COMPETENCE The Art and Science of Excellence
It was easy to see why Uber had become wildly successful. Instead of trying to flag down a taxi that may or may not stop, where the driver may or may not bark at you while overcharging you, or worrying about calling up a dispatch service that may or may not send a cab in time, Uber offered a completely different experience. The app let you book a ride instantly, see the price upfront, track the car on a map so you knew where it was, and automatically pay through a stored credit card. Uber offered a lot to love.
However, for anyone paying attention, there were a lot of reasons to worry about what kind of company Uber was. A few of the highlights: Uber earned a reputation for ruthlessness because it turned on surge pricing—a feature where the price of an Uber increases when there’s more demand—during several emergencies. During a 2013 snowstorm in New York City the price of an Uber ride went up by as much as seven times. Uber’s fall came in 2017 when it went through a blood bath. One disaster followed another. The year began with a social media campaign to delete Uber, which an estimated 200,000 people actually did. In February, Susan Fowler, a former Uber employee, published a whistleblowing blog post about sexual harassment at the company, a culture that was toxic for women, and full of political back-stabbing.
In a word, because Uber is competent. Competence is a company’s ability to create and deliver a product or a service. In the case of Uber this means getting a customer like Shalene from her apartment to her office at Harvard Business School. Competence is the bedrock that trust rests upon. Without it, a company will not get off the ground. This looks like an obvious and almost humorously “duh” insight. Why would anyone trust a company that’s not competent? Yet, competence has its limits: it’s a big part of trust but not all of it. Competence can take a company a long way—but not all the way, as we saw with Uber, because it turns out, trust is multifaceted. It relies on several different elements.
MOTIVES A Fine Balance
We expect when we buy a product or a service that it will live up to its promise and that the company that sold it to us will not actively try to harm us and will take a reasonable amount of care to ensure our well-being. We cannot police each and every thing a company does, so in order to engage with a company, we have to generally trust that they have good motives and do not intend to hurt us.
For example, we expect that Facebook will allow us to contact friends and family. We understand this may lead to occasional sticky situations when Grandma reads something that was meant for our best friend. We expect that Facebook will use our data if we give it permission to, and we may even expect that Facebook will not be very clear about how to opt out of giving it permission to use our data. However, we do not expect that Facebook will allow a third party to collect and use our data without our permission, as it did with Cambridge Analytica, the data firm hired by the Trump campaign for the 2016 presidential election, which gained access to private Facebook data on 87 million users and allegedly used these data to create targeted political ads.
Motives are so important to us that if we know someone unintentionally caused harm, we see the harm as less severe. In a 2013 study, Daniel Ames, now a business professor at Columbia University, and Susan Fiske, a psychology professor at Princeton, had participants read about a CEO who owned a business where employee pay was partially based on company profits. The CEO made a bad investment, which meant employees earned less. Participants then rated the amount of harm caused from 0 to 100. Half the participants were told the CEO intentionally harmed his employees because he wanted them to work harder to increase profits. The other half were told the CEO genuinely thought the investment would make money and everyone would benefit. On average participants rated the scenario with intentional harm at 66, while the second scenario of unintentional harm earned an average score of 48—even though the result of less pay was exactly the same.
Businesses would do well to act in the interests of others, because we feel good about people who cooperate to further our collective interests. We want to work with them and reward them. When they cause us harm unintentionally, we will be more forgiving, but if we believe they harmed us on purpose, we will magnify the extent of the impact. We abhor those who are only interested in their own benefit, and if there are opportunities to punish them, such as not do business with them or go after them legally, we will.
MEANS When All Is Fair
Our sense of fairness runs deep and shows up nearly from the time we are born. In a 2017 Scientific American article, researchers summarized the “mountain of evidence” of how fairness is imbedded in child development. Infants as young as 12 months expect resources to be divided equally between two characters in a scene [that was playacted in front of them]. By preschool, children will protest getting less than peers, even paying to prevent a peer from getting more. As children get older, they are willing to punish those who have been unfair both when they are the victims of unfairness as well as when they witness someone else being treated unfairly. Older still, children show… they would rather receive nothing than receive more than a peer.
