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Digital and Analogue Social Networks and Pharma

Here are two big trends in marketing:

Trend 1. Companies organize programs around the customer. This is often called customer-centricity.

Trend 2. Customers are in charge of interactions. This also gets called customer-centricity.

When two phenomena get called by the same name—opportunities for merriment—and suffering—ensue.

Case 1—the occasionally obtuse but always interesting Harvard Business School Working Knowledge series.  In Authenticity over Exaggeration: The New Rule in Advertising,  Julia Hannah explores HBS professor John Deighton and Leora Kornfeld’s "Digital Interactivity: Unanticipated Consequences for Markets, Marketing, and Consumers."  An extract:

5 new rules of digital interactivity:

• Thought tracing. Firms infer states of mind from the content of a Web search and serve up relevant advertising; a market born of search terms develops.

• Ubiquitous connectivity. As people become increasingly "plugged in" through cell phones and other devices, marketing opportunities become more frequent as well—and technology develops to protect users from unwanted intrusions. A market in access and identity results.

• Property exchanges. As with Napster, Craigslist, and eBay, people participate in the anonymous exchange of goods and services. Firms compete with these exchanges, and a market in service, reputation, and reliability develops.

• Social exchanges. People build identities in virtual communities like Korea’s Cyworld (90 percent of Koreans in their 20s are members). Firms may then sponsor or co-opt communities. A market in community develops that competes on functionality and status.

• Cultural exchanges. While advertising has always been part of popular culture, technology has increased the rate of exchange and competition for buzz. In addition to Dove’s campaign, Deighton cites BMW’s initiative to hire Hollywood directors and actors to create short, Web-only films featuring BMWs. In the summer of 2001, the company recorded 9 million downloads.

These 5 aspects show increasing levels of effective engagement in creating social meaning and identity, Deighton suggests, noting that the first 2 (thought tracing and ubiquitous connectivity) change the rules of marketing but don’t alter the traditional paradigm of predator and prey.

In the last 3 (property, social, and cultural exchanges), the marketer has to become someone who is invited into the exchange or is even pursued (as in the case of the BMW films) as an entity possessing cultural capital.

Exactly.

This is Trend 2 type customer-centricity-recognizing that the consumer is actually in charge.  It means moving away from a “predator and prey” model of control and one-way monologue, to a genuinely interactive two-way model of dialogue.  In this model, the role of centralized control drops drastically, because the marketer and customer collaborate—even blend.

Hmmm.  D’ya think that model might work in the analogue world too?

Case 2. Pharma Voice Magazine, The Forum for the Industry Executive: The Salesforce of the Future  quoting Bill Pollock, CEO of Pharmagistics:  An excerpt:

In the future [of pharma], salesforces will be much more focused, and they will have the ability to look at each touch point, determine what’s the most effective way of communicating with a practitioner, and do so in a personalized way.

As a result, marketers will have to integrate their sales and marketing efforts into everything they do, treating each and every touch point as part of their total sales and marketing mix. This includes their e-portals, inside telesales efforts, Internet-based virtual sales reps, literature, and direct-mail programs—all of these tactics will be considered a part of the entire salesforce effort and must be integrated via the entire marketing program.

Such a trend would mean that pharma companies will need the ability to track everything that is done and monitor the impact of their efforts on their prescribing customers.

This is Trend 1 type customer-centricity.  It retains the predator-prey model and focuses on making sure all the guns are pointed in the right direction—at the customer.  The problem is perceived as one of alignment and control.  The new world isn’t qualitatively different, this model says, just quantitatively more complex.  It retains the focus on centralized control because it’s still an us-vs.-them view of the world.   It is restricted to the first two levels in the HBS piece—there is no conception of becoming "someone who is invited into the exchange or is even pursued…" much less of becoming "an entity possessing cultural capital."   This kind of  "customer-centricity" is not collaborative.  It is customer-centric  in the way a vulture is customer-centric—laser-focused on its prey.

