THE INFLUENCE OF OWNER-MANAGER GENERAL TRUST ON ORGANIZATIONAL STRUCTURE AND PERFORMANCE: A STUDY OF SMEs IN IRELAND

This paper describes an empirical study to capture the influence of owner-manager general trust (GT) on organizational structure and performance in SMEs. Hypotheses are tested with data from a sample of 103 Irish manufacturing SMEs. The results indicate that owner-manager GT has a positive influence on performance in hightech SMEs but a negative effect in low-tech SMEs. The hypotheses on the relationships between ownermanager GT and organizational structure receive some support. Further, the link between owner-manager general trust and the choice of business form (family or non-family business) is found to be statistically significant. INTRODUCTION Researchers have identified that an important influence on both the growth and performance of small businesses is likely to be associated with the personality characteristics of the owner-manager or principal decision maker (Lumpkin and Dess, 1996; O'Farrell and Hitchens, 1988; Storey, 1994). In the case of small business, research has shown that owner-manager's personality, including cognitive and motivational orientations, locus of control, tolerance for ambiguity, risk propensity, need for achievement, and so on, indeed shape their corporations and performance. However, studies on the influence of trust on small firms are relatively rare (Dibben, 2000). Like other personality factors, trust has been recognized as a major issue in both performance and organizational structure (Bradach and Eccles, 1989; Kramer and Tyler. 1995; Lane, 1998; Lewin and Stephens, 1994; Sako, 1998). For example. Lewin and Stephens (1994) develop propositions regarding the influence of managerial trust upon organization design. However, in most existing studies, the influence of trust on organization is based on normative or descriptive studies and on various assumptions. This study attempts to fill the cap by analyzing empirically the role of owner-manager general trust (GT) on the organizational structure and performance in established and growing Irish SMEs. In this study, attention has been limited to general trust (GT), a personality characteristic, considered as a stable belief, expectancy or feeling analyzed at the individual level within firms and as an independent variable (cause) interacting among unfamiliar actors (Rotter, 1980). SME is defined as one that employs between 11 and 250 people. At the same time, the firm is independently owned and operated by its owner. Owner-manager is a person who makes all the major management decisions in a small business and has substantial equity capital at risk in the business. The paper proceeds by first briefly reviewing background literature that has attempted to define the concept of GT and the influence of GT on organizational structure and performance. The role of choice of business form (family or non-family business) mediating this relationship is also discussed. The research methodology employed, and the empirical derivation of compound measures and variables is subsequently outlined. Thereafter, an attempt is made to relate owner-manager GT to organizational structure and performance. The paper closes with a discussion of the main findings emanating from this research. LITERATURE REVIEW AND HYPOTHESES General trust What is trust'? Although social scientists have afforded considerable attention to this question, a concise and universally accepted definition of trust within organization theory remains lacking (e.g., Bigley and Pearce, 1998; Creed and. Miles, 1995; Mayer et al, 1995; Kramer, 1999; Rousseau et al., 1998). Lewicki and Bunker (1995a,b) suggest that the study of trust may be categorized based on how it is viewed: as an individual characteristic, as a characteristic of interpersonal transactions. and as an institutional phenomenon. (1) The views of personality theorists, who have focused on individual personality differences in the readiness to trust and on the specific development and social contextual factors that shape this readiness. At this level, trust is conceptualized as a belief, expectancy or feeling that is deeply rooted in the personality and has its origins in' the individual's early psychosocial development (e.g., Rotter, 1980); (2) the views of sociologists and economists. who have focused on trust as an institutional phenomenon. At this level, trust can be conceptualized as both a phenomenon within and between institutions and as the trust individuals put in those institutions (e.g. Zucker, 1986); (3) the views of social psychologists. who have focused on the interpersonal transactions between individuals that create or destroy trust at the interpersonal and group levels (e.g., Shapiro et al., 1992). This study seeks to enquire whether owner-manager trust, one of the personality characteristics, influences organizational structure and performance in SMEs. This personality psychological perspective on trust is adapted and termed as general trust (GT) (Yamagishi and Yamagishi. 1994). GT is defined as "a generalized expectancy held by an individual that the word, promise. oral or written statement of another individual or aroup can be relied upon" (Rotter, 1980). Rotter's research on GT (interpersonal trust) is the most representative of this category and has been among the most widely recognized and acknowledged work in the organization studies literature on the topic (Bigley and Pearce, 1998). Rotter posited that trust is a fairly stable belief based on an individual's extrapolations from their early-life experiences. Several other authors have discussed trust in similar ways. For instance, Yamagishi and associate (Yamagishi and Yamagishi, 1994) define GT as a belief in the benevolence of human nature in general and thus is not limited to particular objects. Mayer et al. ( 1995) referred to GT as the propensity to trust and defined it as a trait that leads to a generalized expectation about the trustworthiness of others. They argue that propensity might be thought of as the general willingness to trust others. People with different development experiences, personality types, and cultural backgrounds will be expected to vary in their propensity to trust. Rousseau et al. (1998) argue that trust has a multiple causal roles as an independent variable (cause), interaction variable (a moderating condition for a causal relationship), or dependent variable (effect). They suggest that when economic outcomes are of interest, researchers often conceptualize trust as a potential cause in choice scenarios framed around social dilemmas. Rousseau et al (1998) also suggest that there arc multilevel perspectives on trust within and between organizations including individual, group, firm, and institution. They assume that disciplines occupy different "turf' in organizational science: psychologists, the individual and occasionally the group; sociologists, the group and society; and economists, the individual or the larger firm. The overall purpose of this study is to empirically identify the existing body of theory about the relationships between owner-manager general trust and organizational structure and performance. General trust is conceptualized as an independent variable and analyzed at the individual level within firms.