What makes consumers willing to buy a car online, sight unseen? Why are online banks willing to lend thousands of dollars to new customers hundreds of miles away? Why do millions of homeowners allow total strangers to rent their properties for a getaway without ever meeting them face to face? In a word, trust.
As business grows ever more digital—as virtual relationships increasingly become the norm in the post-COVID reality—stakeholder trust becomes as crucial as product or service quality. Nowhere is this truer than in business ecosystems, those dynamic alliances of largely independent economic entities that create products or services that constitute a coherent solution. Ecosystems depend on well-functioning networks of buyers, sellers, and various other parties in between to thrive and grow.
Buyers on an e-commerce marketplace need to know they will receive what they have paid for and that their data won’t be abused. Participants on fundraising platforms need to be protected from fraud. Controls for bad behavior, protocols for resolving disputes, and quality assurances are essential for everything from gig economy platforms to smart, IoT-based ecosystems. For any and all kinds of ecosystems, incentives for members to cooperate are absolutely necessary in order for everyone to reap the benefits of their interactions.
Yet a stunning 85% of ecosystems—even the most promising ones—fail. By that we mean they dissolve, shrink to insignificance, or are bought out for below investment cost. And trust plays a big part. At the same time, as we argued in the first publication of this series, trust is a cornerstone of success for thriving ecosystems.
Through our in-depth analysis of both successful and failed ecosystems—B2C, C2C, and even B2B—we identified the key tools and processes (instruments) by which they engender trust. Instead of using a hit-or-miss approach, ecosystems can apply these findings to forge and maintain trust as they launch, scale, and sustain their business.
In analyzing the demise of more than 100 failed ecosystems over the past 46 years, we discovered that trust (or lack thereof) played a pivotal role in their failure. More than half of them (52%) struggled to build trust altogether. This caused friction among participants, drove up costs, and thwarted network effects, which are effectively the entire basis of an ecosystem’s benefits and a fundamental reason for participating. Ultimately, the inability to build trust compromised growth.
Our study of 45 successful ecosystems across 20 industries showed that trust contributes directly to an organization’s value proposition. Among these ecosystems, 86% actively embedded trust in the platform and their governance practices, achieving what we call “systemic trust.” These organizations understood that trust between strangers (“relational trust”) doesn’t arise spontaneously; it takes cultivation.
We identified 22 trust instruments, which can be grouped into seven basic classes: access, contracts, incentives, controls, transparency, intermediation, and mitigation. (See the exhibit.) First, we sought to find out how prevalent the instruments were in the 45 successful ecosystems. Then we investigated which combinations of instruments correlated with success in five major types of ecosystems: social networks, marketplaces (both e-commerce and used goods), IoT systems (industrial and consumer), financial ecosystems (payment platforms and lending and fundraising platforms), and gig economy platforms.
Among our findings:
(See the full report for a thorough discussion of the trust instruments within each class and how they are used.)
Ecosystems use a mix of instruments that are either predominantly digital or predominantly nondigital. Most instruments today are digitally enabled, and elements that were once nondigital (such as policy-related instruments) are increasingly being digitized. Digitization, however, can only go so far; judgment calls will always be needed, and system code can’t anticipate every conceivable situation. The digital/nondigital spectrum of trust instruments reflects the true bionic nature of business ecosystems, and knitting the two types together in a synergistic way is what good design for trust is all about.
Our full report provides in-depth analysis of the key trust issues associated with each type of ecosystem and the distinct combinations of trust instruments that successful ecosystems use. Here we focus on two of the five ecosystem types.
For IoT ecosystems, whether B2C (such as smart home systems) or B2B (like production-line devices), quality, of course, matters. But their main trust issue is data security. IoT devices capture and share vast amounts of often highly sensitive data, some of it destined for purposes unbeknownst to the customer or user. These can be private conversations or proprietary machine data culled in ambient data collection.
Access, contracts, controls, and mitigation are the tools best suited for instilling trust in IoT ecosystems. HomeKit, Apple’s smart home ecosystem, illustrates why.
