Dealing with the Honest Majority and the Dishonest Minority: Tales from the auto industry

This is a guest-post by Matti Kurvinen, a former Accenture partner, now an independent consultant focusing on service strategy and operations and warranty management. We welcome him to Trust Matters.

This blog has recently addressed what to do when someone abuses your trust. Of course, most of our business partners are fully honest and trustworthy. Still, if you don’t know which one is which – how can you trust your partners?

The issue is not hard to frame for individuals. But what about at scale? How can you establish systemic trust-based business relationships, when you can’t directly assess the trustworthiness of every relationship at all times?

The Case of Automotive Warranty Service

A case in point is manufacturers who outsource their warranty service to external service agents – for example, automotive dealers. An automotive OEM rightfully sees dealer productivity as a key route to effective end-customer service, and dealer satisfaction as a route to end-customer satisfaction. As the OEMs put it, “It is our role to support our dealers in serving our customers and not burden them with unnecessary controls.” (The same applies to white goods, IT, mobile devices and consumer electronics in relation with their authorized service vendors).

The problem is, an OEM with thousands of service agents globally will quite likely have tens – maybe even hundreds – who will take advantage of any holes the OEM has in its warranty control.

Hence the dilemma: how to enforce trust, positive incentives, support and frictionless procedures with the honest majority of your business partners, while at the same time having adequate control and discipline to deal with the few dishonest exceptions?

The Ugly Truth about Warranty Fraud

Warranty cost is a significant factor for manufacturing companies, typically ranging from 1 to 4 % of company sales, and 5 to 25 % of company profits (sometimes enough to make the difference between profit and loss).

Most companies see warranty costs as driven mainly by product quality, and secondarily by service network efficiency. However, there is another factor to be considered  – warranty fraud. This kind of fraud ranges from opportunistic small-scale overbilling to industrial-scale fraud perpetrated by organized crime. Estimates suggest that from 3 to 15% of warranty billing is fraudulent, making it a billion-dollar issue in the USA alone.

The warranty chain is no different from any other field of life or business. For some small fraction of people and companies, the opportunity for financial gain, weighed against the likelihood and consequences of getting caught, is a calculus that leads them to take advantage of loopholes in warranty control.

Some companies take this very seriously; others are not even aware of it. Still others believe it may be an issue, but “not for us.”  Stanford professor and trust scholar Roderick Kramer states in his HBR Article Rethinking Trust: “… people underestimate the likelihood that bad things will happen to them, and detecting the cheaters among us is not as easy as one might think.”

I have witnessed this several times, with comments like, ”Yes, the numbers from this dealer look really peculiar – but I can’t just go and accuse them of being dishonest, now, can I?”

Most participants in the warranty chain are honest – but not all

The good news is that most participants in the warranty service chain are normal, honest people and companies. But this makes fraud control tricky; how to have control and discipline for the dishonest minority, while enhancing trust, positive incentives, support and frictionless procedures with the honest majority?

The same issue, of course, can be found in many other areas: think on-line commerce, credit cards, mobile payments. The challenge is to make processes fast and easy for the honest people, yet still have adequate controls and fraud prevention processes.

Both false positives and negatives are undesirable. It’s inconvenient to have your credit card refused because of a false alarm. But it’s at least as troublesome to see payments go through with stolen credit cards or identities.

Enforcing trust while managing the dishonest minority

In my experience, there is no single silver-bullet solution. However, by applying the following five principles to your business, you’ll improve the odds considerably.

  1. Trust your partners by default. The business relationship between the OEM and the service agent must be based on mutual trust. The OEM assumes that the service agent doesn’t do warranty fraud, and the OEM accepts that the service agent is entitled to earn a share of the profits for serving the end-customer. The alternative – a default assumption that the service agents are dishonest – is corrosive of all trust. Even good service agents can turn bad if you consistently suspect them of being so.
  2. Set a culture and expectation of high integrity and honest work. This should be enforced and communicated upfront – along with clear consequences of breaking the rules.

Some of our clients have been puzzled when catching fraudulent vendors – “What do we do now?” One leading automotive OEM sends a very clear message to their dealers: “We trust you, but if you violate that trust, you are out!”

This is consistent with Kramer’s advice of sending strong signals on willingness to trust others, coupled with strong promises to strike back if that trust is abused. This not only attracts other desirable trusters, but also deters potential predators, who can sniff out easy victims who send out weak and inconsistent cues.

  1. Keep core operations simple and effective. In daily operations and service vendor management activities there should be no excessive control points; the focus should be on smooth operations and minimal administrative burden for the service agent. You trust the service agent enough to let them be the interface with your end-customer – let that trust also be visible in the back-office, and help them to serve customers with maximal productivity.
  2. Use analytics and audits to support warranty control and rule-based claim validation. Use extensive analytics to detect service agents with suspicious or fraudulent behavior. But analytics alone are not enough; they should be augmented by regular operational reviews and more detailed audits – executed randomly, or as a follow-up based on the analytics findings.

