Wednesday, November 1, 2017

TRUST

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This column is inspired by the work of Professor Dan Ariely, the James B. Duke Professor of Psychology and Behavioral Economics at Duke University, and one of the world’s leading experts on honesty and trust.

Trust is the foundation of life. Trust is what makes relations work, trust is what makes businesses successful, and trust is what separates happy societies from others.

Many of you may have had this experience – you are at an airport or at a public place. You wish to use the restroom. Have you asked someone next to you, a stranger, to look after your baggage for a few minutes? Has the role been reversed anytime? At the heart of believing someone we may never have seen before is trust.

We live in an inter-dependent world. We would find it very difficult, if not impossible, to live a life of complete isolation. On top of this, we are not self-sufficient. We need reciprocity to live and work together. Reciprocity in a positive way is advantageous to our survival – and is the basis of trust.

While it is intuitively easy to appreciate the value of trust among individuals, it is much more difficult in organizations. The principles that allow organizations to succeed based on trust are:

1.   Long-term relationships

2.   Transparency

3.   Intentionality

4.    Revenge, and

5.   Aligned Incentives

Imagine you are the leader of a team. One member of your team has been with you for four years. Another has been with you for four weeks. Who would you trust more? Why? (For a discussion on the relationship between the length of a relationship and trust, please see the work of Professors James Andreoni and John Miller on The Prisoner’s Dilemma problem).

Organizations can use the long-term relationship effect to their advantage through three mechanisms:

1.    Recognize loyal customers – show your appreciation for their loyalty.

2.    Reward longstanding customers with promotions, first shot at new products or services, and gestures they are likely to remember.

3.    Launch programs and products that meet the needs of loyal customers even if they do not benefit you in the short term.

We expect entities – governments, institutions, and organizations – to be transparent. We recognize that the world is not perfect. We value transparency over perfection. How uncomfortable were you when you realized that a company meant to protect your data had breached it? Or when you realized that your bank had opened millions of fake accounts? If you want to find out what transparency means in the corporate world, read the annual report of Berkshire Hathaway. Compare the report to that of any other company. Recognize that Berkshire Hathaway’s letter to shareholders begins by outlining the mistakes of the preceding year.

Organizations can improve their transparency by following a few simple steps:

1.    Post all feedback online – don’t hesitate to place the negative feedback first.

2.    Communicate upfront mistakes you have made, lessons learned, and steps taken to rectify the errors.

3.    Explain the logic behind any controversial move in a simple language – avoid legal jargon.

Intentionality provides a glimpse into how we address moral and ethical dilemmas. You are in a car, your friend is driving and speeding, and knocks down a pedestrian. When you are asked about the incident, do you tell the truth, or do you lie?

Most people have difficulty answering this question. Research shows that more than the decision itself, the speed (or lack of it) in arriving at the decision has a bearing on how people perceive us. This may come as a surprise, but it appears that we are likely to be judged less harshly if we struggle with the dilemma, and avoid giving snap judgments.

Practicing intentionality:

1.    Explain why you made “unpopular” decisions – such as withdrawing a product or service.

2.    Use all possible avenues to demonstrate that you share your customers’ values.

3.    If you are forced (by a regulatory authority or the state) to do something you don’t like, explain the process through a clear message.

Revenge as a tool in building trust:

Professors Ernst Fehr and Simon Gachter have demonstrated the power of revenge in building trust. Revenge need not be in the literal sense – anything that may allow the other party to cause discomfort or embarrassment is enough to ensure trust. The possibility of punishment helps us to avoid relationships in which one side is more vulnerable than the other.

Knowing that we can return a product we don’t like, at no cost to us, or write a critical review of a hotel or restaurant makes us feel more powerful and more willing to take a risk.

1.    Devise online tools where your customers can openly criticize your products or services. Ensure that customers are aware of the facility before the transaction.

2.    Promise customers that you will replace anything that they are not satisfied with or anything that does not meet their expectations.

3.    Allow customers time and space to vent their anger and frustration. Find a manager who can listen to such customers without losing her or his cool.

Aligned Incentives:

While considerable focus is placed on aligning employee interests with organizational interests, the same focus is rarely applied to customers.

Imagine you are about to place an order in a restaurant and you choose an item on the menu. What would happen if the waiter were to tell you that the item is not “up to the mark” and suggests an alternative? Studies suggest that your trust in the waiter goes up. Why don’t organizations use this principle?

1.    Provide autonomy to your sales people to recommend products that have the highest utility for the customer, even if it means less margins to you.

2.    Don’t be afraid of comparing your product or service with those of competitors.

3.    Be sure to give a fair assessment of competitors’ offerings, even if it means your being more positive than you wish to be.

Examples:

Long-term relationships – The British retailer Marks & Spencer had at one-time customers, suppliers, and employees who were descendants of the original set – spanning over 125 years.

TransparencyBerkshire Hathaway’s annual reports.

Intentionality – the public editor in major publications; the ombudsman in large corporations.

RevengeZappos’ return policy – you can return the product within 365 days – no questions asked.

Aligned IncentivesProgressive Insurance allows prospective customers to compare prices with that of its competitors.

Successful companies take trust very seriously. Organizations should do more to build trust instead of making customers feel they are up against a faceless and ruthless giant.




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