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Outsourcing Loyalty, and other Oxymorons

I am on vacation this week, and will be going back to the vault for some ‘oldies but goodies’ posts.  I hope you enjoy them: I’ll be back in a week or so with new material.

Outsourcing loyalty. Think about the absurdity in that phrase.

Oh, we know what it means, all right. There are businesses whose specialty is executing frequent-customer programs. They handle strategy, research, program design, even fulfillment. It’s no different from any other outsourced business process.

But still. Think about the contortion of language implicit in combining those two words. Loyalty—that emotional quality that binds one person to another, to a clan, a country, or a set of ideals—can be mechanically crafted by a third party for hire. And we still call it loyalty.

Googling “outsource loyalty” turns up a few entries, like Ernex, which offers "a complete real-time points management solution for loyalty program or member-based loyalty databases." Cap Gemini, a major global IT firm, has a website that advertises its “loyalty factory.

Hey, why not? You can outsource confidants (they’re called shrinks). You can outsource sex (the oldest profession). You can outsource phone calls (“your call means a lot to us…please hang on the line”). Why not loyalty?

But in our rush to turn business functions into business processes, then modularize and outsource them, we occasionally overdo it. A major casualty is the faux language of relationships. “Loyalty” programs are but one example.

Another oxymoron is “human capital.” Note which word became the adjective, and which stayed the noun.

“Relationship capital,” its close cousin, goes it one better. It isn’t just people that are financially fungible. Ditto for the relationships between people. Long live love. If it pays, that is.

“Customer focus,” as a practical matter, is often oxymoronic. It amounts to “inspect, dissect and reject” so that you maximize customer profitability per unit of financial investment. Customer profitabilty to the seller, that is; not the customer’s own profitability. Vultures are focused in that sort of way. If you’re a customer, "customer focus" can feel like you’re in the crosshairs of somebody else’s scope.

How about you? Can you add to the list? Got any oxymorons about the human dimension in business? Share them here; enquiring minds want to know!

 

 

Trust and Noah’s Bar Mitzvah

I’m asked frequently what organizations can do to increase their perceived trustworthiness in the market. Part of the answer is to increase trust within the organization itself; after all, why should a customer or supplier trust an organization whose employees don’t even trust each other?

Which is why it’s interesting to look at practices of high-trust organizations.

Which brings us to Noah G.

I was privileged to be a guest at Noah’s bar mitzvah this past weekend in San Francisco. It was a moving event for many reasons. And that’s part of the lesson.

Being “moved” is a bonding event, creating a shared experience. Shared significant experiences are a basis for understanding each other—if it’s significant for you, and I’ve been there too, then to that extent I “get” you.

The bar mitzvah—like other bonding experiences–enhances that sense of unity, cohesion and collaboration among a group.

The service refers to the group’s shared values—in this case, embodied in the Torah. Which is written and read in the identical language used about 3,500 years ago. The values are literally—physically—walked around the room for all to touch—again, literally and physically.

As an observer, for me the heart of the bar mitzvah service involved Noah being asked to describe the meaning of an ancient piece of text for today’s world. Think values-driven management. Think demanding that even 13-year-olds learn and share how time-tested values are applicable to today’s world.

The dimension of time, I think, is critical for trusting experiences. Without something common that bridges time, we have nothing but a sequence of transactions (a great number of “best practices” these days in business are focused on transactions without reference to a time-based relationship). Relationships by definition presume constancy over time.

In Noah’s case, the after- party featured a slide show of Noah in relationship over time—Noah with his brother, his parents, his cousins. And, strikingly, photos of Noah’s father at his own bar mitzvah—and Noah’s grandfather at his.

The service, being held on the Sabbath, contains the Kaddish—recognition of those who have passed on but are still part of the Relationship—specifically including those for whom no one any longer exists who can speak for them directly. (Does your company actively cultivate “alumni”—or do you force them to sign non-competes and “leave the building?”)

Did I mention the ceremony was moving? My own tradition is that of ‘God’s frozen people,’ as Garrison Keillor puts it. To hear parents speak openly in public of their love for their child feels shockingly, achingly personal to me—both as a child and as a parent.

I felt the same ages ago sitting in the choir loft next to my Irish Catholic girlfriend at her father’s funeral, as she played Danny Boy on the flute and the congregation wept openly with every note. Personal.  Real.  It has to be personally moving, because relationships are personal.