It’s important to keep the human touch and judgment alongside the analytics. Beware of taking drastic actions before you are sure of the findings, and don’t settle for anomalies or suspicious cases where you don’t understand the underlying reasons. 

  1. When necessary, take determined action. Occasional sloppiness and over-charging is best dealt with directly with the service agent, with a clear expectation of corrective actions. In the case if direct fraud or several suspicious elements, take determined action according to the upfront stated policies, such as:
    • Enforcing tighter process controls. You might require additional process control points from service agents with suspicious cases or too many cases in the gray area. Be very clear about this.
    • Claiming back the over-charges. Typically, it is easier to prevent over-charges than claim them back. The circumstances and time-frames for that should be stated in the service contract.
    • Do you still feel you can trust your business partner in the future? What are your other options for warranty (and non-warranty) service? Consider having a case for contract termination or even going to court.
    • Companies are often reluctant to let others know they’ve been a victim of fraud. However, communicating the issue and the consequences enforces the message that your control processes work and you don’t tolerate wrongful behavior.

In many cases we hear clients say, “We don’t have warranty fraud, we know our service agents and we trust them,” or “We are the market leaders, our dealers don’t have the guts to cheat us.” Still, we have seen the whole spectrum from occasional sloppy procedures and over-charging to systemic criminal activities and truly large-scale fraud.

Those who dismiss this as a non-issue typically have a very expensive issue about which they are just wishfully ignorant. Those who have a clear approach without overly burdening their service agents can save a lot of money and simultaneously have a more satisfied and effective service network.

 

Competing With Colleagues

Co-opetition. Have you heard the term tossed around? It’s one that I learned earlier on in my career and has always stayed with me. A catchy phrase, to be sure; but how do you do it?

When I wrote The Trusted Advisor with David Maister and Rob Galford, it became reasonably successful within several months. (Amazingly,16 years later, it still ranks #5 in Consulting under Small Business and Entrepreneurship.)

With its success came a happy problem: how to parcel out the leads between the three of us? Let me be clear, the book wasn’t drowning us in leads; any one of the three of us could have happily fielded all inquiries. And while we wanted to be fair to each other, we were also all of us very clearly in competition with each other.

So the question: how do you compete with colleagues?

Competing with Colleagues

What if one of us got a lead based on the book? Did we have any obligation to pass it along to the other two? If so, how?  Should we establish a quota system, whereby each of us would get every third lead?

Should we let the market dictate things, and let whomever the client had reached out to handle the response? What if the client had written to all three of us?  Should we all respond confidentially, or in some sense share our responses?

The problem was not unique to us, though it seemed so at the time.  You may face a similar problem within your organization – who gets the lead? Who gets to present?

Or, you may come face to face with an  old friend who has changed uniforms and now works for a competitor. In any case, the tension is much the same – the sensation of being a colleague feels intensely in conflict with the sensation of being a competitor.

How do you resolve it?

The Solution

The answer to the problem came to us fairly quickly, on reflection, and I documented it as part of the Four Trust Principles in my later books. The answer lies in true focus on client needs.

In our case: we agreed that we should all respond similarly to all client inquiries, regardless of to whom they were addressed. In all cases, we would say words to the effect of:

The Trusted Advisor was written by the three of us. I suspect that each of us could do an excellent job in response to your query, and each of us would handle the work slightly differently. You would be best served by having discussions with each of us, and making up your mind on that basis.

We will each be candid with respect to our own strengths and weaknesses, and answer questions to the best of our ability about the others. Each of us will respect your decision, and we are each committed to you making the best decision possible for you.

The best decision for you is what all three of us seek, and each of us will do our best to help you reach it, regardless of your choice.

This solution made everything easier. It kept our relationship collegial. It removed any awkwardness about responding to clients. It removed any awkwardness that clients might experience in choosing whom to talk to.

And, of course, it resulted in the best decision for clients, as each of us have our own particular skills and drawbacks.

So what’s the answer?  Grindingly relentless focus on client service, and the willingness to pursue that logic wherever it leads.

When Others Abuse Your Trust

What happens when someone violates your trust? What should you do? What can you do? What works?

Has your trust ever been violated? Did someone, once upon a time, abuse your trust? Have you ever placed your trust in someone or something, only to discover – painfully – that your trust had been misplaced?

Yes, almost certainly, you’ve had experiences like that. And they are unsettling – to say the least. The bottom drops out of something. You feel betrayed. Having been fooled, you feel foolish. You’re left with a pain, a void, a bitterness – and a resolve to do something differently going forward.

