Trust Measures & Indicators for RIM Council
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This document summarizes a presentation given by Alex Todd on trust measures and indicators. Some key points discussed include: that trust is good for business; the importance of trust in value propositions; how to measure trust indicators and conditions that affect trust; and optimizing conditions for trust. The presentation also discusses how eBay builds customer confidence through various trust mechanisms and provides a framework for assessing and enabling trust.
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Trust Measures & Indicators for RIM Council
- 1. Trust Measures & Indicators Alex Todd, President, Trust Enabling Strategies February 21, 2008 RIM Council Meeting
- 2. Key Points 1. Trust is good for business 2. Trust in value propositions 3. Measure trust indicators 4. Optimize conditions for trust 5. The road less traveled
- 3. “Trust is the issue of the decade.” Tom Peters One of the Most Influential Business Thinkers of All Time
- 4. VS. “[The most significant lesson learned from eBay is] the remarkable fact that 135 million people have learned they can trust a complete stranger…. That's had an incredible social impact. People have more in common than they think.“ - Pierre Omidyar, Founder and Chairman, eBay * eBAY’s P/E at 110+ still dwarfs industry leaders
- 5. “[At eBay] we do $2.25 billion worth of gross sales a quarter entirely on trust” eBay's Chief Financial Officer, Rajiv Dutta. “From the perspective of the seller, the implications are that good behaviour is rewarded with higher prices (on average 19%) on eBay.” Kalyanam, K., and McIntyre, S. (2001) “Returns on Reputation in Online Auction Markets
- 6. Supported by Research “We believe that trust in supplier-buyer relations may be an important source of competitive advantage in industrial settings….” - Dyer, J. H., and Chu, W. (June 2002) “The Role of Trustworthiness in Reducing Transaction Costs and Improving Performance: Empirical evidence from the United States, Japan, and Korea”, The Sloan Foundation, International Motor Vehicle Program at MIT
- 7. Value of Trust Value Trust Factors Price “Most consumers shop at businesses that have earned their trust – even if they charge more.” Profitability “The U.S. and Canadian Holiday Inn hotels where managers followed through on promises and had behavioral integrity were more profitable…. No other single aspect of manager behavior that was measured had as large an impact on profits.” Performance “When employees who work together trust each other, they exert more effort in their jobs and expend less effort monitoring each other. This leads to increased productivity, lower costs, and greater satisfaction for workers as well as shareholders…. It is in every corporation’s interest to consider developing a culture of trust as a way of improving performance.” Productivity “In 1994, Federal Express and IDS both increased their productivity by up to 40 percent by creating empowered work teams trusted with many of the responsibilities traditionally held by managers. Trust is the key pillar that supports empowerment and cooperation within organizations.” Employee Attraction & Retention A highly engaging and empowering work environment as a strong value proposition for attracting talent, which resulted in the lowest turnover in the Portland metropolitan area, even though they ranked in the middle of the area’s salary range. • “The Facts on Trust” available at http://trustenablement.com/opt/The_Facts_on_Trust.pdf
- 8. Key Points 1. Trust is good for business 2. Trust in value propositions 3. Measure trust indicators 4. Optimize conditions for trust 5. The road less traveled
- 9. Marketing Objectives 1. Align a valid brand value proposition with customer expectations; and 2. Help customers develop sufficient confidence that they will get the value they expect.
