Tuesday, June 16, 2009

Winning Through Soft Power

Winning Through Soft Power

One big lesson taught us all by the current financial meltdown and resulting recession is the importance of “soft” power to success.

Foreign policy mavens have been talking for several years about the relative advantages of “hard” versus ‘soft” power. Secretary of State Hillary Clinton spoke in her confirmation hearings too of the need for “smart” power.

In foreign affairs, “hard” power gets more attention and requires more money, but it doesn’t always do the job. “Hard” power took out Saddam Hussein and his henchmen, but wasn’t very well adapted to the challenges that came after regime collapse in Iraq. In the Vietnam War, American “hard” power won every battle. But, who, in the end, won the war? The “soft” power of political will evaporated in the United States but not in Hanoi so at the end of the day all the bombs and bullets used to defend South Vietnam, Laos, and Cambodia went for naught.

Similarly, George Washington didn’t win many big battles, but with help from French allies who were recruited through Ben Franklin’s diplomacy, he won the last one and that was all he needed to win the war.

Business has been favorably compared to war. We have the book on the 48 Laws of Power giving guidance on how to succeed. We also have Sun Tzu’s thoughts on war, which present a different approach. According to Sun Tzu, so arranging your forces that the enemy commander retreats without a fight is the acme of military skill.

In business the “hard” power of finance gets most of the attention. Money talks and bottom lines drive decision-making, especially in stressful times like the present.

But “soft” power is far more strategic.

“Soft” power is customer loyalty.

“Soft” power is employee skill and commitment.

“Soft” power is having investors and creditors who believe in your business and will help you through hard times.

“Soft” power arises from all your intangible assets – relationships, good will, brand equity, unique value proposition, business model, supplier quality, long term thinking.

“Soft” power is all about people. Take care of people, and they will take care of you. Trust, reliability, being there for your customers, mutuality of benefit, win-win over zero-sum – these moral factors build business opportunity.

“Soft” power also is all about flow. Times change; markets are fickle. What works today may not generate so much value tomorrow. “Hard” power is better in the short term or in the immediate situation. But “hard” power lacks flexibility and may not endure.

Consider General Motors: how long did billions of “hard” dollars given by American taxpayers through government subsidies keep the company afloat and out of bankruptcy?

Consider Bear Stearns and Lehman Brothers: billions of “hard” dollars in assets could not save them from collapse when confidence in their future disappeared.

“Hard” power encourages illusions about how strong we are. “Soft” power is more realistic and adapts better to the course of events.

With “soft” power you play to where the puck is going, not to where it is. That insight helped Wayne Gretsky win many hockey games.

“Soft” power is right for dynamic conditions; “hard” power for static ones.

But the fundamental environment of business is flow and movement, twists and turns. Consider, then, the advantages of “soft” power.