But what?

It turns out there are two strategies for dealing with broken trust. And one of them is far worse than the other.

Broken Trust: the Dynamics

Let’s remember what’s going on when trust is broken.

Trust is an asynchronous bilateral relationship. That’s a fancy way of saying that trust consists of a trustor and a trustee. What defines the trustor is the willingness to be vulnerable by taking a risk. What defines the trustee is the response to that vulnerability and that risk.

If the trustee chooses to take advantage of the trustor’s vulnerability by seizing on the risk and turning it to his advantage, then trust is broken, or stalled. If the trustee not only does not take advantage, but also then responds in a similarly vulnerable way (i.e. adopting the role of trustor), then the trust relationship is established, or advanced.

Trust relationships are built by continuous iterations of this risk-taken, risk-respected reciprocal behavior. And trust is broken, or stalled, when one party fails to reciprocate.

Setting up the dynamics of broken trust this way is important, because it allows us to see two ways that trust fails.

  • One is that the trustee abuses the vulnerability of the trustor.
  • The other is that the trustor stops taking risks.

Those Untrustworthy %$#!’s

What do we call those who abuse our trust? Vile, conniving, two-timing hustlers. Lying, two-faced, deceiving charlatans. Con artists, heartbreakers, depraved and immoral cowards. Essentially, we characterize them as lacking in character or virtue.

The implicit problem statement becomes, “How to protect myself from The Untrustworthy?” And the implicit answer is a two-parter:

1. Identify the untrustworthy in advance; and to the extent that is infeasible,

2. Take fewer risks in general.

It’s one thing say, “Never trust Joe again to make the restaurant reservations.” But as humans, we generalize.

  • “If you want something done right, do it yourself.” Ergo, don’t trust anyone to make reservations.  Or,
  • “Once burned, shame on you; twice burned, shame on me.” Ergo, don’t trust Joe to do anything.

If you’re a human being, that gets translated into things like, “Don’t trust emails from Nigeria offering inheritances,” or “Beware of strangers who give you candy,” or “Cross the street if you see black teens in hoodies approaching.”

If you’re a company, that translates into things like, “Show me your ID,” or “Sign this non-compete agreement before we hire you,” or “Click here to acknowledge you’ve read the Terms of Service agreement.”

What has happened here?

  • We’ve gone from identifying untrustworthy agents to a wholesale reduction in risk-taking.
  • To prevent bad things from happening, we’ve cut down on the possibility of good things happening.
  • While blaming others for being bad trustees, we cut back on our role as trustors.
  • In the name of increasing the probability of trust (by screening the untrustworthy), we guarantee the reduction of trust (by refusing to play the trustor role).

In fact, this all-too-human response is all-too-common. Ebola? Close the Mexican border. Significant other cheated on you? “I don’t know if I can ever trust again.” Somebody sued you? Demand an indemnification clause in all future supplier contracts.

At a national level, this is why the TSA is what it is: far better we distrust everyone than try to identify the untrustworthy. At a personal level, this is why Twitter and country music are full of ‘done me wrong’ themes – and why they are so popular.

Three-Step Strategy for Dealing with The Untrustworthy

Yes, Virginia, there really is evil in the world, and just because you’re paranoid doesn’t mean they’re not out to get you. But it’s also true that we systematically over-estimate the level of danger, and over-react by taking fewer risks.  So here’s the three part solution.

1. Soberly Assess the Risk. So she broke up with you. Get. Over. It. So your pride was hurt; how much is that in dollars and cents? So a customer burned you; what will it cost to bring in the SWAT team to deal with a mosquito?

Pain is inevitable – suffering is optional. Tough cases make bad law. The perfect is the enemy of the good. If it didn’t break your bones, or break your bank account – then really, how much harm was done? And we almost always over-estimate the damage.

It takes thoughtful maturity to not over-react. But trust is a thoughtful, mature relationship; if that were not so, every Neanderthal would be doing it.

2. Name It and Claim It, Then Trust Again. Don’t boil in the juices of your own resentment – explain to the other party what it felt like, and offer them another shot. Remember, the fastest way to make someone trustworthy is to trust them.

The highest customer satisfaction ratings come from customer dissatisfaction turned around. The winning strategies in game theory consist of giving people two chances, not one.

Trustworthiness is not solely a static quality, a matter of virtue alone. It is also situational, the result of interactions with a trustor. If you withdraw from the trustor side of the game, you guarantee lower levels of trustworthiness on the other side of the relationship.  (This alone explains much of the dysfunction in the financial services sector).

3. Be Proportional in Your Response. Of course there are bad apples, Bernie Madoffs, and chronic hustlers. But don’t stop dating because of one bad date. Don’t enact protectionist tariff policies to halt one abuse. Don’t put all your employees through lie detector tests because one stole from you.

