Buddhist Capitalism

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Stones in a Zen Garden iStock_000009090365SHere’s what’s wrong with current business education, indeed current business thinking—in a nutshell.

The current issue of the MIT-Sloan Management Review trumpets the main feature: "Sustainability as Competitive Advantage."

You really don’t have to go any further. The clear implication is in the syntax: do this (little) thing, and you’ll get this (big) thing. Do this (responsibility) thing and you’ll get this (profitability) thing.

Turn the hands over this way, you’ll correct your hook. Sell this way, you’ll make more money. Practice sustainability, you’ll beat your competitors.  Use these means, and you’ll get those ends.

This means-end confusion isn’t just in the headline. One article makes it crystal clear in the opening three sentences:

Many companies are taking the first incremental steps toward sustainability, such as energy conservation and recycling. That’s a good start — but going further can yield significant competitive advantage. The growing movement toward sustainability in business offers companies a powerful lever for creating competitive advantage.

Get the picture?  The ultimate reason to do this ‘good’ stuff is because it’s profitable at the individual company level.   Interesting: it suggests high profitability is the measure of social responsiblity.

MIT Sloan is hardly alone. I’ve taken flak lately for supposedly singling out Harvard. Neither school is unique.

Capitalism-as-competition always implies an end goal–typically shareholder value, or sustainable competitive advantage.  Led by a variety of influences ranging from Milton Friedman to Ayn Rand, the idea of capitalism-as-competition has been transmuted and transmitted by business gurus like Michael Porter, government gurus like Alan Greenspan, and business superstars like Jack Welch.

Note: it hasn’t worked too well. Business has gotten so co-opted by the competitive paradigm that we’ve lost all sense of even the possibility of another view. 

Yet there is another view, and a very obvious one at that. It’s right under our noses. Let’s call it Buddhist Capitalism.

Buddhist Capitalism

I don’t mean this too literally. I am no expert in Buddhist teachings, and not all Buddhist precepts track easily to business.

But one difference between capitalism-as-we’ve-come-to-know it and Buddhism is instructive. One is about vanquishing one’s foes; one is about getting along harmoniously in the world. And we all know which is which.

Business-as-competition is all about linearity: if you do this, you’ll get that. And the more you tighten those links, the more you control them.

Buddhism, on the other hand, embraces paradox. If you let go your attachment to X, you’re more likely to get it. But only if you give it up. The outcome cannot be sought successfully, it can only be received if you stop seeking it.

It isn’t all that alien a concept.  The best salespeople know that success comes to those who give selflessly to their customers. From Dale Carnegie to Zig Ziglar, people have known that you succeed best by getting others what they want.

What I mean by Buddhist Capitalism comes down to doing two things: help others, and stop focusing on  your own immediate ends.

Capitalism-as-competition negates the oncept of ethics, since it subordinates even ‘ethical’ ideas like sustainability to the overarching goal of profits and competitive advantage.  A business school can’t feasibly teach ethics when, down the hall, the strategy course teaches that your ultimate goal is to win battles against your supply chain, customers, unions and employees.  Who’s left to behave ethically towards?

Is Buddhism Profitable? It’s the Wrong Question to Ask

Business (some of it) is more and more focusing on things like ethics, social responsibility, and sustainability. And that is a good thing. But it’s doomed as long as we can’t get past the question: “Can I gain sustainable competitive advantage by doing it?”

Believing that the purpose of business is to make profits is like believing the purpose of living is to eat. The purpose of sustainability is sustainability—not the competitive advantage of those who practice it. As long as we limit our definitions of ‘good,’ ‘social benefit,’ and ‘business ethics’ to definitions couched in competitive advantage, we subordinate them.

We need to make profit a byproduct, not a goal. While it is true, very true, that ethical and customer-focused business focusing on the long-term really are more profitable, that is Not. The. Point.

The point is to make business a full partner in society, not a mad dog following an ‘invisible hand’ that responds only to heavily enforced legal mandates. If business wants a seat at the social family table, it needs to act like it’s a member of the family—not an outsider following its own rules.

In an increasingly interconnected world, it’s Buddhist Capitalism, not Competitive Capitalism, that we need more of.  The fact that it’s also more profitable is a lovely byproduct.  But not a goal.
 

An Easy Way to Increase Your Trust Quotient

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ChainiStock_000002955050Small.jpgI was on the plane yesterday from New York to Seattle.  It’s a breakfast flight.  The menu has three options: French toast, omelette, or cereal with banana.