And paradoxically, that’s one of the most important parts of building trust in an organization. Trust may be encouraged institutionally, but it has to be built personally. If you’re not moved yourself, how can you expect others to be moved by you–to trust you?

Trust minus passion leaves only statistical probabilities; not the road to building a trusted organization.  We don’t trust organizations very much; we trust the people in them—or not. Organizations who would be trusted had better not fear to get real, to get personal.  Like the bar mitzvah.

 

From Financial Relationships to Financial Transactions, Losing Trust on the Way

The New York Times this Sunday has initiated an ambitious and comprehensive look at the financial crisis facing us. Gretchen Morgenson, a crack business writer, has not only her normal Sunday business page lead, but also the entire issue’s Main Section Front Page lead.

And rightly so. Count me among those who believe this is no ordinary recession; we’ll live to live again, but there has been huge financial misbehavior by all of us for a very long time; we’re going to have to pay the piper for some time to come.

Morgenson points out we doubled our mortgage debt in 7 years as a country; our savings rate—at 8% in 1968—is now 0.4%. And the biggest scorecard of all is the fall of the dollar, already precipitous, and likely to get worse.

One of the patterns that emerges is the conflict we have created in the world economy in the last two decades between efficiency and trust. It’s a major trust issue—one of social and political structure.

Here’s the idea.

The global financial system has gotten far more efficient by applying business process thinking “best practices.” Define processes so they can be outsourced to others, the thinking goes, who can then do those processes at a global level of scale, more cheaply.

That logic is what drives the outsourcing of payroll and benefits processing. It’s the same logic that drives mortgage lenders to sell loans to banks, and banks to package them to asset packagers.

It has in many ways worked: more capital became more available in more places to more people more quickly and at lower costs than had been the case 20 years ago.

Unfortunately, there was a side effectT—the substitution of short-term transactional fee income for longer term relational income sources (like interest).  And fee income has turned out to be the crack cocaine of the financial industry.

It isn’t just mortgages. It shows up in banks every time you get hit for $2 to withdraw $100 from an ATM not your own. It shows up in credit cards—in late fees and over-limit penalties, in huge rates for cash withdrawals. And of course if you refinance a mortgage, fees abound—enough to become the primary source of profitability for the refinancing institution.

Who cares about your damn loan when they can make money off of the act of taking out the loan, and more money out of selling it to someone else. Give ‘em a ten-year balloon loan at teaser rates. On Wall Street, the moral decline was captured with the phrase, “I’ll be gone, you’ll be gone—just do the deal.”  Gimme more crack—gimme the fee income, you can have the relationship and the loan.

So here’s the social trust issue.

One of the four Trust Principles (see my article “Trust: the Core Concepts” or my book Trust-based Selling) is the focus on relationships, not transactions; on the medium-to-long term, not just the short-term.

That idea is pretty simple and clear. Trust thrives in relationships, not in random encounters between strangers. Economic models that link entities—and people—allow trust to grow.

Economic models that structurally dissociate people—blind online bidding systems are an extreme case—are at best trust-neutral, and in many ways trust-destroying (in the case of blind online bidding, that is in fact the intent).

So we have a dilemma. The economics of outsourcing processes has indeed resulted in lower costs. It has also resulted in lower trust.

Can we have both? And if so, how?

I don’t have the full answer, of course. But I believe the answer is going to rely on two things:

  • The political will—in government and in business—to recognize that, in the long run and in the big picture, we are all inextricably linked, and we’d better behave as such. In other words, an ethos or common belief-set based not on competition, but on collaboration.
  • The insight that low cost alone does not drive value; that relationships, in fact, are the source of far greater value than the micro-process-here-now-self-aggrandizing instincts we have been propagating as “best practices.”

It ain’t going to be easy, though.

Mitigating Emotional Risk

Most service professionals share a distinguishing characteristic: they over-rate content mastery and under-rate personal connection. Professionals are less comfortable operating in the purely personal realm than they are in data-based, content-driven interactions. I have observed these patterns consistently throughout my career in professional services.

Nothing is more likely to cause an accountant, lawyer, actuary or consultant to break out sweating than the need to interact improvisationally one on one with a client without a clear agenda, in an area outside their zone of competence, with a potential sale on the line.

