karlgaard made the important point that “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.” What Karlgaard writes is undeniably true, and it’s also a fairly succinct refutation of the Keynesian “stimulus” lie.
When governments tax and spend, what they’re really doing is robbing all of us of research-driven advances, jobs, and bonuses. Successful companies certainly don’t leave a lot of money on the table, but the unseen shame is what they could do with the money taken from them by a government seemingly intent on wasting it. Henry Ford perfected the manufacture of cars through persistent reinvestment of profits. Could Ford do it as quickly today, and if not we must ask how many great companies are performing at a fraction of their ability thanks to the greedy hand of government.
What’s most important about Karlgaard’s book is the truth beneath what is the soft edge. Karlgaard’s explicit point is that we humans are the ultimate capital. Successful businesses focus on the soft edge precisely because they know that happy, hardworking, and passionate employees are arguably more creative, and for being happy, have a better story to tell. The Soft Edge is an excellent read that elevates human capital to its proper place at the top of the corporate pyramid. As such, companies most certainly do imperil their long-term success if they ignore it.
