How does Trust Lead to Profitability?

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How does Trust Lead to Profitability?
Robert Whipple, Member
Do you know any specific figures that support the notion that higher trust in an organization will result in higher profits. I am looking for numerical facts, not hearsay.

How Trust Leads to Profitability
abraham garshong
Profitability is about having revenues higher than the costs that generated it. Trust essentially reduces the need for layers of supervisors in the internal control chain, and allows for flatter line staff system, which reduce bureaucracy and increase speed of decision making, thereby reducing the total cost of the firm.

Trust and Profits
David Wilson, Premium Member
Employees need to trust their leaders and believe in their future, If this is the case, a company may increase its profits. I have no solid figures, but I hope you will find the following three references helpful as a starting point. They refer to an number of studies (without all of the specific details), such as the Henry Ford story where he rewards employees while aiming for and obtaining higher efficiency. "Full" employee engagement and profit sharing may also be important elements. In addition, people need to be considered as partners and organizations need to do things right, including the management of change!

1. Lessons from Henry Ford
2. Blanchard on Trust (cost of low trust, elements of trust, trust busters, trust builders, 8 things your organization can do to build trust)
3. Kevin Kruse's GR8 Model

Have you considered a literature review (e.g., Built to Last, Built to Change, Good to Great, How Toyota Became #1, etc.)? It is also possible for companies to plot stats on turnover, share prices, profits, employee engagement, etc. Personally, I like the studies on 3M and the need for supporting innovation, while rewarding employees. Hope this helps.

How Does Trust Lead to Profitability
Rudy de Beer, Member
I would recommend you read RESPECT by Drs. Jack Wiley and Brenda Kowske for some convincing empirical evidence, ISBN-13:978-1118027813.

Trust and Profits are Related in at Least 3 Different Areas
Andrew Blaine, Member
I would suggest that the loss of trust in a business entity results in the withdrawal of investment and interaction which, eventually, results in the foundering of the business itself.
I am intrigued by the need to quantify this phenomenon and suggest that the question, as posed, is too wide in itself to generate a useful answer. Trust needs to be defined by those involved in trust. If it is between the entity and its customers that is one aspect, between the entity and its stakeholders is another and a third is between the entity and its employees. Please rephrase your question and then each relationship could be quantified? I feel they have a different effect on the entity?

From Trusting Employees to Profits
Trust is key as employee will necessarily be given more room for leading instead of just managing, but the question is getting the honest personalities who could be trusted.
One key thing to consider in selecting candidates who you can trust is getting those employees who love their job. Enthusiasm plays a key role and then motivation in the form of rewards follows. But there should be a system to measure performance I think.

Trust & Cost Efficiency
Arrey Benedict, Member
The higher the amount of trust among corporate employees and stakeholders, the less need for non-annual auditing or periodic checks and control sessions on behavior, finances, stocks etc. Frequent checks increase operational cost, and this can sometimes be significant:
- On the one hand, optimal trust levels save millions of dollars annually because such checking processes are not needed.
- On the other hand, low trust levels will result in the application of additional trust checking measures which must necessarily share in debiting Owner's Equity, typically without any positive contribution to profitability.

Trust and Profit
@Andrew Blaine: Trust indeed can be from the stakeholders in the organisation and it can be trust from management in employees. Two different things.
If the stakeholders lose their trust, eventually that will be end of the line for the company. Investments will be frozen or delayed.
Trust from management in the employees depends very much on the environment. I have worked in countries where trust is an unknown phenomenon and someone who trusts someone else is regarded as a simple fool.
But in the Western society I always have had excellent results in trusting my employees. But to put a figure on it? How can one measure the level of trust given? Delaying effects will depend on previous 'management fads' and on the track record of the management. Trust has to come from the heart, people immediately sense if it is not meant.
I have no firm answer, but I am highly interested in any outcome!

Quantifying the Value of Trust in Business
Andrew Blaine, Member
@Elfrink: As I understand the original question, the poser was asking to quantify the value of trust in business. My response was an effort to gain understanding of the exact form of trust to which he was referring. I agree that trust plays a different role according to the partners in the relationship.
This is the reason, in my opinion, why the crisis of 2008 happened - too much trust in the international banking system and too little control and management. We will be a long time recovering from that mess.
Thank you for your comment, we will watch together?

Trust is an Intangible Asset
Briolett, Member
Trust breeds better work conditions, business practices, and customer / investor buy-in. It is not only important at the management level but all levels of an organization. My experience has taught me that trust starts within an organization and flows outwards. Once your organization (at all levels) is known for its trustworthiness the sky's the limit. What price do you put on reputation?

Please Prove It!
Andrew Blaine, Member
@Briolett: The question asks that this assertion be proven quantitatively. Intrinsically I accept your comments, but please prove them?

No Price on Reputation ⇒ No Quantities of Trust
Arrey Benedict, Member
All reputations owe their base from some sort of unpredictable human behavior, characterized with some unique and individual attributes.
There is no metrical model to accurately compute reputation levels. Organizational trust levels earn a pass mark dependent on specific human actions and cumulative behavior. These actions and behaviors vary in terms of functional domains or individual means, needs or goals.
An accurate quantitative or qualitative evaluation of reputation levels can never be attained without involvement, contribution or full knowledge of the evaluated. Also, even a successful and positive audit does not truly reflect the exact organizational status in terms of human behavior, finance status, inventory, liquidity etc. Even external stakeholders (partners and customers) might always "hide their dirty linen" or strengths, which makes it difficult to correspond any quantitative figures of external trust levels. Trust levels vary with unquantifiable circumstances.

Trust is an Intangible!
Briolett, Member
@Andrew Blaine: If you've experienced what I'm talking about you would see that putting a dollar value on trust is impossible. The benefits come from all directions, are both big and small and limitless. It's like asking to describe the essence of a Rose and then to prove it by putting a value to it!

Agreement on an Emotional Basis
Andrew Blaine, Member
@Briolett: I agree completely with your opinion. Emotion and possibly hope (?), impels us to accept that trust improves every aspect of business. However, I refer you to the initial question - the poser is asking for analytical evidence to support what we know is an assumption, however intrinsic? Every hypothesis, to be successful, surely must be able to withstand analytical examination?

Trust and Profits
Erik van geel, Member
Interesting discussion. Thanks all for the input. In addition, I believe you shouldn't mix up trust and control. Trust lead to confidence, open communication and the guts to do things different: the ultimate source of innovation. Control is necessary because things happen, like people making mistakes. So, in my opinion trust leads to healthy organizations and distrust to sick ones.

Trust is an Intangible
Briolett, Member
Analytical examination doesn't necessarily offer proof. Take a company that is not trusted and one that is trusted; you will notice that in the final context the company that is not trusted does not make as much profit as the company that is trusted.

Trust and Profitability
Trust is a key factor in determining where an investor will invest. Trust in a company goes a long way to create goodwill for the company and if it is present, anytime its major stakeholders who provide finance in both equity and ordinary are called upon to finance the company, they do that with an ease.
It is worth noting at this point that most of the companies which were engaged in corporate scandals collapsed because there was no trust remaining at the shareholders to make them continue investing.

Trust and Banking
Andrew Blaine, Member
@AHLIJAH: I wonder what would be discovered if, after the 2008 debacle, business people were asked to quantify their trust in the banking industry. Do you think that there was much trust in the bankers? It does not, however, appear to have affected their profitability?


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