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Do you need trust within your organization to build trust with external partners? – Week 11 of Twelve Weeks to Trust

July 31, 2012

Economics, strategy and ethics literature all suggest that an organization’s culture, structure and processes must foster trustworthy behaviours internally in order to maximize trust in inter-organizational relationships (Casson, 1995; Drake & Schlachter, 2008; Dyer & Chu, 2003; Sydow, 1998; Zaheer, McEvily & Perrone,1998).

As we covered in Week 5: Ethics at the Heart of Trust, organizations have a moral obligation to consider the ends and means of their processes. So an ethical, trustworthy organization has to meet the needs of its internal and external stakeholders.

Organizational trust and inter-organizational trust are inseparable. Otherwise, the trust your boundary-spanners develop with partner organizations and stakeholders may be a thin veneer of trustworthiness while the ‘guts’ of your organization cannot deliver in terms of capability or on the promise of benevolence.

In the Journal of Business Ethics,  Matthew J. Drake and John Teepen Schlachter wrote:

 “Organizations must first ensure that trust permeates their own corporate culture before shifting their focus outward to their relationships with other firms” (Drake & Schlachter, 2008, p.852).

Culture Builds Organizational Trust

Indisputably, organizational culture has a key role in fostering inter-organizational trust. The organization and its leaders focus attention on what is important. They set the norms and expectations for collaboration and determine whether the organization prizes trustworthiness internally and externally (Pollitt, 2002). Leaders create written and unwritten rules and processes like incentives and performance measurement that focus and influence behaviour.

In a “do whatever it takes to make your target” environment, a short-term focus contributes to an exclusive focus on results rather than on building relationships. It may lead to co-workers undercutting one another. And we all know what type of behaviour was encouraged by an exclusive focus on profits on Wall Street and the dramatic fall-out.

On a less grand scale, imagine a workplace where co-workers don’t trust each other enough to share information, where people delay or undercut one another. Do their external partners, clients or society get the best product or service in this case?

Conversely, organizations can generate results by requiring trustworthy behaviours. A long-term strategy, inclusion of team goals, valuing client feedback and growing relationships all encourage growing the pie rather than hoarding your share. In their important article “Trustworthiness as a Source of Competitive Advantage” Jay Barney and Mark Hansen wrote:

 “If the culture in an organization is right, individuals can be self-interested and still behave in a strong-form trustworthy way” (1994, p.181).

In addition to applauding and incenting trustworthy behaviour, organizations must also actively denounce and punish those who act opportunistically to demonstrate that it will not be tolerated, to protect their reputation, and to avoid damaging inter-organizational relations (Dovey, 2009; Girmscheid & Brockmann, 2010; Hexmoor et al., 2006). In fact, the development of that reputation may rest on internal promotion of a strong culture of trustworthiness (Hexmoor et al., 2006).

photo source: MS Office Clip Art

Do your Organizational Practices Build Trust?

An organizational culture that fosters internal and external trust building is buttressed by all the organizational practices and routines within which trust can develop and persist.  Put another way, the rules and processes create a stable environment in which trust can flourish.

Do your organization’s processes build trust?

Does your organization… Yes No
1… live its values?
2… encourage open communication and collaboration between departments?
3… empower you to disclose all the information your partners need to make the most of your alliance?
4… reward trustworthy behaviour internally and externally?
5… have simple contracts?
6… invest in Transaction Specific Investments (location, marketing, signage, training, etc.) with its alliance partners?
7… encourage joint planning (internally and externally)?
8… encourage joint problem-solving (internally and externally)?
9… ensure that communications technology works, is easy to use, and meets the needs of all the partners?
10…allocate sufficient financial, human and technological resources to key partnerships?
11…empower its representatives to enter into alliances and to fulfill their roles to the best of their abilities?
12…punish trust violations?
13…put the needs of its partner first?

If you answered ‘No’ to any of these questions, then you have a good idea where to start improving culture or processes in your organization.

The resourcing question is particularly important. In their longitudinal study (of which there are very few) published in the Journal of Marketing, Eric Fang and his colleagues wrote that boundary-spanners must have the trust of their organization and the authority to deliver on their obligations. Otherwise, “Deficient agency trust in the firm’s own team members inhibits critical additional resource investments in the collaboration and results in sub-optimal performance” (2009, p.93).

Quite simply, if an organization does not trust its people enough to invest properly in a joint-venture or alliance, then capability trust is reduced because partners can’t meet their joint objectives and the outcomes are not maximized for either partner.

Of course, my little quiz is not exhaustive and it would definitely not pass the survey section in my Research Methods course! Then again, if I could summarize everything you need to know about trust in a 13 point list then what have I been going on about for 11 weeks? So I’d like to know, what would you add? Drop? Change? What do you think your organization does best to build trust internally and with its external partners?

If you are visiting this blog for the first time and want to know more about Twelve Weeks to Trust or if you have missed any inter-organizational trust posts, click here for the full list. If you are interested in any of the articles referenced, they are listed in My Trust Bibiliography.

Coming up next? Trust Building Best Practices for Leaders. Warning: it’s likely to be a multi-parter.

Be well. Build trust.

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