Article 8
First-order business impacts defined
2-3 minute read
CAPSULE SUMMARY – First-order impacts are much easier to attribute to a company’s specific actions, and therefore identify and fix. Unfortunately, most leaders don’t stretch beyond their First-order impacts.
8.1 I will define a first-order business impact as one where a clearly identified societal harm can be completely stopped or eliminated by a change in the company’s behaviors. In simple mathematical terms, you can think of a first-order impact as societal harm where its causation has been identified with near 100% certainty, and your company is the cause.
8.2 I’ll provide three simple examples here to illustrate:
First-order impact example 1 – A community lives on a river downstream from a new factory. Prior to the factory opening, the level of birth defects in the community matches the population norm. The factory begins pumping a known birth defect-causing pollutant into the river, and the birth defect rate in the town the following year increases by a statistically significant level. There are no other environmental or attributable causes. Stopping the pollutant will stop the increased birth defects.
First-order impact example 2 – A split trial test of smokers vs. non-smokers shows that smoking creates a 5x to 10x increase in lung cancer rates, controlling for all other health and environmental variables. Preventing smoking will eliminate those additional cancer cases.
First-order impact example 3 – An automobile manufacturer releases 100,000 cars with a faulty braking system. As a result, those 100,000 cars are involved in 5x the number of accidents vs. cars without faulty brakes. Fixing the brake system will eliminate the incremental accidents.
First-order impacts can be directly correlated to a company’s individual behavior.
8.3 Many industries and companies still operate with damaging first-order impacts, but relative to fifty years ago, some of the most egregious violations have been mitigated. We have found innovative ways to operate businesses that are greener, safer, and more employee and supplier friendly as a result of the pressures coming from consumers, employees, and shareholder activists and the resulting government regulation that often follows. This is tremendous progress and should absolutely continue.
8.4 Businesses should identify whether they still have any egregious first-order impacts actively damaging society and they should eliminate those harms. However, they must not stop there.
8.5 As the world continues down the path towards increasingly connected and networked business models, the second-order impacts (especially from the dominant market share winners in a given segment) can often dwarf the first-order impacts in terms of societal harm. Hence, the need to incorporate second-order impacts prominently into 4th-Stakeholder conversations and ROI trade-off decisions.
8.6 Every company needs to consider all potential harms (both first and second-order) when it makes its prioritization decisions. Helping to fix a massive second-order harm may actually be much more important than fixing ten smaller first-order impacts. We’ll discuss that trade-off process and how it also needs to incorporate ongoing societal input when we delve into the sections on “Focusing on the Biggest Opportunities” and “Getting societal Buy-Off.”