Monday, November 24, 2008

Trust and the Performance Economy Part 1 (Paul Allen)

Back in the year 2000 – shortly before 9/11, way before the invasion of Iraq, and way-way before the collapse of the global credit system - a serious debate raged. The central question was a profound one.

“Which economy are we in?”
Good question. What’s everyone think?

The year 2000 was the backside of the dot.com bubble, still bloated and ready to burst. Money flowed, valuations were generous, VC-backed investments were the rage, technology was everything, more people had more than they had ever had before. Which, I guess, meant people had lots of free time to think about exactly which economy they were enjoying so much.

Pundits said we were in the midst of the Internet economy, the technology economy, the Silicon-Valley economy, the dot.com economy, the wired economy – and the big kahuna of them all – the new economy. My personal favorite is the new economy - because it made so little sense, as if the all too human drivers of economic sustainability took a permanent vacation. Plus, the moment you anoint a new economy, it starts becoming an old economy. And as we are painfully learning today, sometimes an old economy can become barely an economy at all.

“So, again, what economy is this ?
My answer is the same as it was in 2000. This is the Performance Economy.

In August of 2000, I penned an editorial column titled “The Performance Economy.” The following excerpt (forgive me for quoting myself) sums up my view:

“I am no Alan Greenspan, but markets have always rewarded performance. So why not describe the economy by what it is and always has been, the Performance Economy. No matter what descriptors we give it, the standards of economic measurement will always concern itself more with fundamental performance than today’s investment fad.”

So how do we think about this from today’s vantage point? 

Clearly there are aspects to performance that remain the firmament of value creation – revenue, earnings, efficiency, quality, liquidity, capitalization, etc. These will always be a vital part of any Performance Economy. But there are components of performance that I would characterize as the firmament of trust creation – behaviors and characteristics that mitigate risk and enhance staying power during challenging (pronounced “recessionary”) economies. In times like these, trust creation might be just what the economist (pronounced “doctor”) ordered.

I am also pretty convinced that trust creation has an exponentially positive effect on value creation.

As organizations wrestle with the challenges of a volatile economy by rationalizing relative performance, there are other important performance opportunities that have the potential to help offset the downward pulls of market movements. Revenue, earnings, efficiency, quality, liquidity, capitalization will always be a highly managed part of any Performance Economy (value creation). Where many organizations fall short is in thinking about the opportunities, short and long-term, that come by focusing on managing trust creation.

Here’s a list, not in any order, of a few institutional characteristics that contribute greatly to trust creation: characteristics that help offset the unavoidable swings in value creation dictated by a volatile environment:

1. Genuine commitment to benefitting stakeholders in tangible ways
2. Qualified, accessible and accountable leadership
3. Executive decision-making that carefully weighs impacts on stakeholder interests
4. Transparent financial practices
5. Transparent, direct communications
6. Clear commitment to business ethics
7. Societal contribution for non-commercial purposes
8. Environmentally responsible operations
9. Consistency of promise relative to delivery
10. Authentic, high-touch customer engagements

Individually, or in the aggregate, the list above would enhance the real and perceived trustworthiness of any enterprise. And would help stave off customer, employee and margin erosion in times of uncertainty.

The question my fellow trustmeisters and I ask an organization is this: Do you really manage trust creation? Creating trust is an active enterprise. Either you manage it like other performance measures (such as quality) or you leave yourself open to being an also-ran in this important dimension with your stakeholders.

And that may be just the ticket for getting through some of the darker aspects of the current “performance economy.”

Paul S. Allen is the chairman of independent advertising agency Allen & Gerritsen (www.a-g.com)  He is also a founding “trustmeister” of the blog The Reputation Garage.

Copyright 2008 by The Reputation Garage and Allen & Gerritsen

1 comment:

  1. Dear Paul,
    I have discovered your blog by chance. in 2006, i published a book The Performance Economy, with Palgrave London.
    our ideas are different in their approach but overlap with regard to conclusions and findings.
    just wanted to let you know.
    Walter R. Stahel
    visiting Professor, University of Surrey
    walter_stahel@genevaassociation.org

    ReplyDelete