Fairness to employees is trickier to manage than fairness to customers because often the effects are indirect and emerge over time. To learn more about the hidden impacts of unfairness to employees, in 2017, European researchers conducted a field experiment by setting up a call center where they hired 195 people. They then laid some of them off to see whether this would impact the productivity of those who remained. While real-life “experiments” of this kind go on all the time in companies, in this case, the researchers were trying to get a more precise understanding of how unfairness in the conduct of layoffs would affect the productivity of staff who were not laid off.
The researchers randomly selected 20 percent of the workers to be laid off, and told the group the layoffs had been random and were needed to cut costs. Productivity among layoff survivors (i.e., employees who were not laid off while others were) immediately decreased by 12 percent. This may not sound too bad, but imagine a drop of over 10 percent in the productivity of employees and the hit in profits if that occurred. When the researchers followed up, survivors were most unhappy about the random selection of workers to be laid off. To them, it was completely unfair. While this was just a research study (and one hopes that participants were properly debriefed so it had no lasting emotional effects), layoffs like this are all too common in real life.
When unfairness reaches a tipping point and communities rebel, companies can find themselves in hot water. For example, consider our discomfort with Uber. Much of it is rooted in how Uber treats its stakeholders. Among other harrowing details, Susan Fowler described how HR gave her a choice between staying with a manager who allegedly sexually harassed her and probably receiving a bad performance review, or transferring to a new team since they weren’t “comfortable punishing” the manager, who was a high performer. Unsurprisingly, according to Fowler’s blog post, the number of women at Uber during her time there dropped from 25 percent to less than 6 percent of the workforce. Even when unfairness is directed at employees, where the costs can be hidden for longer, companies will still see an impact.
IMPACT Our Actions Speak
While being a purpose-driven company is becoming more and more accepted, there’s a gap between saying you want to do something and actually doing it. In McKinsey’s 2019 survey of 1,000 employees, 62 percent said that their company had a purpose statement, yet only 42 percent said that their company’s purpose statement actually resulted in creating a positive impact.
Companies might be doing a great job of saying they want to have a positive impact, but they are doing a mediocre job of following through. Closing this gap means companies have to make good on their commitments. This might mean trading off some short-term profitability for the long-term goal of creating a positive impact. Creating a positive impact means companies and leaders have to be committed to rewarding employees for creating the desired impact, instead of just paying it lip service. Consider the difference between Volkswagen and Patagonia, the American outdoor apparel company whose mission statement is “We’re in business to save our home planet.”
Volkswagen promised to make cars that met some of the most stringent emissions standards in the world. Instead, VW ended up creating software that cheated on emissions tests since it could not at the same time invest in emissions reduction and achieve their promised growth targets. Volkswagen’s goal in 2013, two years prior to its emission scandal, was to “offer attractive, safe, and environmentally sound vehicles which can compete in an increasingly tough market and set world standards in their respective class.”
Crystal clear and socially conscious. Then, Volkswagen completely failed to follow through in the worst way possible. Not only did Volkswagen fail to produce emissions-friendly cars, its employees used considerable energy and ingenuity to create cars that actually cheated on emissions tests. Rather than reduce emissions, Volkswagen made cars that continued to pollute, adding tons of damaging emissions to the environment the more cars they sold.
By contrast, consider Patagonia, founded in the 1970s by Yvon Chouinard, a California rock climber. Chouinard got his start by selling climbing pitons. As demand grew, he started selling clothing and recruited others to help. His plan was to give the money he earned to environmental causes. However, a consultant advised him against this and told him to sell Patagonia and start an environmental foundation instead. Chouinard decided to go in a completely different direction. He decided to mirror the values of an environmental foundation: he wanted Patagonia to be a company that created products in an environmentally friendly way.