- 10. Discovery Identity Value of goods/services Vendor reliability Rules of engagement Credit worthiness Authorization to commit Fulfillment Customer services Shipper reliability Transfer of responsibility Quality control Applicable standards Tariffs & customs Negotiation & Order Product fit Negotiation criteria Cultural issues Quality assurance Viability of seller Applicable exchange rate Order placement and verification Settlement & Compliance Governing laws Agreement Payment method Non-compliance protection Disputes Recourse Transaction reversal Trust inTrust in Privacy ConsiderationsPrivacy Considerations throughoutthroughout Sales Transaction CycleSales Transaction Cycle
- 11. Key Points 1. Trust is good for business 2. Trust in value propositions 3. Measure trust indicators 4. Optimize conditions for trust 5. The road less traveled
- 12. 3 Types of Trust Indicators Assertions - perception indicators for trust Actions – outcome indicators for trust Conditions – affecting indicators for trust
- 13. Conditions for Trust Trust Enablement® Framework Experiential Sources of Trust Personal experiences of the relying party or those of objective witnesses. Motive Forces Factors influencing the actions of the beneficiary (trusted party). Proficiencies Aptitude, knowledge, behaviour and disciplines employed to consistently deliver expected value (people, processes & technology). Risk Transference Mechanisms and processes that transfer risk away from the relying party. Develop Trust Protect Trust Interpretive Sources of Trust Subjective assertions of the source of the information, the relying party, or third parties. Empowerment Relying party’s ability to choose. Certainty Acceptability
- 14. Business Drivers Trust Enablement® Framework Trust Enablement for Stakeholder Engagement Interpretive Sources for Awareness Experiential Sources for Acceptance Risk Transference for Action Proficiencies for Value Motive Forces for Commitment Stakeholder Confidence = Business Leadership
- 15. eBay Builds Confidence Protect TrustDevelop Trust Trust Empowerment Identify reliable providers of feedback Interpretive Sources ID Verify from Equifax Product Opinions & Grading Product Appraisals Privacy Policy TRUSTe seal Proficiencies Industry practices (SSL, etc.) Risk Transference User Agreement Fraud Protection Insurance PayPal Buyer Protection Experiential Sources Feedback Forum Tradenable escrow Product authentication Motive Forces Policies (comprehensive) SafeHarbor investigations Disallowed products SquareTrade dispute resolution VeRO notice of IP infringement
- 16. Comparative Trust Assessment - ClientRx.com 0 2 4 6 8 10 Interpretive Sources Risk Transference Factual Sources Empowerment Motive Forces Proficiencies Drugstore.com thedoctorspharmacy.com ClientRx.com
- 17. Key Points 1. Trust is good for business 2. Trust in value propositions 3. Measure trust indicators 4. Optimize conditions for trust 5. The road less traveled
- 19. Optimizing Conditions for Trust Corporate Governance Practices
- 20. Key Points 1. Trust is good for business 2. Trust in value propositions 3. Measure trust indicators 4. Optimize conditions for trust 5. The road less traveled
- 21. Risk Management & Trust Enablement® Trust Enablement® Trust-based Optimistic Offensive Active Stakeholder-oriented Bonus: Golden Rule compliant Risk Management Control-based Pessimistic Defensive Passive Organization-oriented Loss: Isolated self-interest
- 22. Measure to Manage 1960 2060 Prosperity 2010 ““All management isAll management is risk managementrisk management.”.” EnterpriseEnterprise RiskRisk ManagementManagement Massy Feguson’s Douglas Barlow, in Toronto, 1962 Conference Board of Canada, in Toronto, 2007 TrustTrust EnablementEnablement®® Measuring Trust ““All leadership isAll leadership is trust leadership.”trust leadership.”MeasuringMeasuring cost-of-riskcost-of-risk MeasuringMeasuring value-of-trustvalue-of-trust
- 23. Thank you Alex Todd +1 416.487.1497 AlexTodd@TrustEnablement.com http://www.TrustEnablement.com
Editor's Notes
- Before I begin, I would like to thank Charles Giordano from Bell Canada and Virg Mouch from the Ponemon Institiute for inviting me. I am delighted to be here. It is a privilege to have this opportunity to speak to you today.
- My primary objective today is to share with you a few insights into how to measure trust indicators and optimize conditions for customer trust in order to help increase the volume, velocity and value of business transactions. I will begin with evidence to support our intuitive sense that trust is good for business. Then we will look at the role of trust in sales and marketing. I will introduce a novel framework for analyzing trust indicators. Then we will briefly look at a couple of examples that show how optimized conditions for trust are related to superior business performance. To close, we look at what it takes to embark on a journey toward optimizing conditions for trust.
- Don’t take my word for it. You are far more likely to trust Tom Peters business judgment about the importance of trust.
- Stock Performance Dwarfs - even Jim Collins’ pick of the best companies in the world even when eBay at its worst ?HOW POSSIBLE – WHO DO NOT EVEN TRUST THE INTERNET… eBay was founded on an overriding principle of trust => business performance => investor confidence P/E ratios are an indication of confidence in a company’s future performance
- eBay attributes all its revenues directly to trust – think about it, eBay has nothing to sell, they only facilitate the sales process. And in doing so, they help trustworthy sellers charge a premium price for their products.
- This trust phenomenon is not limited to eBay and online transactions. Academic research shows that trust is also associated with automaker profitability and competitive advantage.