HomeKit allows only trusted suppliers on the platform. Its enrollment verification process includes identity and legal entity status checks (access). It also clearly defines rights and obligations (especially those concerning data sharing) in nondisclosure agreements that providers sign upon joining. Controls also play an important role. Extensive input control (governing the kinds of products and applications allowed on the platform), as well as process control (determining how interactions and fulfillment are regulated), engender trust in the quality of the service and in data ownership structures. The smart home market leans toward more hands-off approaches than do B2B IoT solutions. Samsung’s SmartThings, for example, doesn’t regulate access but relies on precise use terms (contracts) and a thorough certification process (controls).
Ecosystems that focus on services provided by gig economy workers face another set of trust issues: those centered on the provider’s offering, qualifications, quality, and fulfillment performance. Given their multiplicity of trust issues, gig economy platforms use the greatest number of instruments. These generally include access, control, transparency, and intermediation.
Access restrictions are vitally important. If the wrong providers are on your platform, users will lose interest, and would-be users won’t even show up, thereby critically constraining your growth prospects. Belay Solutions, a virtual staffing company serving the US, hires only US-based, highly skilled, and experienced professionals—regulating access to build trust in the quality of its solution.
Behavior-shaping instruments (controls) represent another way of ensuring that the quality of interactions is sufficiently high. Uber uses process control to determine the entire value delivery process—rider matching, pricing, payment, routing—thus shaping drivers’ behavior. Airbnb clearly stipulates what tenants are allowed to do in their rented lodging.
Transparency is an important lever for many gig economy platforms because it reduces information asymmetry and makes past behavior relevant. HopSkipDrive, the “Uber for kids,” uses driver ratings and safety statistics to generate trust in the platform’s value proposition. Airbnb and Uber offer rating systems, not just for end customers to rate providers but also for providers to rate end customers; these systems identify participants from either side who should be barred.
And intermediation, in which the orchestrator emerges as a transaction partner, is commonly used by gig economy platforms to shift trust away from individual interactions toward the platform itself. Through an app, riders pay Uber directly, not their Uber driver; drivers need not worry about the rider lacking enough money, because Uber guarantees the transaction.
As leaders look to embed trust into their ecosystems, the ecosystem cluster patterns we uncovered in our bottom-up analysis provide a useful initial framework. But there is no silver bullet or single formula; successful ecosystems combine multiple trust instruments. They should, therefore, also identify the specific trust challenges they face and pick the right instruments from the trust toolbox we’ve identified.
The broader the set of possible interactions, the more likely adverse events are. Generally speaking, this also means more instruments are needed. Ecosystem orchestrators must remember that the higher the stakes, the greater the potential losses—as the trust imperative grows, participants put even more stock in the trustworthiness of their transaction parties.
A good starting point is to clarify the problem to be solved and the associated trust issues. The ecosystem’s life-cycle stage should also figure into your instrument choices. As ecosystems gain scale and mature, their trust challenges often change. Actively monitoring the effectiveness of trust instruments over time—and adjusting them as needed—can help avert trust erosion before it becomes irreversible.
The following five questions can help ecosystem leaders as they think about how to design for trust.
Embedding trust requires a mindset shift away from the naive belief that trust will spontaneously emerge among complete strangers. Trust cannot simply be treated as an after-the-fact consideration. As successful ecosystems demonstrate, trust must be front and center in designing ecosystems that will have the strength and resilience to thrive amid the challenges of the future. By fostering interaction and cooperation, trust not only helps ecosystems fulfill their value proposition but also becomes a source of competitive advantage.
The BCG Henderson Institute is Boston Consulting Group’s strategy think tank, dedicated to exploring and developing valuable new insights from business, technology, and science by embracing the powerful technology of ideas. The Institute engages leaders in provocative discussion and experimentation to expand the boundaries of business theory and practice and to translate innovative ideas from within and beyond business. For more ideas and inspiration from the Institute, please visit our website and follow us on LinkedIn and Twitter.