The confusion around the term “customer-centric” isn’t just a matter of definition or market power.  Marketing is only one  battlefield in a much larger contest between a network-driven commerce-based view of the world and a command-and-control-driven competition-based view of the world.

Life imitates art.  Sometimes we learn more about the analogue world by observing pale avatars in the digital realm.
 

How To Get Your Industry Regulated, in 6 Easy Lessons

On November 15, the US House of Representatives passed HR 3915, known as the Mortgage Reform and Anti-predatory Lending Act of 2007, mainly along party lines.

Led by Barney Frank, the impetus for this legislation was the disastrous subprime lending meltdown, whose implications are looking worse every day—right up to today, December 6, 2007.

To hear the mortgage industry tell it, this legislation is a classic big-government socialist disaster in the making. The Heritage Foundation says it will “put individuals of moderate incomes, imperfect credit histories, and limited wealth at an even greater disadvantage, leading to a decline in the home ownership rate,” and if they say that’s a bad thing, then of course it must be so.

A typical letter in the Originator Times, a mortgage broker publication, predicts “this [legislation] will cripple the economy and the livelihoods of thousands of people in this industry.” Brokers, that is; never mind the homebuyers.

Aubrey Clark, of Lendfast.com, says, “Lawmakers attempting to pass the Anti-predatory Lending Act of 2007 right now are effectively trying to tell lenders whom they can and can’t loan money. HR 3915 is vaguely written and enables borrowers to sue their lenders for giving them a loan should they decide not to pay.”

Well, Aubrey’s reports of impending communism are slightly exaggerated. This legislation has already been watered down, and may get still more diluted in the Senate.

But more importantly—the mortgage industry, and the two main industry associations (the Mortgage Bankers Assocation, and especially the National Association of Mortgage Brokers) have no one but themselves to blame. Anyone running a services industry association has just been handed a “teachable moment” in how to shoot themselves in the foot.

It’s classic—an industry association that sees its role as pursuing the short-term interests of its constituents at the cost of the customers’ interests—and therefore at the long term cost to everyone. The (predictable) end result is government regulation—about which they then bitterly complain.

Wanna get regulated? Follow these Six Simple tips.
 

1. Wrap Your Business in the Flag

Testifying in the house in 2003, Mr. A. W. Pickel, President of the National Association of Mortgage Brokers (NAMB), talked about “the dream of home ownership…the joy of home ownership…We believe the record levels of home ownership in the US can be attributed to the vibrant and competitive mortgage market.”

Therefore, “addressing abusive lending requires a balanced response…Any efforts to address abusive lending practices cannot cut off access to consumer credit.”

[Try substituting another industry here. “Addressing abuse of alcohol requires a balanced response…Any effort to get bartenders to address excessive drinking cannot cut off patrons’ access to more booze.”]

The Mortgage Bankers Association (MBA) in 2006 says: “More Americans own homes than ever before…Americans are building tremendous wealth.”

Throw in some free market talk stuff too: “If consumers did not feel mortgage brokers were delivering on what was promised, they would not reward them in the market.” Of course not. Who could think otherwise?

When threatened, repeat: "We cannot allow the American Consumer to be separated from the dream of home ownership."
 

2. Say You’re the Hero of the Underdog

NAMB: “Subprime lending often serves the market of borrowers whose credit history would not permit them to qualify for the conventional “prime” loan market.

MBA: “The subprime market has evolved dramatically in recent years, providing significant benefits to consumers. Non-prime borrowers commonly have low-to-moderate income, less cash for a downpayment and credit histories that range from less than perfect to none at all. Before the advent of this new market, these borrowers were either simply denied homeownership or…served exclusively by FHA or other government subsidized financing.
 

[Inconvenient truth: “In 2005, the peak year of the subprime boom, the study says that borrowers with [credit scores high enough to qualify for conventional loans with far better terms] got more than half—55%—of all subprime mortgages].

 

3. Deny Bad News

In August, 2006, the MBA said, “Default and foreclosure rates are low. Some argue that [they] are at crisis levels and that a greater percentage of borrowers are losing their homes. MBA’s data does not support this—instead, it tells a different story.”

