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Terrorists and Convenience Stores: When Social Trust is Threatened

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Many years ago, I consulted to a Texas-based convenience store chain.

They had a 150% store manager turnover rate. They wanted to identify characteristics of higher-tenure store managers, so they could hire more people like that.

Turns out that they also administered lie detector tests every month to every store manager about whether or not they were stealing. After about six months, managers figured, “I guess they’re expecting me to steal, and someone must be getting away with it—I’ll give it a try.”

And there’s your turnover.

A massively expensive approach to management. Note the cost of tests, the cost of theft. More importantly, the cost of forced turnover, and of the suspicion and paranoia in the system.

That’s what happens when the only response to a trust violation is to treat everyone like a suspect.

That explains one of the most expensive solutions to low trust in the world today—airport security systems. Imagine the savings if we could figure out how to target terrorists—savings in time, money, personnel, equipment—not to mention the general levels of suspicion and paranoia.

One reason for the cost is that we value fairness over efficiency. No matter it’s your next-door neighbor grandmother and her grand-daughter flying to Dubuque—she goes through the same x-ray machines as a sweating, furtive, cash-paid one-way ticket holder. Anything short of perfect screening isn’t sufficient for us to violate a core set of values around fairness.

So—treat everyone like a terrorist.

Another value is the cultural resistance to monetizing human lives. “If screening saves only one disaster,” we say. But outside the bright lights of the public, others have to make serious trade-off decisions all the time—doctors, public policy makers, safety engineers. The only way we can face those decisions is to hide them from public view.

Once in the public view—treat everyone like a terrorist.

Sarbanes Oxley is the result of a similar logic. Anyone could be an ethical terrorist, the logic goes. Better to realign entire industries to remove temptation rather than to make tough individual decisions about who to prosecute and imprison.

Treat everyone like a terrorist.

But the biggest reason of all may be a tendency to rely on systems rather than people. Seduced by technology and the siren song of metrics, and fueled by paranoia about people we don’t know, our social response to a connected world has been to systematize the human networks—instead of humanizing the systems.

If “everybody’s a terrorist” is our only solution to socially-hostile acts in a networked world, we quickly become hostage to the very thing we tried to prevent. We drown in costly solutions, trying to boil the ocean.

We need social solutions that:

• delegate accountability
• allow for human judgment
• recognize and deal with ambiguity and variance among people and situations
• allow a reasonable level of non-perfection of outcomes

and that do so in a socially acceptable manner.

You can’t trust everyone. That doesn’t mean you can’t trust anybody. But our social policies—and our norms—are blind to this simple truth.

The CEO vs. the Bankers: Death by Transactions

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I spoke to the (non-American) former CEO of a large company—the profitability leader in its capital-intensive global industry.

“Why do American CEOs listen to 30-year old investment bankers?” he asked me. “They don’t know anything.”

“I used to get calls from them—Morgan Sachs, Goldman Stanley, you know—the supposed crème de la crème of MBAs. Here’s how they went:

Bankers: Why do you keep so much cash? Your leverage ratio is half that of your industry. You’re earning nothing on it, like keeping it under a mattress. You’re destroying shareholder value. If you have opportunities, you should invest. If not, you should return it to the shareholders.

CEO: Let me ask you—who’s the global market leader in software?

Bankers: Microsoft, of course.

CEO: And how much cash do they have on hand?

Bankers: Way more than the industry average; too much; they should return it to the shareholders.

CEO: Uh huh. And who’s the global market leader in semiconductors?

Bankers: Intel, of course.

CEO: How much cash on hand?

Bankers: Again, way too much, more than industry average, they’re destroying shareholder value.

CEO: Uh huh. I too am the market leader, and the profitability leader. I don’t focus on your options pricing models and portfolio theory and risk hedging. I focus on “buy low sell high,” “keep your powder dry,” “bide your time,” “strike when the iron is hot,” “find your niche,” “beat your competitor don’t copy him."

My industry—like every capital-intensive industry—has cycles. I buy my expensive assets at a huge discount—when the market is cold and my suppliers have no backlog. I get what I want, when I want it, pay less, and have grateful suppliers. My competitors buy when their profits are high—they overpay, wait years for delivery, and irritate their suppliers—as do their competitors.

