Welcome to the Trust Economy

Carefully crafted trust architecture - not just good intentions - will be a key factor in e-business success

By Peter Keen

At the level of common sense, trust is at the core of commerce and essential for long-term success in e-business. But common sense breaks down very quickly if trust is seen as just a value: honesty, sincerity, truthfulness, and related virtues. Ironically, these values can result in a loss of trust if they are not complemented by "trustability" - trust as a skill and a business design variable.

If trustworthiness is the question "Do you merit my trust?" then trustability is the question "Can we count on each other?" If not, then we can't build a relationship, and relationships are everything in the Internet-driven economy.

Here is a common example of a breakdown in trustability that is too quickly dismissed as a minor operational glitch: failure to respond to customer emails. This example illustrates the difference between a Web site-centered and relationship-centered view of e-business. In many instances, an email reflects a crisis for the customer: a late shipment, an error in delivery, a worry about after-sales service, and so on. Companies spend, quite literally, fortunes in marketing, promotions, referrals, fees, and price deals to pull customers to their site and then in effect ignore them.

According to a McKinsey study, large retailing sites average 1.8 million hits a month, which generates just 127,000 transactions. Of these, only 24,000 will result in repeat business. Given that it cost the firms an average of $50 to get the first transaction (and close to $200 for financial service companies) - and given that it must scale its technology capacity to handle nearly two million visitors to get just over 20,000 relationships - this approach is business insanity. The marketing announces that the company has something special for you. But when you try to interact with it, your message falls into the email ether, which announces that the firm really doesn't care and thus you can't trust it to resolve any problem that may occur.

Here is one of the principles for a trust architecture: Ensure that every customer interaction is double-loop, that queries are fully answered, problems immediately handled, and the customer kept appropriately informed of order status. Companies that are exceptional in this regard include Amazon.com, Charles Schwab, and National Semiconductor. They close the loop, with no one-way communication. Over time, that builds a relationship premium.

Amazon has close to an 80 percent repeat business rate. It's not the lowest cost seller, but it is assiduous in turning every keystroke into a relationship builder. Schwab is able to charge $29.95 for the same trade that other online services offer for $6 to $8 and dominates the market. That's because it is so skilled in anticipating problems, dealing with exceptions, responding immediately, and building close dialogs. National Semiconductor has made response to emails part of its organizational architecture. A message is screened by software that routes it to a staff member, who is required to get the issue resolved within two working days and has full authority to contact any other employee to do so. That employee is also accountable for providing the needed maintenance.

This is what architecture is all about: policy, integration, and clarification of authority and accountability. The business and IT executive's job is to define the policy principles and ensure their execution.

There are three main components of trust architecture: the public promise, the safety commitment, and the technology platform. They generate true trusted relationships.

The Public Promise

Many breakdowns in trust come from misunderstanding and ambiguity. We see this breakdown often in daily personal life: "I thought you meant.... I didn't realize.... but you promised." Generally, we address trustworthiness through what may be termed classical trust: choosing to deal only with those within a clan, club, or community directly known to us.

Here, we have some reliable validation and often sanctions against breach of trust. The central problem the Internet has generated is that we don't have many such validations and sanctions. We have to trust people and organizations we've never seen, whose identity we may not be able to validate, and in situations where misunderstandings are both easy to occur and hard to handle. Modern trust, as opposed to classical trust, involves trust relationships where the old school tie, firm handshake, and referral by a family friend don't help you. We need something else.

The starting point is clear public promises. Think of all the great brands and service providers, online, and offline. They are very clear in their offer: FedEx's guaranteed on-time delivery, for instance. Nordstrom and leading retailers automatically accept returns. Banks provide detailed truth-in-lending disclosures.

Many, perhaps even most, e-business Web sites provide none of these assurances. Two widespread, obvious, and trust-breeding problems are return policies and delivery guarantees. The 1999 holiday season was a big success for e-retailing in terms of transactions - they increased fourfold since the 1998 season - and a disaster in terms of customer satisfaction. It was here that, belatedly, retail players discovered just how much business processes behind the Web site matter, especially fulfillment. Several leading e-retailers, faced with class action law suits, fines imposed on them by the FCC, and bad press, defended themselves by pointing out that they had achieved accuracy and on-time delivery rates higher than physical stores could match. They missed the trust point.

