The Science of Trust. What can businesses learn about b2b credit from the hornworm.
Operational excellence builds Trust. Trust powers your supply chain.
Monitor Trust vs. Credit to ensure the integrity of your supply chain.
The state of B2B credit today can be compared to the cargo cults of the post World War II pacific islanders. Like these cults, the large credit bureaus and financial institutions are trying to predict the future by recreating the circumstances of the past and forcing modern businesses to perform their sad obsolete rituals.
The John Frum Cult, located on the South Pacific island of Vanuatu, is a modern remnant of the “Cargo Cult” phenomenon. These cults sprung up when technologically advanced western cultures exposed themselves to the native islanders. The natives, upon seeing the inexplicable technology and vast amounts of supplies brought in by the militaries of the United States and Japan, attributed these achievements to magic or divine origin.
Once the war ended and the militaries withdrew, the natives began creating rituals that mimicked the behavior of the occupying militaries. They would stage parades, build runways, coconut radios and even airplanes made from palm trees in an attempt to conjure up the fantastic amounts of men, supplies and the miracle of flight. Sadly for them, short of another war, nothing they do will replicate the unique set of circumstances they witnessed in the 1940’s. Even today, the John Frum Cult (“Hello, I’m John from America”) has a ceremony every year on February 15th to celebrate their new god in the hope of his return.
Unfortunately, the business credit industry is enacting similarly obsolete rituals. Here are a few examples.
Check Credit. It costs a lot to check a company’s credit and in most cases the data isn’t accurate, timely or correlated with any company’s long term viability or ability to pay. This is especially true for small and medium businesses. Furthermore, business failure is a process and not an event. In order to understand the true risk of entering into a business relationship you need to monitor viability vs. check credit.
Reporting Credit. It costs a lot of money to report on a company, good or bad. The quality of a report is dependent on collecting ALL of the data on a particular company. These fees are a negative incentive to participation and reduce the quality of the overall data.
Data Integration. It costs a FORTUNE to integrate real time with the large business credit bureaus. This is an additional blockage to free data and skews the existing data toward the outcomes of the larger integrations: telecom, utilities, etc.
Trust. The large credit bureaus don't trust you to update your own information. They also don't track key information beyond the payment information such as certifications. (SOC1, SOC3, ISO, etc.)
At Trust Exchange, we are trying to stamp out the cult by making the data open, free and peer generated. With our service, you can create your own standards, rate companies and monitor all of your key business relationships.
Learn more by contacting us HERE
Don’t be a Compliance Sheep.
Being a Sheep Sucks.
Be a Compliance Engineer.
As you traverse the compliance countryside you quickly notice that there are a lot of sheep out there. Bad things happen to sheep. Sheep get herded, penned, sheared and occasionally eaten. They also have the world-wide reputation for being terribly susceptible to groupthink. Being a sheep sucks. Regrettably, nobody intends to be a sheep.
“No compliance officer basks in the adoring glow of C-suite gratitude.”
In many organizations (should I say most?) the compliance manager/department catches all the blame for failures and little reward for success. It one of those duties where success is inherently unremarkable to the rest of the organization. A client recently told me that “no compliance officer basks in the adoring glow of C-suite gratitude. It just doesn’t happen.” Encouraging vendor compliance can be especially challenging because now you’re also dealing with the loss of the positional authority that you have with internal mandates. It’s an environment that blindly compels the standard “police officer” approach – doing what everyone else is doing. Sheep.
What are the sheep doing these days? They are slowly upgrading from spreadsheets, phone and file cabinets to cloud-based systems. It’s a step in the right direction, but it’s only a small beginning to a solution. You need to understand that your challenges with vendor compliance are not where you store your data, or how you access it, or even how you perform due diligence. Your biggest problem is that you have not changed your perspective. Your approach is wrong. The information that you are collecting and analyzing with your new web-based platform is the same stale data that you dumped into your spreadsheets – only now, you get to see it through a colorful graphic. Additionally, you’re still thinking like a police officer – waiting for a failure to happen and then reacting, after the fact. How can you get an edge working like this? You Can’t.
The current hot trend is the outsourcing of risk analysis; and there are some good services available. This seemingly attractive option is problematic for an inescapable reason, a system of rankings or scores usually defers to an “ideal case” that doesn’t actually exist. An ideal case that is often based on the same rear-view data that you’ve always used. The dirty little secret of prediction is hard to swallow – the stronger the confidence in success, the more catastrophic the failure when it eventually comes around. More importantly, predictive analytics tend to systematically remove subjective data. If you’re scratching your head, subjective data includes indicators such as reputation, relationship, news and certain business indicators – oh, and your gut feeling. Four equally-weighted ideas should stick here: real-time information, relationships, reputation and continuous monitoring of it all.
Change your perspective.
The most effective vendor compliance teammate thinks like an engineer, not like a police officer. Failure is never an event that just happened. An engineer sees failure as one possible result in a process (that presents recognizable indicators) over a period of time. An engineer looks at the process (from design to implementation to end-state) and all the key factors that affect that process. Then, they actively monitor the process for variation in those indicators, rather than waiting with the sheep for a failure to happen. Therefore, compliance engineers actively communicate with and monitor their vendors in real-time, rather than audit them after-the-fact. They make it easy for their vendors to actively manage and share the required information. Finally, they utilize a system that reports on that vendor’s reputation in the marketplace – the subjective data. There is a way to easily capture all of this information and put it to good operational use. This is the difference between Trust Exchange and everyone else.
