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). 1 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 2 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) affectin