Building Organizational Trust

In this paper we study the role of trust in enhancing asymmetric partnership formation. First we briefly review the role of trust. Then we analyze the state-of-the-art of the theoretical and empirical literature on trust creation and antecedents for experienced trustworthiness. As a result of the literature review and our knowledge of the context in praxis, we create a model on organizational trust building where the interplay of inter-organizational and inter-personal trust is scrutinized. Potential challenges for our model are first the asymmetry of organizations and actors and secondly the volatility of the business. The opportunity window for partnering firms may be very short i.e. there is not much time for natural development of trust based on incremental investments and social or character similarity, but so called “fast” or “swift” trust is needed. As a managerial contribution we suggest some practices and processes, which could be used for organizational trust building. These are developed from the viewpoint of large organization boundary-spanners (partner/vendor managers) developing asymmetric technology partnerships. Leveraging Complementary Benefits in a Telecom Network Individual specialization and organizational focus on core competencies leads to deep but narrow competencies. Thus complementary knowledge, resources and skills are needed. Ståhle (1998, 85 and 86) explains the mutual interdependence of individuals in a system by noting that actors always belong to social systems, but they may actualize only by relating to others. In order to transfer knowledge and learn social actors need to be able to connect and for that they need to build trust. Also according to Luhmann (1995, 112) each system first tests the bond of trust and only then starts processing the meaning. In line with Arrow (1974) we conclude that ability to build trust is a necessary (even if not sufficient) precondition to relationships in a social system (network). 55 Conceptualized also as “double contingency” (Luhmann 1995, 118). In telecommunications the asymmetric technology partnerships between large incumbent players and specialized suppliers are increasingly common. Technological development and the convergence of information technology, telecommunications and media industry has created potential business areas, where knowledge of complementary players is needed. Complementary capabilities often mean asymmetric partnerships, where partnering firms have different skills, resources and knowledge. Perceived or believed dissimilarities in values, goals, time-horizon, decision-making processes, culture and logic of strategy imply barriers for cooperation to evolve (Doz 1988, Blomqvist 1999). A typical case is a partnership with a large and incumbent telecommunications firm and a small software supplier. The small software firm supplies the incumbent firm with state-of-the-art innovative service applications, which complement the incumbent firm’s platform. Risk and trust are involved in every transaction where the simultaneous exchange is unavailable (Arrow 1973, 24). Companies engaged in a technology partnership exchange and share valuable information, which may not be safeguarded by secrecy agreements. Various types of risks, e.g. failures in technology development, performance or market risk or unintended disclosure of proprietary information and partner's opportunistic behavior in e.g. absorbing and imitating the technology or recruiting key persons are present. Building trust is particularly important for complementary parties to reach the potential network benefits of scale and scope, yet tedious due to asymmetric characteristics. Natural trust creation is constrained as personal and process sources of trust (Zucker 1986) are limited due to partners’ different cultures and short experience from interaction. In organizational relationships the basis of trust must be extended beyond personal and individual relationships (Creed and Miles 1996, Hardy et. al. 1998). In asymmetric technology partnerships the dominant large partner may be tempted to use power to ensure control and authority. Hardy et al. (1998, 82) discuss a potential capitulation of a dependent partner in an asymmetric relationship. This means that the subordinate organization loses its ability to operate in full as a result of anticipated reactions from a more powerful organization. Therefore, as an expected source for spear-edge innovations, it fails to realize its potential in full. Thus the potential for dominant players to leverage the “synergistic creativity” of specialized suppliers realizes only through double-contingency relationships characterized by mutual interdependency and equity (Luhmann 1995). Such relationships may leverage the innovative abilities of small and specialized suppliers, but only if asymmetric partners are able to build organizational trust and subsequently connect with each other. In the telecommunications both the technological and market uncertainty are high. Considerable rewards may be gained, yet the players face considerable risks. There is little time to study the volatile markets or learn the constantly emerging new technologies. In such a turbulent business the players are forced to constant strategizing. Partnerships may have to be decided almost “overnight” and many are of temporary nature. Players in the volatile telecommunications