The tendency to overreact is natural; but the ability to fine-tune our initial instincts is what makes us human. It doesn’t take much in the way of brains or moral courage to shut the barn door after the animals have escaped; it takes both to intelligently assess the situation, and to think it through.

————–

It’s tempting to view this as just a personal issue, but it’s one of the major trust issues facing corporations. In most Fortune 100 companies, the implicit belief is that the only good risk is a dead risk.  When you hear “risk,” you immediately hear “risk mitigation” and “risk management.” Risk departments are given enormous veto power, and virtually no one challenges corporate lawyers when they pronounce why the company can’t do this or that.

This inability to see risk-taking as the critical, essential role in trust creation is a major reason we don’t trust companies. It belongs right up there with the selfish, zero-sum, Hobbesian, shareholder-value-driven model of the company. If you hear a manager (I’m talking to you, condo association board members) say, “If we did it for you, we’d have to do it for everyone,” you’re talking to someone who not only doesn’t understand trust, they don’t understand management.

If a company doesn’t trust you and me, then we all have very good reason to say, in return – why the hell should we trust you?

The Traveling Salesman? Or the Prisoner’s Dilemma?

The Prisoner’s Dilemma is a classic conundrum in game theory. It purports to explain why two people might not cooperate, even if it is in both their best interests to do so.

It turns out that the solution to The Prisoner’s Dilemma is also the solution to a great many sales problems—those in which your customer doesn’t trust you. Are you living in the Dilemma? Or are you living in the solution?

The Dilemma of the Prisoner

Here is a classic version of The Prisoner’s Dilemma:

Two suspects are arrested by the police. The police have insufficient evidence for a conviction and, having separated the prisoners, visit each of them to offer the same deal:

  • If one testifies for the prosecution against the other (defects) and the other remains silent (cooperates), the defector goes free and the silent accomplice receives the full 10-year sentence.
  • If both remain silent, both prisoners are sentenced to only six months in jail for a minor charge.
  • If each betrays the other, each receives a five-year sentence.

Each prisoner must choose to betray the other or to remain silent. Each one is assured that the other would not know about the betrayal before the end of the investigation. How should the prisoners act?

What’s a poor prisoner to do?

If you analyze the situation rationally (the way a game theorist or economist defines that term), your odds are a lot worse if you remain silent – either you get 10 years or six months. But if you rat on your partner, you either get out free or, at worst, five years.

So, reasons the economist, Option A’s average “value” is five years and three months in prison. Option B’s average is two and a half years. “Ah ha,” says the economist’s rational player, “I’ll go for Option B.”

Of course, the other player does the same math and comes to the same conclusion. As a result, each gets five years in prison—a total of 10 prison-years between them.

The dilemma is that – if only the prisoners had cooperated with each other, they could have each gotten out with just six months in prison – a total of one prison-year between them.

The question is: why don’t they cooperate?

At least, that’s the economists’ question. In the real world, cooperation is quite common.

So the real question is: why do so many people listen to economists?

The Dilemma of the Salesperson

Before answering the Prisoner’s Dilemma, let’s note the similarity with The Salesperson’s Dilemma.

The salesperson has a similar series of trade-offs. For example:

  • “I could take some extra time to study up on tomorrow’s sales call, getting to know more about the prospect. That would improve the odds of my getting a sale tomorrow.”
  • “On the other hand, I could make another cold call with the time saved if I don’t spend it studying up for tomorrow’s call.”

Or, another example:

  • “I could tell them we have very little experience in this area, which would increase their sense of my honesty, which would help me in the long run.”
  • “On the other hand, experience might be the key in getting this job, so perhaps I should make the best case I can and fudge the rest.”

Still another:

  • “I could share a lot of my knowledge with them, which would really impress them and make them grateful to me.”
  • “On the other hand, if I give it all away in the sales call, they might just steal my knowledge and not pay me for it – perhaps I should wait until after we have a signed contract.”

And one more:

  • “I could go out on a limb and make some really far-sighted observations that would help them—it would go way beyond what they asked for.”
  • “On the other hand, we don’t have much trust built up yet. They might see that as presumptuous or unprofessional; I’ll just answer the questions they asked.”

Just as with The Prisoner’s Dilemma, if the salespersons continually choose Option B, they will sub-optimize. They will do cold calls, leading with no relationship, taking no risks, treating the customer like a competitive enemy, and offering no great help.

In other words, they’ll lose. Just like the prisoners.

In theory, the prisoners are identical, whereas the salesperson and the customer are distinct. But that’s theory. In the real world, sellers somehow tend to find buyers who are similar to them. Sellers who are fear-driven and guarded somehow often find buyers who justify their worst fears. (Or, what amounts to the same, sellers project fear, and buyers reciprocally return the same – as humans are wont to do).