The woman next to me—healthy, casually but not inexpensively dressed, a bag full of intellectual reading material—I peg as a clear cereal-banana candidate. She does not disappoint.

When they bring her plate, it’s sugar-covered cereal—with two sample-sized boxes of raisins. No banana. Her disappointment is palpable, though not enough to make her rude.

“What happened to the banana?” she plaintively asked. The flight attendant shrugged her shoulders with that tilted-head fake smile, and said, “Sorry, that’s all they send, so that’s all we can give.”

I told her I felt her pain. “It’s not the banana per se,” she mused. “Though I do think they’re far better than raisins on cereal.  It’s just that they promised—it said so right on the menu, that I’d get a banana. And I didn’t.  If they’d said raisins, I’d still have chosen the cereal. But they promised bananas. And then didn’t deliver.”

The Trust Equation

Trust doesn’t just happen. It is the result of one party trusting, and the other being trustworthy. You can get better at trusting, and you can get better at being trustworthy. The second is less risky, and generally easier (though in the end you need to do both to increase trust).

So let’s talk trustworthiness: and let’s talk The Trust Equation.

You can break down trustworthiness into four components: Credibility, Reliability, Intimacy, and Self-orientation. I’ve talked elsewhere about the components—how they work, which is the most powerful, frequent, etc.

For this post, let’s just stick with which is easiest.

The Easiest Ways to Improve Your Trust Quotient

Improving credibility can take a long time; gaining credentials, earning degrees, publishing, getting references, learning presentations and speaking.

Lowering your self-orientation is a life’s work—it’s hugely powerful to be able to focus on others in times of stress, but easy? Not that one.

Intimacy can actually be gained quickly: for example, learning to comment on another’s evident feelings at a moment in time. But most people find that feels risky. So, easy? Well, maybe not.

Arguably the easiest trust equation component to improve is reliability. Say what you’re going to do—and then do it. Just do it.

If you print that you’ll serve bananas—then have them to serve. If you might ever have to say yes we have no bananas, then never say it in the first place. Nobody, but nobody, wants to hear your excuses for no bananas. We just want the bananas. You promised.

Low reliability is a form of lying; lying made worse because it’s a lie of action, not just of words.

The great news is, it’s not all that hard to fix. It doesn’t take years to develop a track record. No shrinks required. And it doesn’t require all that much in the way of emotional risk.

Just say what you’ll do, and do what you say. How hard can that be, eh?

 

Note: You can take your own Trust Quotient, or TQ, by going to the TrustQuotient page.  And, starting Friday, having hit 10,000 takers of the test, we’re adding a new feature.  The core trust quotient part of the assessment test will remain free, but we’re introducing a new Trust Styles option: there are 6 distinct trust styles, each with differing characteristics, strengths and weaknesses.  We’ll charge extra for that option.  Check back with us in a day or two to explore this exciting new option.
 

Do You Trust Anonymous?

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Anonymity iStock_000010799839Small.jpgIt may sound like one of the most obvious platitudes of all: trust increases as you get to know people.

After all, you wouldn’t hire a financial planner without talking to their references, would you? You wouldn’t hire a new employee without finding out their work history, would you?  You wouldn’t let your kid stay overnight with unknown neighbors, would you?  Don’t we always equate trust with transparency, openness, getting to know more about others? 

Well, not necessarily. In fact, sometimes—no. Like all trust-related things: it depends. Trust is a bit like Justice Potter Stewart’s definition of obscenity: you may know it when you see it, but it sure is hard to define.

Anonymous Blogger Meets Anonymous Blogger

Take the case of two anonymous law bloggers meeting in Las Vegas—“Ed” of Blawg Review  and “Kael” of Legally UnBound (Not their real names–I mean, what’d you expect?)  Both are distinguished in their fields.

Read “Kael’s” account of their meeting,  and you discover some serious, powerful ways in which anonymity does not decrease trust—it actually increases it. Anonymity can free you to speak truths. Anonymity forces people to confront you as you ‘really’ are, not as your accumulated biography. (Remember, part of Bernie Madoff’s charm was his resume–decidedly public, entirely non-anonymous).

More interesting is the question it raises about just “who” it is that you’re trusting when you trust someone anonymous. Here’s “Kael”:

What do I mean by persona? You see, all I know of Ed is what Ed allows me to see. While I’ve seen ‘him’ (the opinions and thought of Blawg Review), I have not seen ‘him’ (the man that may have been married and raised children). But the only Ed that I want to see is the Ed that he allows me to see. The same is true, from my end.  Thus, our trust and our relationship is based upon the information that each allows the other to see.

