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Twin parachute jump illustrating trust between two people

The High Cost of Low Trust

Every day millions of us give money to complete strangers we ’meet’ on the web in the expectation that they will send us what we ask for. We also are increasingly likely to hand over the keys to our home and let people who we have never met, and will never meet again, live there for a while. 

None of this would happen without high levels of trust, and everyone involved in these type of transactions benefits as a result.

Trust in a work environment

In a work environment the same people that trust strangers in their personal lives behave as if the people they do know, and interact with everyday, cannot be trusted. 

To get them to do their jobs, they impose targets and hold them accountable for delivering them. They pay bonuses in order to motivate them to achieve these targets, since they cannot be trusted to perform without a financial reward, and set up compliance departments to make sure they stick to the rules of the organisation.

Why do we trust people we don’t know more than those we do?

Of course, part of the answer is that when we buy through Amazon or eBay, we are usually buying a product that is tangible and well defined. If we order a bunch of flowers and get a spark plug it is clear that the seller has failed. Also, contract law defines what is allowed and what isn’t and can be used to punish those that flout the agreement. But does that explain all the differences we see in the two situations?

I don't think it does.

Engineering trust

The main reason why we see an increase in the ‘tendency to trust’ in society is because systems have been consciously engineered to nurture it.

The terms and execution of transactions are made transparent. Vendors (and sometimes buyers) are rated, and on many sites purchasers can post comments. While the mediators of these transactional systems might intervene to deal with transgressions or disputes, this is rarely required. If disputes were common people wouldn’t use the sites because they would not have sufficient trust in them.

Contrast that with what has happened in businesses over the last decades. 

The same technologies that have been used to develop communities based on trust have been used to increase surveillance. Command and control thinking has been given steroids, but it is obvious to everyone who has eyes to see that this is counter-productive.

Because trust is a two-way relationship, people who are not trusted become less trustworthy. Low trust structures generate bad behaviour, as even the most trustworthy employees are forced to find ways around unnatural constraints just to get their job done in the way that they know is best.

Worse, individual bonuses comprise a much bigger share of remuneration than they used to. Under the guise of ‘improving motivation’, we now reward people for acting in selfish ways.

The cost of low trust

The biggest cost of low trust is something that we cannot see or easily measure - it is the cost of lost opportunities to grow and flourish.

The most obvious business impact of low trust is the cost of maintaining the infrastructure needed to police the system: complex software, the bureaucracy, and all the rest.

But the biggest cost of low trust is something that we cannot see or easily measure - it is the cost of lost opportunities to grow and flourish.

The economic importance of trust first struck me when I read Francis Fukuyama’s book "Trust". In it, he argued that trust is the principal engine of economic performance.

Subsequent academic work has demonstrated a strong correlation between trust and growth too. It is no accident that the industrial revolution in Britain is closely associated with the members of the Quaker community who had easy access to a ready-made, high trust network.

To see why this should be is easy. 

Trustless transactions are infused with paranoia - it is the difference between paying for a bottle of beer ‘knowing’ that you will get what is says on the label, and paying a ransom in the hope that the kidnapper will release your child. Without trust to lubricate the wheels of commerce, the transactional cost of getting things done becomes so great that organisational life stagnates. 

Trust is a big thing: it impacts costs, an organisation’s capacity to thrive and grow, and ultimately it’s right to exist.

Back in 1937, in his influential essay ‘The Nature of the Firm’, Ronald Coase argued that the main reason why organisations exist at all is because transactional costs are lower inside their walls than in an open market, which is otherwise more efficient. As firms grow, transaction costs increase, thereby limiting how big they can become. So, trust is a big thing: it impacts costs, an organisation’s capacity to thrive and grow, and ultimately it’s right to exist. 

And that is why we should be concerned that trust in the workplace is declining at the same time that it is on the rise in society as a whole.

Trust in Beyond Budgeting

The key lesson is that trust doesn’t just happen. What we have witnessed over the last few years demonstrates that it can to be built into the fabric of an organisation and actively nurtured. Some of the practices that have helped build trust based networks on the web can be applied inside organisations too.

But so much more is needed – and possible - to build high trust organisations.

This is one reason why Beyond Budgeting is so important: it is based on the assumption that people can be trusted and it helps build and nurture that trust, in contrast to traditional 'command and control' based practices, which do the exact opposite.

Photo by Muzammil Soorma on Unsplash