Online ordering is instant and raises expectations of equally fast and responsive fulfillment. When those expectations are not met ("You promised"), then it's too late to reply, "But we didn't say that we guaranteed delivery by Christmas Eve, and we really did try."

Promises have to be public and explicit. Skilled trust relationship players manage expectations carefully. Their policies are explicit and they use the Internet to manage the trust dialog. It ought to be routine, for example, to send an email confirming an order and delivery date commitment, to make policies on payments, handling returns, use of customer information, and after-sales service explicit at the time of the customer transaction and on the Web-relationship interface. The transaction mindset of product displays, catalog management, shopping carts, and credit card authorization ignore their relationship context.

This issue pertains to architecture because until it is elevated to the level of policy, authority, and accountability, it will fall between the organizational cracks. Moreover, Web site designers and programmers handling interfaces to legacy systems and external partner systems rarely consider this process part of their own job. The executive question is who has authority and accountability for ensuring the integrity of the customer experience. If the answer is "no one," this key element of setting expectations, defining commitments, and stating promises is missing. Then "caveat emptor" is the customer imperative.

The Safety Commitment

Promise, commitment, warranty...they all build trust. A critical issue for providing these is customer safety - the one area that more than anything else could threaten the short- and long-term growth of the online economy. Safety includes privacy and security but goes beyond the technical operations of each of these. The obverse of trust here is betrayal. One partner enters into an interaction only to find that the other partner is collecting and selling private information - intruding on what he or she assumed was a private space - and has been misleading about who else could be observing or interfering with the interaction.

A core problem for all online businesses is that personalization and customization are key to building relationships and that they involve gathering as much information about the customer as possible. In addition, revenue models often rest not on making money from a direct transaction but by referrals, electronic partnerships, and cross selling, all of which makes customer data a currency in the New Economy.

Consumers have shown how concerned they are about the downside of this process. Most people are still wary of how and where they provide credit card and personal data. Businesses show their concern about company data by their heavy investments in firewalls, encryption, and network monitoring tools.

Safety is a perception - a sense of personal comfort. Although credit card fraud on the Internet is much lower than for transactions in the offline world, if people don't feel safe, no amount of statistics or claims will change that perception. Statistically, driving to the airport is a thousand times more dangerous than flying on a plane, but most people feel safer driving than sitting in a giant cigar tube at 30,000 feet. You can't force people to feel safe, but a sense of safety is the core of trust in every element of life. In e-business, customers now have so many choices among providers that over time they will gravitate to the relationship builders that make them feel safe. Those will be the new brands.

Consequently, you must define, implement, and monitor policies and procedures to guarantee the maximum degree of customer safety as rigorously as your firm does for its finances. Privacy policies should be tight and explicit; it's not enough to adopt an opt-out policy for customers about how you use their personal data or not inform them that you sell it to other firms. It's you, not customers, who is responsible for safety in the relationship.

The Technology Platform

Sincerity is no substitute for technique, and good intentions, no excuse for avoidable operational errors. Nowhere is this fact more apparent in e-business than in IT itself. The "Innovate or Die!" imperative of dot-coms and the software industry has led to putting speed ahead of quality in many instances and a lack of attention to quality and scalability in the design of an operation of the e-business technology platform. In many instances, it's not really a platform. The National Association of Manufacturing surveyed its members in mid-2000 and found that only 10 percent can process an order electronically. Their Web sites are not linked to their ERP systems or their transaction systems.

IT systems are generally built to handle relatively small increases in volumes and in many instances the traffic is both predictable and controllable. New releases of software or network upgrades can be - should be - fully tested, from component to system to integration. Alas, that's close to impossible in e-business. The pace of change, demand for innovation, and need for nonstop new products, services, and applications get in the way of traditional systems development disciplines, and those disciplines in many instances are too slow and inflexible to adapt to these new demands.

