Why 'How' Matters More Than Ever

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To thrive in a hyper-transparent world, we have to learn to be "actively transparent," to turn the specific conditions of the age to our advantage.

Third, our flattened, hyper-connected world has limited previous modes of competitive differentiation. Almost every product, service, or process a company creates—our "whats"—can be reverse-engineered by competitors.

So many of our whats are quickly becoming commodities. Every company answers the phone on two rings. Numerous manufacturers—not just Dell—have moved to just-in-time inventory.

Human Conduct: The Next Frontier

The hows of human conduct are to the 21st century what process reengineering was to the last. When business leaders realized that the soft and subjective aesthetic of quality was in fact hard and quantifiable, we began measuring inefficiencies at every level of production, and everyone got good at quality. So good that it, too, became a commodity. To thrive today, we can no longer differentiate ourselves based on what we sell to the customer—or the processes we use. Instead, we need to differentiate based on the connections we establish and the experiences we create that engender trust and loyalty.

Human conduct—how we do what we do—represents the next frontier of powerful differentiation. The qualities that many once thought of as "soft"—trust, integrity, honesty—are now the hard currency of business success and the ultimate drivers of efficiency, productivity, and profitability. Connections can reduce supply-chain risk, enhance customer experience, help executives exert greater influence over a highly decentralized global workforce, and ultimately lower costs and boost revenues.

Just ask the University of Michigan Health System and the University of Illinois Medical Center at Chicago, two pioneers among a growing number of medical institutions using an innovative way of connecting (or reconnecting) with customers: letting doctors apologize to patients when they make mistakes. Both medical providers achieved hard business benefits from their revolutionary departure from the traditional "deny and defend" response to physician error. Since the policies that allow doctors to apologize began, The New York Times reports, malpractice lawsuits have decreased by 50% at the University of Illinois Medical Center and by nearly 70% at the University of Michigan.

Or ask Ralph, who found a way to increase his sales volume and reduce his person-to-person service time while building customer loyalty. Ralph learned what we all need to learn: Shifting our focus from what to how has extremely beneficial consequences.

During the next six months, I intend to build on this discussion in this column and engage in dialogue with you by showcasing companies and people who are "outbehaving" their competitors and innovating in how they do what they do, and by exploring other examples of why how matters, now more than ever.

Dov Seidman is the founder, chairman and chief executive officer of LRN, a company that helps businesses develop ethical corporate cultures and inspire principled performance, and the author of HOW: Why HOW We Do Anything Means Everything…in Business (and in Life). LRN recently announced the acquisition of leading green strategy firm, GreenOrder.