I make strategic moves when I’m the only one who can do it. My competitors make their moves along with everyone else.

I can do all this because I have cash. My competitors all listened to your advice about copying the average. Not only am I the only one with funds to execute my strategy—I’m the only thinking of a unique strategy.

The CEO continued, “they often didn’t even get it. They couldn’t recognize a bad model when it slapped them in the face like a dead fish.”

Q. Who’s right?

A. The CEO—hands down, a no-brainer.

Q. How could the bankers so spectacularly miss something so obvious?

A. The blinding power of an unchallenged paradigm.

Q. And what paradigm would that be?

A. Ah, that’s the big question. Is it:

  1. Youth is arrogant
  2. Business has become overly quantitative and analytical
  3. Finance has triumphed over marketing and production
  4. Paris Hilton was somehow involved
  5. We are killing off strategies and relationships for the sake of transactions.

I vote #5—death by transactions.

The history of capitalism is one of scale economies, enabled by parceling out pieces of work to others. Every time you do that, you gain scale—and you create a transaction.

This trend has accelerated: more chunks of business are being chopped up and parcelled out—both in space and in time.

Examples:

  • Modular software
  • Mortgage (and other asset) collateralization
  • HR competency models
  • Outsourcing
  • Globalized sourcing

This habit is reflected even in meta-patterns of business thinking—how to tackle a problem? Break it up, break it down. Analyze it. Measure it. Parcel it out. Track it. Install rewards. Repeat at one level of detail lower.

Every time you break up a function and parcel it out to more people over less time, two things happen. Greater efficiencies—and less relationships.

Repeat infinitely, and you get people who think about business like tinker-toys—models to be constantly assembled and re-assembled.

That way of thinking fosters neither strategic or relationship thinking.

It is also impossible to think ethically when there are no relationships to be harmed, and no timeframe in which to be held accountable.

But the biggest irony is: it doesn’t work anymore. The chop and parcel game has been played out. The returns are beyond diminishing; the cost of the transactional mindset is exceeding the savings of scale. The game has turned dysfunctional.

Death by transactions.

The November Carnival Of Trust

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Carnival of Trust logo

Welcome to the Sixth Carnival of Trust. As always, we’ve tried to make this Carnival a little bit special, a little bit more value-adding than the average carnival.

Specifically:

  • There are always only ten selections in the Carnival of Trust. They all earned it. They’re good. Or, at least provocative.

  • We’ve added our own perspective to it—this is not a dry list. In some cases, we even take issue with the post—and say why. You may not agree—but at least we offer a point of view.

  • In each Carnival of Trust, a theme emerges; in this one, it’s policy on trust. Issues of policy and trust in health care, in direct marketing, in marketing, in leadership.

Our aim is to make this interesting, educational and profitable. Let us know how it was for you.

With no further ado, let us move to this month’s winning posts.

Trust in Advising and Influencing Logo

Dr. Bleuel has written a gem of a piece about trust and loyalty. I agree with nearly every word he says—a rare thing. Samples: “Trust is built, one transaction at a time,” “loyalty and trust are not passive states,” and “once I trusted the Audi mechanic, the buying process for service is simple: take the car in and describe the problem.” The good doctor from Pepperdine gets it.

Our next post discusses how to make sense of all the clouds of soft-talk around words like integrity, listening, fairness, authenticity, honesty, and transparency. Read Stephen Hopson’s guest-post on the blog Make It Great. In one page, he integrates them all in a way that—to me—feels just right. He’s an ex-WallStreeter, so you sense he knows how to pile on the BS—and most certainly isn’t doing that here.

Don’t miss his vignette on Bob the stunt pilot.

Nagesh Belludi grew up in Bangalore and lives in Indiana. He’s got a Masters in Engineering, and he speaks on personal effectiveness. He’s invested in stocks since age 16, and he reads about Mary Kay cosmetics’ management style. In other words, just the right amount of schizophrenia to describe how to most effectively give advice and have it taken.

Trust In Sales and Marketing Logo

Kaila Colbin noticed a pattern among heavy-hitter reviewers of search engines—they implicitly rated trust, transparency and honesty higher than the non-collection of data. “If trust is more important than privacy, then a company that says up front, ‘We collect all of your search history and use it to target you directly,’ will do better than a company that says, ‘We will not use your search history for anything other than making our algorithm better, and oh by the way those ads today that match your search query from two weeks ago?’ Implication? “one of the single most critical factors for web businesses over the next few years will be the ability to engender trust.”