It feels, above all else, risky. Personally risky.

If you were to infer that professionals underrate personal skills because they are uncomfortable practicing them, I wouldn’t dissuade you. Here’s more evidence.

My online Trust Quotient self-assessment quiz has over 2500 entries so far. The quiz rates your own assessment of your credibility, reliability, intimacy, and self-orientation—the key components of the Trust Equation.

For professionals so far, the highest scores are for reliability; the lowest are for intimacy.

In other words: an under-rated and critical skill in professional services—the ability to form deep personal relationships—is, by participants’ own self-ratings, their area of greatest weakness.

In the seminar work I do with professionals, this is always evident. “Oh we couldn’t say that, that would be too direct. That might offend them. The client would be embarrassed if I did that. They might feel that’s unprofessional. I wouldn’t want them to think I was too emotional. That just isn’t done. That’s too risky.”

These people are professionals at mitigating risk—financial risk, professional risk, business process risk, sales risk, legal risk. Yet when it comes to mitigating emotional risk, they are often clueless.

There is no trust without risk. But pointing that out just makes professionals burrow even further into the hole of denial, claiming that their clients are robots who don’t really want their professionals to appear human.

What they need is a simple, formulaic tool for dealing with the perceived risk of increasing intimacy with other human beings. Hey, we could all use a little of that, right?

There is precisely such a tool, and I’m going to write about it in the next blog post. It’s called Name It and Claim It. It is a simple grammatical technique. It is a meta-tool, meaning it can be applied to whatever is causing you fear. It is easy to remember, and pretty easy to use.

There is no trust without risk. This tool mitigates emotional risk. Which means you can stop shutting down trust by no longer being excessively risk-averse.

Best of all, it works. Very well. Stay tuned for details, next post.

Software Programming and the Economics of Trust vs. Transactions

In a charming blogpost, Paul Duval says that developers should “Fire your best people and reward the lazy ones.”

As he explains, developer shops often consider “troubleshooters” to be among the best employees. They know where all the hard-coded quick fixes are, and they can spot them like lightning. Trouble is—those hard-coded fixes are impenetrable to other programmers.

Troubleshooters perpetuate impenetrable coding—because it’s faster, and perhaps because they are the beneficiaries of continued arcane language.
“Lazy” developers, by contrast, are those who can’t stand repetition. Every time they encounter a hard-coded arcane fix, they take the time to craft a generic solution that any future developer can understand.

One key fact: Duvals says that for every time a method is written, it’s read (and maintained) ten times—a 10:1 ratio. Suddenly, the “lazy” developer is the one reaping relationship-based economics for the employer; and it’s the “troubleshooter” who is perpetuating a repetitive, transaction-based high cost structure.

So it is that the world of software development is a microcosm of the broader world of business relationships—rewarding transactional behaviors in a non-transactional world.

We live in a world of incredible inter-dependence, connections, networks—and it’s moving ever-faster toward more, not less, of those connections. Yet we live by ideologies that focus on and reward transactions, not relationships.

• In software development, it’s a focus on how fast the problem can be solved—rather than on the systemic cost of solving the same problem over and over.

• In sales, it’s the dominance of linear “models” that begin with a lead and end with a close—rather than on lifetime and network-based models of business development in a sustained relationship environment.

• In investment banking, over the years it’s become about how to get the deal, rather than nurture the relationship.

• In commercial banking, it’s about transaction fees (e.g. overdraft charges), rather than about earnings based on assets under management.

• In mortgage banking and credit cards, it’s become about penalties charges (prepayment penalties and late penalties) rather than underlying economics.

• A major aspect of the subprime mortgage debacle has been the “transactionalization” of what used to be a relationship business. Mortgages have been on the ownership dimension—being sold repeatedly; on the risk dimension—stripping principle from interest; and on the time dimension—dealers in mortgage “products” increasingly get paid from transaction fees for moving on to the next step in the chain, rather than on the underlying interest paid.

• Private equity in its entirety is arguably an example of transactionalization of the corporation, though at the outset it introduced a needed jolt to stodgy bureaucracies. Of late, however, PE firms are increasingly finding earnings based on—you guessed it—transaction fees.