[A scant 8 months later, this headline: US mortgage default rates hit an all-time high in the first quarter of 2007.

Mr. Pickel, of NAMB: “the incidence of abuse is very small relative to the whole industry…NAMB strongly advocates that our members never originate a loan to an uninformed consumer…”

[Counterpoint, Wall Street Journal: “A study done in 2004 and 2005 by the Federal Trade Commission found that many borrowers were confused by current mortgage cost disclosures and ‘did not understand important costs and terms of their own recently obtained mortgages,’” ]

 

4. Blame the Consumer and the Government

“Education is key…NAMB supports federal legislation that includes provisions to address financial literacy…NAMB urges increased enforcement of existing abusive lending prevention laws.”

MBA believes that borrower education to help consumers navigate the home buying and mortgage finance process is extremely important…MBA and its members have developed a number of strategies to educate consumers about their options in the mortgage marketplace.”

Some of the barriers to fair lending include…insufficient enforcement of existing laws…NAMB believes existing laws should be better enforced by state and federal regulators as a means to eliminate abusive lending practices.”

[In other words: the problem is consumers are too stupid to follow our fast-talk—and that’s not our fault. Feel free to use taxpayer money to educate millions of consumers—and boil the ocean while you’re at it. And we don’t need no more stinkin’ laws; get some FBI agents to bust criminals, and leave us good guys alone.]

 

5. Say Bad Things Are Not Your Fault

HR 3915 makes lenders more responsible for assessing borrowers’ ability to pay. Listening to the industry, you’d think this is the death of civilization. (“What!? I lend a guy money and he doesn’t pay—then sues me because I lent him the money!!”).

Sounds reasonable, until you substitute:

“Those kids don’t have to watch our (cereal/game) ads on TV on Saturday morning, they could be studying.”
“Those people didn’t have to move next to a chemical dump, no one forced them.”
“We’re not in charge of the nation’s diet, we just offer the high calorie high fat part of it; they can buy salads anytime they want.”
"Why should I have to drive slow just because some other folks are bad drivers, and can’t afford gas?"

 

6. Whatever You Do—Don’t Share Data

One of the biggest worries of the industry was that legislation might eliminate the YSP—yield spread premium. It’s money paid by the lending institution to the broker for higher interest loans.

The mortgage brokers howl at the idea of disclosing these numbers; the WSJ article shows a broker’s rate sheet with the footnote: “for wholesale use only. Not for distribution to the general public.”

In industries where the wholesaler’s payment to the retailer is disclosed, it goes by names like "advertising allowance." In industries where it’s secret, it’s called a kickback.

The brokerage association says it gives the broker flexibility to help the consumer. The Wall Street Journal calls it “a compensation structrue that rewarded brokers for persuading borrowers to take a loan with an interest rate higher than the borrower might have qualified for."

Mr. Pickel—now a CEO of a mortgage brokerage firm, and no longer head of the NAMB, says there is “a lot of play in the system. You have to operate with an ethical basis.”

He’s wrong. You don’t "have to." And not enough did.

Now they’re getting the results they in effect asked for—the prospect of regulation.

But don’t cry too hard for them: they’ve already succeeded in watering down the YSP restrictions. They have a few friends in congress—(curiously, all of them Republican—the House vote was 100% of the Democrats.)

So there’s your recipe. Are you listening, financial planners? Credit card operators? Insurance specialists? Stock brokers? Follow these easy rules, and you too can enjoy the benefits of greater federal regulation in your industry.

Of course, you could clean it up yourself.

Nah…

Ben Stein vs. Goldman Sachs: Market-Makers, Brokers, and Trusted Advisors

Yes, that Ben Stein. Bane of Ferris Bueller. Droll protagonist of Comedy Central’s Win Ben Stein’s Money. Pitchman for beachball eyeball medication. And—lest you forget—economist.

In this Sunday’s NY Times, Ben Stein let fly with an article—The Long and Short of it at Goldman Sachs —that must have raised a few hackles even at that above-it-all Wall Street institution.