Next John Whiteside comments on a MarketingProfs article by Lynn Upshaw of Berkeley Business School. Here’s Upshaw’s original:

Marketers need to consider a new calculus: "return on marketing integrity"which can lead to stronger business performance.

Traditional return on marketing investment is calculated using gross margin generated by marketing efforts (GM), minus the marketing investment (I), divided by that investment: ROMI = (GM – I) ÷ I. The calculation for return on marketing integrity is identical, except that investment is replaced with marketing integrity.

Whiteside’s comment:

I am skeptical. I doubt that you’ll ever be able to show much in the way of financial return on something as subjective as "integrity."

A pox on Upshaw, and a raspberry to Whiteside for getting caught up the whirlpool of absurdity that marketing folk sometimes construct.

Hello—If you make increased quarterly margins the measure of integrity, you just lost all integrity. I don’t know how to say it any simpler than that. So read Whiteside’s piece—which does after all do a good job of laying out the trust in marketing issue—and see if you can figure out how to get the message through. To Whiteside’s additional credit, he also suggests integrity might be an end in itself. All is not lost.

Nancy Arter, direct marketer, believes the following:

…it is imperative for us to market ethically — otherwise, we lose the trust of our current and potential customers. …We strongly believe in creating trust through direct marketing — and that by doing this, you build more profitable customer relationships.

Precisely. Interestingly, she agrees with NY State Attorney General Cuomo, who expanded his student loan investigations to include direct marketing.

But—hold on to your seats—the Direct Marketing Association also agrees with Cuomo.

The Direct Marketing Association (DMA) came out quickly in support of this investigation saying that "illegal marketing activities erode trust for the entire industry." In fact, Jerry Cerasale, SVP of government affairs for the DMA, went further: "If these actions violate the law, then they should be stopped. Legitimate marketers need to have trust in the marketplace, and violating the law undercuts that trust. This is not retail, where you can walk in and touch a product and buy it. With direct marketing, you don’t hold the product until after you’ve bought it, so trust is essential.”

I’m going to have more to say about trust and the role of industry associations. Meanwhile, kudos to Arter, and to the DMA.

London-based marketer/facilitator Johnnie Moore offers two mini-corporate chilling-thrillers about the power that leaders wield, the deference given them by others, and the numbingly bad results that can result. Read it and hope it’s just those chaps in the UK.  ‘Cept you know it’s not.

Can corporate change happen without personal change? Can leaders lead without experiencing? Can a coach be effective without undergoing a consonant change?

Dave Crisp says no, in a concise way. Methinks he’s right.

Trust in Strategy, Economics and Politics Logo

“One of every nine Americans is a member of a WellPoint health plan,” according to Wellpoint’s website. They are joining hands with Zagat’s (yes, that Zagat’s—the restaurant guide people) to create, again from the website, “a new online survey tool that will allow consumers to share their physician experiences with others.”

I think this is a very cool idea. It speaks to the truth about medical decision-making, which is that bedside manner matters enormously compared to technical ratings; and it offers transparency.

Niko Carvounis, on the other hand, thinks it’s a terrible idea, and does a thorough job of making the case. It’s an important issue, and deserves the thoughtful approach Carvounis brings it. It’s a great way to access some fundamental ideas about the upcoming healthcare debate.

Maggie Mahar helps us educate ourselves for the healthcare debate, arguing against health care maven Regina Herzlinger and consumer-driven healthcare. Who is Herzlinger? What is consumer-driven healthcare? Is it right or wrong? Why should you care? Because it also has a lot to do with sales, marketing and trust, that’s why.

Mahar answers all. Except maybe right or wrong; Herzlinger would argue the consumer is a lot smarter than Mahar et al say. Hey, you decide—this piece will help you. (Full disclosure: Herzlinger was a professor of mine, and I’ve written about her previously in Trust, Politics and US Health Care Policy .)

Thank you to these talented authors for providing great insights into issues of policy and trust the sixth Carnival of Trust. I hope you’ll enjoy these articles as much as I have. If so, please leave a comment for the authors on their sites or recommend these articles to others who will appreciate them.

