Article 43

designing a trust-based e-business strategy trust will make or break an e-business. EXECUTIVE briefing Trust determines the success or failure of many companies. Unless they feel a sense of trust, buyers will not return to a business, and this situation holds true whether the business is offline or online. To enjoy sustained success in e-business, companies need to understand how trust is defined and then incorporate the factors that influence perceptions of trust in their online strategies.

By Fareena Sultan and Hussain A. Mooraj Defining Trust in E-Business

IN RECENT YEARS, NO OTHER TECHNOLOGY HAS affected marketing and business activities as significantly as the Internet. While the popular press has focused on the demise of many dot-coms, online B2B activity has continued to grow. The Gartner Group predicts that B2B e-commerce will hit $8.5 trillion by 2005. Of this, 42% or $3.6 trillion will be North America’s share. At the same time, dot-coms that were promising to overthrow age-old established players have lost their sting or are no more. E-business is awash with change.

We know from the offline world that a business can’t have liquidity without returning buyers and there will be no returning buyers without trust. This rule holds true for the Internet as well. Trust is imperative for success in e-business and to ensure repeat customers. According to the TRUST-EC project, which was conducted in 2000 on behalf of the European Commission, e-business can be defined in a broad sense as the carrying out of business activities that lead to an exchange of value, where the parties interact electronically, using network or telecommunications technology. The question arises: How do various players engaged in e-business define trust? Trust is an elusive concept and has varied definitions depending on the discipline and the stakeholders investigating trust relationships. We found that managers distinguish between two types of trust environments they encounter: (1) trust in the relationship among businesses, consumers, and other stakeholders; and (2) trust in the B2B Web site and its functionality. In each of these two cases, respondents in our study articulated a variety of definitions of trust. For example, Mamoon Yunus, global systems architect at webMethods, a B2B integration firm, states that trust in e-business can be defined as “the ability to do business reliably, in a repeated fashion and securely with non-repudiation.” In his opinion, trust is all about fulfilling the promise to the customer and is a fundamental aspect of any successful Internet strategy.

We contend that the development of trust between all the stakeholders is crucial for fueling the expansion of e-business. A December 2000 Jupiter Media Metrix survey found that trust issues were the number one priority for firms seeking new partners. Trust is especially critical for developing and sustaining new relationships. So it stands to reason that trust is going to be a key differentiator in determining the success or failure of many e-business companies. Conventionally, companies have preferred to interact with parties that they know. However, in today’s business environment, interaction with new entrants is inevitable. Many companies are interacting with unfamiliar players, particularly with small- to medium-sized firms. Using trust as the foundation for new relationships is a way to retain value in a business. We interviewed managers to try to determine how trust is defined and examined factors that influence perceptions of trust in B2B interactions. (See Exhibit 1.) 1

Article 43. Designing a trust-based e-business strategy senior purchasing officer at State Street Corp., has yet another definition. He defines trust as “the ability to deliver on implicit or explicit statements and to execute the activity in a manner that the client wants it to be and is promised.”

EXHIBIT 1 The study •Thirteen one-on-one interviews with senior managers and executives •Seven companies with a high level of involvement with the Internet in various capacities •Interviewees included senior management, technology managers, sales and marketing executives, and Internet consultants Sample Company Business Focus Respondent 1. ZEFER

Internet consulting

What Influences Trust? Understanding the factors that influence customer perceptions of trust can help managers make better decisions. Our study unveiled seven factors that influence trust. (See Exhibit 2.) These factors, explained below, form a “circle of trust” that is necessary for success in e-business. To establish trust you need to have a good brand and good ratings. To operationalize and maintain trust, you need management domain knowledge, good security and clear privacy policies, current and functional technology, good order fulfillment, and responsive customer service. Brand. We found that trust in the brand name is one of the most important factors when buying online. Brand recognition and reputation play important roles in instilling trust and helping businesses succeed online. For new entrants, it’s important to leverage other known brands and associate with them in some form to create a sense of stability and longevity. This can be done through partnerships. For example, ZEFER leveraged the Sun Microsystems brand by forging a close working partnership. According to Mansoor Khan, CEO of Key Commerce, “Trust will be created only if there is a pre-existing business relationship. However, if there is no prior business relationship, then brand becomes the single most important trust cue. This is especially true for small- and medium-sized firms.”