Stein’s breezy style is to write—as he would put it—all ‘round Robin Hood’s barn, until he ends at a very sharp point. So he does here; but he pulls his punch.

Background. Alone among Wall Street players, Goldman Sachs not only didn’t lose money in the subprime debacle—they made a great deal of money, by going short, or betting against, the very packaged subprime mortgage-backed securities they were selling to customers. (See Allan Sloan’s excellent Fortune article on a sample Goldman offering .)

Stein reminds us of Merrill Lynch analyst Henry Blodget in the last overdone market; Merrill hyped tech stocks to investors, while Blodget privately called them “junk” to his friends. In 2003, he was permanently disbarred from the securities industry.

Then he pulls the trigger.

“How different would [the Blodget situation] be from selling short the junky stock that your firm is underwriting? And if a top economist at Goldman Sachs was saying housing was in trouble, why did Goldman continue to underwrite junk mortgages into the market? …

It is bad enough to have been selling this stuff. It is far worse when the sellers were, in effect, simultaneously shorting the stuff they were selling, or making similar bets…

Should Henry M. Paulson Jr., who formerly ran a firm that engaged in this kind of conduct, be serving as Treasury secretary? Should there not be some inquiry into what the invisible government of Goldman (and the rest of Wall Street) did to create this disaster…

Bracing stuff, that—simultaneously calling Goldman Sachs a bunch of salesmen, questioning the moral rectitude of the Secretary of the Treasury, and calling for an investigation of the investment banking industry.

If you like that sort of thing, you’re probably woo-wooing and high-fiving Ben Stein. But the truth is, by demonizing Goldman Sachs, Stein lets everyone off too easily.

Here’s what I mean: What’s the difference between a market-maker, a broker, and a trusted advisor?

A market-maker is socially and legally authorized, even required, to take the other side in a transaction in order to maintain liquidity in trading.

A trusted advisor has your best interests at heart—gives you advice based on what is best for you, not necessarily best for the advisor.

A broker is usually found somewhere in the middle—making markets, giving advice, and trying to avoid the perception that his own self-interest is driving the position. Which, all too often, it is.

Which was Goldman Sachs?

Some might say market-maker. You can’t be a viable institution if you don’t systematically manage risks. If you’re going to sell $100 billion in CMOs, you might also want to hedge your exposure. Goldman just hedged well.

Some will say Goldman is a trusted advisor. Some customers, perhaps. I suspect Goldman will, anyway. They point out that they were not the only ones to sell CMOs. True. Not much of a proof for trusted advisorhood, but true.

But broker sounds more likely to me. The question is only partly one of transparency. Were Goldman’s short positions really hedges, or separate bets for their own accounts? Did Goldman tell buyers of CMOs that Goldman was net short?

But transparency alone can get reduced to “letter of the law” stuff. Motives matter too. No one would accuse a pure market-maker of claiming that one side of the deal was “better” than the other—the market-maker’s job is devoid of advice.

And no one would accuse a trusted advisor of having shaded advice to suit his own ends—because his trusted advisorhood would be instantly shot.

Life in those cases is clear; there are the black hats and the white hats. And Ben Stein is pretty clear about the black hats.

The question comes when those motives are unclear. When you just can’t tell what role Goldman was playing—when Goldman itself isn’t clear, or sends out weak messages (others sold CMO’s too; we are not a crook)—or we ourselves don’t know what role we want from Goldman—that’s when we’ve got a social, institutional, broad-based trust problem.

Now that’s a real problem, Mr. Stein.

Would You Buy a Used Car From This Scientist? Not If You’re a Scientist!

Peter Calamai is Science Writer for the Toronto Star. He recently wrote about the demise of society’s trust in its scientists. He’s got a lot of statistics that ought to cause scientists great concern about the level of trust in scientists.

And, as he says:

After two days of provocative ideas and spirited exchanges at an international gathering recently in Toronto, British museum curator Robert Bud neatly summed up the collective wisdom.

"The scientists are terrified."

