Chapter 2
Hard Versus Soft
The Fight for Resources

As FedEx CEO and Chairman Fred Smith points out, the right strategy is foundational to any company’s success. Your strategy may evolve, of course. But if it isn’t there in the first place, or you fail to constantly review it and recalibrate it, your company has set itself up to make disastrous decisions.

No serious CEO or manager would debate the need for a smart, strong, and flexible strategy.

Rather, the battle for money and attention boiling inside most companies and among most managers is that between the hard and soft edges. Here is the key question: In a fight for limited resources, which side—hard or soft—should get the most money and attention? There is a right answer for every company and it will vary from year to year. But from my perch, far too many companies invest too little time and money in their soft-edge excellence. In the long run, they will pay for this mistake.

This mistake has three main reasons:

• The hard edge is easier to quantify. The metrics around speed, cost, supply chains, logistics, and capital efficiency are well understood. The data is relatively easy to come by, search, analyze, and manage.
• Successful hard-edge investment provides a faster ROI. Buying technology that trims costs or cuts time in a supply chain seems like a no-brainer.
• CEOs, CFOs, COOs, boards of directors, and shareholders speak the language of finance. These people—the company’s hard-edgers—are experienced and comfortable with numbers. To these left-brained business titans, the soft edge looks like a realm of artists, idealists, hippies, poets, shrinks, and do-gooders. It’s almost like Mars versus Venus.

Does the hard edge, therefore, have the more convincing case in the fight for time and money? No—just the easier case. Here’s the case for investing time and money in your company’s 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 Commodityville.
• 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.

For example, Apple’s great design and loyal fan base—soft-edge advantages—are the essence of its enduring appeal, more than its supply chain and capital efficiency, great as those are. And what gives Starbucks its ultimate edge? Better coffee? Not so, say people who love coffee! Cheaper locations? Quite the opposite. It is soft-edge excellence—which includes trust, brand, and cheerful employees—that creates a consistently satisfying experience.

THE HARD EDGE GREW FROM RESOURCE SCARCITY

The hard edge of business is often said to have started during the early Renaissance with the advent of double-entry bookkeeping. But intriguingly, it turns out that many hard-edge practices actually predate industrialization, the advent of math, and even civilization. The goal of cost-effectiveness surely started when mankind realized that resources are limited—a fact Cain grasped and his brother Abel did not. The very first “databases” appeared about thirty thousand years ago on cave walls in what is now the South of France. These Paleolithic hunters and gatherers used cave paintings to record the comings and goings of deer, elk, and other large animals that were harvested for food and clothing.

As our earliest instincts to track and record resources blossomed, tools to assist calculation soon followed. The oldest counting tool is thought to be a Babylonian abacus from 500 BC. The Roman hand abacus, the first portable calculating device, ruled from 27 BC to 400 AD. Its main use was to count currency, presumably allowing Roman emperors like Caligula to rob their citizens faster than before. The Suanpan, or 2/5, abacus—a device capable of addition, subtraction, multiplication, division, and even determining square roots—appeared in Chinese culture around 1300 AD.

The late Renaissance in the 1600s offered a veritable boom for calculating devices and machines. An astounding number of new and varied contraptions to assist with computation appeared across Europe, but the two that really mattered were William Oughtred’s slide rule, a device used by science and engineering wizards well into the 1970s, and Blaise Pascal’s mechanical calculator, a forerunner to industrial-age adding machines.

In 1886, the adding machine gained widespread use when William Seward Burroughs, the grandfather of beat writer William S. Burroughs, started American Arithmometer Company, later known as Burroughs Corporation. Just four years later, Herman Hollerith, one of the founders of IBM, created a punch card system that reduced the time to calculate the 1890 United States census from seven years to six weeks.

“IN THE FUTURE, THE SYSTEM MUST BE FIRST”

But the hard edge of business really hit its stride at the beginning of the twentieth century with Frederick Taylor’s theory of scientific management, also often referred to as Taylorism. It was the age of political Progressivism: science was in. Lone heroes were out. “In the past, man was first; in the future, the system must be first,” Taylor wrote in his introduction to The Principles of Scientific Management, published in 1911.

Taylor put forth a simple and appealing idea: you could increase labor productivity by measurable amounts if you could spot, then eliminate, all the irrational time wasters. To do that, managers had to watch, record, measure, and analyze the actions of their workers. No more employee freelancing on the factory floor. No more make-it-up-as-you-go. Taylor wanted to reduce complex manufacturing processes to the smallest, repetitive steps that any worker could do.

Taylorism, predictably, required an almost dictatorial level of control over workers and their work practices. Taylor, of course, saw his movement in a better light. Taylorism would be the savior of workers, since more productive workers could earn more money.

Taylor’s peak of influence came in the first few decades of the twentieth century, with his theories finding their greatest realization in the auto assembly plants of Henry Ford. And indeed, just as Taylor had predicted, Ford paid his most productive workers up to four times the going rate for factory work.

Though Taylorism was soon eclipsed by other efficiency theories, Taylor had let a hard-edge genie out of the bottle. Taylorism spawned many new timing, bookkeeping, and accounting methods, as well as workflow charts, machine-speed slide calculators, motion studies, and assembly pacing metrics. He gave managers permission to observe, measure, analyze, act—and control. That was the core of scientific management, and it was hard to argue against its value.

Taylorism, in its strictest sense—stopwatches and all that—became obsolete by the Great Depression of the 1930s. But a form of Taylorism made one last run in the 1950s and 1960s, an organizational era born of World War II. This era was defined by a brilliant man with, alas, no clue of how to connect his beloved data and systems analysis to the softer, muddier world of human agency.

His name was Robert McNamara, and he was wired for the hard edge from the beginning. With degrees from the University of California at Berkeley and the Harvard Business School in hand, McNamara spent World War II devising routes and logistics for American bombers. In 1947, Henry Ford II hired McNamara and some military statistics geeks to save the Ford Motor Company, now getting clobbered by General Motors. The young men were called the Whiz Kids, and their analytical methods quickly proved successful at Ford. The most successful Ford car born of the Whiz Kid era was the utilitarian Ford Falcon. It generated no passion, but it was cheap to buy, fuel, and maintain. In that sense, the Falcon was the perfect Whiz Kid car.

McNamara didn’t stay long at Ford. In 1961, the new U.S. president, John F. Kennedy, appointed McNamara the Secretary of Defense. One of McNamara’s job priorities was to analyze U.S. involvement in the Vietnam conflict. He did, and decided to increase U.S. troop presence in South Vietnam from 900 to 16,000. After Kennedy’s assassination, McNamara and President Lyndon Johnson pursued a strategy they called aggressive escalation. They bumped up U.S. troop presence from 16,000 to more than 500,000. McNamara’s systems analysis had concluded that the United States could win a war of attrition against the Viet Cong.

As we now know, McNamara was wrong. Terribly so. In a 2003 documentary, Fog of War, McNamara admitted that his systems analysis approach had failed to account for human nature: specifically, the resourcefulness of the Viet Cong and the lack of support from traditional U.S. allies and the American media.

But even as McNamara’s rigid idea of systems analysis died in the jungles of Vietnam, the 1960s and 1970s saw the rise of a new class of tools for business that reflected a passion for quantitative analysis.

When IBM’s 360 mainframe became the first affordable...