Both seller and buyer often operate from the Prisoner’s script. And the result is just as sub-optimal.

The Prisoner’s Solution

As postulated by economists and game theorists, The Prisoner’s Dilemma is usually presented with two key assumptions:

  1. The game is played only once
  2. The players do not know each other

The solution lies in changing each of those assumptions. If you tell the players the game will be played 10 times, cooperative patterns begin to emerge. If it’s played 100 times, cooperative strategies take over.

If the players are given information about each other, they become less abstract to each other. If the information is personal, then the relationship changes tone as well.

These two dimensions – time and relationship – are critical. Without a sense of continuity over time, and without a sense of personal relationship, those playing the game will opt to “rat out” each other – even knowing that the result, system-wide, is negative for them on average. But given time and relationships—the optimal solution emerges. Everyone is better off.

In other words, the solution to behaving stupidly is to develop personal relationships over time. Now let’s see how that insight applies to selling.

The Sales Solution

The sales solution should look pretty obvious now. Suboptimal behavior is the result of short timeframes and shallow relationships. In a Prisoner’s Dilemma world, both buyer and seller fear each other, suspect the worst, don’t have relationships beyond the transaction, and are interested primarily in their own self-aggrandizement, without regard to cost to the other party.

If that sounds familiar, just look at what sales topics are hot these days: sales automation, lead screening, CRM, social media lead generation, predictive analytics, search-based prospecting, multi-channel messaging. Think about the last step in nearly every sales process model you’ve seen—closing.

What all these subjects have in common is a view of selling that is a) transactional and b) impersonal. In other words, they have short timeframes and weak relationships—two things sure to hurt sales.

Selling benefits from longer timeframes and better personal relationships. If you can stop thinking like an economist and work to eliminate the fear you and your buyers have, you’ll benefit from the long-lasting trustworthy relationships that develop as a result.

Are You Selling to Vulcans?

Nowhere am I so desperately needed as among a shipload of illogical humans.

Mr. Spock in ‘I, Mudd’

The iconic Mr. Spock from Star Trek was half-Vulcan, half-human. It’s the former we first notice in Spock – Vulcans are governed entirely by logic and rationality, unencumbered by emotions.

But it’s his human heritage that takes Spock from caricature to character. Spock mirrors our own schizophrenic, rational / emotional natures. He is the sock puppet for humanity, allowing us to look at ourselves afresh.

That much is evident to the casual sci-fi viewer, or any fan of The Big Bang Theory. But you wouldn’t know that from looking at economists, strategy consultants – or much of the B2B sales literature. They suggest that people – particularly smart business people – are mostly rational decision makers, persuaded by well-established rules of scientific evidence, logic, and the inexorable rules of mathematics.

In other words – they treat buyers like Vulcans. Only trouble is, at most, they’re like Spock – half-human. And truth be told, most B2B buyers are even less Vulcan and more human than Spock.

My Brain’s Bigger than Yours

I’ve now spent four decades working with B2B sales organizations.  Lately, I’m reminded even more of how much businesspeople have bought – hook, line and sinker – the idea that customers buy through rational decision-making. The economists’ models are live and well in sales training programs.

Feeding the ratiocinating Vulcan side of buyers is necessary. But it is almost never sufficient. The true role of the intellect in B2B buying is as follows: Buyers scan options rationally, but they make their final selection with their emotions – then rationalize that decision with their brains. In other words, buying is a sandwich – rationality is the bread, but the meaty filling is a rich, emotive set of feelings, finely honed over eons of civilization.

The cognitive role in buying is vastly over-stated. Brains don’t rule. Spock is not 100% Vulcan. Neither is your customer. Not even by half.

Your Customer is Not a Vulcan

Question: What do the following things have in common? Value propositions; challenger selling; strategic fit; problem definition; pricing; negotiation; objection-handling.

Answer: In B2B sales, they usually center around analytical economic value, assuming that the rational resolution of each issue is the key to helping a buyer achieve a decision. Look for these buzz-phrases; clients buy results, show the bottom line, demonstrate value, value proposition, business case, and so forth.

Nothing wrong with that list – it’s all necessary. But it’s not sufficient. What’s missing are the things that actually trigger a buyer’s decision – not just justify it. Those include, for starters:

  • confidence that the seller can deliver what (s)he promises, and
  • the resulting ability to sleep through the night
  • integrity
  • belief that the seller will adjust their commitment to accommodate changing circumstances
  • character
  • commitment to principle
  • a long-term relationship focus
  • a sense that the seller has the buyer’s interest at heart
  • the seller’s ability and willingness to defer gratification
  • vulnerability of the seller
  • a set of values beyond the purely economic
  • a sense that the seller is a safe haven for conversation.