Calamai’s most cogent point may be this:

Scientists might ask themselves about the erosion of the traditional trust relationships among researchers, who once readily exchanged things like specialized strains of mice or reagents, custom chemicals used in experiments.

Increasingly such exchanges are now circumscribed by material transfer agreements, complex legal documents that spell out details like liability and indemnification, due diligence and standards for care. Some even feature "reach-through" clauses, guaranteeing the supplier of the materials a share in any subsequent commercialization because of subsequent research done elsewhere.

Use of these agreements is exploding. In 1998, the University of Toronto handled about 30. This year, +*officials have reviewed 170.  Similar growth at U.S. universities prompted this wry workshop comment from Notre Dame’s Mirowski: "Why should the public trust science when it is becoming apparent that scientists less and less trust each other?"

Why indeed.

Let’s break this down. There’s a bigger trend going on here—two, actually.

One trend is the fragmentation of big things into little modules. The other is the re-connection of modules into big things again.

Take business processes. Companies used to have HR departments. Now they have many specific HR sub-processes, which can be outsourced, which in turn requires standardization. Big things broken into little; little things reconfigured into big. Now companies can configure their own HR departments.

Take music. The record business used to record artists on vinyl and sell the product through physical stores. Now artists, recording, and marketing are going off in dozens of directions. A big business broken into little parts; little parts reconfiguring into dozens of designs.

Take software, movies, travel, training, banking. All used to be made of monolithic structures. All can now be configured in myriad ways.

But here’s the catch. The main way we reconfigure modules in the world is by contract, in some kind of market.

That means transactions. That means costs, complexity, and lawyers. It means every little module has to be priced, defined, tracked, and contracted.

The trend has hit absurd levels in many places by now.

• How many levels of automated phone answering software can you stand before exploding?
• Sampling of a half-second of music is subject to copyright law so we can write royalty checks to dozens of people from thousands of users;
• And now scientists don’t share because we need to prospectively track the rights to thinks that might be invented in the future.

This is what happens when a new technical/organizational reality meets an outmoded ideology.

The new reality is the ability to connect everything and everyone to everything and everyone else.

The outmoded ideology is the idea that everything is property—and is therefore definable, trackable, assignable and salable.

Put those two together, and something’s got to give. Eventually, it will be the outmoded ideology that gives. The question is, how long will the forces of resistance hold it back?

How long can we live with outmoded laws governing intellectual property, water rights and patents?

How long can we put up with outmoded business models that define relationships by boundaries rather than by bonds?

How long can we live with corporate and social governance models that can’t figure out how to make individuals accountable to the public good, and present generations accountable to their heirs?

Chief Seattle, in 1854, supposedly said, “The earth does not belong to us; we belong to the earth.”

With a little updating, that’s exactly the thinking we need. The more complicated and topheavy the contract/ownership model gets, the more economically superior becomes a model based on trust and mutual interests.

Flaky? Not at all. Read, for example, a Nobel Prize economist’s lecture here, or read a Harvard Business Review article here.

Trust is not flaky, it is commonsense. It’s just not common. Yet.

Saudi Prince Alwaleed: Tough on Trust

Many people think of trust as “soft,” and inconsistent with “hard” approaches to making money. But have a look at Saudi Prince Alwaleed.

Alwaleed has long been a big investor in major US companies—Apple, for example, and Citigroup. He is Citigroup’s biggest individual shareholder, at 3.6% of the company (or he was until two days ago, on the 26th, when a group in Abu Dhabi took a position in Citigroup even larger than his). He did not get where he is by being “soft.”

In a fascinating interview, Fortune magazine spoke with Alwaleed about the demise of Chuck Prince, former CEO of Citigroup, after he announced a second write-off (of $11B) just three weeks after the first write-off of $6B .

Turns out Alwaleed believes in trust—strongly. See these excerpts:

Fortune has learned that Prince Alwaleed and other major shareholders agreed last week that, if Chuck Prince didn’t offer his resignation after the news of the additional $8 billion to $11 billion writedowns, they would publicly call for his ouster.

Q: Did you like Chuck Prince?