1. Managing director 2. Director business consulting 3.Principal business consulting

2. webMethods

B2B integration software provider

4. Global accounts architect 5. Regional Sales Manager

3. KeyCommerce Inc.

E-marketplace solutions provider

6. CEO

4. Anchorsilk Inc.

B2B platform provider and ASP

7. President and CEO

5. State Street Corp.

Global financial services

8. Sr VP e-business incubator 9. VP mkt. communication 10. VP technology acquisition and corporate procurement

EXHIBIT 2 The circle of trust

11. Senior purchasing officer 6. Compaq

Computer hardware

7. NetNumina

E-business systems integrator

12. Director Internet and e-business 13. CTO

Definitions of trust are contingent on the nature of e-business being conducted. Much of e-business between firms starts first with online procurement. According to Albert Hofeldt, a principal at ZEFER, an Internet strategy consulting firm, the definition of trust varies depending on whether we are dealing with direct or indirect procurement. He is of the view that in indirect procurement, the factor that matters most is the price, whereas in direct procurement the more critical factors are availability and order fulfillment. Thus, dimensions of trust can include such elements as offering a good price, having products available, and fulfilling orders in a timely manner.

Management domain knowledge. Our study shows that building a trusting B2B relationship is predicated on having a dedicated management team. Anne Bowen, senior executive vice president of State Street Corp., explains that “Clients want to integrate their back-end systems with State Street because they perceive us to be experts in our domain.” Relatively new entrants such as e-marketplaces have to cross a hurdle stemming from the lack of any track record of suc-

Todd Alcock, regional sales manager at webMethods, says that “trust is defined by the brand and promise to the customer, and how you back your promise.” He also states that trust in technology vendors is defined by the perception of confidence that their people, processes, and technology are going to be capable in driving the success of your company. Peter DeBruin, 2

ANNUAL EDITIONS phistication within a company and personalization options also contribute to the overall trust environment. Max Grasso, chief technology officer at NetNumina, a system integration company, is of the opinion that “Internet technology itself does not change the nature of trust relationships. However, a repeated failure of technology does affect this relationship.” Successful companies must not only have current technology on a Web site, but also one that functions as expected. Order fulfillment. We believe that making a commitment to deliver flawless execution and fulfillment helps engender trust. This commitment should be communicated clearly on Web sites. The site should also clearly articulate the intention to measure customer service and rectify mistakes. The technology on a Web site, at the very least, should allow the buyer to control the time of delivery of orders. In addition, Web sites should have the capability to check the status of an order with tracking functionality. Toffer Winslow, former director of business consulting at ZEFER, states, “Without flawless execution and order fulfillment there can be no trust.” Customer service and support. Our study found that poor online customer service is holding back the growth of B2B ebusiness and preventing companies from building trust on the Web. In the next generation of online commerce, companies must provide a high quality, consistent level of service across all channels (e-mail, wireless, call centers). This would entail personalized marketing, service, sales and support to win the trust of the customer. According to Ed Jay, former managing director of the Boston office at ZEFER, trust is eroded if you have different service levels across different channels. Studies at the E-business Center at MIT have established the role of “virtual advisors” in establishing trust on the Internet. These are software programs that offer support to customers in complex buying decisions.

