The Right Way to Compete Now

I recently met someone who used to be a bond trader but took a few years off to raise her children. Now she wants to return to work. I asked her whether she was interested in trading bonds again.

“No way,” she answered, “There’s no money in it anymore.”

“Why’s that?” I asked.

“Too much transparency!” she answered.

Before, she explained to me, you could make lots of money trading bonds, because nobody except you really knew how much you were making. But now that the numbers are public, margins are lower, and you can’t make the same money.

Secrecy used to be a competitive advantage in many businesses. It meant freedom; you could reduce your costs and increase your revenue without customers knowing how you did it. Now, though, it’s become a liability.

Our banks collapsed because of secrecy. They doled out mortgages without knowing whether the borrowers had any money or source of income. Other banks bought those mortgages without knowing what they were buying. And insurance companies like AIG insured those mortgages without knowing what they were insuring. For a while, everybody was happy not knowing because borrowers got their mortgages and companies got their fees.

Remember those three monkeys — hear no evil, see no evil, speak no evil? They symbolized our banking system perfectly.

monkeys.jpg

While it might be a good thing when the details of your business are a secret to your customers, it’s a very bad thing when the details of your business are a secret to you.

Here’s the thing about human nature: we tend not to learn much from other people’s experience. We wait until we experience it ourselves before we change our ways. That’s why your grandmother probably saved more money than you did. Because she experienced the depression while you just heard about it.

We just might learn this time because this downturn has hit hard, wide, and globally. It’s hit across industries and classes. From the lowest paid workers to the highest, everyone is learning the hard way.

And what we’re learning is that it’s better to know than not to know. Sure it’s nice to have our money managed by someone who gives us steady monthly positive returns. Until that someone is Bernie Madoff. Now we’re far more likely to ask a few more questions about how and where our money is invested.

That’s transparency, and it’s your new competitive advantage. Customers want to know. And thanks to the Internet, they can find out. So you’re better off being transparent: not just about money, but about everything.

These days, with money in short supply, our values have become more important to us. When the money goes away, our character is what’s left. And that’s going to impact what we buy and from whom.

Every buying decision impacts the real lives of real people. In the long ago past we didn’t have to worry about it because so much of what we bought came from our neighbors.

But nowadays? When you buy a pair of jeans, do you know what went into making them? Where the cloth is from? Who sewed them? Under what conditions? How about when you buy a computer? A phone? A garbage can?

It’s all global. We’re just beginning to see the impact our behavior has on people around the world. The business leaders who will win in this economy understand that. And they’ll have answers even before we ask.

Many businesses have already gotten better at transparency. The food business, for example, where “buy local” is already a strong movement, has drastically increased the flow of information.

Just look at chocolate. A few years ago, if you wanted some chocolate, you went to the store and bought Hershey’s. Now there’s an entire aisle dedicated to chocolate bars. And if you look at the packaging, you’ll know what percentage of it is cocoa, where the beans are from, whether they’re organic, and if the workers were treated fairly.

Small businesses are particularly well positioned because they often have closer relationships with their employees, suppliers, and customers. So they know what goes into their product or service and can communicate that with confidence to their customers.

Large companies have a harder time because of their complexity, their anonymity. In a large company, one employee might not know what another is doing even if they sit in adjoining cubicles. They’ll have to work harder at it.

The winners in the new economy will be transparent about everything. They’ll share knowledge freely and openly. They’ll resist going into businesses they don’t understand. And they’ll make decisions knowing that everyone around them knows what they know. That may result in fewer bond traders. But it will also result in a more secure economy.