Much too often, I believe that our collective, societal opinion of a ‘trusting relationship’ is FULL DISCLOSURE. I disagree. I think that our curiosities about others and our desires to place judgments upon others is the basis (in part) of the relationships in which we engage. Our trust is therefore contingent upon the amount of disclosure we make to the other entity, instead of simply taking whatever disclosure is given and either finding a basis for commonality, or not.

The terms ‘keeping it real’ and ‘puttin’ my heart out there’ are all too commonly the basis for our understanding of what it means to ‘trust’. We don’t have to ‘keep it real’ to establish trust. We only have to identify the boundaries and the common goals, then allow for the personal disclosures to build the trust. Yes, personal disclosure is the key to trust, not TOTAL disclosure.

Principles Before Personalities

Ed and Kael (I’ll drop the quotes now, we know them well enough at this point) are not cranks. Some of the more successful organizations in the world are the 12-Step programs, originating in Alcoholics Anonymous.

The common view of “anonymous” is that meetings assure anonymity to those who don’t want outsiders to know of their condition. But the 12th Tradition (the organizational correlate of the 12 Steps for individuals) is “Anonymity is the spiritual foundation of all our traditions, ever reminding us to place principles before personality.”

In other words, the (main) purpose of anonymity is not to keep outsiders from knowing members’ names—it is to prevent members from forcing their particular biographies on others, both within and without the organization. You are trusted, in other words, if you remain anonymous, so that others can see that you speak only from your own inner truth, unclouded by your, and their, inevitable prejudices.  That way we minimize the judging that Kael speaks of.

Both Kael and AA speak the same truth: the ‘you’ that matters is not the ‘you’ of your lineage, your family name, your profession, your accent, or your resume. There is another authentic ‘you’ within, and—in a sense—that is the only ‘you’ that can be trusted.

Trust increases as you get to know people. Yes? Or no?

As with all things trust-related, and human-related–it depends.
 

Collaboration as a Strategy, Not a Tactic

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First, some context.

Two weeks ago I wrote an article in Businessweek.com called Wall Street Run Amok: Harvard’s to blame.  In it, I suggested  that business schools including Harvard have over-taught competition, and under-taught collaboration—a concept more appropriate to our connected times.  CNBC saw the article and interviewed me, albeit over-playing the blame-Harvard angle.

Then, last week, Harvard Business School’s Deputy Dean of Academic Affairs Karl Kester logged in to the Businessweek.com article and posted a lengthy rebuttal comment both there and on his own site.  Rather than further this discussion in our separate forums, I’d like to invite Dean Kester to continue the dialogue here, in this blog’s open comments section, along with others interested in the topic. Clearly the issue strikes a chord with many. 

Business Schools Have Taught Competitive Success as the Ultimate Goal

Whether you call it sustainable competitive advantage, maximizing shareholder wealth, or simply ‘winning,’ the dominant worldview in business today is that business is all about competition. Ask an MBA to provide an alternate worldview and you’ll get glazed looks.

It was not always thus. Only since the seventies have business schools made the adjective in “competitive strategy” so ubiquitous as to be redundant. Before that, ‘strategy’ had a decidedly more customer-focused tone to it—for example, read Peter Drucker. (I won’t rehash the argument, it’s in the businessweek.com article).

That belief system has become so entrenched that nearly any other aspect of business has become subordinated to “competitive success.” Think of any subject you like–human resources, values-based management, compensation management, employee engagement, customer satisfaction—and you will find that corporations routinely attempt to justify even the most humanitarian programs in terms of their ability to add to the bottom line. Their bottom line, that is–not that of the network, or supply chain, or their partners.

“Good ethics is good business,” they say, as if ethics demanded a currency-based justification. “Happy people lead to higher profits,” “being socially responsible is associated with higher returns on investment,” and so on.

Why must every social virtue be justified solely in terms of its ability to add to the bottom line? Why do we in business not see this  Kool Aid we have been drinking for the self-obsessing small-think it is?

This is precisely the trap into which I believe Dean Kester falls with his comments, and why this conversation needs more airing.

Collaboration as a Tactic–Yesterday’s View

Dean Kester says, in his response to me:

"Today, more than ever, business is a competitive endeavor. At the same time, management is a more collaborative endeavor. At Harvard Business School we embrace both of these truths in preparing our students to become successful leaders in business and social enterprise."

This approach–that business is about competition and management is about collaboration–is precisely the default idea in business today. It suggests that  the purpose of trust and collaboration is to help Our Team to beat Their Team; that collaboration is but a tactic in service to competitive strategy; and that collaboration should somehow be subordinated to a superordinate goal–the success of the competitor.

