Explore how to manage this hidden—yet increasingly critical—key performance indicator

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It’s Time to Measure Trust

Imagine the following scenarios:

Scenario 1: Your organization is a relatively new player in the consumer goods industry. Your market share has been growing steadily over the past few years, but your profit margins could be improved. You are about to launch a new product in the market to grow your brand when you find out that your organization has been involved in a data breach. Customers start losing trust in your brand, as there is no transparency as to how the breach has occurred and with whom their data has been shared. Your new product launch is delayed, and you fail to capture a new segment of the market that would have allowed you to increase your profits. What’s more, sales decline as a result of customers boycotting your products.

Scenario 2: You run a global organization and you have just expanded your operations to a new market. Your new business is going well, until you find out that the suppliers you’ve been working with have been bribing government officials to obtain their contracts. You were hoping to attract more investors to support the acquisition of a small competitor, but in light of this incident, your investors lose trust, and you miss out on the opportunity to grow your business. Your stock prices fall as a result of the negative press surrounding the incident.

Stories such as these, involving privacy breaches, mis- and disinformation, and companies failing to live up to their promises, are rather common in today’s business world. In many of these scenarios, the business initially appears to be doing well and leaders assume that the organization is trusted, only to suffer a breach in trust in an unexpected area. In other cases, they simply aren’t thinking about trust at all. The stakes, however, are high: A recent Deloitte analysis found examples of three large global companies, each with a market cap of more than US$10 billion, that lost 20% to 56% of their value—a total US$70 billion loss—when they lost their stakeholders’ trust.¹ Trust—or lack thereof—has thus become a mainstay topic in headlines across the world.

Many senior executives recognize the need to build or rebuild trust in their organizations. However, they often struggle to understand exactly how trust can be managed. Indeed, in today’s dynamic and challenging business environment, trust is becoming increasingly complex to understand and manage, especially as organizations are expected to build trust across growing ecosystems of stakeholders and amid evolving expectations.

One of the first steps in managing trust is understanding how it can be defined and measured. Trust is commonly considered an abstract or even nebulous concept, and many organizations don’t typically prioritize trust or treat it with the same focus and urgency as they do other business priorities. But the benefits for those companies who are trustworthy are significant. Recent research suggests that these companies outperform the S&P 500 by levels as high as 30% to 50%.²

We propose that trust should be seen as a tangible, strategic, and critical asset, given the real, quantifiable value that it can bring to an organization. And it should be managed much like other key performance indicators on the organization’s balance sheet, by considering its drivers and implications more deeply across the enterprise. With this perspective, organizational trust should be built from the inside out,³ through levers and actions that cut across the functional areas of a business, from product quality to data protection to financial integrity.

Organizational trust also depends on the needs and perspectives of an organization’s different stakeholders—board members, investors, customers, suppliers, and employees—so the relative impact of trust-building actions must be framed and viewed through the lenses of these stakeholders as well. Organizations that proactively approach trust management in this way can build what we refer to as trust equity, helping create positive impacts on their bottom line and a layer of resilience protecting the organization against potential breaches of trust. Trust and resilience go hand in hand. Deloitte’s 2022 Consumer products outlook finds that 95% of executives whose companies have high levels of consumer trust believe their companies are more resilient.⁴

This paper offers a statistically verified approach for measuring trust across different operating domains, helping leaders identify their organization’s potential sources of a trust breakdown or areas where building trust proactively can create a competitive advantage.

Understanding and Measuring Trust at Deeper Operating Levels

“What gets measured gets done … If you know the impact you want to create and how much of it has already taken place, then half the battle is knowing what further changes need to be made.
”Sandra Sucher and Shalene Gupta¹²

Given the fluid and dynamic nature of business, actions taken in these areas may overlap and complement each other at the same time. For example, cybersecurity actions can be closely linked with data privacy and protection, whereas ethics can be reflected in an organization’s culture, values, and mission statement. Some domains are more customer-facing and front-office–oriented, such as customer experience; while others are more back-office/operationally focused, such as compliance, strategic governance, and financial integrity and health. All domains are important, but, as would be expected, some will be more important than others for different stakeholders, depending on the business and its sector. In our research, we asked senior executives to rate which areas are more important for their business, relative to other areas, in maintaining stakeholder trust (figure 2). For example, executives in the consumer industry in our study are more likely to consider customer experience to be the most important contributor to trusted relationships, in contrast to executives from the energy, resources, and industrials industry, who rank product quality to be most important.

As the rankings in figure 2 reveal, organizations recognize the relative importance of trust across these different operating areas, and yet their performance levels in building trust across domains may differ. Specifically, in our research, we measured trust performance by asking executives to indicate the extent to which their organization performs a series of trusted actions related to each operating domain. Consider, for example, the measurement of trust performance in customer experience where we asked respondents the extent to which their organizations prioritize providing superior customer service, including digitally driven experiences.

Trust performance scores for each domain as measured by executives at large global organizations are presented in figure 3. The results indicate that most companies are taking some action in all areas, but there is still room for improvement, and thus room to build trust. Interestingly, these trust performance scores suggest businesses are more likely to be better at building trust in areas where they have more experience developing capabilities and taking action. For example, trust performance measures in operating domains such as crime, culture and purpose, compliance, and product quality were higher than for domains such as DEI, ESG, or innovation, intelligence, and technology. This may indicate that the large organizations that these executives lead have more experience building trust in areas that are essentially table stakes for running a business, such as preventing fraud and crime, developing a supportive organizational culture, and improving product quality.

While “table-stakes” domains are indeed crucial for the business, research suggests that areas such as data protection, DEI, and ESG are becoming increasingly important to a growing number of stakeholder groups—so it’s likely that businesses will start paying more attention to these domains going forward. Organizations should prioritize earning trust with stakeholders in areas that go beyond their comfort zone, with which they’re not as familiar and where capabilities are still maturing. Otherwise, companies risk leaving themselves exposed to a loss in trust if issues arise.

How Trust Actions Can Impact Stakeholder Behaviors and Organization Performance

Specific, tangible actions within a given operating domain that demonstrate an organization’s competence and intent can arguably make a positive impression on stakeholders, impacting their behaviors and ultimately generating value for an organization. For instance, an organization can offer specific training to mitigate unconscious bias and prioritize DEI in its hiring and retention methods, policies, and programs, which can then create a more inclusive workplace and foster innovation.¹⁵ For ESG, organizations can set meaningful goals and targets, review their ESG impact, and effectively embed this into financial decisions, all of which can drive “social credibility” and positively impact areas such as talent retention and investment returns.¹⁶ The following examples show specific actions that well-known organizations have taken that build trust in different operating areas, and the improved performance metrics they have experienced as a result.

Trust-building in action – Tommy Hilfiger

In 2017, Tommy Hilfiger launched Tommy Adaptive, a line of clothing for people with disabilities. The new line was designed to meet an unmet market need, but, perhaps more significantly, it signaled to stakeholders the company’s intent to help others in a unique way. This helped employees develop a sense of purpose in their jobs, encouraging them to feel that they are making a meaningful, positive contribution to society. Customers also noticed. The feedback captured the success of their campaign:

“Usually, customer service centers for retailers can expect at least some complaints, along with customer inquiries. However, the customer service team for Tommy Hilfiger had the opposite experience with Tommy Adaptive: People called to say thank you and share stories about how the product had helped them.”¹⁷

The article was first published here.

Photo by Alex Shute on Unsplash.