Now consider the dividends of high trust. Obviously the opposites of the 7 Low-Trust Organizational Taxes we’ve just discussed are dividends. To lower or eliminate redundancy, bureaucracy, disengagement, politics, turnover, churn, and fraud will certainly make a huge positive difference in the Trust Accounts and results in any organization.
But there are additional high-trust dividends – dividends that clearly show how trust always impacts speed and cost…and also a third measure: value.
- Increased Value
High trust increases value in two dimensions.
The first dimension is shareholder value – and the data is compelling. As I noted earlier, in a Watson Wyatt 2002 study, high trust organizations outperformed low-trust organizations in total return to shareholders (stock price plus dividends) by 286 percent. Additionally, according to a 2005 study by Russell Investment Group, Fortune magazine’s “100 Best Companies to Work for in America” (in which trust constitutes 60 percent of the criteria) earned over four times the returns of the broader market over the prior seven years. As Fortune declared, “Employees treasure the freedom to do their job as they think best, and great employers trust them.”
The second dimension is customer value. As a result of the last five dividends described below, high-trust organizations are consistently able to create and deliver more value to their customers. This customer value, in turn, creates more value for other key stakeholders.
- Accelerated Growth
High-trust companies outperform low-trust companies, not only in shareholder value, but also in sales and profits. Research clearly shows that customers buy more, buy more frequently, refer more, and stay longer with companies and people they trust. Plus, these companies actually outperform with less cost. It’s “Jim,” the donut and coffee guy writ large. The net result is not just accelerated growth, but accelerated profitable growth. As Vanguard Investments CEO John Brennan said, “Trust is our number one asset…As customers learn to trust us, they generate a surprising amount of growth.
- Enhanced Innovation
High-trust companies are innovative in the products and services they offer customers, and they have strong cultures of innovation, which only thrive in an environment of high trust. Innovation and creativity demand a number of important conditions to flourish, including information sharing, an absence of caring about who gets the credit, a willingness to take risks, the safety to make mistakes, and the ability to collaborate. And all of these conditions are the fruits of high trust.
The benefits of innovation are clear: opportunity, revenue growth, and market share. Apple Computer – nearly “dead” a few years ago – completely rejuvenated itself through innovation in the development of the iPod and the iTunes Music Store. Recently BusinessWeek and The Boston Consulting Group ranked Apple as the most innovative company in the world.
As John Marchica notes in The Acceptable Organization:
Many heralded Apple’s service as a savior of the music industry…With the introduction of iTunes, it appeared the…[Apple CEO Steve] Jobs …finally got it right. “Consumers don’t want to be treated like criminals, and artists don’t want their valuable work stolen,” he remarked. “The iTunes Music Store offers a ground-breaing solution for both.”
- Improved Collaboration
High-trust company environments foster the collaboration and teamwork required for success in the new global economy. Different from the traditional approaches of coordination and cooperation, real collaboration creates the key opportunity model of today’s world. In the words of business consultant Dr. Michael Hammer, “Reengineering was just a warm-up act for the collaborative economy,” And this collaboration isn’t just internal to an organization – it’s also with external customers and suppliers. Forbes high-lighted this “collaboration as opportunity” trend in 2006, pointing out what they call the “bedrock” of collaboration: trust. Without trust, collaboration is merely cooperation, which fails to achieve the benefits and possibilities available to true collaborators in the knowledge worker age.
- Stronger Partnering
The Warwick Business School study I mentioned earlier confirmed that partnering relationships (such as outsourcing deals) that are based on trust experienced a high-trust dividend of up to 40 percent of the value of the contract. Those that rely on the contract language, and not on a relationship of trust, fare far worse. The report reads: “We found that contracts with well-managed relationships based on trust – rather than stringent SLAs [service-level agreements] and penalties – are more likely to lead to a ‘trust dividend’ for both parties. Real trust is not naive. It…is earned from performance.”
- Better Execution
High-trust companies are better able than low-trust companies to execute their organization’s strategy. The importance of execution was made clear to me on my first day at Harvard Business School. At the end of a four-hour case study, my professor said something I will never forget: “If you only remember one thing in your two years at Harvard Business School, let it be this; It is better to have grade-B strategy and gradeA execution than the other way around.”
Voted the number one enduring idea by Strategy+Business magazine readers, execution is appropriately a huge focus in organizations today, and execution is significantly enhanced by trust. FranklinCovey’s execution quotient tool – “xQ” – has consistently shown a strong correlation between higher levels of organizational execution and higher levels of trust. In a 2006 study on grocery stores, top executing stores had significantly higher trust levels than lower executing stores in every dimension measured.
- Heightened Loyalty
High-trust companies elicit far greater loyalty from their primary stakeholders – coworkers, customers, suppliers, distributors, and investors – than low-trust companies. The evidence for every one of these relationships is clear:
- Employees stay longer with hgh-trust companies.
- Customers remain customers of high-trust companies.
- Suppliers and distributors stay partnered longer with high-trust companies.
- Investors hold their investment long with high-trust companies.
Dr. Larry Ponemon, chairman and founder of Ponemon Institute, a leader in measuring trust in privacy and security, put it clearly: “Trust is becoming the vital component in customer loyalty and brand strength.”
When you add up all the dividend of high trust – and you put those on top of the fact that high trust decreases or eliminates all the taxes we’ve just discussed – is there any doubt that there is a significant, direct, measurable, and indisputable connection between high trust, high speed, low cost, and increased value?
[Business executives need to] recreate a trust agenda. Nothing good happens without trust. With it you can overcome all sorts of obstacles. You can build companies that everyone can be proud of.
Jim Burke, Former Chairman and CEO, Johnson & Johnson
As I’ve said: Nothing is as fast as the speed of trust. Nothing is as profitable as the economics of trust. Nothing is as relevant as the pervasive impact of trust. And if you have on glasses to see, these realities become unarguable when it comes to building trust with the internal stakeholders in your organization.
Thus, I again affirm on the organizational level: The ability to establish, grow, extend, and restore trust truly is the key leadership competency of the new global economy.
From “The Speed of Trust: The One Thing That Changes Everything” by Stephen M. R. Covey