Trust Can Make or Unmake Organizations - Essay Example

Trust Can Make or Unmake Organizations When Hong Kong was scheduled to revert back to China on July 1977 under an agreement signed between the British and the Chinese in 1984, there was great concern and fear among the populace of Hong Kong. The handover was announced to the world at least five years before. So during this entire period, the thought uppermost in people's mind was: What will it be like when the People's Liberation Army or the Red Guard, in whose hands the blood of the 1989 massacre in Tiananmen Square was still fresh, cross the border bridge at Lo Wu Hong Kong had been a bastion of capitalism for so long, hopping and prospering in a nearly unbridled free enterprise system that it looked at mainland China as untrustworthy as the new lord and master of a freedom and fun-loving group of people. China was of course known for its regimented economic and political life as well as its severe, heavy-handed style of communist rule. Their minds made up on the undesirability of Chinese control, many business interests fled Hong Kong before the Chinese took over. But just as many companies stayed - and found that the earlier fears and feelings of distrust by the others were unfounded. The Chinese let the former British colony live the way it used to and in fact opened up mainland China to fresh winds of reforms. What happened in Hong Kong was an example of how lack of trust and full understanding of how trust operates can blindside people and in the process erode the level of economic activity and the quality of life desired for everyone. This is one of the reasons why the formal study of trust is attracting a lot of interest among scholars in the fields of international relations, political science, psychology and sociology, management and economics, and conflict analysis. Results of the initial studies confirm that people suspect or mistrust others based on surface impressions. More important, they cannot work together as a group without each appreciating the value of trust. Trust Trust is a key enabler of cooperative human actions (D'Amico, L., 2003). The intensified studies on trust in many relevant fields in effect recognize the importance of cooperative behavior to the success of any human endeavor and, consequently, to the success or failure of an organization. It was found that trust leads two other basic mechanisms by which such cooperation can be achieved in human behavior, the other two being power and the market. These mechanisms come into play through three types of trust: Type A - The relationship between two parties is based on a system of sanctions or incentives, which could be economic (fines, rewards, etc.) or social (black listing or alienation), put up to ensure that one does not abuse the trust of the other. Type B - Confidence is based on personal relations or trust. Thus, John would not abuse Joe's trust because to do so would damage their friendship and John believes that Joe values such friendship. Type C - The relationship is hinged on abstract systems (money tokens, for example) and social institutions (professional and trade associations) and hence avails of market forces. Lewis & Weigert define trust as "a complex and multidimensional phenomenon that extends to both the personal and impersonal, and to situational and across-situational contexts." This means that trusting or depending on another is based on a given situation, such that the decision to trust is formed tentatively and conditionally until the other person or institution proves to be unworthy of the trust. The other way around happened to the companies that opted to stay in Hong Kong despite earlier misgivings about the fair-mindedness of Chinese decision-makers. In time, China proved worthy of said companies' trust . In the concept of trust set by Harrison, et al. trust can be a behavior, an expectancy, an attitude, a confidence, a belief or set of beliefs, and a situational, dispositional, structural or interpersonal variable. To trust itself, five related concepts have been attached. These are: 1) Interpersonal trust - this occurs when one party's willingness to depend on the other party evokes feelings of security. 2) Trusting beliefs - when one believes that the other is trustworthy as regards benevolence, honesty, competence and predictability. 3) System trust - in this case, trust is placed on institutions such as banks, Congress, etc. 4) Dispositional trust - when a person trusts across a broad spectrum of persons and situations. Example is the belief that others are good because they belong to a group which is typically trustworthy. But it also applies when one believes others will turn out to be trustworthy because he treated them as such. 5) Decision to trust - this comes when the benefits of trusting someone outweighs the risks associated with such action. Whichever of these circumstances, trust starts a-forming when two parties become dependent on each other, each recognizing that interdependence. In effect, both parties acknowledge that one cannot function or achieve its objective without action from the other. This requires assurance from one party that its actions will enable the two to meet their common objective. Such assurance may be in the form of control mechanisms or through trust. Two examples are the usually close and strong family ties and the weak and impersonal market relationships. In between is organizational relationships, which are neither strong nor weak, neither personal nor impersonal. It is interesting to learn that people could place trust on others by sheer force of circumstance and not simply because they come across as ideal specimens of trustworthiness. Harrison, et al. cite as example a project team assigned to a difficult task. Members of that team may trust their team leader, although unsure of the latter's competence and reliability, in the hope that this decision would improve the odds on their accomplishing their task. When we repose trust on someone, we do it through the use of categories or illusion. We trust by category when we simplify something complex or uncertain, and we use illusion when we replace logic and hard facts with something assumptive and fictitious. In trusting by categorization, we resort to unit grouping, stereotyping and use of reputations. Unit grouping means that someone is worthy of our trust when he belongs to the same team or organization we do. The possible explanation is that we look kindly at other people who belong to the same unit or group. As for stereotyping, trust may be formed based on physical appearance, such as when someone is good-looking. Acting on the "what is good is beautiful" stereotype, we behave accordingly. As for reputation categorization, a person may be perceived as competent when he had demonstrated such aptitude in the past or members of his group were reputed for competence. For instance, we