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Trust: Business eCommerce's Missing Link

Author(s):

Lucy Garrick
Lucy Garrick, GeoTrust VP Trust Model & Metrics, GeoTrust, Inc. 309 SW 6th Ave., Portland, OR 97224, 503-961-4027, lucyg@geotrust.com

86th Annual International Conference Proceedings - 2001 

Abstract
Moving in by stealth and whispers, trust has lately surged across the face of global eCommerce like the tsunami forces it holds. Trust is a primal force that shows itself plainly on the bottom line, and now that business-to-business (B2B) eMarketplaces are beginning to mature, the issue of on-line business trust overshadows many other eCommerce impediments.

It is a natural drive to establish the mechanisms for trust in new contexts, and on-line business processes are no exception-particularly when the B2B market is of such staggering dimensions ($2.7 trillion by 2004, according to an independent research firm). One eMarketplace in a multi-billion dollar vertical industry now has over 12,000 trading members from around the world, but the number of completed transactions falls far short of expectations. Why? There are many reasons, including issues of eMarketplace membership standards, questions about trading representatives having the authority to act on behalf of a company, and concerns over the authenticity of trading companies. These issues sit squarely in the middle of the trading obstacle known as "on-line trust." eMarketplaces affirm that when a trading party has confidence in another entity's integrity and ability to perform, contracts are signed and trade blossoms online.

B2B eCommerce requires on-line risk management and trust services if the industry is to experience its growth forecasts. Clearly, B2B eCommerce is at a crossroads. Although U.S. businesses will conduct more than $400 billion in on-line commerce this year, but 87 percent will be between trading partners with existing business relationships (Online Trade Limits Offline Business Context, April 2000, Forrester Research), suggesting that the promise of new and disparate transaction partners cannot be achieved without better processes for doing buyer/seller due diligence. The hopes for linking customers to suppliers, consolidating supply chains, and conducting business anytime, anywhere will not be realized until the risk of trading online has been mitigated. Whether offline or online, the success of business trading depends on relationships-and commerce relies on the competence and integrity of those relationships.

Now that the buyers and sellers have gathered in eMarketplaces, the bids and offers are listed, and the Web sites are enabled, trading will not begin in earnest, it seems, until trust services, eCommerce's missing link, are put in place.

Defining Trust
At first glance, trust-especially in business-seems an ethereal notion, a soft term. Though we know what it means, it seems to defy clear articulation. Each attempt to define the term ends with an exception that broadens the term's meaning, rendering it so broad that it may seem meaningless.

But trust is a tangible thing. An experienced businessperson can tell you, decisively, when a business negotiation lacks a foundation of trust. In almost any capacity, people know trust when it is present, perceive when it is absent, and engage in behaviors based on feeling trust. Career and business relationships are constructed on trust, and fortunes are lost when it is absent.

When trust is absent, there is a lack of reliance between people, and in the on-line world that liability can be costly. One such example began on January 6th, 2000 when flurries of negative rumors about Lucent Technologies' impending earning statement were confirmed by a corporate press release. As a result, in late March when rumors of another poor quarter were being carried in on-line chat rooms, onlookers paid attention.

On March 22nd, a similar press release with the subject line, "LUCENT RELEASES EARNINGS WARNINGS, DAMN!" was forwarded online until it reached some 20 different message boards. The "news" was pure fabrication, a fraud—but before Lucent could get an authentic press release out, its stock value had dropped by $7 billion. So even when the concept of trust is difficult to define, its value is not, in this case, it was worth $7 billion to the company, and untold fortunes to the individuals who considered buying the company's stock. So it does seem feasible that the promise of $3 trillion in B2B eCommerce and 500,000 businesses trading online may not be realized if businesses do not trust on-line trading partners.

Components of Trust
Simply defined: Business trust is confidence. Transactions with trust rely on each party's integrity and on the ability of each party to perform to the other's expectations. But trust is not static and it is dependent on many things:

  • Trust is situational. What is needed to engender trust in one environment varies from other environments. If a business is buying paperclips, its trust concerns are significantly different than if it is buying penicillin. The importance of establishing trust depends on the risk, on what is at stake.

  • Trust is cultural. Bound by tradition and behavioral norms, a trust-building episode in one culture may be trust inhibiting in another. In some cultures, trust cannot be engendered without appropriate references and introductions. In Western culture, for example, executives wearing pinstriped suits and ties may not trust talented engineers who wear denim.

  • Trust is conditional. Trust relies on integrity as well as ability. Once a trusted relationship is established between companies, it is periodically re-evaluated. Trust enables on-going relationships because it implies norms like honesty and reciprocity. Earning trust in an ever-changing environment requires repeated reassessment of all the elements of trustworthiness in each new situation. Hence, credit managers continually assess a customer's ability to pay, and procurement managers repeatedly evaluate a vendor's ability to deliver.

  • Trust metrics fluctuate. The existence of trust is a reflection of social, economic, and technical factors. New standards for trust are initiated when there is a great discontinuity in the older, trusted methods, often brought about by technology innovations. Prior to the industrial age, consumers trusted purveyors of goods and services because the buyers walked into shops, knew family histories, and could physically inspect the goods. With the advent of industrialization, mass production, and cosmopolitan centers of commerce, this sort of intimacy with our suppliers vanished, so images of trust were built around brands and in North America we came to trust names like "Ford" and "Sears." Now, due to the advent of on-line commerce, we must once again redefine the measures of trust between trading partners.

