Welcome to the Era of Behavior

Welcome to the Era of Behavior

Not so long ago, we lived in a world where “externalities” were not our problem. The societal problems created by the operations of our large businesses lived “over there” — across the world, in someone else’s backyard, or in a supplier’s business. In a recent HBR piece, Chris Meyer and Julia Kirby tell us that’s no longer true, now that we live in an “age of transparency.” Internet-age technology has made our operations hyper-connected and hyper-visible, and now interested parties can easily see causes and effects — and easily tell others all over the world about what they see.

That observation is right, but it doesn’t go far enough. The further implication is that we are now in an era of behavior. The same communications technologies that expose external impacts also allow curious parties to peer into our organizations and judge our very intentions. It will probably never be possible for a business to address and mitigate every externality, and stakeholders will appreciate that. But they will increasingly focus on how a company’s leaders are considering those externalities (and just about everything else), how they choose to act, and how they inspire others to follow their lead.

This will be a shock to many. Most executives are still under the impression that as long as the output of a company has merit — as long as they produce good-value cars, coal, oil, or financial investment products, it doesn’t matter much how those products came about. Customers are buying offerings, they believe, and not the behavior behind them.

But, just about the time the 21st century arrived, that stopped being true. Think about the issues most frequently raised in the wake of recent automobile recallsmining fatalitiesenvironmental disasters, and financial meltdowns. The debates that most engage the public and rise to highest importance all focus squarely on the decisionsrelationships, and organizational cultures within companies — and the extent to which those behaviors contributed to the problems.

What must companies change about themselves in a world where people judge them by how they do business as much as by what they produce or provide? The first priority is to promote managers with a mindset of sustainability, and assemble orchestras around them who share and amplify it. This mindset needs to inform environmental management, certainly, but it also needs to extend beyond green concerns to social issues that affect employees, customers, and other stakeholders — in other words, to guide the company’s conduct in all affairs and in all corners of the world.

I often speak to groups of business leaders, including CEOs, and I ask a simple question: “How many of you, in partnership with your head of HR, can quickly compile your list of top performers?” Most are sure in their response — hands fly up, showing how proud they are of systems and structures to identify that talent. Then I ask: “How many of you can do the same with regard to your top ethical leaders — the people who exemplify your organization’s values and standards for doing business?” The hands sink from the air.

I believe that’s the challenge for our era — the era of behavior. We need to embrace that the millions of businesses on earth and the billions of people are now globally and morally interdependent. We need to understand that how we conduct ourselves matters more than ever before. Even more than strategy, behavior is the key to competitive advantage, and to a more sustainable future. Externalities will never vanish completely, and business leaders will always have to take risks, make difficult trade-offs, and choose their spots. The question will be: how?

Originally published on HBR.

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