This is vintage Business School (not just Harvard), Jack Welch, and Corporate America ideology. 

It is an idea, I want to suggest, whose time has passed. 

Deputy Dean Kester’s above response is a perfect example of the current thinking, and in turn suggests how deeply embedded that way of thinking is. Dean Kester is hardly alone in this viewpoint.  But neither am I alone in noticing that over-dosing on the ideology of competition is starting to cause serious economic harm. Here’s where I see the new view heading.

Collaboration as a Strategy–Today’s View

Yesterday’s world—the competition-centric worldview—explicitly sees customers and suppliers as competitors, along with direct competitors.

In today’s flat, connected world, our first instinctive look at the world should not be based on the threats posed by our customers, but by the enormous opportunities available to us each if we can operate together.  In a connected, transaction-cost laden world, it is simply more economic to trust than to compete.  (See Philip Evans on a convincing presentation of the US vs. the Japanese auto industry and the power of collaboration).

What’s the alternative, you ask? Simple. Stop thinking about ‘winning,’ with its zero-sum implications and paranoid overtones.  Instead, start thinking about succeeding, something that is best achieved in concert with others, like our customers and suppliers.  We need to think more about commerce, less about competition.  The critical nexus is between sellers and buyers, not sellers and their competitors.

Trust.  Collaboration.  Success.  Cooperation.  Boundarylessness beyond the corporate walls.  Our customers are not our enemies, for heaven’s sake–they are our customers!

I am far from the first to make this point: see Is It Time to Retrain B-Schools?  Nor is this my first time: see The Horizontal Imperative from February 2007, and Collaboration is the New Competition from March 2008.

Trust and Collaboration: The New Leaders

We can’t any longer let collaboration be the handmaiden of competitive advantage—in the age of networking /globalization / outsourcing it should be a goal in itself. If collaboration in your company isn’t strategic, you’re not doing it right. It is the new Key Success Factor.

The business schools are fully capable of recovering the intellectual high ground in this area. After all, several faculty at Harvard—Heskett, Schlesinger, Sasser—along with Frederick Reichheld at Bain—are responsible for superb, highly customer-focused, original work on customer loyalty.

But the b-schools are not, as yet, institutionally leading the charge nowadays.  For now, leadership is coming from the newly emerging world of blogs and social networking—for example, from people like Chris Brogan and Julien Smith, authors of Trust Agents.  (Other key thought leaders in this area include Robert Scoble, Philip Evans of BCG, Dov Seidman of LRN, and the young-at-heart Tom Peters).

These new leaders are not just talking about social media and networks–they’re living them and driving them in real businesses.  And they are vastly more collaborative than competitive.

Let’s keep this dialogue going.  Thanks to Dean Kester for stating his case.  Now let’s talk about where we go from here.

On that note, if you’re interested in continuing the conversation about trust and collaboration with Chris Brogan and Julien Smith, as well as myself and David Maister (co-author, with Rob Galford) of The Trusted Advisor, come join all four of us at the Trust Summit to be held in New York this Friday morning (auspiciously, at the Harvard Club) at 7:30AM.

I’d love, in particular, for Dean Kester to join us, and in the interests of furthering the conversation the already nominal ticket charge is waived for him.

Click here for more information about the event and about Brogan, Smith, Maister and myself.

Click here to buy tickets for the Trust Summit event.

And bring your best collaboration skills—it’s not a tactic, it’s the whole point.
 

How to Write a Great Client Newsletter: Object Example

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In this day and age of hype, fluff, one-word book titles and Twitter-induced ADD, it is a delight to see what can still be done by focusing on clients’ interests, serving up good helpings of content, taking the risk of having a clear point of view, and writing intelligently.

Consider this example from Will Silverman, an MD in Studley’s Capital Transactions Group (Studley is in the commercial real estate business).  You don’t have to be a corporate real estate client to sense the value of the information and perspective that Will provides.

I have excerpted only about half of what Will writes; you’ll have to contact him if you want the rest. You can reach him at [email protected]

I have just returned from this year’s ExpoReal conference in Munich. As I’m wont to do, I’ve written a letter detailing what I learned and experienced at the conference. If you’re not familiar with ExpoReal, it is one of the largest real estate conferences in Europe with representatives of 1600 firms from 34 countries in attendance. The dominant categories are German open and closed end funds, as well as German banks. This year I visited with my colleague Tony Smaniotto of Studley’s Chicago office and we met with over 20 investors and lenders whose aggregated US investments and allocations number in the tens of billions. The themes which emerged in those meetings are detailed below.