In all these arenas of business, we are seeing a structural challenge to trust. If you disrupt the relationship aspect of business in favor of approaches that are one-off, transactional, short-term in nature, you destroy the natural economics of trust.

Ironically, the long-term economics of trust far outweigh those of short-term transactionalism. But an ideology of get-in-get-out-fast has overwhelmed commonsense. The result is not only housing bubbles, but a paucity of social trust in business.
 

Who Do You Trust? What Trust Rankings Really Tell Us

You’ve probably noticed, from time to time, survey results on trust—which professions we trust the most, which institutions, which messages, channels, and so forth.

The most recent such data—from Nielsen— tells us that web users around the world trust the recommendations of others more than they trust advertising.

Other surveys tell us we put “a person like yourself” ahead of all others. 

Still others tell us the relative trustworthiness of various professions.
There are two messages in these surveys—one explicit, the other implicit.

The explicit message is the headline—we trust doctors more than newscasters, we trust blogs more than advertising, and so on. Those data tell things like “who’s winning,” and how Australians differ from Chinese. Interesting. Food for marketers’ thought. And great for parlor conversation.

But the implicit message is about the nature of trust itself. Which is not at all obvious.

Imagine a survey asked people “How closely are you related to other people?” Now imagine findings like: “Parents top the relation list; followed closely by children and siblings. Cousins are found to be less related, about tied with in-laws. Neighbors and TV sitcom families appear to be the least closely related.”

Silly, because such a survey just re-enacts a trivially true definition as if were a new empirical discovery.

But isn’t trust much the same? We all have an instinctive sense that we trust certain people more than others. If I know you, have history with you, have shared personal moments with you, converse with you, work and play with you—then the odds are far greater that I’ll trust you than I’ll trust someone two degrees away on LinkedIn.

So when Nielsen tells us that consumers trust consumers more than advertising, the headline is about the low trust scores of advertisers.  But perhaps it shouldn’t be.
Perhaps that finding rates a giant, massive “Duh!”

Perhaps the headline should be, “trust linked to personal relationships.”

A major business trust issue today is how to “scale” trust. What can be done to networks of strangers to approach the high level of trust we see in more personal relationships?

Some efforts focus on increasing network size—Amazon’s algorithm for predicting what books you’ll like, for example. It works very well—for predicting books you’ll like. But for whether you should buy a house now in this market?  Hmmm.

Other efforts focus on track records. Of those who recommend buying a house now, vs. waiting—who has the better record of predictions? This helps with investing—but do you trust your investment advisor to recommend restaurants?  Or to play matchmaker?

Still other efforts increase the bandwidth available for us to evaluate others: Facebook and Match.com owe a lot to the ability to let people be who they are, let it all hang out—and share it with others.

The most successful networks will be those that replicate the full human experience—providing us broad markets, rich data—and deep exposure to the humanity of the others that lets us create bonds.

Those are the networks that will end up being trusted. And end up scoring high on trust surveys.

It’s no secret.

The July Carnival of Trust

Carnival of Trust logo

Welcome to the July edition of the Carnival of Trust.

I specifically invite you to read it as a whole, not as simply ten selected parts. There are themes that weave between the ten postings.

That’s what we promised you: an intelligent winnowing down to ten of some excellent writings on trust—in business, in sales, in government, in personal life.

But I hope this goes beyond. There are several story lines connecting the postings. I have tried to point out a few. Please have fun finding others, and add your own commentary here.

Thanks to all the contributors, including a number of excellent submissions that didn’t make it to Top Ten this time. Please don’t be disheartened; if you’re on point, keep submitting. Next month, the Editor at the Blawg Review has kindly consented to host the Carnival of Trust; guest hosting will be the rule going forward. Please stay tuned for details.

Trust In Sales and Marketing Logo

Is Big Pharma Shifty?

John Mack is a respected newsletter writer and blogger in the pharmaceutical sector, a major part of global industry and a critical one these days. Mack analyzes a Harris Interactive poll that shows "consumers think Big Pharma is shifty as well as greedy." No, no, not shifty too? Mack interprets for us.

A Little Knowledge is Great Marketing

Is it possible for a mega-corporation to act transparently and in the best interests of the consumer, in the belief that doing so will generate wiser customers first, and, later, higher profits for the company?

