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Without Trust,
Life is Not Worth Living

-- Confucius

Trusted to Lead ®

Building a World
You Can Trust

System of Trust, LLC presents Trusted to Lead Workshops for Executives & Managers who want to create an extraordinary difference

Part 1. Is Trust Economical?

Every business leader and entrepreneur is seeking to create a competitive advantage. Some do it with great strategy, some with technology, some with marketing, and some with speed.

But regardless of the strategy you use to build your business, it can be accelerated like a rocket by adding good “chemistry” high trust.

We all know that high trust improves speed, performance, and innovation. But by just how much?

To gain a better understanding of the financial impact, we’ve begun asking seasoned managers just how much more ‘boost’ does an organization get from high trust, and ‘drag’ for distrust.

I do a lot of workshops with organizations, ranging from large corporations to start-up businesses throughout North America, and also work with government agencies across the span of Canada. All these workshops become a ‘laboratory’ to test new ideas and validate theories.

To test the economic impact of trust, my team (made up of two experts in cross-boundary economic analysis) chose 16 impact dimensions of ‘Total Cost of Ownership.’ These are somewhat standard measures in the supply chain management field:

PRODUCTIVITY, TIME WASTERS, REDUNDANCY, INTEGRATION, SHARED RESOURCES, PROCUREMENT, JOINT PLANNING, FORECASTING, EARLY WARNING SYSTEMS, RISK MANAGEMENT, PROBLEM SOLVING, LABOR RELATIONS, STRATEGIC ALIGNMENT, & COORDINATION. For good measure we added a last dimension: HUMAN ENERGY “ the level of enthusiasm or depression one experiences in either a high trust or distrustful environment.

Then we asked over 500 senior managers to answer two questions:

    First, where there is a high level of trust, what is the ‘boost’ or ‘premium’ an organization receives in each of the dimensions?
    Second, in situations of strong distrust, what is the ‘drag’ or ‘discount’?

The answers astounded us. The average ‘boost’ from high trust ranged between 50-65% above that with just ‘neutral trust.’

And, on the downside, the average ‘drag’ ranged between 50-75% reduction in efficiencies and energies.

We then ask the senior teams to calculate the ‘differential’ between the average highs (for trust and average lows (for distrust). Consistently the differential is ranging between 135-155%.

Consider the implications of this data for a moment: a high trust environment will produce a supercharged ‘uplift’ that will provide a ‘secret’ competitive advantage that your competitors can’t see (because trust is invisible).

For example, Southwest Airlines has had 30 straight years of profitability -- which is unparalleled in the airline industry; an industry that has, collectively, lost more money than it has made in its seventy five year history. Certainly Southwest has a good strategy, but that alone doesn’t explain its phenomenal success. Trust and Teamwork are the invisible parts of the success formula.

The economics of trust provide the competitive advantage that truly makes a difference.

The investment in trust is actually very small, but produces probably the largest return on investment of all, as well as a massive competitive advantage.

In the next blog we will explore how trust and distrust create or destroy value.

Part 2. How Trust Generates Enormous Economic Value

(In this blog we’re continuing the insights from the previous blog on the ‘Economics of Trust.’)

How does trust produce such enormous competitive advantage? We can illustrate it with the example of Lean Production.

Lean Production systems were pioneered by Toyota. One of the primary objectives is to remove ‘Non-Value Added’ (NVA) work, such as wasted time moving parts from one location to another, or redundancies, or paperwork.

The term ‘NVA’ makes it seem that these are just benign parasites in the value creation process, and expurgating them will produce high production efficiencies. Distrust, however, creates a very different set of organizational dynamics, which we have named ‘Value Destroyers.’

Value Destroyers (VD) are those actions which are far worse than NVA, and actually do significant damage to a system. Think of them not as ‘benign parasites,’ but as ‘deadly viruses.’

To understand Value Destroyers and how they differ from NVA, let’s look at four key areas for winning in an organization. In each of these situations, we will look at Value Destruction and Distrust, compared with Value Creation and Trust.

First, Time:

    Distrust: Destructive Time is when people use their time to protect, argue, or fight

    Real Trust: Creative Time is when people are engaged in Learning or Creativity

Second, Human Energy:

    Distrust: Destructive Energy is Conflictive, Confused or Depressed

    Real Trust: Innovative  Energy is Harmonious, Enthusiastic, or Synergistic

Third, Strategic Direction:

    Distrust: Destructive Direction(s): Lose-Lose, Subsystems & Divisions working in opposition

    Real Trust: Integrated & Aligned Direction, Win-Win, Collaborative Innovation

Fourth, Communications

    Distrust: Malicious, Faulty, Misunderstood Communications

    Real Trust: Interactive/Real Time Communications of Information, Knowledge, Wisdom, & Compassion

What is the real impact on organizations when distrust prevails? I posed the question to Bob Chalice, a health care expert who specializes in using ‘lean’ methods in hospitals. We explored not just the impact on a hospital, but on the ‘health care system,’ which included providers, patients, insurers, suppliers, and others.

His answer was shocking and compelling: Bottom Line: distrust adds about 25 cents to every health care dollar. Why? Here’s a quick list of where the distrust manifests as extra costs:

    Malpractice insurance costs, insurance verification processes for patients, insurance underwriting,
    high administrative costs, billing and collection processes, inspections, Medicare/Medicaid/insurance billing, large administrative structures/staffs, duplication of services among competing providers, all extraneous paperwork, turmoil, law suits, ugly negotiations, onerous contracts, sabotage, withholding information,
    lack of response, fiefdoms & silos that refuse to communicate, buying equipment that could have been shared in an alliance, etc. etc.

In today’s heated health care debate, if we could reduce distrust in the ’system’ we would generate enough money that is currently being wasted to pay for all Americans to have health care coverage without paying an additional tax dollar.

Robert Porter Lynch

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