My aim is is to make the Carnival of Trust interesting, educational and profitable. I always appreciate your feedback; let me know what you think in the comments.

For more discussions of the nature of trust, you can check out the Carnival’s previous editions:

Steve Cranford at Whisper hosted Carnival of Trust #5;

David Maister at Passion, People and Principles hosted Carnival of Trust #4;

the anonymous but trusted Editor of Blawg Review hosted Carnival of Trust #3;

Carnival of Trust #1 and Carnival of Trust #2 started of here at Trust Matters.

Have a look at them. If you’re interesting in hosting a Carnival Edition, please let me know. You can contact me at blogging-at-trustedadvisor-dot-com.

Ruining Trust by Taxing Mistrust: the False Negatives Scam

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I’ve had Mastercard problems for a few years now—on overseas trips they frequently reject transactions. I would call to reinstate. They would say they’d fixed the problem. They hadn’t.

6 months ago they said getting a business card would help. I did. It didn’t.

I’ll be brief; this is not meant to be a bitch session, but an exploration.

October 23, Netherlands: MC rejects a $15 charge for hotel internet access.

October 24, 8AM, I call: “it won’t happen again, Mr. Green.”

October 24, 10AM: I try to change an airline ticket; card rejected. I call: “well, there is a lot of fraud outside the US boundaries, Mr. Green." (Oh, the xenophobia). "It won’t happen again, Mr. Green.”

October 25, Kuala Lumpur: Buying ticket to Singapore; card rejected. I call: “It won’t happen again, Mr. Green.”

October 25, Singapore: checking into hotel. Card rejected. I call: “It won’t happen again, Mr. Green.”

An hour later, rejected again. Ditto a day later.

I finally wise up and insist on talking to a manager. Unbelievably, what I hear is this:

“Yes, I can see you’ve had this problem with unnecessary rejections for over a year now. And yes, we’ve been giving you the highest clearance each time, but that only lasts a day. The automatic limit rejection triggers kick back in the next day. But I can put in a request to the review committee to get you permanently approved at a higher level, even outside the national boundaries.”

This is a business card? And now you tell me I have to call mommy every time I want to fly or stay in a hotel? But never mind.

The issue is—why is this happening?

It is not a unique event. It is an example of a broader phenomenon, and it’s not a good one.

In medicine, we have to weigh the value of a false positive vs a false negative. What’s worse? To be told you have breast cancer when you don’t, or to be told you don’t have it, and find out later you did.

The medical industry in the US has responded resoundingly: we’ll take a ton of false positives so as not to incur a single false negative. And not just so we won’t get sued. It’s also because the patient pays the price of false negatives—economically and emotionally. It costs nothing to lay it all off on the consumer. The consumer is the insurer of first resort.

We all pay the price. We pay it in tons of unnecessary medical tests, because doctors are paranoid about being sued.

We have taken a social decision—how much to invest in health care for the ill—and subjected it to good old capitalist economics and to market-economy politics. When political correctness meets social policy, the businesses involved—medicine, insurance, credit cards—will massively opt for self-protection at the cost to—you guessed it, the consumer.

You are the one who pays for unnecessary medical tests. You are the one who pays for screening everyone at airports. You are the one who pays for statistically absurd radon protection when you buy a house.

And you (and I) are the ones who pay so that Mastercard doesn’t have to incur any losses. Because in fact, legally, they, not me, are liable for the bulk of fraudulent purchases. But we, not they, get to shoulder most of the costs. Fraud costs up? Just flag every transaction that’s online and outside the good ol’ USA, and lay it off on the customer.

Give the poor customer service reps training in empathy (which means tell them to say “I apologize” for things they had no part in). Retract your retraction the following day.

Oh yes—and tell the consumer it is all being done in their best interest. After all, you wouldn’t want someone to steal your credit card and use it for fraudulent purposes, would you?

Actually, right about now I would.

Ability to travel freely around the world with a credit card? Priceless. For everything else, there’s Mastercard.

We’ve Got the Hamburgers: a Customer Service Classic

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I had a delightful dinner the other night at the home of a client in the Netherlands. It was his birthday, and at the dinner table was a mix of family friends and co-workers—all interesting, in part because all were very well-world-travelled.

