Problematic Outsourcing? For the Cynics: How Commercial Trust Can Reduce Stress & Maximise Value

By Allan Watton on

commercial-trustOutsourcing, managed and commissioned services are prone to relationship problems, with around half failing due to partners not performing to client expectation.

You will be well aware that a lack of performance kills trust, but may be less aware of how the concept of commercial trust can drive maximum value and prevent issues from developing in the first place.

However, if you are in a manipulative relationship with either your supplier or client and are under increasing urgency to make the relationship work and drive better value, then the thought of reading an article about how to (re)build trust may well have you chuckling – at the apparent naivety of such a statement!

This reflection towards commercial trust is common – particularly in outsourcing relationships that aren’t working and where trust is low. But for the cynics amongst you, there is a lot of evidence that demonstrates you should really take a step back, reflect on both sides’ behaviours (rather than intentions), and look at taking steps in a different (value based) direction.

What is commercial trust?

Commercial trust is to do with on-the-ground behaviours on both sides of the relationship. It exists when someone actually does what they said they are going to do, when they said they were going to do it. When your perception is that you are embroiled in a manipulative relationship, the bit that will be difficult for you to swallow is that you, yourself, have to take the first step; you have to start with the assumption that most people are good and trustworthy, but be selective in the people you choose to trust through your own instincts and judgment and through a commercial trust analysis.

Commercial trust analysis

A commercial trust analysis is not ‘blind trust’ – it is about going through a process of due diligence to ensure that the trust you give is optimised to the right people and organisations.

The analysis covers three areas: the first being the opportunity – what are you trusting someone with? Next is the level of risk – what is the level of risk involved by advancing trust? Can you protect the downside and what are the key points of failure? Third is credibility which comes down to the character and competence of the people you will be dealing with. Is their reputation good or bad?

Sometimes a Google search with the person’s or organisation’s name, along with key words such as +unethical or +illegal, can lead to useful insights as for commercial trust to exist you need to have evidence of indicative behaviours that people can be ‘turned around’. In other words, they have confidence in themselves to do what they say they are going to do, when they say they are going to do it. If you cannot identify these qualities in either your own or their team, then you will have little option but to move to a power-based relationship through the leverage you have within the written contract terms and through the vendor’s expert responsibilities. If you do find yourself in this position, you will miss the advantages of commercial trust, particularly, as most outsourcing contracts we see are poorly constructed, built on incorrect cost and value assumptions and therefore often drive the wrong ‘on-the-ground’ behaviours between the parties. The Result = Bad Value for all concerned.

The other option is to go back to your vendor partner and look within your own team and try and get the people you can’t trust replaced. In our experience of over 500 strategic vendor relationships, 75% of manipulative vendors can become trusted partners, with the remaining 25% having to be replaced.

The hard cost-cutting facts of operating commercial trust

Commercial trust matters as it’s good business, both financially and operationally. A survey with the London School of Economics showed that clients in vendor relationships with strong commercial trust incurred up to 40% less cost and achieved higher organisational outcomes. The survey also indicates that the stress of being in a dysfunctional relationship will increase staff turnover (on the coal face of the relationship) by over 50% compared to organisations that have strong trust. Having positive intent can therefore lower costs and increase profit.

A good example of a company taking a hard-line (power-based) approach to strategic vendors was PepsiCo. Their own analysis found that by using contract levers and hard-line, uncompromising behaviour towards its vendors, simply built more and more distrust. The arrival of PepsiCo’s new CEO, a staunch believer in commercial trust, found that implementing a commercial trust policy turned around the attitudes of both themselves and the strategic vendors they worked with. The result? By operating collaboratively with their vendors, PepsiCo increased revenues by 72% and net profit by 100%. They contribute this success largely from implementing the principles of commercial trust.

5 steps to rebuilding trust

The behaviours that build trust are straightforward but challenging to implement consistently day-to-day. We have our own processes for building commercial trust, but Greg Link from Speed of Trust articulates very well that there are five steps to rebuilding trust in strategic vendor relationships.

  1. First, and the most difficult step the cynics amongst you will need to deal with, is that you must choose to believe that people have the best intentions for the relationship as all other trust-building behaviours flow from this.
  2. Second, you need to look at your own behaviour. As individuals we tend to judge ourselves by our intentions but we judge others by their actions – this disconnect causes an imbalance. So ensure you consistently follow through on what you say.
  3. Third, actually declare your intent and assume positive intent in your strategic partners to clearly signal your goals and intended actions in advance.
  4. Fourth, by following your lead, your strategic partner will start to do what it says it’s going to do in carrying out its own declared intent.
  5. Fifth, the individuals you extend trust to will, over time, extend trust to others and a virtuous cycle is created which leads to increased productivity and innovation.

Find out more about the key steps to implementing commercial trust in our free Problematic Outsourcing Relationship White Paper.