Tenor of the conference
As has typically been the case at industry conferences in 2009, attendance was down by 15%. There seemed to be substantially less English spoken in the halls and fewer Americans in attendance than in prior years. American attendance suffered from a famous Keynesian conundrum as the average firm seemed to believe that the average firm was not sending Americans, therefore it did not send its own.

Disjointed message
Last year I wrote that in the wake of the financial crisis the European firms were taking a longer view and were less spooked than Americans were last October. This year I would say the tables were turned, American investors now feel more confident that they understand the era they’re entering. For example, in prior years I returned from the conference and reviewed my notes only to realize that I only needed to take notes during one meeting, because every investor and bank had virtually identical criteria and concerns. Not so this year. This year some investors were eager to enter the New York market, others preferred Washington D.C. Some funds wanted to pursue JV/preferred equity structures, others only want absolute ownership. Some banks were reluctant to sell their notes on troubled deals, others suggested that sales are likely. Some funds are flooded with investment capital, others are fighting off redemptions that could take them under. In short, there was no consistent message, and hence, the themes below were discernable amid the noise, but not universally expressed.

The Der Spiegel effect:
Der Speigel is one of the most influential and widely read publications in Germany with weekly circulation of over one million. For a sense of its influence and tone, imagine that Time, Newsweek and US News & World Report were all one magazine, but they were as well written as the Atlantic Monthly. Therefore, when Der Spiegel published an article (both the article and a photo featured in it are attached to this email) about the impact of the financial crisis on the quality of life in New York, it sent shockwaves through upper-middle class Germany (which is the class that generally invests in the large open and closed end funds that have invested billions in the US). The author of the article is about as bullish on New York as Michael Moore is on capitalism. One of main profiles in the article begins “Cathy used to be a banker. Today she is homeless and living in Tomkins Square. She thinks about the heroin and the stench.” You get the idea. Several investors told us that thanks largely to this article, there is significant headline risk for German funds to invest in New York as people fear the return of the Taxi Driver era. This article has even broader significance though.

If you’re among the hundreds who have seen the market update that Woody and I have been presenting, then you may already know where I’m headed. One of the arguments we’ve been making is that a key difference between today’s recession and those of the 1970s and 1990s is that during both of those recessions the economic contraction was compounded by New York’s deteriorating quality of life. A distinction, so far, in this recession is that quality of life and therefore New York’s relative position vis-à-vis other cities, has not slipped the way it did in the 70s and 90s. In the prior recessions companies actually contemplated leaving New York, this time they are merely occupying less space.
This distinction accounts for the “higher bottom” that we’ve experienced thus far in terms of employment and residential pricing. The underpinning of quality of life is safety; crime went down 80% from 1990 to 2008. Such a dramatic decrease has created a peculiar headline risk as a 30% jump in crime would bring New York back to very safe 2003 levels, but would likely be reported as the return of the 1970s. If the rest of the world perceives New York as unsafe, then we’ll have trouble attracting young human capital, keeping jobs here, and attracting investor capital. This Der Spiegel article is the first tangible evidence we’ve seen of this risk. We’re alerting REBNY and the Mayor’s office and we strongly encourage everyone in the industry with press influence to exert it against articles that perpetuate this false and dangerous concern.

New entrant preferences
Thankfully, not everyone was dissuaded….

Fundamentals matter more than capital market
When you strip away everything else in real estate valuation you are basically left with two components, the income and the number by which it’s multiplied…

Lessons from London
London has been a more active sales market than New York in 2009…

The “after you” market
We’ve long described investor preference as the “race for silver” as investors all say they are interested in buying today, but would prefer to watch someone else go first. Therefore the response to Deka’s purchase ….

Still early for many institutions
Several mentioned that they don’t believe their moment will come for some time… They have, astutely in my view, realized that…

Conclusion
Last year it was Americans who seemed disjointed and Europeans who appeared to have a better handle on matters..last October I wrote “Europeans have a tendency…

Will Silverman
Corporate Managing Director
Capital Transactions Group, Studley 

Thanks Will for a great object example.  It’s easy to see why people trust you.
 

A Tale of Two Transactors

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Shakedown Street Grateful Dead (Gilbert Shelton)Scenario 1.  After six years of work, Mike finally established his own retail business on Gotham Street in the Big City. His first week was a heady mix of first sales, getting to know neighbors, and realizing he’d accomplished his dream.

On Monday of Week 2, Mr. X came to visit. “Nice store you’ve got here,” he said to Mike. “Be a shame if something happened to it.”