A: Yes, Chuck Prince was a good man. Honest man. Decent man.

Okay—a good, honest, decent man. Does Alwaleed trust him?

A…when Citigroup pre-announced the $6.4 billion writeoff, Chuck Prince called me within five minutes of the announcement and informed me of that loss and I told him bluntly and openly, "Is this the end of the story? Did you think of everything?"

His answer was "yes" and he expected normalization in the fourth quarter…So obviously, this gave me comfort that this was a onetime event and only an aberration and I backed off.

..But what happened two or three weeks later, another $8 to $11 billion additional write-off, the situation changed completely.

You cannot come to the public and say that this normalization is expected in the fourth quarter and then three weeks later, not three months later, you come and say there is an $11 billion writeoff. This is unacceptable. That’s when the events changed completely. My backing was withdrawn dramatically.

You should never commit to something that you can’t deliver. Never.

Q: Are you disappointed in Chuck Prince?

A: I am extremely disappointed with Chuck Prince and I believe that Chuck Prince let down the shareholders completely. Citibank did not conduct itself in the right way. The risk-management situation was very wrong at Citibank.

So—is Alwaleed sour on trust?
 

Q: Do you have anybody in mind [going forward?]

A: Frankly speaking, I don’t have anybody in mind. I trust Mr. [Robert] Rubin. I trust Mr. Bischoff (interim CEO). I trust Mr. Parsons (CEO TimeWarner and head of the search committee for a new CEO).

Alwaleed gets it exactly right. He views attributes like honesty and decency as important for trust. But he put one element of trust ahead of all others in the case of Mr. Prince.

Alwaleed would not trust someone who did not know himself.

Prince’s sin was not the admission of a write-off—even a gigantic one. And Alwaleed concedes Prince is an honest man.

It’s not competence or poor moral character that Alwaleed is faulting Prince for, but Prince’s flawed belief that he knew what he was doing. He gave assurances—his word—that he was in control.  He wasn’t—and he didn’t know it.

It was not Prince’s incompetence that cost Alwaleed’s support, but his unconsciousness of his incompetence.  He didn’t know that he didn’t know.

And if you can’t trust that someone knows what he says he knows—well, it calls everything else into question. This is what Alwaleed saw, and he didn’t hesitate to pull the trigger having seen it.

Has Alwaleed’s view of trust been shaken? Not at all. He speaks openly of trusting others, even after having been burned.

He has gotten where he is by trusting the right people, and he’s not about to stop playing the trust game because his trust was misplaced in one case.

Alwaleed believes in trust—hard, serious trust.

If you think the dictum “know thyself” is only about touchy-feely introspection, then don’t work for Prince Alwaleed.

December Carnival of Trust Accepting Admissions

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 December third. 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.  This month’s host is John Crickett of Business Opportunities and Ideas.

Carnival Submission Guidelines:

  1. The Deadline for submissions is midnight, Thursday November 29th.
  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, both Whisper and David Maister have hosted editions. I look forward to another excellent edition with your help.

How to Develop a Critical Database People Will Trust

New economy opportunities for trust come from the ability to create, access and share databases about people. And of course one of the largest risks to the use of large databases is the consequence of getting it wrong.

Sometimes getting it wrong can have trivial consequences—a wrong phone number. Or, the consequences can be serious, even fatal—wrong data in a medical report, or evidence in a capital case.

What’s the best way to ensure clean data? Is it cross-checking databases? Multiply redundant systems? Multiple data-entry? Random audits?
Some of us frequent travelers recall being caught in a false-negative trap a few years ago at the airports: being pulled out of line in security checks because our names were somehow linked to terrorism.

There were thousands of these cases, I recall. I was one, and it took several months to clear it up. It was annoying, though I confess to some small measure of pleasure at the notoriety, as long as it didn’t go on too long.

Fixing the list of terrorists: now, that’s one database worth getting right. And worth looking at how they did it.

Timothy Clark is Editor and President of GovernmentExecutive.com, which produces several informative newsletters about the federal government.