One told me the following (possibly apocryphal) story.

When McDonald’s was first entering the market in Moscow, it placed a great deal of training emphasis on the elements of customer service. Fast, friendly, courteous, prompt—these were the principles McDonalds wanted its employees to embody in their relations with patrons.

An employee approached the trainer one day early in the process, with an offer to help. “Listen,” he said, “you seem like a nice person and I’d hate for you to appear foolish in front of the group, so let me explain something to you.”

The trainer was all ears, concerned that he had nearly made a faux pas, and grateful for the help.

“You see,” explained the employee, “we’ve got the hamburgers. The customers don’t. They want them—we’ve got them. They have no choice. They’ve got to go through us. And you don’t want them getting ideas about who holds the power here. Just remember—we’ve got the hamburgers. Now do you understand?”

Of course, it’s tempting to chuckle and say, how quaint, or can you believe the culture in Russia, or how dumb was that guy. Tempting, but wrong.

Because “we’ve got the burgers” syndrome lives on elsewhere.

• While looking at a car at a Saab dealership a few years ago, I asked to test-drive a model. “I really can’t do that now, I’m on break in 10 minutes and tomorrow’s my day off. Could you come back Friday?” Our burgers, our timetable.

• A customer at a discount clothing store was annoyed that the clerk kept talking with a co-worker while checking out—and making a few mistakes in the process. Transaction finished, the employee turned full attention to her conversation. The customer turned to leave, she said, “You know, a simple ‘thank you’ might have been nice.” Not turning to look, the clerk said, “It’s printed on the receipt.” You got your burger, you should be grateful.

• More subliminal, but no less real, is the implicit belief among consulting types that the client is buying knowledge and advice—and therefore is under a moral obligation to pay for any advice given, and to take it willingly. A client looking for the comfort of advance discussions is therefore trying to “get it for free,” and is ethically challenged if they don’t take the advice. How dare you challenge our burgers.

• When a corporate IT department is asked by a user for a capability like Skype, or instant messaging, they may get a lecture on why they don’t need Skype, or IM, but something else instead, and the real solution will take a while, cost more, and not do exactly what Skype or IM would do—but it’ll be great. You can’t handle the truth about our burgers.

“We’ve got the burgers” is not just a metaphor. It’s one symptom of a common disease—the disease of “it’s all about me.”

How about you? What’s your favorite "we’ve got the burgers" moment?

The Subprime Mortgage Crisis Viewed in the 12-Year Rear View Mirror

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We are still in a financial pickle triggered by the subprime mortgage meltdown.

The mess is becoming clearer. What isn’t clear is—what the hell happened, and how did we get here in the first place?

First, the present.

Two excellent articles describe the situation as of 2007.

The Wall Street Journal follows the sorry path of a single mortgage, from a truckdriver in Denver who loses his job and condo and turns suicidal, to his mortgage’s eventual home in the mutual fund portfolio of a Tennessee financial hotshot gone cold (though probably not suicidal).

Fortune dissects just one of those subprime funds—Goldman Sachs’ GSAMP Trust 2006-S3, a fund of second mortgages—tranche by tranche, detailing the infectious rot of loans gone bad (and defining “tranche” on the way).

At every step these articles read like the Wild West. No controls; no principles; no overview. You can’t help but ask: how did things get this way?

Set the wayback machine to 1995, Sherman.

To a Harvard Business School Press book, The Global Financial System: a Functional Perspective. It is a functional analysis of the financial system by a Who’s Who of financial academia, including Dwight Crane, Kenneth Froot and Robert Merton.

Crane’s Chapter (“The Transfer of Economic Resources”) describes the history of mortgage securitization. Mortgage loans in most countries were historically made by local institutions. This system encouraged risk management—the local S&L knew its borrowers, and owned its loans. It also meant high loan cost, and immobile funds. A low risk, but high cost, system. A classic cottage industry.

Securitization aimed to reduce cost by increasing efficiency—the classic Western formula for economic development. Interestingly, the government—via Fannie Mae and Ginnie Mae—led the way to securitizing mortgages; they set product standards and made guarantees, and became models for private-sector securitization.

Securitization made mortgage lending a national, even global, market. It made more money available, at lower rates, with greater accessibility. It did what it set out to do.

