1. Chapter 14 Generating and Utilizing Trust

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

3. 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

4. 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

5. 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

6. 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

7. 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

8. 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

9. 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

10. 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

11. 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, , etc.