Questions to Help Establish Trust With Unknown Parties 1 2 3 4 5 6

Who are the backers and participants? Are they large corporations or a VC? Do they have the resources to ensure the transaction and aid in troubleshooting? Do they have a dedicated management team? How technically savvy are they? Do they have the infrastructure to support the transactions? Will the company survive in the long term?

cessful business relationships. They have to encourage participants by displaying the management team’s domain expertise. In such cases, executive bios and “about us” buttons on Web sites are important trust cues. Third-party ratings, partnerships, and affiliations. Our study indicates that new firms that have no proven track record to fall back on would be wise to incorporate certification by third parties and include customer testimonials on a Web site. Investors should be clearly identified and brands of partners and affiliates should be leveraged. One trust cue that has been proposed for e-marketplaces is supplier performance ratings. Open Ratings and Dun and Bradstreet offer supplier performance ratings to e-marketplaces like the “Buyer Insight” ratings program. While this product may help build B2B trust, Forrester Research reports that widespread adoption will require several years. However, in some industries like aerospace and medicine, no amount of certification will compensate for existing tried and tested relationships to invoke trust because the consequences of product failure are immense. In these instances, working first on establishing a personal relationship offline and then moving to the online world may be necessary. Security and privacy. Successful B2B transactions can only take place in a secure environment that also protects customer privacy. To increase the level of trust, our study recommends that companies incorporate security in software such as firewalls. This would typically have functionality like Secure Socket Layer (SSL), which prevents interception of data and packet sniffing, authentication (to conform your identity), and authorization (to prevent unauthorized access to information). Digital certificates and repudiation logs also ensure security and can act as trust indicators. Omar Hussain, CEO of Anchorsilk, a B2B platform provider, says, “Whereas in B2C e-commerce consumers worry about putting their credit card information on the Web, in B2B e-commerce one of the biggest fears is that sellers’ prices will become available to competition.” Today, technological security is taken for granted. However, privacy policies and the level of security still need to be clearly specified on the Web site. Technology. In an e-marketplace, being technology agnostic depicts neutrality, which in turn creates trust. The level of IT so-

Private vs. Public E-Marketplaces Is there a difference between trust in private and public emarketplaces? Our study found that in private e-marketplaces the trust issue is solved to a large degree because you know the suppliers and membership is usually restricted. Michael Podavano, director of Internet and e-business at Compaq, says, “When a customer is part of a community, there is even more reason to build trust; in private e-marketplaces you have to have absolute trust or risk banishment.” Having a sense of community leads companies to further integrate their business processes. This in turn enhances trust between parties. Large corporations that have their own private marketplace need a single interface that’s integrated with the various divisions. Stephen Dill, vice president of marketing at State Street Corp., states, “Trust implications are that all Web initiatives should be under one umbrella, which gives an impression of being customer-centric (e.g., having a single sign on).” One aspect of public e-marketplaces that encourages trust is the sharing of perfect information. Here, participants are looking for price and order fulfillment and e-marketplaces 3

Article 43. Designing a trust-based e-business strategy

Steps to Create B2B Trust In relationships with unknown parties • Check with companies the unknown party has dealt with • Use authenticated processes for checking financial backgrounds and confirm ability to pay bills • Have conceptual discussions about the technology before entering into transactions • Meet top executives and sales engineers • Examine whether you can ‘identify’ with the individual or firms • Ask for proof of concepts, trial installations, and conduct usability testing • Develop an explicit contract that has recourse for eventualities • Evaluate the level of effort being put into maintaining the relationship • Keep feelers out in industry to find out what is going on On Your Web site • Ensure there are no “trustbusters” • Leverage other brands by displaying partnerships and affiliations • Exhibit management teams, explains domain expertise, and display job listings • Have third parties rate your site • State clearly privacy/security policies and specify security level • State commitment to measure customer service and rectify mistakes • Display customer testimonials • Provide tools to allow control of time of delivery and order tracking • Allow product comparisons of competitors’ products on own Web site • Establish a multi-layer process; buyer can contact many parties in one firm

customers through the transaction process in order to establish trust and confidence and providing detailed information on the products and services in order to simplify the overall experience.” To enhance customer service and support, e-business firms need to form multi-layer processes whereby customers can contact many parties in one firm. Allowing input from customers on a B2B Web site through the free flow of information in chat rooms and forums can also create trust. Even if it hurts, a democratic aspect instills trust. Live advisers, text chat, audio, and 1-800 numbers all help create an environment conducive to building trust. Another way to create trust is to take a customer perspective and allow product comparisons. To maintain true neutrality, it’s a good idea to allow the customer to compare competitors’ products on the Web site. In our study nearly all the participants indicated the need to establish relationship trust before trust in the B2B Web site can be achieved. To do this, examine whether you can “identify” with the individuals within the other firm. If so, you’re more likely to build trust. Review the level of effort put in by the parties to maintain the relationship, such as responsiveness to email and level of preparation for meetings.

might have contracts and SLAs (Service Level Agreements) to enforce compliance with agreements. Public e-marketplaces give a price advantage and guarantee fulfillment. What they do not always give are operational and relationship benefits.

