Trust

How valuable is trust to an organization?  Johnson & Johnson gave some perspective on that question with their reaction to the Tylenol Crisis in 1982.  They invested millions of dollars and hundreds of hours of leadership time in their crisis recovery efforts.  It was a great investment because Johnson & Johnson emerged from the crisis with a higher level of public trust, and the appreciation for their responsiveness continues to benefit them today.  The focus for Johnson & Johnson was on the trust of customers.  Other stakeholders are affected by the presence or absence of trust as well, although the impact of trust on employees, suppliers, and investors probably has a lower profile.

Consider a workplace climate characterized by low trust.  It would probably cause reluctance to take initiative, to feel empowered, to speak candidly, to learn from mistakes, or to share knowledge.  All of which would tend to make the organization slower, less efficient, and dumber.  High trust in the workplace, in contrast, would promote discretionary effort, empowerment, dealing with reality, learning, and collaboration. Such an environment would foster confidence, optimism, and good will which, in turn, would foster high performance.  As an organizational leader you would probably choose the high-trust, high-performing culture.  So why do we seem to naturally gravitate toward creating the low-trust environment?  Robert Hurley offered guidance in how to generate higher levels of trust in "The Decision to Trust", another high-utility article from HBR.

We worked with a client on a supply-chain-management project that sought to improve supplier performance in on-time delivery of components built to the correct specifications.  Although the client would not agree to include supplier representatives on the project team, it still did not take long to identify the key source of delays and incorrect components.  The client was not effectively communicating either the original specifications or subsequent changes, nor were they keeping the suppliers informed on schedule changes.  As one wag put it, "We have put a lot of suppliers out of business over the years".  This example is offered in the spirit of what not to do to develop mutual trust in supplier relationships.  Why bother to build trust as an integral part of your supply chain management?  How about the enabling of speed, efficiency, quality, service, and responsiveness.

As far as investors are concerned, trust seems like it would be a quaint, old-fashioned notion, doesn't it?  Not according to the Architecture for Intangibles.  The very foundation of market valuation of intangibles is the reliability of quarterly earnings.  If earnings are off, a prompt communication of that fact, an explanation of the cause, and the plan for getting back on track can be mitigating.  Trust that the company has a viable strategy for getting to higher levels of future performance also contributes to higher levels of valuation.  Lastly, trust in the company's ability to develop technical and social capabilities that progressively enhance performance helps not only with current valuation, but also with some level of investor tolerance for unexpected hiccups along the way.

Trust is hard earned.  You have to keep your promises, you must demonstrate integrity, you need to communicate, and you have to be seen as sufficiently competent to get the benefit of the doubt.  All of which can be lost with one slip up.  As Johnson & Johnson demonstrated, your response to that slip up might make or break you.  They could have argued that the Tylenol Crisis was not in any way their fault.  Wonder where that would have gotten them?