At Icertis, we consider building trust core to what we do as a developer of contract lifecycle management (CLM) technology. After all, contracts are a promise, and nothing builds trust like a promise kept.
That's why we have partnered with Economist Impact to commission a study that examined how today's leading enterprises think about trust, and how they build trust in business.
The report, A deeper understanding: Building trust in business partnerships, draws on a combination of desk research, expert interviews, and an extensive survey of 600 business executives working across industry sectors in nine major economies in North America, Europe, and Asia-Pacific.
According to the Economist Impact study, the notion of ‘trust" encompasses a cluster of behaviors, including "ability, benevolence, and integrity." The more a company models behaviors in each of these areas, the more likely peers are to consider them highly trustworthy. Companies associated with high levels of trust enjoy long-term revenue growth and achieve sustainability goals.
In this first of three articles, we'll look at the concept of trust between business partners. We discuss what trust is and how it is built, and some of the challenges organizations face in building trust with partners and customers.
What Defines Trust in Business Relationships?
Identifying and maintaining a trustworthy business partnership rated as either a high priority or a business-critical priority for more than 75% of respondents in the Economist Impact report. Clearly, trust is a business priority.
But what kind of behaviors do those executives who rated trustworthiness so highly want to see in their partners to consider them trustworthy?
Of six traits they could consider the most important in building trust in business relationships, more than half of those surveyed chose transparency as what they look for in a potential partner. Fully 82% of respondents said there could not be trust without transparency.
With transparency the clear frontrunner, it is interesting to note that each of the remaining five traits—collaboration, integrity, consistency, accountability, and competency—were selected by at least 40% of respondents. And an overwhelming majority of respondents (86%) said they would be more likely to work with a partner who demonstrated transparency, accountability, and integrity in their operations. Perhaps unsurprisingly, trust in business relationships has been strained during the pandemic.
One of the most disruptive events in recent history, executives cite the fact that professional relationships built on personal contact have been impossible during the pandemic combined with stressors like strategic decisions amid prolonged uncertainty (39%), unexpected changes in supply and demand (34%), and uncertainty around suppliers' ability to delivering on existing agreements (28%), as factors that have eroded trust over the last several years, and forced a rethink of how companies build trust in their business relationships.
Keep Exploring: Three (Difficult) Lessons Learned for a Post-Pandemic World)
What Drives Organizations to Build Trust in Business Relationships?
Though there are many reasons companies prioritize efforts that build trust in their relationships with business partners, the primary reason is how beneficial trust is for achieving financial success.
Dr. Isabel Cane, head of the OECD's Trust in Business initiative, cited in the Economist Impact report, points out that as recently as 20 years ago, business was seen as essentially a profit-seeking enterprise. Today, however, firms want to have social value, practicing inclusive growth and a responsible form of capitalism. "One of the ways to demonstrate that is through who you partner with and who you cooperate with," said Cane.
To that end, more than 40% of respondents highlighted customer satisfaction and loyalty as key areas that benefit from working with partners that have a high level of trust.
A 2019 study by Edelman bore similar results. Looking at consumers in eight countries, the Edelman study found more than 80% of respondents indicated trust in a company was a major factor in purchasing decisions, and 60% would remain loyal to a trusted company if a competitor launched. Given that only a third of consumers in the survey trusted the companies they bought from and that less than 30% would remain loyal to a manufacturer they didn't trust, there are clear dividends to both opportunity and customer loyalty in being a company buyers can trust.
And there are internal benefits to being a trusted company, too. A Claremont Graduate University study found that workers in the top 25% of most-trusted companies reported being 50% more productive than those in the bottom 25% of most-trusted companies.
What Challenges Do Companies Face When Building Trust?
The most significant challenge preventing trust-building between organizations cited in the Economist Impact study was limited supply-chain visibility. That is, the inability of a potential partner organization to identify, collect, and relay data from across its supply chain.
Icertis' own work with customers validates that supply chain visibility continues to be a major focus for improvement. Especially in times of major disruptions, like COVID or the Ukraine crisis, companies often realize they don't have sufficient information about who their suppliers are, where they're located, and what supply chains they rely on to deliver goods. Part of the issue we often confront with customers is that the contracts that contain much of this critical information are scattered across systems and continents, making data access difficult. This creates internal challenges, but it also makes it difficult for companies to be good, trustworthy partners, because they don't have the data their partners need to have to pivot in reaction to emerging disruptions.
With only 25% of those surveyed indicating their company shared data with partners regularly, there remains much work between businesses to develop trust around the sharing of sensitive data to promote greater transparency.
What Progress Have Companies Made on Building Trust?
To this end, it is worth noting that more than half of those surveyed (53%) indicated their organization had taken steps to increase the sharing of data and information with external partners. These included the addition of new technology or digital tools to enable high levels of trust.
Likewise, many companies have taken additional steps to improve their oversight. Nearly half of respondents (49%) have increased their assessments of business partners, with 36% requiring third-party evaluation of potential partners to measure their compliance. Roughly the same percentage (34%) had developed standard criteria for analyzing partners.
As an example, in response to growing concerns about cybersecurity, Hewlett Packard has tightened security at their manufacturing plants and instituted background checks for both employees and, via their contractual rights, component suppliers.
Overall, 89% of the companies in the Economist Impact study believed it is "important that their business partners share their organization's values."
While the last several years have been challenging, the pandemic has emphasized the importance of trust between businesses in uncertain times. Given the volatility of the global economy and supply chains, enterprises must establish trust—those qualities of ability, benevolence, and integrity—to ensure close working relationships with partners and dividends in both market opportunity and customer loyalty that come from being a company buyers can trust.
In our next article, we will deep dive into the findings of this report when we look at the growing role ESG compliance is playing in building trust between businesses and between companies and their customers.
To read the full Economist Impact report, click here.