In short – trust in the seller.

Your customer is not a Vulcan. Your customer is barely even Spock.

The Cognitive/Emotive Disconnect

I spend my time with smart, complex-business, B2B professionals. Every single one of them will acknowledge the importance of the above list. Yet every one of them lives in an organization where 90% of attention is focused on the buyer’s Vulcan side, doing slide decks, spreadsheets, valuations and scenario0

Buyers often (rationally) screen sellers. But they quickly form favorites, unconsciously, and usually before the sellers have even had a chance to address the issue. All the Vulcan-targeted approaches are aimed either at forming a buyer’s opinion (too late, already done), or changing a buyer’s preformed opinion (already set in concrete).  It rarely works.

Proof? Ask yourself how many times your customers failed to see the brilliant case you had made, because they were somehow biased against you. You tried to sell to the Vulcan in your Spock-customer; but that human side kept rearing its ugly head.

How Complex B2B Buying Really Works

Very few buyers will tell their boss, “Gee, I guess I bought from those guys because, you know, I really trust them.” That’s career suicide. Buyers need the air-cover (and, to be fair, the reality check) of a rationality-based argument. It’s our job as sellers to deliver that rationale to them, bullet-proof and logic-tight as it can be.

Because in business, we all need to pretend we’re Vulcans.

But deep down, we all know what’s really going on. People buy with the heart, and rationalize with the mind. Brains are a necessary but not a sufficient condition. Being right, by itself, is a vastly over-rated proposition. Being right too soon just pisses people off. All else equal, a trust-based sell will always beat a rationality-based sell.

The truth is, our emotional instincts are extremely powerful (not to mention frequently accurate). We make our decisions first based on those emotions, and then struggle to justify them according to the rules of the game.  Unlike Spock, we lead with the human, and bring in our Vulcan sides as a check.

Many, many of my clients say: “That may be true for lots of people, but not for my [boss] [client] [customer]. They’re completely Vulcan, data-based, just-give-me-the-facts people. You’ve got to treat them like Vulcans, because they demand it.”  But the fact that they demand to be treated like Vulcans is 95% about ego – and that’s their human side.

Ironically, all this is especially true for those who believe the world works on brains. They are prone to buy even more emotionally, because their self-worth is tied up in thinking that emotions don’t matter – which renders them oblivious to their own human decision-making process.

Even if your customer thinks they’re a Vulcan – treat them at least like Spock. Address the human side – then give them Vulcan-food to justify their feelings.

It is curious how often you humans manage to obtain that which you do not want.

– Mr. Spock in ‘Errand of Mercy’

Trust, Honesty and Authenticity

A few years ago, Deborah Nixon posted an interesting question on LinkedIn. She asked: “Is there a difference between authenticity and honesty?”

She got about 35 answers. Here’s what I sent in:

Deborah, I’m sure you would agree the two terms cover a lot of territory in common. The trick with these definitional things is not to discover some underlying reality, because there is none; these are conceptual models that help us explain the world. They are good or bad insofar as they help us; so I’d suggest starting there. What’s the most useful way to distinguish the two?

One way might be to say that authenticity is largely passive, and honesty is largely active. When we say someone’s honest, we usually mean they tell the truth, and go out of their way to do it.

Sometimes we also mean that they don’t tell a lie – but that’s far from all the time. You often hear someone way ‘well, he was honest – he didn’t actually tell a lie.’ In such a case, ‘honesty’ just means I didn’t utter an untruth; it’s perfectly consistent with covering up all other kinds of truth. So the casual use of ‘honest’ may rule out sins of commission, but not sins of omission.

That’s why the legal language “the truth, the whole truth, and nothing but the truth” is required in court; to prevent the ‘honest’ witness from conveniently leaving something out, or snow-jobbing the court with irrelevancies.

Authenticity, on the other hand, I think usually implies a lack of attempt to control another’s perception. It means letting others see us as we are, warts and all. I think it also goes one more step: it means letting everyone see us in a way that’s no different from how anyone else see us: that is, we don’t play favorites in terms of constructing alternative fictions to respective people.

At a corporate level, a company might support a claim of honesty by pointing to the truthfulness of its statements, or the lack of court cases against it. Again, ‘honesty’ conveys a sense of ‘never knowingly told an untruth.’ Whether it includes consciously allowing other people to make incorrect inferences by not telling them something – well, that’s not entirely clear.

Authenticity is a whole ‘nother level. It means not hiding out, opening the door in things that are not excluded through standard rules of privacy, letting the chips fall where they may. Further, I think it usually entails a commitment to be authentic, not just a convenient lifestyle.

Seems that of the two, we might say that authenticity is broader (i.e. it encompasses being honest, but goes beyond that to proscribe sins of omission).