Ron Shevlin, at MarketingROI, would like to think so, and suggests that Bank of America’s recent educate-the-consumer initiative is such an effort—at least on face value.  Not unlike what Brad Burnham’s point of view B argues in Who Do You Trust to Edit Your News, below.

I share Ron’s hopes, though I’m sceptical that a major company like BofA can achieve escape velocity from the mass of company-centric, short-term metrics that have hijacked terms like "customer focus" in recent years.


Web Commerce, Trust and Akerlof’s Law

What do used car advertisements and dating services have in common? Allan Patrick educates us about Akerlof’s law about the asymmetry of information. Basically, absent independent brands of rating systems, "liars drive out buyers." What can a small quality website without brandname or a massive rating system do? Patrick has a few ideas. Interestingly, one of them—give the customer more information—would appear to be exactly what Ron Shevlin is talking about in A Little Knowledge is Great Marketing—see above.

How is Marketing About Relationships

Economics 101 tells us markets are about products and prices; in Econ 201, you hear about advertising and bargaining and bluffing, and in industrial economics, you learn about power dynamics in industry sectors.

But in Life 101, you learn how haggling over rugs creates relationships and societies, as well as efficiencies and long-term customers.

Dawud Miracle draws from a story in the Cluetrain Manifesto to explain how. Think about how it applies to the pharma-consumer relationship in John Mack’s post, Is Big Pharma Shifty?

Trust in Leadership and Management Logo

Agreement and Trust

Scott McLeod applies a great two-by-two matrix concept from Peter Block. The model is for analyzing leaders’ relationships with their essential people. For each relationship, how much do you trust them, and how much do you agree with them? Not all 2×2 grids result in useful diagnostics; this one does.

Credibility as a Core Company Initiative

Ardath Albee talks about relationship marketing minus thought leadership in her blog Marketing Interactions.

"I was speaking with a VP of marketing who said thought leadership was low on her priority list because it didn’t have an immediate impact on revenues…

The problem with only focusing on the near term is that when it runs out, what have you got left? To build credibility, every B2B company that’s in the game for the long-term should focus on thought leadership as one of their initiatives. Relationship marketing is a focus of many marketing initiatives these days, but without credibility, how strong a relationship can you build?"

Quite right, Ardath; high relationship can’t excuse zero content.

Blogging and Transparency Build Trust

Michele Martin works at the intersection of new media and the non-profit and government sectors. Trust works there too. Michele highlights an adept use of blogging by Six Apart CEO Barak Berkowitz to create trust—legitimately. You can tag this under transparency and candor as well as blogging and trust. (See also Alex Todd’s post, one selection down from this one).

Trust in Strategy, Economics and Politics Logo

Creating Trust in Government

Alex Todd is a thoughtful writer and consultant on trust, particularly on his concept of trust enablement.
A good example of Alex’s thinking is this post, about a current proposal in the Canadian legislature called the "Federal Accountability Act." Says Todd:

you cannot defend against a loss of trust unless trust already exists. Creating sustained trust – in government, commerce or our private lives – requires a balance of two approaches: both building trust and creating mechanisms to ensure that trust will not be abused.

A fine example of solid thinking applied intelligently to real and current issues.  Listen up, Ottawa. And Washington.  Trust isn’t just about prohibiting conflicts of interest; it’s also about engineering trusted relationships. (See also Dawud Miracle’s entry about markets and relationships, above).

Who do you Trust to Edit Your News?

Brad Burnham reports on his personal power-take-away from the Personal Democracy Forum in New York.

Point of View A: The lack of editorial control on the web leads to a dumbing down of media and culture, wherein YouTube makes television look positively BBC-like and facts are wildly out of control.

Point of View B: The web instantly corrects mis-statements of fact.

Brads post says more about this. He feels POV B wins on the media point.  I feel persuaded on that point, but the case for dumb and dumber at the cultural level still stands, IMHO.

Trust in Advising and Influencing Logo

How to Keep Your Word, Tupelo Kenyon

How should you keep your word?  Impeccably.

So argues Tupelo Kenyon, concluding "your word is your bond, your character, your reputation, and your integrity.  Your word is your opporutnity to practice being impeccable."

He argues it tightly.  And at length.  And in terms ranging from logic to history to poetry. You might say, impeccably.

Not an obvious choice for this carnival, but I hope you’ll agree a good one.