– Thoughts on Strategy and Management

Attributes of trust

In this former post I discussed calculus trust. With this new post I would like to discuss the attributes of trust. Again, I will employ the banking industry as an example.

Fairly different to power and conflict the issue of trust is linked with positive economically desirable results. Trust has always been an important issue, but before the financial turmoil some organizations and managers underestimated its impact on business. STAEHLE (1999) argues that trust’s positive results can be found in the following areas: stable personal and organizational relationships, reduced costs of transaction, additional business opportunities, easier coordination and better communication.

GRUDZEWSKI et al (2008) summarizes that trust has a true economic value since trust and the resulting readiness for cooperation will increase that the cooperation between two partners will end with success. Without at least a small amount of trust a large number of economic transactions would not be possible. A good example was the behavior of banks in 2008, when banks stopped to lend money to another and decided to transfer their cash surplus to the ECB. STAEHLE (1999) highlights that in particular products and services for which their quality cannot be tested in advance, trust is very important to enable the transaction. Trust is also very relevant for the production of complex and premium products; in most cases the production of those products requires the specification of the customer or some other sort of participation.

Other sources see that trust is able to generate competitive advantages. BEER (1976) argues that within a group perspective trust is both precondition and result of group development processes. Next to those benefits trust has some disadvantages, too. LUHMANN (1989) argues that trust implies a risky advance performance that is done in anticipation of a reward. According to STAEHLE (1999) all conceptions of trust have in common that the “truster” has to take a certain risk. In most cases participants try to control the risk up to a certain level. KERN (1998) sees a disadvantage in terms of the ability to change: Since trust has the ability to paralyse and to stop innovation, too much trust can be a barrier for organizational change.

Since in retail banking business the relationship between bank and the private customer has to be managed the next paragraph will focus on trust building in relation between firm and customer.

Trust in relations between business and customer

GRUDZEWSKI et al (2008) argues that trust can be expressed in different degrees. This trust degree is a major factor determining the decision-making process in the relationship between business and customer.

In this relationship the consumer represents a partner in the exchange of goods or services, but the relationship between consumer and firm is characterized by a strong asymmetry. The firm has advantages in terms of finance and technology; more important it has a major advantage in terms of information. The consumer is not able to get access to all information available about a specific product or service. In particular in the banking industry both information and knowledge about financial aspects establish the fundament for such kind of asymmetry.

Trust expresses the consumer’s believe that the counterparty will not take advantage of him in conflictive measures. Taking this circumstance into consideration, consumer trust can be defined as trust of a customer in a firm and “as the subjective conviction of the customer that the enterprise will not use its own superiority against him”. Consumer trust can be distinguished into offline trust and online trust. Offline trust is linked with the traditional transaction between consumer and firm, where online networks are not employed to win new consumers. Online trust can be described as consumer openness in terms of behaviour and activities of an Internet seller. This trust is based on the expectation that the Internet vendor will behave in an accurately way, no matter whether the consumer will use the possibility of monitoring the Internet seller.

What should retail banks take into consideration?

Financial products are very sensitive services, since customer cannot overview the bank’s ability to offer the promised service at the time when they sign the contract. Customers have to trust in the bank and its promised reliability. It also is impossible for the customer to check and compare the bank’s ability in advance, since some of the products are not easy to compare. At last the customer has to trust the bank as a whole, and not just to focus on a single product.

Financial products are abstract; therefore they require a specific level of explanation. This level depends on the kind of product; some complex products require a higher level of explanation than others. In comparison with other goods and services, some financial products also require a high level of customer’s economic expertise.

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