Create Trust There’s usually a learning period before two entities start transacting with each other online. We recommend checking references in order to establish trust with unknown parties. It’s important to identify companies that the unknown party has dealt with and to examine their experience with goods and services. Authenticated processes should be used for checking financial backgrounds. Given the state of affairs in the technology sector these days, the ability to pay bills is one of the main criteria for screening companies. Industry feelers play an important role in identifying trustworthy B2B firms that you would want to do business with. It’s best to validate any vendor claims with current users. Before transacting with the firm, have conceptual discussions with their team, meet their sales engineers, ask for demos and trial products, carry out extensive usability testing, and meet their executive team. Finally, develop an explicit contract with recourse for any eventualities. Assisting the customer in the buying process can create trust. According to Gary Beaudreau, vice president corporate procurement at State Street Corp., “There is a need to enforce that the customer’s B2B decision is the right one. Suppliers can help accomplish this in a number of ways, including initially guiding

Consistency Is Key Trust generally is built over time and with experience. However, with more and more businesses going online, the need to work with new and unfamiliar entities is coming to the fore4

ANNUAL EDITIONS need to be established anew in the electronic environment. Just because a company is successful at gaining customers’ trust in offline transactions doesn’t mean this trust will automatically be translated online. However, existing offline trust can facilitate the process. While the Internet as a new technology may not influence existing B2B relationships, B2B transactional relationships are affected. In today’s business environment, companies have to acquire, retain, and service customers in a multi-channel environment. Consistent interactions and service in a multi-channel environment are critical factors in building trust. The ability to provide products and services in a trustworthy manner, across multichannels, is a new challenge for customer-oriented firms in ebusiness. Only through trust-based strategies can a firm be successful in e-business.

Trustbusters We identified 10 “trustbusters” that can make or break a company in the B2B space. Firms need to take a proactive stance to avoid these trustbusters. • Inferior quality of the product • Poor Web site content • Complex Web site navigation and outdated links • Slow response time of Web pages (i.e., more than three to seven seconds per page) • Repeated failures of technology • Lack of customization/personalization • Lack of advisers (live chat, text chat, audio, 1-800 numbers) • Inferior customer service • Different service levels over different channels (in person vs. online) • Poor order fulfillment

Additional Reading Jones, Sara, Marc Wilkens, Phillip Morris, Marcelo Masera (2000), “Trust Requirements in E-Business,” Communications of the ACM, 43(12), 81–87. Urban, Glen L., Fareena Sultan, and William Qualls (2000), “Placing Trust at the Center of Your Internet Strategy,” Sloan Management Review, 42(1), 39–48.

front. Companies need these new customers to enable growth in e-business transactions. However, buyers and sellers still need to establish an element of trust before any B2B transactions can take place. Online trust is hard to establish because people have trouble assessing intentions over the Internet. Customers who have been through a similar online transaction might come away with different notions as to whether an experience was trustworthy. Firms need to ensure that a maximum number of trust cues are presented online. To create trust, a company must have the seven elements from the circle of trust in place. To maintain trust, a company must eradicate “trustbusters.” Many of the trust factors are not easily carried over from the bricks-and-mortar environment and

About the Authors Fareena Sultan is an associate professor in the College of Business Administration at Northeastern University and consults on technology issues. She may be reached at [email protected].

Hussain A. Mooraj is an MBA candidate at Northeastern University. Mooraj was formerly an Engagement Leader with ZEFER Corp. in Boston. He may be reached at [email protected]

From Marketing Management, November/December 2001, pp. 40-45. © 2001 by the American Marketing Association. Reprinted by permission.

5