Trust starts small. Government and large organizations cannot match the pace of technological innovation. In The Great Disruption (Simon & Schuster, 1999), Francis Fukuyama asserts that trust humans are naturally designed to establish trust relationships in small groups (like business deals between golf partners). But when groups get larger (such as a business that goes from serving a neighborhood, or even a city, to playing in a national or global market) supplemental institutions and conventions are required to enhance trust. New means are required to establish the same types of confidence among potential transaction partners.

Trust in New Contexts
Today, the challenge is the same. The Web brings with it global business opportunities to trade goods and services with old and new trading partners from around the world. The Web also raises new questions about the authenticity of these trading partners, the quality of their goods, and the ability to competently identify all the risks associated with trading online in a worldwide market.

No longer does brand recognition alone ensure trustworthiness. Early in the history of eCommerce, several known brands, including AOL, Microsoft, and Intel unwittingly committed violations of personal privacy by inadequately addressing the trust risks between technology, internal policy, processes, and implementation. The point to be made is that to fully trust online, the traditional areas of risk between trading partners, such as credit worthiness, trading performance, and quality must be evaluated along with new risk factors introduced by technology. Open networks and free flowing data can, with some key support pieces in place, inspire trust online as easily as its lack diminishes business confidence.

Privacy, data confidentiality and security are of concern because in the on-line world, reality is created from data. Everything we experience online is some form of bits and bytes formed to create words, sound and motion. Privacy and security are elements of trust, but by themselves, do not address all the issues needed to engender on-line trust. Therefore, issues of authenticity, trade secrets, regulatory and policy compliance, performance history, stability, and viability must also be considered.

Working Environments
Instilling the elusive 'trust factor' into eMarketplaces is the new foundation of eCommerce. Naysayers point to traditional business, conducted offline with face-to-face meetings, personal references, traditional handshakes, and pen-signed contracts as the sorts of trust-inducing conventions that are missing online.

The table, below, provides a comparison of (off-line) business trust criteria to on-line risk factors:

Commerce
Offline
Online
Relationships Established in physical meetings, handshakes, and personal referral Very easy to create an identity; difficult to authenticate who you are communicating with and to validate authority levels
Product Inspections Visits to plants and access to references are part of due diligence Bids/offers/RFPs represented by words and pictures
Geographic Boundaries Special sales and business development teams experienced in the nuances of international markets Access to many global trading partners; cross-cultural business practices are evolving
Behavioral Norms Established and matured over time; internal practices and procedures are well understood Still evolving, often unaware of the risk implications of technology applied to trade
Transmitting Information Negotiations and trade secrets are protected by NDAs and delivered by post and couriers with physical confirmation Negotiations and trade secrets are part of on-line bid/offer, often transmitted via email, security of network is complex and sometimes questionable
Transaction Records Paper, physical signatures, and corporate seals verify authenticity; copies are limited and relatively difficult to access Digital signatures and varying grades of authenticated digital certificates; often transmitted via email; need for on-line vaults
Workflow Legal contract review and approval are standard procedure Legal review is normally outside the on-line transaction flow; bids and offers are anonymous 60% of the time
Risk Deferment Risks relatively well understood by insurance and financial providers Evolving on-line insurance and bond products

On-line Trust Requirements
In April 2000, a Forrester Research study reported that eMarketplaces would undermine traditional business supply networks by undercutting prices and providing new global resources in the form of people, products, and services at Internet speed, but only when the traditional business flow is married to on-line services. In essence, trust must be present, recognized, and re-appear on a transaction-by-transaction basis.

Recently, John Seely Brown, chief scientist at Xerox and former director of its Palo Alto Research Center (PARC) said, "We judge truth in terms of trust and trustworthiness . . . not on the information alone, but its context . . . Where you find information is usually as critical as the information itself." (Forbes ASAP, October 2000).

On-line trust can be established and re-established when all parties to a business relationship can ensure the following:

  1. the source of information conveyed is accurate and unaltered, whether that information is a company's online offers to buy or sell, a Web page, or an individual email message.

  2. the individuals representing a business have an authenticated online identity and that their authority to conduct transactions is verified.

  3. multiple sources of business information are made available, compared and analyzed in a methodical manner such that all parties to a transaction are able to conduct the necessary due diligence to establish and maintain online relationships.

In the off-line business world, it is obvious which parties are representing a company and time-tested methods to establish credibility and trust are used. In the on-line world, the most critical proxy for traditional business methods is having the needed information to conduct due diligence between trading partners. It is now possible to transfer the substance of physical traditions in the off-line world to digital traditions in the on-line world with the support of by state-of-the-art data and security technologies. These new traditions have the potential to provide deeper and richer relationships, updated in real time and delivered at the point of need — wherever transactions are considered and negotiated. As they become integrated into online trading environment and the transaction workflow, the promise of trusted online business relationships will be realized.

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