# Trust as the New Competitive Edge in Modern Business
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Chapter 1: The Shift from Strategy to Trust
Contemporary businesses are not just thriving on strategic maneuvers; rather, they are flourishing through the establishment of trust. Recent studies indicate that trust serves as a fundamental competitive advantage in today's economy.
While working on my book, Mapping Innovation: a Playbook for Navigating a Disruptive Age, I had the opportunity to interview several influential innovators, including a recent Nobel Prize winner. Contrary to the common stereotype of innovators being difficult, I was struck by their warmth and generosity, revealing a different side to these trailblazers.
Research conducted by management professors Andrew Hargadon and Robert I. Sutton, focusing on companies like IDEO and Hewlett-Packard, supports this observation. They argue that successful innovators act as "knowledge brokers," positioning themselves within information networks and, crucially, building trust as a prerequisite to facilitate this role.
A recent report from Accenture Strategy, which analyzed data from over 7,000 companies, further emphasizes this point. The findings suggest that trust significantly influences revenue more than any other single company attribute. To thrive in today's competitive landscape, leaders must cultivate strong bonds of trust within a diverse network of stakeholders.
Section 1.1: Redefining Competitive Advantage
In his seminal work, Competitive Advantage, Harvard professor Michael Porter posited that long-term success lies in mastering the value chain by enhancing negotiation power among suppliers, customers, new market entrants, and substitutes. This approach created sustainable advantages that competitors struggled to replicate. Many of the leading companies of the 20th century, such as General Motors under Alfred Sloan and IBM under Thomas J. Watson, exemplified this dominance.
However, the nature of competitive advantage has evolved. In our interconnected world, it is no longer merely about efficiency but rather about the strength of connections. Companies like General Motors and IBM must now navigate a complex ecosystem involving partners, suppliers, and customer relationships where trust is essential. A breakdown in one link can compromise the entire network, jeopardizing business operations.
Chapter 2: The Impact of Trust on Business Performance
How to Get Ahead of Competition | Surpass 99% of Business Owners This video discusses how trust can elevate your business above competitors, focusing on essential strategies to cultivate strong, trust-based relationships.
The Accenture study primarily evaluated overall competitive agility, examining revenue growth and profitability over time. It integrated metrics for sustainability and trust to provide a more comprehensive view of a company's competitive capabilities. This extensive analysis drew from over four million data points, incorporating sustainability information from more than 50,000 sources, generating a unique "sustainability score" for each company. This score included a proprietary trust measurement spanning customers, employees, investors, suppliers, analysts, and the media.
As the analysts delved into the data, they discovered that trust metrics had a disproportionate effect on a company’s overall performance. For instance, a consumer-focused company that faced negative publicity related to sustainability potentially lost around $400 million in future earnings. Similarly, a firm entangled in a money laundering scandal (a significant breach of trust) incurred losses of $1 billion.
In the fiercely competitive landscape, a significant "trust event" — when consumers lose faith in a brand — can cripple operations for extended periods, sometimes indefinitely.
Section 2.1: Understanding Trust Events
The nature of a "trust event" varies by sector. While trust is often associated with consumer relations, the rapid spread of information via social media means that even minor incidents can escalate into major crises, driving customers to competitors. Interestingly, my deeper examination of the report's findings revealed that trust impacts different industries in distinct ways. For instance, sectors like manufacturing, media, and insurance experienced relatively lower costs from trust breaches, while banking, retail, and industrial services felt impacts five to ten times greater.
Industries sensitive to trust events often operate within intricate ecosystems. A retail business, for instance, must maintain robust relationships with numerous suppliers. Similarly, the banking industry relies heavily on trust, where declines can lead to increased capital costs.
Moreover, in almost all business-to-business sectors, firms must remain at the forefront of a highly interlinked network of products and services, necessitating collaborative partnerships to share knowledge and expertise. Once trust erodes in these environments, regaining it is exceptionally challenging, giving competitors an advantageous position.
The prevalence of trust issues is alarming; Accenture found that 54% of the firms studied encountered some form of "trust event." These can arise from various sources: an irresponsible employee, a data breach, a faulty product, and so on.
Jessica Long, a key figure in the study, noted, "It’s not just about preventing trust events. The world is unpredictable, and issues will arise. The real differentiator is how you respond and the resilience you have built through strong foundations in crucial components of competitive agility: growth, profitability, sustainability, and trust."
Winning at Business | Leadership Strategies for Today This video explores effective leadership strategies for building and maintaining trust in business, highlighting the importance of transparency and ethical practices.
For example, during Steve Jobs' time at Apple, the company faced multiple trust-related challenges. However, his unwavering commitment to producing "insanely great" products led customers, employees, and partners to be more forgiving than they might have been otherwise. A more recent example involved two men being arrested in a Starbucks in Philadelphia. Howard Schultz's established reputation for fairness, including supporting employees in their educational pursuits, helped mitigate the fallout from this incident.
Section 2.2: Building a Trustworthy Culture
The most effective way to guard against "trust events" is to foster a culture rooted in empathy. During my interviews with innovators, I was struck by their genuine interest in my projects, which likely encouraged open dialogue and collaboration. These innovators embodied the trust they cultivated, and their curiosity enabled them to solve problems others could not.
This principle applies equally to profit-driven companies. The best approach to nurturing trust is to be inherently trustworthy. Consider the implications of your actions on customers, employees, partners, and other stakeholders, and prioritize their success as if it were your own.
An earlier version of this story appeared on Inc.com.