Chapter 14 Generating and Utilizing Trust

Scope of Chapter 14 What is Trust? Benefits of trust Generating and sustaining trust Guidelines for cultivating trust 1

What is Trust? The readiness of one person or set of people to relate to one another in the belief that the other’s actions will be beneficial rather than detrimental, even though this cannot be guaranteed

Two Forms of Trust ‘Traditional’ trust ‘Institutional’ trust Stems from sharing membership of same social group Reinforced by group norms and sanctions Based on personal relationships Has an informal basis ‘Institutional’ trust Trust reliant on institutional provisions Legally enforceable contracts and the official certification of competence are prime examples Has a formal basis

Trust in Business Trust is required for people or organizations to enter into relationships where contracts or other safeguards (such as assets given as a hostage) cannot adequately cover all risks It is vital in business transactions, where there is normally incomplete knowledge and understanding of the other party(ies) This applies both to relations between firms as well as to relations within firms between managers and their staff, between departments and units

The Benefits of Trust Trust in staff reduces the need within organizations to apply controls to what people do and allows them to take more initiative to cope with unforeseen circumstances Trust in management increases the commitment of employees to organizational goals When people see they are trusted, they are motivated by the confidence that is shown in them Trust between collaborating units or firms encourages openness in exchanging information and hence promotes innovations and other forms of knowledge creation Trust is an essential ingredient in a successful alliance between firms, especially when they share control

Trust and Organizational Performance Automobile firms, like Toyota, benefit from their close trust-based relationship with suppliers in terms of just-in-time delivery, joint development work, sharing of sensitive information, and superior quality Trust is particularly important for business in developing countries where institutional safeguards are weak. It is a strong predictor of success in such environments Trust has proved important for joint venture performance, especially when partners have equal equity shares There is also evidence of the positive role that trust within teams plays in their success

Generating and Sustaining Trust: Three Stages Stage 1 ‘Calculative trust’ Calculation that the other party has the ability to deliver on its promises Calculation that there are sufficient deterrents and safeguards in case of being let down by the other party Joint investment by the parties provides a ‘hostage’ against cheating Primarily supported by institutional bases for trust

Stage 2 Mutual Understanding As a relationship develops and people work together, their understanding of each other should increase. If this experience is good, mutual confidence grows that the parties wish to deliver on their promises and can do so In addition, their growing mutual understanding should lessen fears of unpredictable behavior by the other party

Stage 3 Trust based on Bonding This form of trust arises between people who come to identify with each other’s values, including a shared concept of moral obligation. It is cemented by emotional ties - a personal liking of the other party While this stage of trust development usually comes after some years of a business relationship, it is sometimes the starting point as when two friends say ‘we trust and like each other: why don’t we do business together?’ Very akin to ‘traditional’ trust

Guidelines for Cultivating Trust Create a clear and calculable basis for mutual benefit Improve mutual understanding by striving to resolve conflict and to keep communication open Guidelines 1 and 2 can benefit from appropriate organizational rules and procedures Encourage mutual bonding by Careful selection of staff Socializing Leaders of departments or partner organizations to set an example via frequent friendly contact In the case of alliances, try to avoid short spells of office or at least maintain contacts through visits, email, etc.