in the Christian world suspect Muslims as warmongers because they have been involved in many bloody conflicts around the world. Although some Muslims are actually as meek as lambs, we still judge them according to this reputation. Remember the editorial cartoons in the Danish newspaper showing the Prophet Muhammad with a turban of miniature bombs Socio-Economic View Korczynski, M. (2000) believes that from an economic perspective, trust involves a form of incentives and a structure of governance. Otherwise, trust would not last. The notion that there is no limit to it is debatable since it will increase over time based on the progress of the personal relationship and the other's norms. There are two important functions of trust in economic activity. One, it allows the embedding or lifting of social relations out of local contexts and their structuring across indefinite spans of time (Gidden, 1990). Two, it allows cooperation without the direct influence of power or the market forces. Korczynski, M. cites an example of trust based on market conditions: Building contractors in Massachussetts had a stable relation with their subcontractors because they periodically monitored the market on prices. This placed the contractors in a position to know whether their subcontractors were overcharging them. As a result, trust was present and the relationship between contractors and subcontractors was stable. Leaders of business or any type of organization have to be aware of the tremendous benefits that can be derived from a high-trust setup as against a low-trust organization. In an organization where trust is high, for example, motivation is also high and swings from the economic to the social and ethical goals. In low-trust organizations, the motivation is purely opportunistic. The rational in high-trust organizations is also wide and there is trust when this is not even required or expected, whereas in low-trust groups, the rational is narrow. As for the quality of enforcement, it is agreed that high-trust organizations are more efficient than low-trust groups. Pollitt, M. (2002), from his own studies, found that a society naturally suspicious and prone to thinking that others cannot be trusted is likely to have low "social capital" even if everyone is basically honest. Social capital are those features of social organizations such as trust, norms and networks that can improve the efficiency of society by facilitating coordinated actions among people. This is said to be social but also contributes a great deal to economic well-being since it includes capital investments in physical terms. A strong correlation has been found between the measure of trust and GDP growth per capita. In a survey by Knack & Keefer (1997), subjects were asked: "Would you agree that most people can be trusted, or that you can't be too careful in dealing with people" Those with higher per capita income answered yes. A decline in social capital translates into a sluggish pace of business, as observed in some countries. It Is believed that businesses can increase their contribution to social capital by encouraging trust, establishing norms of behavior and promoting networking in their premises. In the process, the companies reap some benefits themselves. Pollitt, M. (2002) cites the examples set by Hewlett-Packard, 3M and UPS. Hewlett-Packard trusted its workers to bring company equipment home and was rewarded with innovations coming from home experimentations. 3M for its part encouraged a norm of experimentation with the story it tells over and over about an employee who discovered the "Post-It" note for offices retrieving a discarded invention for a glue that did not stick much. As for UPS, it encouraged its drivers to gather for lunch as a form social networking to improve efficiency by reallocating duties among themselves. But these activities are rare such that despite the great strides in the world economy, there has been a decline in the happiness or enjoyment that the economic system everywhere generates. How trust can enhance economic efficiency is explained this way. The presence or absence of trust has a bearing on what we choose to do and, conversely, what we can do. Trusting that the other person will honor his side of a trade is fundamental to encouraging particular trades and economic activity in general. Such trust can be engendered by external punishment, say, legal recourse, if the related undertakings are not kept. In other words, trust may be encouraged by tougher laws which will serve as deterrent against violations of trust. Thus, trust is crucial to cooperative economic activity. Equally important is the promotion of social norm, a behavioral strategy that can be shared by all. With shared norms, more trust is likely and the process of cooperating will cost less, since both parties will need less time to establish what one another's reputation is. A good example is a businessman executive who prefers to hire someone from his alma mater. He likes to say: "I trust someone from my school because he has the same trustworthy norms I have learned there." The same thing can be said about the Japanese whose norms rooted in loyalty and integrity made a success of business organizations. So is the Chinese whose norms of thrift and patience made them survive in whatever place in the world they go. When it comes to social networks, these too are an essential form of social capital. Social networks could be neighborhood associations, choral societies, cooperatives, sports clubs, etc. The more these are organized in a community, the more likely its residents would be able to cooperate for the common good. These networks, which are breeding grounds for both trust and norms, open the door for more opportunity in making economic transactions more effective. Some of the ideal networks include PTAs, Scouting and church organizations. Economic theory tells us that a lack of trust, inappropriate norms and a lack of socializing networks can have adverse consequences (Pollitt, M., 2002). Following Pollitt's thoughts, the Hong Kong in 1997 situation might have came about because society as a whole and business in particular did not take the economics of trust, norms and socializing networks more seriously. References 1. Pollitt, Michael (2002). "The Economics of Trust, Norms and Networks." Business Ethics: A European Review. Blackwell Publication. 2002 2. Harrison McKnight, D., Cummings, L. & Chervany, N. "Trust Formation in New Organizational Relationships." University of Minnesota (Curtis L. Carlson School of Management) 3. D'Amico, Lynne C. (2003). "Examining Determinants of Managerial Trust: Evidence from a Laboratory Experiment." Center for Technology and Information Policy, New York 13244-1090 4. Korczynski, Marek (2000). "The Political Economy of Trust." Journal of Management Studies. 37:1 January 2000, 0022-2380. Loughborough University Business School. Read More