A number of recent experiences remind me how important trust is in business – and how little it is really understood. In this two part series, we will take a look at what trust really means, what value and costs it has, how to build it, how it is lost – and what we can learn from these elements to better utilise trust in business.
Consider some recent conversations I have had helping individuals, teams and organisations enhance their performance:
• A sales team struggle to connect into a market where ‘companies like theirs’ have broken trust in the past.
• A marketing manager is frustrated because he works for a CEO he just doesn’t ‘trust’.
• A company wants to be seen as the ‘trusted partner’ in their industry, and believe this offers a competitive advantage.
• A team faces performance issues and the trust established over a year of working together appears to be completely eroded after a change in leadership.
When I have asked the people involved in these scenarios “what do you mean by ‘trust’?” and “what value does this offer you and offer to you or your customers?” their responses have led to some very interesting discussions.
How would you answer these questions?
• What does ‘trust’ mean to you?
• What value does trust offer you?
• What value does trust offer your customers?
Trust – as a critical element of effective relationships – is such a valuable commodity in business. The way we behave changes dramatically depending upon whether trust is present. However, it is often misrepresented and poorly understood.
What is trust?
Trust is an internal and completely subjective process that relates to our ability to guess with confidence how someone will behave. It is about our internal measure of certainty that we have around the behavioural outputs of others. It is a completely subjective phenomenon, which is difficult to quantify across people because what one person deems as ‘trustworthy’ may seem completely untrustworthy to someone else. A person may also deem one person trustworthy and another not, based upon a whole series of internal (and even unconscious) processes.
Trust can be seen as a measure of relational and behavioural consistency, but it does not have to be only positive – I can have absolute trust that certain people will behave in deplorable ways when they have had too much to drink; that others will operate only in their self-interest; and that others will be racist, sexist or discriminatory. I can even ‘trust’ that certain executives will push to dominate meetings; others will never be on time; and others will find ways to pass the buck and blame others. In each of these cases, I can have a high level of ‘trust’, it is just that the elements of this person’s predicted behaviour are things which are negative, or harmful to my own goals, values and aspirations.
In truth, trust is a neutral concept – it is neither good nor bad. We can trust that people will behave in predictable ways, which can either be interpreted as ‘good’ or ‘bad’ depending upon our individual subjective stance. It is only our interpretation (often relating to the alignment with our own needs) which determines if the actions are good or bad. We tend to focus on positive trust, and the value it gives us. However, it is also valuable to assess those relationships where we can trust that people will behave negatively – often people get into trouble when they KNOW someone will behave in a certain way, but will ignore this and get ‘burned’ by that person’s behaviour when they do nothing more than behave as could have been predicted.
What value does trust have?
Trust significantly decreases transaction costs. It speeds up the rate at which we will conclude an arrangement, and it allows us to conclude transactions with less certainty and more ambiguity. In any transaction, trust is often substituted for contractual certainty, or contractual certainty is demanded where trust is low or absent. Often someone without trust will require greater codification of the elements of the transaction to decrease the implied risk that comes with the lack of certainty inherent in low or no trust. This acts to protect them in lieu of certainty based around trusting elements of behaviour of the other party.
High trust allows individuals to make assumptions about future actions and relationships, thus removing the need for such levels of codification, or the time taken to clarify elements of the exchange (where specific actions, behaviours and responses are simply unknown).
In essence, increasing trust allows decreased risk, and decreased cost of ameliorating or managing that risk.
This means that we are more likely to conclude arrangements with people we trust faster, with greater ambiguity, and higher potential for personal risk. Imagine what this means for dealing with two customers – one who trusts you and one who doesn’t. The likelihood is that trust will have a significant impact on whether an agreement can be reached, and the cost, effort and conditions of that transaction.
We have a preference to transact with people who we trust. The first reason is the reduction of risk and its cost of management. This is an absolutely critical element of human behaviour – personal risk of failure (and what it means about the self-concept of the individual) is a massive motivator of behavioural selection. Trust offsets this risk by providing increased certainty. The personal self-concept cost of loss, including regret, is many multiples of the reward that someone experiences when they gain what is on offer. Consider the difference in response if you lose $50, compared to if you find $50. The perceived ‘cost’ of the loss has been estimated at more than $100 (meaning that you would need to ‘find’ more than $100 to offset the feeling of losing $50!)
There are two different reward circuits in the brain – one which deals with the tangible transaction (we receive a reward signal based upon our belief in the outcome of the transaction), and a second ‘social’ circuit which provides an additional reward signal based upon interacting with people that we are socially connected to (we trust and/or like them). This means as individuals work to maximise the payoff from the transaction, working with a trusted partner provides a much greater overall reward stimulus in the brain (payoff) than transacting in exactly the same manner with someone we don’t like or trust. Therefore if we are offered two identical transactions, we will always take the deal from the person we trust (or like) more as this provides a greater neuropsychological payoff.
Trust acts as a marker of in-group identification. We are more likely to ‘trust’ someone who shares identification elements with us – that belong to the same groups as us. This happens because if two individuals share in-group status, we believe we share many elements (we generalise). If we trust ourselves, we assume we can trust those who are ‘like us’. This is why people like to seek commonalities as they try to build sales relationships – it accelerates the development of in-group identification and therefore perceived trust.
What costs does trust have?
Its costs time and effort to build trust. Depending on the subjective disposition of the individual, this may happen quickly and with little effort (if they are highly trusting by their nature) or it can take significant time and effort (if they are suspicious).
It also costs time and effort to maintain the consistency required to maintain trust. This cost can be offset by the value returned from the relationship (in social, psychological or financial terms). However, it is a sunk cost – and any breach of trust by inconsistent behaviour can immediately decrease trust between two parties and wipe out everything invested in developing that trust.
It is better to have not invested in building trust with someone if you cannot be consistent in your behaviours so that you maintain it.
So as you think about working with others within your organisation or with your customers:
• How much preference do you give to ‘trusted partners’?
• What specific things do you do to build trust?
• Who do you trust (and why should others trust you?)
• How do you maintain trust?
• How do you leverage trust?
In the second part of this series, we will explore how trust is built and broken; how it can be rebuilt; who or what we should trust; and how we should better use trust to enhance results and performance in business.