“Why would anything happen to it?” enquired Mike, part disbelieving and part enraged.

“You just never know,” said Mr. X, slapping his walking stick repeatedly into his palm. “Things can happen. You got no control over ‘em. But we can help.”

“How?” asked Mike, dreading the answer.

“Think of it as insurance. A little extra off the top line, nothing happens to the bottom line. Safest neighborhood around, if you know how to get along.”

“Why me?” asked Mike. “I haven’t got the money, I can’t afford it.”

“Cost of doing business,” shrugged Mr. X. “You raise your prices, you cut your costs—you figure it out.”

“But it’s not fair!” shouted Mike. “Why can’t you cut me a break?”

“Not fair–that’s a good one!  Listen, if I cut you a break, everyone wants one. If it was up to me, I’d do it, I like you. But Mr. Big—he wouldn’t like that.”

“Maybe I could talk to Mr. Big,” said Mike.

“Oh I don’t think that’d be a good idea,”  Mr. X said drily.   “All right, I think we’re done here, Mikey. I’ll come by on Monday for your first payment.”

Scenario 2.  After six years of work, Mitchell finally formed his own subcontracting business, taking the plunge with a big deal from his former employer, BigCo.

As he read through the fine print of the contract, Mitchell noticed several clauses that surprised him. He called BigCo’s in-house counsel, Mr. Z.

“Mr. Z, this is Mitchell. I’m going through this contract, and it says I have to buy millions of dollars of insurance coverage, with BigCo as beneficiary, to cover things like lawsuits filed by anyone anywhere in the world for things like bodily injury, automobile crashes, etc. Look, I’m just an actuary—I’m hardly ever going to set foot there, much less cause all kinds of harm. These things will never happen.”

“Well, the most unlikely things have a funny way of happening, Mitch,” said Mr. Z.  "It’s a big world, you can’t be too careful.  We’re just managing risk.  Think of it as insurance.  Which of course it is.  It’s really for your benefit, you wouldn’t want to be liable for these catastrophes, now would you?”

“But why me,” asked Mitchell. “I can’t afford this kind of extra insurance. And you want me to buy insurance on people I sub to as well? Does this ever end?”

“Oh don’t worry about that, Mitch—you just pass it on to your subs in your agreement. That’s what we did, when our customer demanded we do it. It’s how it works.”

“Is that where it starts, with your customer? Couldn’t we talk to them?”

“Oh I don’t think that’s going to happen, Mitch. Just work out the cost and pay it.”

“But it’s not fair, Mr. Z.”

“Mitchell, Mitchell, you know better than that,” said Mr. Z.

So here’s my question about the two scenarios:

What’s the difference between them?

My lawyer friends (I hope I still have a few) will say, “That’s insulting! Come on, one of them’s legal, and one’s criminal—how can you confuse them?”

But my economist friends (some of them anyway) will say, “Ha!  It’s a trick question. There is no difference, they’re exactly the same.”

“Both of them involve non-value-adding transaction costs. There is some amount of risk transfer between parties—swapping around, really–but to the system, there is no gain.

“In fact, at the system level, there is a net cost; and the distribution of that cost is disproportionately downstream, to Mike and to Mitch.

To put this in context: our economy used to grow by achieving scale through transaction costs—legal agreements, accounting, contracts, commission plans.

Today, we are so inter-linked and fragmented, and so paranoid about trusting, that the transaction costs have begun to overtake the value accruing from scale.

We have become a culture not of shopkeepers, but of tiny outsourcing transactors, fearfully insuring ourselves against our fellows-in-commerce at every step. 

As my friend Bill says, "What is a credit default swap except a statement that you don’t trust your customer?"

This is not the way to build a healthy economy.
 

When Empathy’s Not Enough

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I remember a dialogue once about empowerment with several people. The general consensus was that empowerment was, generally speaking, a good thing.

One person, however, made a simple point. “It’s only as good as the people you empower,” she said. “If you empower stupid people, you deserve what you get.”

Fair enough. A similar cold-water dash in the face comes from Sam Bloomfield. The issue this time is the equally ‘soft’ and ‘good’ value of empathy.

What could be wrong with empathy, you ask? Well, not that there’s anything wrong with it, but there’s a danger of forgetting the ‘and also’ aspects. The correlate to the ‘stupid people’ problem with respect to empathy, Sam suggests, is the presence or absence of action taken:

A recent Harvard Business Review piece [Why Small Companies Are Better at Customer Service] addressed how large companies can learn about productive customer service from small companies. The article’s author related his personal experiences about ‘good’ and ‘bad’ customer service. The author concluded from those experiences that smaller companies have a lot to teach larger ones because the people in smaller companies can “empathize” with the customer and therefore deliver better service. And large companies need to learn to empathize more.