also know that the “shadow-of-the-future” might be surprisingly short, since the various alliances and consortiums are in constant move. Previous research on trust shows that trust develops gradually and common future is a strong motivator for a trusting relationship (e.g. Axelrod 1984). In telecommunications the partnering firms need trust more 56 By asymmetry is meant a non-symmetrical situation between actors. Economists discuss asymmetrical information leading to potential opportunism. Another theme related commonly to asymmetry is power, which is closely linked to company size. In asymmetric technology partnerships asymmetry manifests in different corporate cultures, management and type of resources. In this context asymmetry could be defined as “difference in knowledge, power and culture of actors”. than ever, yet they have little chance to commit themselves gradually to the relationship or experiment the values and goals of the other. Due to great risks the ability to build trust is crucial, yet because of the high volatility and short shadow-of-the future especially challenging. Building trust Trust is seen as a necessary antecedent for cooperation (Axelrod 1984) and leading to constructive and cooperative behavior vital for long-term relationships (Barney 1981, Morgan and Hunt 1994). Trust is vital for both innovative work within the organization in e.g. project teams (Jones and George 1998) and between organizations e.g. strategic alliances (Doz 1999, Zaheer et al. 1998) and R & D partnerships (Dodgson 1993). In this paper trust is defined as "actor's expectation of the other party's competence, goodwill and behavior". It is believed that in business context both competence and goodwill levels are needed for trust to develop (Blomqvist 1997). The relevant competence (technical capabilities, skills and knowhow) is a necessary antecedent and base for trust in professional relationships of business context. Especially so in the technology partnership where potential partners are assumed to have technological knowledge and competencies. Signs of goodwill (moral responsibility and positive intentions toward the other) are also necessary for the trusting party to be able to accept a potentially vulnerable position (risk inherent). Positive intentions appear as signs of cooperation and partner’s proactive behavior. Competence Goodwill Goodwill Competence Behavior Behavior Figure 1. Development of trust through layers of trustworthiness Bidault and Jarillo (1997) have added a third dimension to trust i.e. the actual behavior of parties. Goodwill-dimension of trust includes positive intentions toward the other, but along time, when the relationship is developing, the actual behavior e.g. that the trustee fulfills the positive intentions enhances trustworthiness (see Figure 1). Already at the very first meetings the behavioral dimension is present in signs and signals, e.g. what information is revealed and in which manner. In the partnering process (along time) the actual behavior e.g. kept promises become more visible and easier to evaluate. Role of trust has been studied quite extensively and in different contexts (e.g. Larson 1992, Swan 1995, Sydow 1998, Morgan and Hunt 1994, O’Brien 1995). Development of personal trust has been studied among psychologists and socio-psychologists (Deutch 1958, Blau 1966, Rotter 1967 and Good 1988). Development of organizational trust has been studied much less (Halinen 1994, Das and Teng 1998). In this paper we attempt to model interorganizational trust building and suggest some managerial tools to build trust. We build on Anthony Giddens (1984) theory of structuration and a model on experiencing trust by Jones and George (1998). According to social exchange theory (Blau 1966, Whitener et al. 1998 among others) information, advice, social support and recognition are important means in trust building, which is created by repeated interactions and reciprocity. A different view to trust is offered by agency theory developed by economists and focussing in the relationship between principals and agents (e.g. employer and employee). According to agency theory relationship management, e.g. socialization of corporate values, policies and industry norms (e.g. Eisenhardt 1985, 135 and 148) may control moral hazard inherent in such relationships. Researchers disagree whether trust can be intentionally created. According to Sydow (1998) trust is very difficult to develop and sustain. It is however believed that the conditions (processes, routines and settings) affecting the evolution of trust may be managed. Sydow (1998, 33) further believes, that even if trust can not be managed, the agents...”should certainly act in a trust-sensitive way when building and sustaining inter-organizational relations or networks”. In order to do so, we must analyze what is known of the creation and experience of trust. In the following we study interpersonal and inter-organizational trust creation. After that we show some means to build trust and build a conceptual model on trust building in inter-organizational context. Inter-organizational and Interpersonal Trust Zaheer et al. (1998) note that interpersonal and inter-organizational trusts are related but different constructs. The link between personal and organizational trust has not been clear. It would seem logical to say that it is always the people and not organizations that trust each