On a practical level, people who strive to be honest often talk of it as a struggle: to resist temptation, to not gossip, to say things that can be embarrassing if they are true.

People who choose to be authentic have, in a way, an easier time of it.  For someone who is authentic, the daily default way of life doesn’t involve decisions or will power: the default is openness, there is no issue of control vs. transparency.

Things are what they are, and there is no threat about them.

What’s trust got to do with it?  To trust a person or a company, honesty is table stakes.  If you suspect they’re lying, trust is stopped dead in its tracks.  But even if they’re honest, that’s nothing compared to authentic.

An Open Letter to Timothy Ryan, PwC’s US Chairman Re: Oscars and Trust

Mr. Ryan,

Some days as Chairman must be fun. Others, like the Oscars the other night – not so much.

I recognize you, in fact, know a lot about trust.  There are probably particular circumstances that make the Oscar boo-boo a unique event. You may also have taken some steps like those I suggest below.

But this is such a teachable moment for the area of trust recovery that I hope you’ll forgive my suggesting Three Steps that someone in your position should consider – on principle – taking.

 

Step One. Offer to resign the Academy account. Do so unreservedly and genuinely.

  • If they accept your resignation (they probably won’t), it looks better than being fired; and hey, it did happen.
  • If they reject your resignation, you will look gracious. (And why should they let you resign – look at all they just invested in training you!)

Step Two. Tell the Academy precisely what went wrong, and precisely what you’re going to do to ensure nothing of that type, flavor or category will ever happen again.

  • Then fund somebody to start writing a paper on what implications this event has for improving audit industry practices at large.

Step Three. If anyone dares to suggest firing the poor gentleman at the heart of this most unfortunate event, tell them what the Academy will hopefully tell you: “Why would we ever let go someone in whom we just invested so much in training?” He just became one of your most valuable future cautionary story-tellers.

One of the many paradoxes about trust is that trust recovered can often end up stronger than trust unchallenged.

I’m rooting for you.

 

 

 

 

A Better New Year’s Resolution

Ten years have passed since I first wrote the following thoughts on New Years resolutions. Frankly, it was good. And frankly I haven’t been able to write a better one. Next year, maybe.
So, apologies to those who have read it year after year—though I suspect some of you won’t mind.

Happy New Year.
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My unscientific sampling says many people make New Years resolutions, and few follow through. Net result—unhappiness.

It doesn’t have to be that way.

You could, of course, just try harder, stiffen your resolve, etc. But you’ve been there, tried that.

You could also ditch the whole idea and just stop making resolutions. Avoid goal-failure by eliminating goal-setting. Effective, but at the cost of giving up on aspirations.

I heard another idea: replace the New Year’s Resolution List with a New Year’s Gratitude List. Here’s why it makes sense.

First, most resolutions are about self-improvement—this year I resolve to: quit smoking, lose weight, cut the gossip, drink less, exercise more, and so on. All those resolutions are rooted in a dissatisfaction with the current state of affairs—or with oneself.

In other words: resolutions often have a component of dissatisfaction with self. For many, it isn’t just dissatisfaction—it’s self-hatred. And the stronger the loathing of self, the stronger the resolutions—and the more they hurt when they go unfulfilled.  It can be a very vicious circle.

Second, happy people do better. This has some verification in science, and it’s a common point of view in religion and psychology—and in common sense. People who are slightly optimistic do better in life. People who are happy are more attractive to other people. In a very real sense, you empower what you fear—and attract what you put out.

Ergo, replace resolutions with gratitude. The best way to improve oneself is paradoxical—start by begin grateful for what you already have. That turns your aspirations from negative (fixing a bad situation) to positive (making a fine situation even better).

Gratitude forces our attention outwards, to others—a common recommendation of almost all spiritual programs.

Finally, gratitude calms us. We worry less. We don’t obsess. We attract others by our calm, which makes our lives connected and meaningful. And before long, we tend to smoke less, drink less, exercise more, gossip less, and so on. Which of course is what we thought we wanted in the first place.

But the real truth is—it wasn’t the resolutions we wanted in the first place.  It was the peace that comes with gratitude.  We mistook cause for effect.

Go for an attitude of gratitude. The rest are positive side-effects.

The Cost of Freedom, the Savings of Trust

We don’t usually think of trust and freedom as existing in a trade-off relationship. But in an important sense, they do. Thinking about the two factors this way allows us to view trust from an unusual perspective.

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Kathy Sierra has a great post on the degree to which software designers should design in user freedom – there are limits.

On the face of it, freedom is good. More freedom is better. In fact, if it doesn’t threaten us bodily harm, then more freedom is way better. Isn’t it?