In fact, while empathy helps, it simply is not enough. The cited examples also showed, although not observed explicitly by the author, that smaller companies were able to resolve the problem – produce a satisfactory result for the customer. In the small company examples, the employee did not just empathize, s/he also satisfied our author. Those results I would suggest are the key to effective customer service and experience.

So empathy is fine – up to a point. When a customer service representative does not help you resolve your problem empathy alone loses its currency.

Also, large organizations trying to appear more empathetic often devolve into a ’script’ or canned responses like “I am so sorry” or “I apologize”. We simply don’t trust that they mean it, until we see what they can do for us. You can’t institutionalize caring, trust or empathy because those traits, if they are genuine, are not just words but sincere feelings. I would suggest that this customer in the article was ultimately really satisfied because of the actions taken.

Empathy, Sam’s suggesting, may or may not be a necessary condition, but it is surely not a sufficient condition.

He’s certainly right about one thing. On some level it’s obvious, and not surprising; there aren’t that many pro-empathy people who really think empathy alone is sufficient.

But that’s not the bigger problem Sam’s pointing out. That problem, I think, is businesspeople who don’t understand empathy, and who think that a little slathering of empathetic trappings can keep the customer complaints down.

As Sam puts it:

Large companies are usually effective at creating processes that standardize activities for large numbers of interactions with repeating patterns. But they often fail at creating a standard process for establishing a trusting and sincere relationship with their customers, the very foundation upon which rests all successful call center interactions. In short, one cannot create a process to elicit a sincere human emotion.

I don’t know about you, but it bugs me when a customer service rep leads with “Oh I do apologize for that, Mr. Green.” 99 times out of 100, the rep of course had nothing to do with the problem. It’s fine to say, “ouch, that’s certainly not right, and we’re sorry you had this problem—what can I do to help?” But don’t apologize!

Good apologies require some standing of responsibility. I don’t want an innocent bystander to apologize for hitting my car, I want the apology from the texting-cellphone-jabbering idiot that hit me!

There’s empathy, and there’s empathy.  The harm done is not using too much empathy—it’s using it badly, sloppily, and without clean intent.
 

Trust Summit Oct 23: More Details

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Dear Trust Matters readers:

Normally at this time of the month we send out an ebook—either a new set of articles, or selections from the Trust Matters blog.

This month is a little different. On October 23rd, I’m participating in a Trust Summit—a breakfast meeting-cum-panel discussion with four leading voices on the subject of trust in business. And this ebook contains a sampling of writings from all four of us.

Joining me on the dais will be Chris Brogan, Julien Smith, and my co-author on The Trusted Advisor, David Maister.

Chris Brogan is co-author (with Julien Smith) of the current best-seller Trust Agents. Chris is white-hot on the lecture circuit and blogosphere, but he’s no flash in the pan. He’s in the Top 100 on Technorati. He’s a ten year veteran of using social media and both web and mobile technologies to build digital relationships for businesses, organizations, and individuals.

Julien Smith, Chris’s co-author on Trust Agents, is an author, consultant, and speaker who has been involved in online communities for over 15 years– from early BBSes and flashmobs to the social web as we know it today. He was one of the first podcasters, and among the first web personalities to cross over into broadcast radio. As one fan puts it, Julien “not only thinks outside the box, he puts his foot down and crushes it.”

Besides co-authoring The Trusted Advisor with Galford and me, David Maister has written a host of books, including Practice What You Preach, True Professionalism, and Managing the Professional Services Firm. Known as the guru of professional services, David has been a generous guide and mentor to me in my own career.

If you’d like to come see us all at the Trust Summit, Friday morning October 23 in New York, click here to sign up. We’d love to see you there.

Download the ebook now

A Client for 50 Years

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Brown bagThis from Trust Matters friend Sarah:

I recently attended my step-grandfather, George’s, funeral in Connecticut. His business partner, Phil, spoke at the memorial service and what he said really sort of blew me away and I wanted to share with you…

Of course Phil shared many lovely memories of George.  One thing struck me in a profound way; Phil talked about the trust that George developed with his clients.

George had founded a CPA firm in 1962. The firm grew to be quite successful. As I sat and listened to Phil share stories about the firm’s success, he matter of factly boasted about the firm’s technical proficiency.

