Would you respond the same way whether you were being lied to or not told the whole truth, even if the consequences to you were the same?
The answer to that question turns out to have striking implications in the business world, Lehigh University Marketing Professor David A. Griffith
“The nature of ongoing business-to-business relationships provides a breeding ground for partners to cheat. In fact, anyone quickly scanning the business press can find a large number of stories where business partners are alleging breach of contract, causing damage by failing to inform one’s partner, or committing outright fraud,” he says.
Until now, little was known as to whether lying, breaching formal or informal agreements, altering facts, making false accusations, and exaggerating difficulties was more or less costly to a firm than behaviors such as not doing as promised, hiding information, telling incomplete truths, neglecting to fulfill obligations, and failing to provide proper notification.
Working with researchers at other universities, Griffith has found that not only is not being told the whole truth more damaging to a firm’s performance, but that the cause for the increase in damage is actually due to how managers respond.
The research, involving three studies with more than 550 business managers, appears in the November 2013 issue of the Journal of Marketing
, the premier journal for marketing academics.
Business-to-business relationships suffered due to the fact that managers were more tolerant of their partner when the partner hid information from them than when their partner blatantly lied to them, according to the research – even when the economic consequences to the firm were the same.
For instance, the researchers found that when managers believed that their partner was blatantly lying, 64 percent immediately terminated the relationship. In contrast, only 12 percent of managers terminated the relationship when they believed that their partner knowingly hid information from them, even when hiding the information caused the same damage to their firm as when their partner blatantly lied.
“The psychological cost of being blatantly lied to is much greater than when someone hides information, even though the cost to the firm is the same,” Griffith says. “The unfortunate aspect of this managerial response is that, given the lower psychological cost, managers stay in the relationship longer and incur additional costs of managing a troubled relationship. Tolerating bad behavior increases the costs of managing the relationship as well as creating opportunities for additional damaging behavior.”
In fact, the results of a multi-year study of Fortune 50 firms indicate that overall performance was lower in those relationships where managers tolerated partners not doing as promised, hiding information, telling incomplete truths, neglecting to fulfill obligations, and failing to provide proper notification, Griffith says.
When a firm experiences problems due to omissions on the part of its business partner, managers would be better off addressing such situations immediately through constructive discussion, Griffith and his fellow researchers concluded. By employing constructive discussion, the manager signals to a partner an unwillingness to tolerate such behaviors while simultaneously lessening the likelihood of such future actions.
To help curb the behavior studied in business-to-business relationships, the researchers argued that monitoring can be used as an approach to minimize types of activities. When a firm indicates to its business partner that contract terms will be monitored for compliance with each transaction, they are less likely to experience such behaviors.
Griffith notes that the amount of data collected on individual transactions in business-to-business relationships has increased tremendously over the last decade.
“Through the statistical analysis of transaction, data managers can not only enhance compliance with contractual terms, but also identify opportunities for greater operational efficiency in the relationship,” he says.
David A. Griffith is a widely recognized teacher and scholar in the field of international marketing. He was recently named one of the most productive scholars in his field by the world's leading marketing organization, the American Marketing Association, which publishes the Journal of Marketing and the Journal of Marketing Research, the two most rigorous and influential mainstream marketing journals.
Story by Manasee Wagh
Posted on Thursday, January 30, 2014