We have talked previously about "information
asymmetry". It’s a fancy term for a simple concept: white lies. You know,
the kind where you don't actually say something that you know to be untrue, but
you don't tell people what they need to know either. Sometimes you don't tell
somebody because you don't know what to do, and other times because the fear of
saying something is greater than your belief in any possible good coming out of
telling the truth. The people you are keeping in the dark usually don't care
about your motives, however. They just know that you could have helped and
didn't.
In the business world "little white lies" are
translated into terms like "competitive advantage" "upper
hand" and "FUD" (the famous sales trio of Fear, Uncertainty and
Doubt). All these terms are based on the same basic premise: the risks of
transparency are greater than the benefits, so you keep your mouth shut and
hope for the best.
Thoughtful people who aren't riddled with the fear of failure or the terror of not being able to care for their family contemplate all of this and realize that the basic premise is usually wrong. In fact, one of the most inspiring things to me as a business person is that the economic realities of information asymmetry and the spiritual / moral realities of little white lies are starting to align: there isn't a lot of good that comes from holding the truth, and there can be a whole lot of bad.
But let's talk hardcore business: the efficiency of a widely distributed system is directly proportional to the trust between the players in that system. You can't have a smooth running operation with employees who don't trust each other, and that lack of trust translates directly into lower productivity and lack of innovation.
Information asyemetry usually leads to the following:
- You will win sales that eventually blow-up in your face as the customer discovers the truth. This leads to a higher cost of support, lower customer satisfaction and negative brand equity.
- You will have to spend extra money to put in systems of checks and balances when your associates figure out that they can't trust you, which is then translated into you not being able to trust them.
- Critical time that is required for the creative engagement that you need to put your business at the leading edge and the system architecture work needed to keep it there will instead be consumed in processes to ensure that other don't do unto you as you have done unto them.
I am not being a Pollyanna here. There will be plenty of times when transparency will cause more harm than good. My argument isn't that there is no downside to telling the truth. On the contrary, transparency will probably lead to as much possible downside as opacity. And if you are managing your business as a bank whose only objective is to conserve capital then that risk is an important factor to consider. But if you are a creative age business the simple fact is that you can't win by managing for risk. You need to strive for opportunity, and there is no long-term opportunity is information asymmetry.
When you come from a sales background you take what I
have just said as heresy. Anybody who has ever been in sales and is reading
this post is rolling their eyes and thinking that I am off my rocker. You see,
almost every sales person I have ever met has a saying: "Customers
lie." And you know what? It's true. Customers are just as actively keeping
information from vendors as vice-versa. Sometimes more so, as they have the
money and therefore feel like it is your duty to spill the beans, while for
them they believe that they can only serve their shareholder's interests if
they force the best short-term deal from you.
But it's not just in sales, it's everywhere. Why tell
your employee's the truth about the financial condition of the company when
they will just lie to you and go out and tell the press? Why tell your boss
that you really just need a day to sit in front of the TV in your robe and
drink beer when you know your boss has lied to you since day one about your future
at the company (at least none of their promise have come true, so they must be
lieing, right?
People treat trust like it is a game of chicken: once the
first person blinks everyone else has somehow gotten tacit permission to do
things they would never condone otherwise. So without reflecting upon the
aphorism that two wrongs don't make a right, let's look at the reality of where
this belief has gotten us: inefficiency, high turnover and increased costs.
In short, failing to create a culture of trust means that
you are in fact squandering your precious shareholder's capital. I would hazard
a guess that failure to lose the right deals, tell employees ugly truths and
make your core IP vulnerable costs us all a hell of a lot more than success in
most forms of information asymmetry.
One last thought on this topic: Most people who talk
about information asymmetry think about it terms of power ("I can only win
by withholding the truth") or victimization ("You had something I
needed and you failed to give it to me so now I am screwed"). Sometimes information
asymmetry happens because people withhold information, but sometimes people
withhold information because you'll just act like an idiot when get the truth. The
world of software is a perfect example: every software has problems, so when
you buy software from the guy who lies through his teeth just because he has a
better PowerPoint and smile you end up with exactly with what you deserve (a reputation
amongst sales people as a dope and a big invoice for crappy software). As I
said here, Good News is No News. If you aren't demanding the hard facts and
then rewarding the vendor that provides them, you aren't creating an evironment where trust will thrive, so you should expect to get lied to. Or, in other words, you are a victim of your own lack of competence and nothing else.
Next: Part 6 - Investors before Shareholders
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