But then, to my surprise, Phil talked with incredible heartfelt-ness (sp?) about what the firm really does: listens to their customers. He talked about the fact that they prepare tax returns and financial statements, etc… but that what they really do is listen to their clients. I cannot recreate what he said – though it struck me as so humane as to counter the pervasive “accountant” stereotypes.

Anyway, here is what I really wanted to share:

• George died at 84 years old

• He founded the firm when he was 37 years old

• At his wake on Monday night an elderly woman introduced herself to my family and indicated she was George’s FIRST client! She is still a client of the firm to this day and whenever she goes into the firm she takes lunch for the partner with whom she meets!

• At George’s funeral there were literally generations of customers…there were people there to honor George who had been his client(s) for 47 years – nearly a half century!!! In one instance there was a family with 3 generation’s of clients. That is cool.

• His clients were acknowledged during the service along with friends and family (and many, many clients were there).

Thanks Sara. 

There are thousands of tips and tricks out there to gain repeat business, increase ‘loyalty,’ tweak your customer acquisition rates.  But they are all aimed at improvement in the aggregate, and usually over a short time frame.

They forget a few simple facts. 

The greatest client loyalty is personal–not institutional.  It happens one person at a time–not one segment or geography or business unit at a time.  It lasts: not quarters, but decades. 

Real loyalty isn’t bought, tricked, or tweaked.  It doesn’t trend up or down monthly. 

Yes, it shows up on your income statement. But where it really shows up is at your funeral.

Congratulations, George.

 

 

Is Recessionary Thinking Killing Off Your Green Shoots?

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I belong to a group of peers; we meet semi-monthly to discuss whatever business issues we see. Lately, we’re seeing a theme emerge.

Most businesses been operating under stressful circumstances for at least the last 12 months. For most organizations, profits were down (or non-existent), resulting in considerable price/service pressure from clients/buyers/customers.

So it’s not surprising that, as we end this difficult calendar/fiscal year, many are still painfully looking in the rear view mirror as we consider how to address the new year.

But, in doing so, we may well miss a turn — an opportunity to take advantage of the "green shoots" by thinking differently about our organizations and about how to get the most out of our people.

The Market Has Driven Focus Away from Teams

In the midst of all of the recent economic pressure, there has been a common return to focus on individual performance and a movement away from collaboration and collegiality.

Perhaps some of this shift is valid, because a tough market penalizes lingering mediocrity, but the pendulum has swung to the business equivalent of baseball’s VORP (value over replacement player).

But successful organizations are rarely built by teams of super-heroes. Most extraordinary unit performance is a function of ordinary beings banding together to strengthen each other’s weaknesses and to collectively make whole greater than the sum of the individual parts.

The cost-cutting and recession-based inward thinking which we’ve all had to endure for the past year drives us to self-absorbed, protectionist, fear-based behavior.  And just as solo behavior doesn’t drive great success, neither can you save or cost-cut your way to prosperity.

Sling-shotting Your Way Into Recovery

We have no insight into the timing of the recovery. But one thing is clear. The firms that will benefit the most, when recovery does come, will be those that have managed to think their way out of the rear-view mirror mentality. In particular, those who have managed to re-discover collaboration.

Collaboration is something that can help ‘slingshot’ us out of recessionary thinking.  Team behavior can accomplish extraordinary things with ordinary people.  Collaboration fuels innovation, and feeds souls.  All that drives financial bottom lines too.

Leaders need to manage the tension between surviving in the short term and leading towards the medium term. Leaders need to help pull/push people out of the scary place we’ve been in, focused—of necessity, to be sure—on survival.

Collaboration responds to the need to motivate people, refocus their efforts, and ignite their spirit. And you don’t have to wait for the recovery to get there. In fact, getting there probably, in its own small way, helps kick start the recovery.

Doing Collaboration from Trust Principles

Collaboration is, in fact, one of the Four Trust Principles  (the others being client focus, relationships over transactions, and transparency).
There’s no single simple tool to being collaborative, and each organization will vary in its approach. But a serious effort at being more collaborative will probably include some of the following:

  • Goal setting—done collaboratively
  • Spending time together
  • Getting to know each other
  • Speaking directly to each other
  • Speaking about more things to each other
  • Developing common language
  • Skewing incentives and rewards toward groups
  • Honest and transparent leadership
  • Clear, repetitive articulation of the philosophy of collaboration by leadership

Development is back on the table. If it’s not yet on your table, ask yourself when you think the recovery is going to happen—and how far in advance of it you need to starting consciously thinking about shifting perspectives.

Discuss it collaboratively with your team.