The shift was dramatic. Local savings institutions held 58% of outstanding US mortgages in 1950—that dropped to 15% in 1993. And by 1993, 63% of mortgages were securitized.

But what about risk?

The local model kept risk low through long-term relationships. Lenders knew borrowers personally, over a long time; lenders kept loans for the long-term; and borrowers owned houses for the long-term.

Here is Crane in 1995, explaining why risk management was under control in a securitized world:

In the modern market a) the criteria for loan approval are easily spelled out in terms of appropriate loan-to-value ratios and other variables; b) criteria used for mortgages to be put in the pool are also clearly specified, and c) there is an audit process that checks for compliance. In addition, the issuer of the securities has an incentive to manage the quality of mortgages put into the pool because d) a good reputation allows future deals to be done…[and] e) the buyers have an incentive to maintain the property since they retain ownership.

Fast forward to 2007.

a. Loan-to-value ratios may have been spelled out, but no one cared—Goldman’s GSAMP trust had an average loan-to-value ratios of 99%;

b. Criteria for loans to be put in the pool is anything but clear;

c. 58% of the mortgages in the GSAMP product were no-doc mortgages. The “audit” process had defaulted to S&P and Moody’s, both of whom were either wildly deluded or denied their responsibility for the role—or both;

d. If Goldman’s incentive to manage portfolio quality was its reputation, then its reputation was being priced awfully low. On the other hand, the short-sale bets Goldman (successfully) made against the very sort of subprime mortgage pools it was peddling looks like pretty powerful incentive. Why invest in managing a reputation when you can lay off the risk just by placing a bet against your own team?

e. Rather than “maintaining” an owned property, many buyers were in it to flip it.

How far apart had things fallen? The average equity held by the borrowers in Goldman’s GSAMP Trust 2006-S3 was 0.71%. That’s right—the ratio of the loan to the value of the underlying property was 99.29%. Picture you taking out a 99.29% mortgage.

As Fortune puts it:

A total of 93% [of GSAMP] was rated investment grade. That’s despite the fact that this issue is backed by second mortgages of dubious quality on homes in which the borrowers (most of whose income and financial assertions weren’t vetted by anyone) had less than 1% equity and on which GSAMP couldn’t effectively foreclose.

The price we paid for efficient markets was higher risk. Was it a good deal overall?

Very possibly so, even given the dislocations; remember the S&L crisis?  Mortgage securitization helped replace that mess.

But good grief, couldn’t we have done better? Yes. In retrospect, the system assumed that better information flow would enable trust.

It didn’t happen.

Financial theorists tend to describe capital markets in terms of information. If you can package information, subject it to standards and audits and controls, then you can “trust” it.

That emperor is looking naked. Trust is not about information alone. It is about people, and in particular about people’s relationships to other people.

That’s what made the old system work. For those who think trust is scalable through information alone, the subprime crisis should be sobering food for thought.

Data won’t kill trust. But a steady diet of data alone will starve trust soon enough.

 

The Point of Listening Is Not What You Hear, but the Hearing Itself

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In the category of “Things We Find Completely Obvious—But Aren’t True,” number one—the classic in this category—was “The Earth Is Flat.”

Number 27 is: “Listen to Customers to Identify their Needs and Wants.”

Seems obvious. Listen to learn, so that you can then:

• tweak what you’re selling to fit what they need, or
• find someone else who can give the customer what they need, or
• change the problem definition so you can help them get something else they need.

That’s what just about any sales book will tell you.

But—just like Flat Earth—it turns out to be wrong. Or, to be clear—less than 100% right. Way less.

Sure, you listen for specs. And you listen for missing benefits. And you listen for opportunities to meet those needs and wants and provide those benefits.
But there’s something much, much bigger at stake.

The main reason for listening to customers is to allow the customer to be heard.

Really heard.

As in, another human being actually paying attention to them.

Listening for the sake of listening.

Listening to understand, period—no strings attached, no links back to your product, no refined problem statements.

Not listening to do a brain-suck.

Not listening to pounce on needs, which are one nano-second away from selling opportunities.

Not listening with an ulterior motive, or even a secondary motive.

Just listening for the sake of listening.