Furthermore, many skilled Web site designers are inexperienced in the details of truly large-scale systems development. The result is that too many e-business players can't scale their technology base or ensure reliability and availability of service. That is, regardless of the soundness of their business model and regardless of their skill in customer relationship building, they fail in trustability; they can't be relied upon.

In the online world, the network, Web site, supporting databases, and transaction processing systems are the firm's franchise. When they crash, so does the company's credibility. The more customers and business partners count on the online service - that is, the more they view it as a trusted relationship - the greater the trust premium that best practice companies will command and the greater the corresponding erosion of trust for those with poor IT operations. (See sidebar, "Trust in IT.")

Today, we are entering a new stage in the evolution of the Trust Economy. Until relatively recently, most industries in most countries never had customers, only consumers. Here is a definition of "customer":

• Customers have choices.
• They have information to make those choices effectively and
• personally.
• They are confident in making those choices.
• No one can stop them from doing so.

Regulation meant that the consumer of the 1970s had no choices in such areas as telephone and electrical services and limited options in oligopolistic industries like banking; the options were very constrained. Even today, the situation is the same in many areas of health insurance for small businesses; they are not real customers but rather pleaders who have to take what they can get.

Over the past 20 years, global competition, deregulation, and over-capacity in many areas of manufacturing have generated more and more real customers with more and more choices. The Internet and e-business are a massive, rapid, and accelerating combination of all these forces: global competition, deregulation - perhaps the single most long-term impact of the Internet is that it tears down traditional regulatory barriers - and over-capacity. Customers now have choices everywhere, and they can choose premium providers on whatever basis they wish, from price to features to service to customized deals.

As the Trust Economy has evolved, that premium has shifted. In the 1970s, new global players in auto manufacturing such as Toyota built new levels of trust in the product, pushing U.S. and European carmakers into a long and sustained catch-up. Quality became king and many U.S. cars became "lemons." Over time, consumer electronics, cars, and household items have improved to such a degree that you can pick a camera or VCR almost at random and be satisfied; you can trust the quality. That shifts the trust premium from trust in the product - now a given - to trust in the transaction: convenience, credit, return policies, and all the other factors we classify under the general term of "service."

What happens when all providers have the same high quality of product and high level of convenience? The trust premium shifts again, to trust in the relationship. That's the core of e-business success. Firms like Amazon, Yahoo, Schwab, and Dell Computer Corp. are building relationship brands, using customized and personalized Web sites, facilitating customer self-management of their accounts, and building high levels of repeat business. If you ask an audience of managers to raise their hands if they've bought a book over Amazon, you'll see plenty of wristwatches gleaming in the air. Ask them to keep their hands up if they can remember the publisher, and maybe one or two will still be seen. Amazon's the brand, not the publisher. Ask Schwab customers why they pay $29.95 for a trade they can get for $6, and they will all describe aspects of Schwab's handling of problems, personal focus and customized service. Schwab is a relationship brand.

Trust Builds Relationships

This article began with the common sense of trust as value; in that context, it's more a matter of organization, values and incentives to provide customer service, recruitment and training. It's not a core part of IT in that instance. But the new common sense I've discussed here is that while all these factors are desirable in themselves, they are not enough to ensure trustability.

Here's an illustration of trust in action: Surveys show that the illegal bookie taking bets on football games is among the most highly trusted business entities. He has to be; his entire business rests on customer trust. He has to be impeccable in meeting promises, protecting customer privacy, and promptly and accurately handling transactions.

Relationships rest on trust. Combine trustworthiness and trustability and you have a winner. The IT manager is then very much at the center of trust building and is as much a trust architect as a CIO.

Peter Keen (peter@peterkeen.com) is the chairman of Keen Innovations, author of The e-Process Edge (McGraw-Hill, 2000) and From .Com to .Profit. (Jossey-Bass, 2000), and coauthor of Electronic Commerce Relationships: Trust By Design