Not so. Sierra offers a 2×2 matrix relating payoff to effort. The payoff is good for things like Amazon. But digital home thermostats and new stereo systems give us too much freedom for the payoff. They’re just a pain.

There is a limit beyond which freedom of choice generates shutdown. Barry Schwartz’s The Paradox of Choice explores it well. After a while, complexity overwhelms the desirability of choice.

Sierra and Schwartz happen to illustrate the economic relationship between freedom and trust. In a nutshell, we give up freedom of choice in return for more efficient use of our time. We do it with trust.

Branding is the corporate version of trust. Rather than analyze every brand of bottled water, every version of jeans, or every make and model of HD-TV, we abdicate our freedom to do so in return for the security of a brand name. We trust Sony, or Coke, or Amazon, to make acceptably acceptable selections for us—so are freed to make other decisions.

But trust is about more than branding.

The last two centuries of global economic development have been driven by the search for division of labor. Adam Smith’s pin-makers organized around 19 specialized operations; it was far cheaper to assign individuals to distinct operations than to have each operator do all operations.

The transaction cost of coordination was well below the benefits of specialization.

At a corporate level, transaction costs remained high at the turn of the 20th century; early US auto companies made their own tires rather than incur the cost and risk of buying tires from others.

As transaction costs declined, it became more feasible to contract work out – the history of the auto industry is one of moving from integrated manufacturers to contract assemblers.

In recent years, we’ve seen diverging trends: lower unit transaction costs, and higher volumes of transaction costs. The net effect has been driven more by volume than by unit cost. Transaction costs as a percent of GDP have been going up. By one estimate, they now exceed 50% in the US.

We are reminded constantly of the internet’s effect on lowering unit transaction costs; but we don’t notice that the total of such costs is rising.

Here’s what it means: for further economic efficiency, the ability to reduce transaction costs is going to become more critical than further division of labor.

The more technically and globally integrated we get, the more freedom of choice we get. But at some point, freedom of choice becomes overwhelming.

If I want to make and sell jeans, I probably have dozens (hundreds? thousands?) of ways to contract the work out. Past some point, I don’t want more options—I want someone I can trust to make that decision for me.

In other words, I’ll give up freedom in return for lower transaction costs. The currency of that exchange is trust.

In an economy where half the costs are transaction costs, the currency of trust is massively valuable. Think of the transaction costs between auto producers and their suppliers: lawyers, agreements, contracts, specifications, bonus systems, QC, compliance, etc. Suppose they were 100% obliterated by trust. What kind of marketplace cost reduction would that provide?

Trust is not soft stuff. In a world that is getting massively more connected, greater trust has a very real economic role to play.

Giving up freedom for trust can be, paradoxically, a very freeing thing.

Trusting: the Other Side of Trust

Much has been written about trust.  However, it’s often not clear in the writing whether the subject is trust, trustworthiness – or trusting.  If trust in the government is down, does that mean that the government is less trustworthy? Or does it mean that people are less inclined to trust?

Most of my work has been about trustworthiness (e.g. The Trusted Advisor). Other people write more overtly about trusting – a good example is the HBR article ReThinking Trust, by Stanford Professor Rod Kramer, which focuses on the danger of trusting.

Some people write about the big subject of trust itself – the end result of the interaction between trustor and trustee. A fine example is Francis Fukuyama’s classic Trust: the Social Virtues and the Creation of Prosperity.

Finally, many other sources end up talking about all three; think Covey’s Speed of Trust, or Bob Hurley’s The Decision to Trust.

The Power of Trusting

The sources above are largely academic. In the popular press, by far the most common topics are trustworthiness and the state of trust itself (trust as the result of an interaction between trustor and trustee). Throw a dart into a pile of 100 popular press articles on trust, and you’re likely to find Congress, investment bankers, and the Madoff-du-jour scandal as the subject.

This means most public policy debates focus on trustworthiness.  Most examples are negative; hence trusting is positioned as cautionary, i.e. watch out for car salesmen, lawyers, etc. The moral of the story is tut tut, another untrustworthy group, watch out.

And all this focus on negative examples of trustworthiness is having an effect on people’s inclination to trust. How could it not! And that is a terribly unfortunate thing. Because the scarce trust resource increasingly is not trustworthiness, but the willingness to trust.  We need to start focusing on the trustor, not just on the trustee.

The power of trusting is enormous. When it comes to trust, there is an answer to the chicken and egg dilemma of which comes first, the trustor or the trustee?  The answer is trustor.  Consider:

  • Until one party decides to take a risk and trust another, trust does not come into existence
  • Trusting has a profound impact on trustworthiness – think “the fastest way to make a man trustworthy is to trust him,” or “people live up or down to the expectations of them”
  • Trusting is inherently an act of optimism; a decline in trusting in the business world drives down innovation, and prevents collaboration and alliances.