Because that’s what people in relationships, at their best, really do. They listen because they want to know what the other person thinks. About whatever the other person is interested in talking about.

You won’t find that in sales books. You’ll find a million questions aimed at furthering problem definition, or moving toward a close, or “handling” objections.

But you won’t find too many books (mine is an exception; so is Brooks and Travesano’s “You’re Working Too Hard to Make the Sale”) that talk about the power of just plain listening.

But that power is huge. Pure listening, for its own sake, validates other people. It connects us to them. It provides meaning.

Brooks and Travesano note that people greatly prefer to buy what they need from those who understand what it is that they want.

Read that over again, carefully.

People prefer to buy what they need (stuff they’re going to buy anyway), from those who understand them on the basis of what they want (things in life they’d love to have—wishes, hopes, desires.)

You don’t even have to give them what they want; it’s enough to understand them.

This triggers the reciprocity interchange between people; according to Robert Cialdini, the most powerful factor affecting influence.

And therein lies the paradox. The most powerful way to sell depends on giving up your attachment to selling—and instead, just listen. Not listening for anything. Just listening.

Listen not for what you hear—but for the act of listening itself.

It is that act that creates value, and relationships.

And—if you can let it be a side-effect, not a goal—sales too.

(Here are some ideas on how to do it).

Call For Carnival of Trust Submissions

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Every month the Carnival of Trust highlights ten of the best posts on trust, whether business related or not. The next carnival will be Monday November 5th. If you’ve written a post you think would be a good fit, or if you have read a post by someone else that you think would be great for the carnival I’d like to encourage you to submit it for the carnival.

Carnival Submission Guidelines:

  1. The Deadline for submissions is midnight, Thursday November 1st.
  2. Posts do not have to be business related. Trust in personal relationships, politics, or any other sphere of life are more than welcome, and, indeed, encouraged.

Posts can be submitted here.

If you’d like to read a sample Carnival of Trust, bothWhisper and David Maister have hosted editions. I look forward to another excellent edition with your help.

Short-termism, ROI and Green Economics

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From BusinessWeek comes the painful story of an idealist butting heads with resistance and inertia. Nominally it’s a story of Green economics — identifying ways to be profitable while reducing environmental impact.

But it’s also about an emphasis on short-term economics that is not only paralyzing environmental activity, but is harming business and society.

Think of it as the triumph of payback time over ROI analysis.

Auden Schendler is a classic young outdoorsman environmentalist, full of hope that his employer, Aspen Skiing Company, will “get it” regarding his recommendations.

He recommended a $100K project to remodel the oldest lodge; it has a 7-year payback.

Too long, said the company.

OK, then, how about fluorescents in guest rooms—a 2-year payback in eco-friendly savings.

Nope, not warm enough light for guests.

OK then, how about $20K to save $10K per year in the underground garage?

No, we’d rather spend it on amenities guests notice.

It took Schendler two years to overcome resistance to the garage-light replacement, and then only after he secured a $5,000 grant from a local nonprofit. He acknowledges the strangeness of a corporation with annual revenue of about $200 million, according to industry veterans (the company declines to provide a figure), seeking charity to reduce its electricity use. With a hint of sarcasm, he notes: "This is the sort of radical action that’s needed to get people over ROI thresholds."

BW is writing about Green economics. But look at the examples.

What kind of capitalistic enterprise is passing up 50% returns on investment? The answer—a whole lot of them.

Our economy is increasingly governed by the belief that a bird in the hand is worth more than two in the bush—because that two-bird bush could blow up at any time, and besides, you just might find a four-bird bush around the corner.

Look at the forces of short-termism at work:

• The average length of ownership of a stock is down by orders of magnitude from a decade ago;
• mortgages used to be resold once or twice; now they are sliced and diced and repackaged into securities that are themselves sold over and over;
• the growth of private equity is, among other things, a shortening of the time period of evaluating a company’s worth;
• the growth in auto leasing represents a shortened ownership period;
• Real estate is increasingly a short-term investment to be “flipped;”
• Outsourcing reduces the time required to make a switch in organizations;
• Divorce rates, clothing style cycle times and TV show lifespans—all becoming shorter.

A shift toward transactions goes hand in hand with a reduced time perspective. These shifts make for more efficient markets, and reduce transactional costs (though increasing their number). But there’s a big downside: if everyone’s looking for fast hits, then no one’s around to play the long game.