Creating an impact doesn’t mean only sticking to a defined vision. More broadly, it means assessing the current situation and recognizing you have the power to do something about it, even if it’s “just” making policy changes that can impact the lives of the public.
RECOVERY Regaining Lost Trust
While trust can be regained, what we often see is companies fall flat on their face (if companies had faces) because they do such a poor job of recouping the public’s trust. They default to assuming all is lost, or worse, botch repair attempts by waiting until the problem has been fully tried in the court of public opinion before they communicate and act, as was the case with Takata, a Japanese airbag and seatbelt manufacturer.
In 2004, after a Takata airbag exploded, injuring an Alabama driver, the company performed internal tests that showed that its bags were faulty and could explode upon impact. Engineers prepared for a recall, but executives instead ordered them to delete the data from the tests and continue to sell the bags. The first Takata airbag recalls occurred at a glacial pace: four years after the initial findings from the test, and it was tiny—only about 4,000 cars were recalled. In 2011 Honda expanded this recall to include over a million cars,18 but Takata continued to drag its heels and obfuscate. It finally filed a defect report in 2013 with the National Highway Traffic Safety Administration (NHTSA), nine years after the first airbag explosion. In 2015, under intense pressure from the NHTSA, Takata admitted there were defects in its airbags, leading to nationwide recalls of 22 million cars. In 2017, Takata filed for bankruptcy, unable to keep up with the court fees, fines, and recall costs it had to pay. At the time of its bankruptcy, its airbags had been linked to 16 deaths and 180 injuries. A year later, nearly 42 million cars had been recalled.
Yet, picture what would have happened if Takata had acted the moment it discovered the problem. Certainly recalling 42 million cars and admitting the problem would have been a long and difficult journey, but Takata might have had a fighting chance for survival. However, Takata turned away from that road, probably because it would be so unusual to imagine admitting fault and making plans to remediate the problem at anything near the eventual scale that was required. Companies try to slow-walk their way through these situations for many reasons. There are serious reputation costs to being known as a producer of a dangerous product. They want to avoid setting aside large reserves for potential lawsuits, which would come right out of their profits. They try to minimize the number of times they are exposed to the expenses of repair or recall. And they refuse to admit harm out of fear that the admission will be used against them by plaintiffs’ lawyers to win more cases and exact higher awards than they might otherwise have to pay.
But it seemed as if there might be something else at work in how the leaders of companies respond, time after time, to situations that end up costing them far more than they might have if they had taken a different approach at the beginning. It’s called “normalcy” out of our strong desire to believe that the normal world we live in is still intact, and it’s a “bias” because it leads us to deny the new reality that exists. Our next reaction is to seek out information about the situation, and it has to be a lot to convince us that what seems to be happening really is happening. Research finds that people acting with a normalcy bias seek out four or more sources of information before they feel ready to act.
Some people who escape the normalcy bias may have had prior experiences with dangerous situations, giving them the advantage of pattern recognition to see what others don’t. What seems to help is good information that people take the time to focus on and believe, which is really, really hard to do; ask anyone who works for an airline and has to deliver the potentially lifesaving information of where the exits are in a plane.
So, if you are in a company that is facing an imminent catastrophic disaster, like exploding airbags on millions of cars, try to watch for signs that you and others are trapped in a corporate version of the normalcy bias. Red flags will include a narrative of denial that the situation is even occurring, accompanied perhaps by demonizing those who present confirming information about it. Especially worrisome will be the tendency to minimize the potential scale of the harm, since this will lead to stalling, minimal levels of response, and the inability to act big that is so characteristic of company-created disasters that destroy trust. What you can do is to seek out information that would shed light on the potential size of the disaster and the resulting scale of the trust betrayal. We imagine all kinds of things in companies, from how a new product might work, to the impact of a really smart move on the part of a competitor, or even how to respond to a novel coronavirus. Armed with the defense of understanding the normalcy bias, you might be able to extend your imagination to areas that matter at least as much, since they affect your impact on others and, fundamentally, whether you will be trusted.