- Other studies show that businesses benefit in many ways when they build higher levels of trust. TRUST FACILITATES VOLUNTARY ENGAGEMENT. If you engage your customers they will pay a higher price for your products and services, managers who engage employees increase profitability, employees who engage each other exert more effort and improve performance, which in turn reduces the cost of labour.
- That was my motherhood and apple pie sermon. Now let’s get more specific about what needs to be trusted.
- Let’s examine the role of trust in Marketing. When we look at marketing from a trust perspective marketing objectives look very simple:
- So how does this translate to a typical sales transaction? If we think of a sales transaction as consisting of several phases, then the objective is to facilitate a smooth customer transition through each phase to successful completion of the sale. At each phase, the customer needs to accept (or trust) a different bundle of value propositions before moving on to the next phase. For example, Longwoods International, an advertising effectiveness research firm, found that for Vail ski resort in Colorado, “excitement” was the most important value proposition for customers in the Discovery Phase, but “affordability” became most important in the closing, Negotiation and Order Phase. So, customers need to trust different things at different stages of their purchase. Trust in privacy protection practices is one of many value propositions that need to be trusted during a purchase in order to minimize hesitation or even shopping cart abandonment.
- So there are very specific value propositions that need to be trusted as the customer advances through a purchase transaction. But how do yo know how confident they are in each value proposition to expedite the process.
- The most common approach is to ask hypothetical survey questions. However, although this may be a sufficient means of measuring general sentiment, it’s lack of context and consequence may make the results invalid for the kind of granular measurement required to optimize conditions for trust during a transaction. Ultimately, the willingness of a customer to make him or herself vulnerable is the ultimate measure of trust. So leaving the front door unlocked of prepaying for a purchase are good indicators of high trust. Since actions speak louder than words, objectively monitoring behaviour would produce more accurate results. For example, if people are purchasing extended warranties, that may be an indication that they are compensating for insufficient trust. Or if they choose not to verify available customer feedback postings, that may be a sign that they have sufficient trust. However not all observed behaviour can always be attributed to trust. For example, a powerful indicator of trusting behaviour is the enthusiasm with which a customer recommends a product or service. However, many factors beyond trust may influence this behaviour. Someone may recommend a product or service simply because it is convenient or has a low price. Or they may withhold a recommendation because their preference for it is too personal and may not be as good a fit for the other person. So, in order to help us attribute observed behaviour more directly to trust levels, we need a predictive framework that helps us analyze the conditions for trust and as we alter conditions for trust to attribute behaviours more directly to trust levels.
- Allow me to introduce you to the Trust Enablement Framework. It allows us to categorize business conditions according to how they contribute to attaining specific trust objectives…
- Each category of the framework serves a specific engagement purpose.
- For example, we can use the Trust Enablement Framework to analyze the conditions for trust at eBay. Without even reading the contents, we can tell that all elements of the framework are addressed, and relatively evenly distributed. You will notice, for example that published privacy policies and the TRUSTe seal contribute to creating “Awareness” in privacy protection practices and are a “fast trust” mechanism. The Feedback forum is an experiential source of trust for “high trust” and contributes to attaining customer “Acceptance”
- Now that we know how to analyze conditions for trust and perform gap analyses, what can we learn about optimizing conditions for trust?
- In this case we analyzed several supply chains, including P&G with Wallmart, Toyota with its suppliers and Linux developers – with increasing supply chain configuration maturity levels – to find that the more evolved ones - characterized by higher agility and value generation – also had richer conditions for trust.
- Similarly, when we looked at corporate governance best practices associated with higher valuations, we found that 7/8 of those that were associated with higher valuations (or share prices) contributed to developing shareholder trust.
- So the unsolved puzzle is: If trust is good for business and it is both measurable and manageable, then why is Trust Enablement not a widespread management practice?
- Well maybe part of the answer is: Risk management is business gospel … but only partially achieves business goals Risk management speaks to restricting and containing behaviour and protecting one’s self It does little to define, enhance and strengthen the broader business environment Trust – on the other hand - is the air that stakeholders must breathe to sustain the life of business It is fundamental to the need for sharing risks, rewards and mutual gain It can and should be the logical complement to risk management
- For a historical perspective, risk management as a business practice started with an effort to measure the cost or risk beyond the price of an insurance policy. It has since evolved to define all management as being risk management. We are now just beginning to measure the factors that affect trust and their value for business. Ultimately, I expect we will be able to define “all leadership” as being “trust leadership”