Mathematically, there are three reasons payback analysis is supplanting ROI analysis:

1. Investment “owners” are turning over faster; I want mine now, thank you;
2. Uncertainty feeds the “get rich quick” mentality; why tie your money up because,hey, you never know!
3. Uncertainty also feeds perceived risk. In effect, investments are being assessed at increasing hurdle rates for farther-out timeframes (note to self—or kind reader?—check bond markets for evidence of this)

So we get more of this kind of thinking:

• Why should a private equity firm invest in anything beyond what will increase the return when the company is sold in three years?
• Why should any company invest with a longer timeframe than three years, lest it be taken over by a private equity firm?
• Why should a company invest in employees, since after all they might leave?
• Why should a company invest in customers if the payback takes over a few years?
• Why invest in branding? In training? In anything you can outsource? (And make sure the outsource contract shows a payback of at least two years).

With this kind of thinking endemic, it’s no wonder we’ve got a hard time figuring out how to reform social security, save the environment, deal with immigration, or rebuild falling bridges. It’s just not fast enough to suit us.

Thank goodness Schendler has the optimism of youth. He doesn’t know what he’s up against.

 

Trust vs. Incentive Compensation: What Joe Torre and the NY Yankees Have to Teach Business

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Let’s talk fundamentals: how to manage and motivate people in an organization.

Which statement do you agree with (from the New York Times)?

1. “[it is] important to motivate people, as most people in everyday life have to be, based on performance.”

2. “It’s not the money that is…the determining factor. It’s…the commitment and trust — because you can’t have one without the other.”

If you agree with the first, you’re agreeing with Randy Levine, New York Yankees President and lead contract negotiator. And with the majority point of view in business.

If you agree with the second, you’re agreeing with the most successful manager in modern baseball history, who just turned down the most lucrative offer in the major leagues—Joe Torre. But with the minority point of view in business.

“When I walked into that room, I saw businesspeople,” said Torre. Too true. The dominant view among compensation consultants, business schools and general management—basically—is that incentives help performance, and that the best incentive is money. Just like Levine said.

Both business and the Yankees see Torre as a unicorn—they refuse to believe people like him exist. Their denial extends to a refusal to acknowledge the fact that his 12-year superior performance was achieved without incentive clauses.

Alfie Kohn has written extensively about the harm caused by reward systems, in business and in education. “Monetary rewards definitely incent people,” he says “—they incent them to get more monetary rewards.”

What they don’t do is incent people to do things for their own sake. Like manage a great baseball team. Or develop great software. Or serve customers.

Really great performance doesn’t come from the extrinsic motivation of rewards—it comes from intrinsic motivation (this is frequently true even on Wall Street, in the business of money).

The hijacking of American business thinking by B. F. Skinner in this regard is astonishing. Despite massive evidence to the contrary (think Babe Ruth: “you mean you’ll pay me to play baseball?”), the mantra continues to be “they won’t play without that pay.”

Kohn cites a study in which children were observed, in order to determine their favorite game. Once the game was identified, the children were offered incentives to play that particular game.

Whereupon they promptly lost interest.

Kind of like Torre, who said he was insulted by making his compensation “incentive”-based. “I’ve been here for 12 years; I didn’t think ‘incentive’ was needed.”

For Torre, it was pride—in himself and in his work—which was demeaned by the Yankees’ rats-and-cheese model. In his words, “It was a very generous offer, no question about it. It still wasn’t the type of commitment that we’re trying to do something together as opposed to what can you do for me.”

This means the Yankees’ incentives worked, all right—they incented a consummate team player to quit the team.

The Yankees say they really wanted Torre back—which is either a lie or reveals the depths of their denial. Because if Levine, Steinbrenner et al really wanted him back, they would make him an offer that restored his pride. Yet—they’re too proud to do that.

So here’s the real irony. The thing that drives both their own behavior and Torre’s—pride—is something they don’t believe exists.

When you believe in a philosophy that is contradicted by your own behavior, that’s some serious denial.

If your company’s compensation people get the bright idea of incentivizing trust—“I know, let’s give them big rewards for behaving selflessly!”—send them to the Bronx. The Yankees’ front office is their kind of place.