Recently, Shane Harris wrote about Making a List.
 

The FBI’s Web site describes the Terrorist Screening Center as an "anxious" place, full of "serious faces — like you see at NASA’s Mission Control right before a launch."

"The TSC is essentially a call center, handling queries from law enforcement, security and intelligence agencies all asking the same basic question: Is the guy we just stopped at the border or pulled out of an airline queue, a known or suspected terrorist? The FBI calls it "one-stop shopping."

"The TSC was established to consolidate the dozens of so-called terrorist watch lists that proliferated across government before and immediately after the Sept. 11 attacks. …how it was created gives you a good idea of how difficult information sharing really is, and what intelligence agencies face today as they struggle to get on the same page.

"Who decides what names go on the list? Settling that question was one of the TSC’s first challenges. The agencies with a stake in the list all had their own way of handling information, and each had different ideas about names they wanted to add.

"The screening center laid out some basic criteria for adding a name. First, an individual had to have some demonstrable nexus to terrorism. An agency couldn’t just tell the center, "trust us," Bucella said. Every day, the TSC would get an upload of 300 to 500 names. Those weren’t all new; some included updated information about existing names. But the pace was relentless.

"Perhaps inevitably, then, people who shouldn’t have been on the list ended up there anyway. It wasn’t uncommon to drill down on a name and discover that someone an agency had encountered wasn’t actually the person on the list, even though the two shared the same name, Bucella said. But when the TSC did get a hit, day or night, officers would contact the person who had added the name.

"… building and maintaining the watch list is more of an art than a science.  But that’s to be expected from such a subjective endeavor. The consolidated watch list is, in its own right, a legitimate bureaucratic success. But how it was built and how it is maintained lets you in on one of the hard realities about sharing intelligence and hunting for terrorists: Mistakes are unavoidable.

Digital systems can never be fully insulated from the analog world.  Trust can never be fully automated. 

That doesn’t mean digital approaches to trust aren’t valuable; it just means they’re not omnipotent.

Trust-based Selling in the Real World: Case Study #24

“Alex” (not his real name) is a friend and ex-client.

Alex leads a Private Client practice for a private wealth management firm in a country whose name I will not reveal, but which lies somewhere to the north of the United States.

We talked about his approach to managing his clients’ money. First thing he notes—it’s not just about managing their money.

“They need help from time to time in various aspects of their lives,” Alex says. “I get to know about these issues because they have financial impacts. Marriage, Children, College, Divorce, Insurance, Disease, I hear about them all. It is important to weave all aspects of the client’s life through their financial affairs, nothing personal happens in isolation.

“I cultivate a network of people I know, respect, and trust. Exceptional people who understand the power of relationships; people in real estate; divorce mediation specialists; psychologists; medical specialist; and educators who can help my clients. Whatever it is that they need—I make it my business to help them.

What do your colleagues think of this, I ask?

“They don’t get it. They say there’s no money in those things. I say that’s not the point… I’m in this profession to help people. But in the long term, they are dead wrong—in fact, there is money in this.

“For example, I spent an hour talking with the19-year-old daughter of a client about how to manage her $3,000. I took flak from colleagues for that too. But what they forget is how delighted her father was that his daughter was getting sound financial advice at age 19.

"And he has considerably more than $3,000… as will his daughter, sooner or later. My relationship is with their family.”

“What my colleagues forget is that this is a relationship business. Clients are referred by their parents, their children, friends, colleagues, accountants, lawyers etc. This only happens if you play for the long run.

“But it works; it works beautifully. Some people in my business focus on their transactional income, or look for ways to go seeking more clients through seminars or mailings. I focus on the relationships with my clients and appreciate when they invest in my business through referrals… my cost of marketing is nil.

“But perhaps most importantly, I spend my working days helping people, people I like. My practice is built on relationships where I enjoy working with the clients and they enjoy working with us. How much better can work get?”

How Does Wealth Inequality Affect Trust?

An old Frank Zappa lyric went, “What’s the ugliest part of your body? I think it’s your mind.”