other. Exchanges between firms are exchanges between individuals or small groups of individuals (Barney and Hansen 1994, 181). However organizations have reputations and images and they develop routines, processes and culture, which unify the behavior of their employees and the responses to external contacts. We propose that there is both interpersonal and inter-organizational trust, but it is always people in the organizations that trust. Zaheer et al. (1998, 142) defines interpersonal trust as “the extent of a boundary-spanning agent’s trust in her counterpart in the partner organization”. They further define interorganizational trust as “the extent of trust placed in the partner organization by the members of a focal organization”. According to Creed and Miles (1996, 20) organizational trust may be summed as embedded predisposition (a function of managerial philosophy and its manifestations), characteristic (dis)similarity (affected by organizational actions and structure) and experiences of reciprocity (affected by organization context for reciprocity). Jones and George (1998) have studied how trust can be experienced and created. According to them positive moods and emotions set the scene for favorable evaluation of the other party, positive experience of trust, and enhance subsequent trust building (Jones and George 1998, 537). The experience of trust may be described as in the Figure 2. Each individual’s value system sets a ground for his/her experience on trust. It is believed that values may create a propensity to trust, which is more basic and general than trust based in specific situations and relationships (Jones and George 1998, 532, they also cite Mayer et. al., 1995). Values are general principles or an individual’s guiding system. They are relatively permanent and make a setting for the experience of trust. In the long term also values may change as the individual gains new knowledge and her/his attitudes change e.g. due to accumulated negative experience on partners’ opportunistic behavior. Values-based general experience of trust Attitude-based specific experience of trust • more stable feelings i.e.person’s guiding principles • object specific feelings i.e. beliefs and knowledge Cognitive-based experience of trust i.e. past experience, knowledge and interaction Moods and emotions-based specific experience of trust • current affective feelings long-term effect current i.e. constant effect long-term effect •Experiential and knowledge-based Figure 2. Experiencing trust (in accordance with text of Jones and George 1998) Attitudes may be seen as knowledge, beliefs and feelings about other/s and as means through which interactions with others are defined and structured (see Jones and George 1998, 3). Moods and emotions may play a major role in creating first impression. First impressions are important since they set the tune for the relationship and enhance trust and relationship development. Moods and emotions may have a major role also in turbulent businesses where fast decisions are made in short encounters and where the uncertainty and risk are great. Moods and emotions are the most temporary, least rational and yet a very strong element in the experience of trust. O’Brien (1995, 47) notes the parallel significance of cognitive (rational) and affective (emotional) trust. The emotional element in trust explains the strong impact of broken trust. Anthony Gidden’s (1989) Theory of Structuration consists of interplay between structure and action. This means that action (process, practice) simultaneously constitutes structure and is enabled by structure. Along time the structures of signification, legitimization and domination become institutionalized and taken for granted, which enhances similar assumptions and expectations enhancing mutual trust (Sydow 1998, 37). Theory of Structuration has a useful dual play of structure and action. In similar vein trust is built by individual or organizational structures (or characters), which are signaled through actions, which are evaluated as signs of trustworthiness (see our later model for trust building in Figure 5). According to Zucker (1986) the central modes of trust production are the institutional-based trust, characteristic-based trust and process-based trust. Institutional-based trust is tied to formal societal structures depending on firm-specific or individual attributes and on intermediary attributes. Characteristic-based trust is tied to a person and based on e.g. ethnicity or background. The process-based trust is tied to expected or past exchange, e.g. reputation. Zucker explains how in the US enterprises the institutional-based trust supplemented the process-based trust on the early industrial formation (mid 1800s to early 1900’) due to social and geographic distance and exchanges across group boundaries. Individuals are believed to maintain mental accounts regarding the perceived history of trustrelated behaviors involving self and others (Douglas and Creed 1996, 9). Thus it is proposed that parties in an emerging relationship constantly, consciously or unconsciously evaluate trustworthiness from the indices or signals in others’ speech and behavior (Figure 3). As an ultimate goal they want to see whether the other party would risk their well being (act opportunistically or in a way which is not in mutual interest) or whether they can trust the other party’s integrity in promoting mutual good.