Ask us how you can take control today.
This afternoon we are co-hosting a webinar with our partner, Auditlink entitled "Leveraging Latest Technologies to Lower Cost of Vendor Management." Unfortunately, due to limited space, we were unable to accommodate everyone interested in attended so we had to shut down registrations. We will post the slides and a recording of the webinar within the next few days.
In the meantime, here is a summary of the topics discussed:
- new regulations are increasing the costs of managing vendors for credit unions
- cost of compliance increase isn't incremental but exponential
- existing solutions are largely manual workflow management and don't scale
- Trust Exchange provides a solution based on crowdsourcing and collaboration
- Trust Exchange DEMO
- Q & A
Stay in the loop....don't miss the next webinar by clicking below.
With the explosion of vendor management as an application for our platform, we thought it might be a good idea to revamp our company signup and claiming interfaces. We're experiencing a large spike in vendors signing up (it's FREE...join HERE) and claiming their companies.
BDP International, a Trust Exchange customer, explains in a recent report how our platform is uniquely designed to monitor and investigate its vendors, partners and customers, ensuring all are compliant with international policies on anti-corruption and anti-trafficking. The article, Special Report on: Human Rights, published by Ethisphere Institute, highlights the continuing issue of human rights violations around the world, and cites several organizations, including BDP, who are taking a proactive approach to addressing these challenges.
"The private sector has an ability to positively combat [human rights] challenges through creating and enforcing proper policies, engaging with governments and NGOs focused on ending these abuses, and working together to ensure suppliers, partners and other stakeholders are aligned with similar goals," says Stephen Linssen, Chief Compliance Officer of Ethisphere. "By its nature, exact data and metrics around forced labor and other abuses are hard to come by, but reports by the U.S. Department of State and Human Rights-focused NGOs estimate that more than 20 million people worldwide are forced to work against their will and without compensation."
So how exactly is Trust Exchange, a compliance/vendor management software, helping combat human rights violations, you ask?
By providing unique, real-time means for companies to investigate and monitor their business partners. BDP is committed to ensuring that its organization, partners and vendors adhere strictly to anti-corruption and anti-human trafficking policies, and depends on Trust Exchange's customizable compliance platform to do just that.
"We rate partners through trust certificates benchmarked against best practices in the industry", says Catherine Muldoon, Chief Legal Officer of BDP International, Inc. in the article entitled "The Logistical Approach". "[With G2Link] monitoring is automated consistent with the policy requirement we created. Thus, we maintain oversight in real time and are alerted as soon as behavior deviates from policy requirements."
BDP and Trust Exchange aren't alone in their commitment to combat human rights violations. The co-author of "The Logistical Approach" is Caitlin Smith, who is completing a concentration in Business and Entrepreneurship Law at Drexel University.
Read the whole thing: A Special Report On: Human Rights
If you would like to learn more about how we can help you manage vendors more effectively, Contact us HERE.
We're in Orlando Florida this week attending the National Association of Credit Union Service Organizations annual meeting: NACUSO Network 17. We're here supporting our partner, Audit Link who uses the Trust Exchange platform to manage risk for Credit Unions.
Due to recent regulations Vendor Compliance and Vendor Management are pressing issues for Credit Unions of all sizes. With Audit Link, we've created a series of risk assessment and monitoring products that dramatically reduce the cost of managing a vendor compliance program and increase compliance readiness.
In creating the joint vendor management products, we made certain that the audit and monitoring products scaled up and down to support credit unions of all sizes. We have implemented this cost effectively for Credit Unions with a handful of vendors as well as those with hundreds of vendors.
If you're attending NACUSO and want to learn more, I'll be hanging in the exhibit hall with our partners at Audit Link and CUAnswers.
As we pointed out in our prior post, The Secret of the B2B Credit Middlemen, the process for establishing, maintaining and granting credit is fundamentally busted. It’s expensive, inaccurate and non-transparent. We believe this industry can be restored in three key ways: 1. Freeing the Data, 2. Socializing the Data and 3. Fixing the Process. In this post we’ll discuss how socializing the data can eliminate one of the key problems in business credit reports: accuracy.
The credit bureaus DON’T ISSUE CREDIT! Businesses grant credit to each other and use bureaus such as Dun and Bradstreet to assess the viability of a given company. A quick glance at the D&B FAQ and you can see to create the credit scores, they use data from multiple sources. Most of these sources include public data or utilities reporting on the timeliness of your payment.
Similarly, businesses make their own decisions about partners, vendors and key relationships. It's the same decision process. Entering into one of these types of business relationship is similar to issuing credit in that you're allocating resources to invest in these relationships.
The bureaus claim to manage over 100 million profiles. The biggest of the bureaus makes 20 million data verification calls per year. Something doesn’t add up! There is NO WAY they can possibly verify the accuracy of 100 Million companies by cold calling. Imagine if they were competing with Waze, verifying traffic and police locations by cold calling drivers on their cell phones. They're a linear tool in an exponential world!
The ratings business information should be SOCIAL. DnB, Experian etc. are data storage middlemen. If companies are able to view and manage profiles, rate other companies and contribute ratings free of charge, then the data will be more accurate, timely and more closely correlated to business reality. Reaching SOCIAL SCALE is the only means to truly achieve this cost effectively.
At Trust Exchange, we aim to create an open, easy to use, peer to peer, risk management platform that enables companies to more effectively manage their risk. The value of the network is proportional to the number of members...we need you!!
Get your Free Account HERE