Similarly, we might ask, “What’s the lowest-trust place in (corporate) America? I think it’s Wall Street.”

Which brings us to the latest issue of Harvard Business School Working Knowledge.

I find HBSWK a pleasure to read—they identify the coolest topics for study. The treatment of those topics—well, that can be quirky.

One fascinating current item is “The Dynamic Interplay of Inequality and Trust: An Experimental Study,” by Ben Greiner, Axel Ockenfels, and Peter Werner.

Here’s the (partial) synopsis:

We study the interplay of inequality and trust in a dynamic game, where trust increases efficiency and thus allows higher growth of the experimental economy in the future. We find that trust is initially high in a treatment starting with equal endowments, but decreases over time. In a treatment with unequal endowments, trust is initially lower yet remains relatively stable.

Cool! An egalitarian society shows a greater decay of trust than one with initially disparate endowments? The implications for political theory, economic policy and social dynamics are juicy, to say the least.

The “dynamic game” the authors use to add some empirical juice to theoretical discussions involves a trustor and a trustee. In a series of interactions, the trustor offers a sum of money to the trustee, which sum is then multiplied by the game; the trustee then returns a certain amount to the trustor.

As the authors say, “The amount sent can be interpreted as a measure of trust, while the amount returned measures the degree of trustworthiness.”

Then ensues 20 pages of analytical bludgeoning. Did you know about the Wilcoxon Matched Pairs Signed Ranks (WMPSR) test? Me neither. Did you know the lowest Gini factor ever measured was in Bulgaria in 1968?

I am numbed and humbled; you could say I’m numbled.

And sure enough, the graphs show a decrease in trust if all players start equally, vs. a low-trust start with sustained low trust if players begin with inequality.

But wait a minute! What happened to Frank Zappa?

The appendix lists the instructions given to the players in this game. Here they are:

Welcome! You can earn money in this experiment. How much money you earn depends on your decisions and the decisions of the other participants…it is guaranteed that you do not ineract with the same participant in two subsequent rounds…The identity of the participant you are interacting with is secret, and no other participant will be informed about your identity.

OK, so I want to measure the role of trust and inequality in an economy. Where should I go?

Los Angeles? Omaha? Detroit?

Nah. Let’s go somewhere people aren’t distracted by entertainment, or meat-packing, or cars.

Let’s go where people interact solely around money. Anonymously. And never with the same person twice. (Blindfolds and knives might make it even more interesting).

And let’s call that a trust experiment.

If this game had a geographical correlate, it would have to be the Land of Gekko, where Fear and Greed are baseline hiring criteria—Wall Street.

Not exactly where I would have suggested one go searching for insights about trust.

What’s the ugliest part of that trust? I think it’s the game.

 

Trust Enablement

Readers of Trust Matters know that I tend to focus on a certain side of trust—the human, complex, messy, emotional, non-linear side of things.

In part this is a personal reaction to my own MBA and corporate background, which emphasized the other side—the linear, rational, cognitive, quantitative side of things.

And in part it’s a reaction to the dominant model in business—which resembles more the latter than the former.

But it takes both sides to get a full view of trust. So I want to take this post to acknowledge someone who does a fine job working the other side of the street.

It is Alex Todd, President of Trust Enabling Strategies.

Alex talks about Trust Enablement®, and has developed what he calls has developed what he calls the Trust Enablement Program™.

He defines trust as “acceptable uncertainty,” and suggests that:

In essence, where Risk Management is all about protecting what you have, Trust Enablement™ is all about getting what you want by, in effect, proactively managing the risks of the relying party (or customer).

I don’t know anyone else who’s gone further in an attempt to systematically and quantitatively describe attributes of trust and applications of trust to management.

Todd’s site is worth visiting if you want to delve into measurement and management issues, or if you simply want to stretch your mind about the issues of trust in business.

He also has the best collection of trust-related quotes I’ve seen.

I don’t always see things the way Todd does, but he is clear, clean, broad and thorough in his thinking. He is usually persuasive, but always insightful.

Anyone interested in trust should not miss his work.