Trust

What Is Trust?

Graphics courtesy of Vocal MediaOpens in new window Damage to an organization’s reputation is one of the greatest of concerns of leaders.

The definition above indicates that trust involves a conscious consideration of alternatives — an individual chooses to engage in an exchange that involves uncertainty.

In practice, a trusting individual chooses from a set of options and picks one over the others as he “trusts” that option to be better. Without trust, people do not invest; the best talent does not join an organization; good employees leave; and the competitive position of the organization erodes.

Trust Is Built Over Time

It has become clear that trusting business is something consumers want. How to get to trusting business is however still unclear. What is clear is that experience can breed trust; as you interact with someone or something more often and this someone or something acts in a trustworthy manner, you will build trust. Thus, trust is dependent on repetition.

This gradual building of trust is a way to solve free entry or exit problems within markets. The argument is as follows: If it is easy for organizations, for example, to exit the market after behaving un-trustworthily and then re-enter under a new name, these organizations can potentially gain more from behaving in an untrustworthy manner.

As a result of this, trust will not be the equilibrium. Because of this, creating a trusting relationship needs to come with advantages on both sides of the exchange.

Take for example the situation in which a borrower gets a loan from a bank and can easily borrow from another bank without paying back this bank. In this situation, the borrower has an incentive not to repay the loan as there are no repercussions from doing so. In order to overcome this problem, the bank can choose to gradually build a trusting relationship with the borrower.

In this process, the bank lends out a limited amount of money to the lender first and increases this amount only if the borrower proves to be trustworthy. This gradual building of trust provides the borrower with an incentive to act trustworthily because the time invested in increasing the sum of the loan will need to be invested somewhere else again if the borrower foregoes the relationship.

Clearly, trust is important. Various stakeholders (i.e., employees, consumers, shareholders, and investors) have always expected leaders to maintain, for example, high product quality or ethical standards. Although it does not always happen when one considers the rise in product recalls or corporate scandals, today’s regulatory environment and increased oversight by activist consumer groups make it easier to identify transgressions or violations and bring them into the public view.

High-profile downfalls of senior leaders because of sexual harassmentOpens in new window, fake data woes, and organizations that produce goods that are harmful in general over the past two decades are not a new phenomenon. However, legislation such as Sarbanes-OxleyOpens in new window makes corporate oversight and protection of shareholder rights by the board of directors a priority. It also uncovers an increasingly alarming set of senior leaders or corporate wrongdoings, many of which have landed them in jail and had a negative impact on their host organization’s reputation.

Traditionally, the media has focused on corporate misdeeds in the United States and Europe. Consider, Facebook which saw up to 50 million users affected by the Cambridge Analytica scandalOpens in new window and Marriott InternationalOpens in new window, which perhaps suffered the biggest data breach in corporate history after losing data of 500 million guests.

Recently there has been increased attention concerning scandals in other parts of the world like the arrest and illegal flight from Japan of former Nissan Chairman Carlos Ghosn who was facing financial-misconduct charges and forbidden from leaving Japan. Or the large-scale fraud at South Africa’s VBS Mutual Bank which resulted in the recommendation that more than 50 individuals (this included the bank’s former executives and their associates, shareholder executives, politicians and their relatives, and auditors who signed off on the bank’s “fraudulent” financials) be criminally charged and held liable in civil proceedings. Also, consider that a number of brands have been guilty of betraying consumer trust to include Hong Kong national airline Cathay PacificOpens in new window, which suffered a data breach that exposed personal information of up to 9.4 million passengers.

Trust leads to beneficial outcomes—it is key in guaranteeing the success of business relationships, particularly those characterized by high degrees of risk, uncertainty, and vulnerability, like services.

Trust is created through both rational and emotional bonds with customers. The other main factor influencing loyalty is customers’ satisfaction with their previous experience with a service provider. This is influenced by the customer’s own experience of service delivery and value, by what happens when things go wrong and by brand reputation, word of mouth, and the experience of others.

Research has increasingly noted the importance of trust between consumers and business or other organizations which have led to the following general consensus:

1.     Trust Acts as a Safety Net

In situations of perceived risk or vulnerability, trust has the role of a safety net, helping the customer to make a decision by minimizing uncertainty and risk. The insecurity about the long time horizon of delivery, as well as the inability to test the service before actual consumption makes trust a valuable decision factor for customers of service organizations.

2.     Building Trust Takes Time

Trust develops in stages on the basis of a gradual deepening of the relationship and mutual adaptation to the needs of the other party, so trust emerges from the accumulation of satisfactory previous experiences.

A customer’s experience or journey is created through both direct or lived experience as well as indirect experiences of others which are transferred through word-of-mouth or by the overall brand reputation. Trust is a continuous process, reinforced by positive evaluations of previous experiences and shared between customers.

3.     Trust Is Created Through Both Rational and Emotional Bonds

Trust is built both form rational and emotional bonds. Rational trust refers to the “customer’s willingness to rely on a service provider’s competence and reliability.” Emotional trust is a confidence that arises from the customer’s “feelings generated by the level of care and concern the partner demonstrates. “

There is therefore a synergy between the customer’s rational and emotional engagements with an organization.

• Through a rational process the customer assesses an organization’s intention and ability to keep promises, by identifying guarantees in terms of competencies, reliability in the delivery of goods and services, and predictability of behaviors, for example in our survey: “The frontline employees have expertise and specialization in the field.”

• Through an emotional process, the customer evaluates a company according to the qualities and characteristics that show concern and care, as well as the willingness to compromise and act beyond a profit motive, for example, in our survey: ”The frontline employees act as if they value me as a customer.”

4.     Trust Develops in a Multi-Channel Context

Trust is most often associated with the overall organization as the main target, however in today’s multi-channel service environment, emotional and rational trust bonds are created with multiple “agents” or touch points such as the frontline employees, the self-service technology (ATM, e-commerce, online account management), and an increasingly complex array of marketing communications.

5.     Trust Is Based on Evaluations of Three Complementary Dimensions

Trust can be seen as being composed of three complementary dimensions—competence or credibility; integrity or honesty; and empathy or benevolence. The second and third of these could be interpreted as being more “emotional trust” and the first one more “rational trust.”