Trust as an Organizing Principle Bill McEvily • Vincenzo Perrone • Akbar Zaheer Graduate School of Industrial Administration, Carnegie Mellon University, Pittsburgh, Pennsylvania 15213-3890 The Institute of Organization and MIS, Bocconi University, 20136 Milan, Italy Strategic Management and Organization Department, Carlson School of Management 3-365, University of Minnesota, 321 19th Avenue South, Minneapolis, Minnesota 55455
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Abstract Although research on trust in an organizational context has advanced considerably in recent years, the literature has yet to produce a set of generalizable propositions that inform our understanding of the organization and coordination of work. We propose that conceptualizing trust as an organizing principle is a powerful way of integrating the diverse trust literature and distilling generalizable implications for how trust affects organizing. We develop the notion of trust as an organizing principle by specifying structuring and mobilizing as two sets of causal pathways through which trust influences several important properties of organizations. We further describe specific mechanisms within structuring and mobilizing that influence interaction patterns and organizational processes. The principal aim of the framework is to advance the literature by connecting the psychological and sociological micro-foundations of trust with the macro-bases of organizing. The paper concludes by demonstrating how the framework can be applied to yield novel insights into traditional views of organizations and to stimulate original and innovative avenues of organizational research that consider both the benefits and downsides of trust. (Trust; Organizing Principle; Structuring; Mobilizing)
Introduction In the introduction to this special issue we observed that empirical research on trust was not keeping pace with theoretical developments in the field. We viewed this as a significant limitation and surmised that a special issue devoted to empirical research on trust would serve as a valuable vehicle for advancing the literature. In addition to the lack of empirical research, we would also make the observation that theories and evidence accumulating on trust in organizations is not well integrated and that the literature as a whole lacks coherence. At a general level, extant research provides “accumulating evidence that trust has a number of important benefits for organizations
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and their members” (Kramer 1999, p. 569). More specifically, Dirks and Ferrin’s (2001) review of the literature points to two distinct means through which trust generates these benefits. The dominant approach emphasizes the direct effects that trust has on important organizational phenomena such as: communication, conflict management, negotiation processes, satisfaction, and performance (both individual and unit). A second, less well studied, perspective points to the enabling effects of trust, whereby trust creates or enhances the conditions, such as positive interpretations of another’s behavior, that are conducive to obtaining organizational outcomes like cooperation and higher performance. The identification of these two perspectives provides a useful way of organizing the literature and generating insight into the mechanisms through which trust influences organizational outcomes. However, we are still left with a set of findings that have yet to be integrated on a theoretical level in a way that yields a set of generalizable propositions about the effects of trust on organizing. We believe this is due to the fact that research has, for the most part, embedded trust into existing theories. As a result, trust has been studied in a variety of different ways to address a wide range of organizational questions. This has yielded a diverse and eclectic body of knowledge about the relationship between trust and various organizational outcomes. At the same time, this approach has resulted in a somewhat fragmented view of the role of trust in an organizational context as a whole. In the remainder of this paper we begin to address the challenge of integrating the fragmented trust literature. While it is not feasible to develop a comprehensive framework that synthesizes the vast and diverse trust literature in a single paper, we draw together several key strands that relate to the organizational context. In particular, our paper aims to advance the literature by connecting the psychological and sociological microfoundations of trust with the macro-bases of organizing. ORGANIZATION SCIENCE, 䉷 2003 INFORMS Vol. 14, No. 1, January–February 2003, pp. 91–103
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Trust as an Organizing Principle
Specifically, we propose that reconceptualizing trust as an organizing principle is a fruitful way of viewing the role of trust and comprehending how research on trust advances our understanding of the organization and coordination of economic activity. While it is our goal to generate a framework that coalesces our thinking about the processes through which trust, as an organizing principle, affects organizational life, we are not Pollyannish: trust indubitably has a down side, which has been little researched. We begin by elaborating on the notion of an organizing principle and then move on to conceptualize trust from this perspective. Next, we describe a set of generalizable causal pathways through which trust affects organizing. We then use that framework to identify some exemplars of possible research questions and to point to possible downsides of trust.
of interdependence and uncertainty by reallocating decision-making rights (Simon 1957, Coleman 1990). Price-based organizing principles revolve around the idea of making coordination advantageous for each party involved by aligning incentives (Hayek 1948, Alchian and Demsetz 1972). Compliance to internalized norms and the resulting self-control of the clan form is another organizing principle that has been identified as a means of achieving coordinated action (Ouchi 1980). We propose that trust is also an organizing principle and that conceptualizing trust in this way provides a powerful means of integrating the disparate research on trust and distilling generalizable implications for how trust affects organizing. We view trust as most closely related to the clan organizing principle. By definition clans rely on trust (Ouchi 1980). However, trust can and does occur in organizational contexts outside of clans. For instance, there are a variety of organizational arrangements where cooperation in mixed-motive situations depends on trust, such as in repeated strategic alliances (Gulati 1995), buyer-supplier relationships (Dyer and Chu this issue), and temporary groups in organizations (Meyerson et al. 1996). More generally, we believe that trust frequently operates in conjunction with other organizing principles. For instance, Dirks (2000) found that while authority is important for behaviors that can be observed or controlled, trust is important when there exists performance ambiguity or behaviors that cannot be observed or controlled. Because most organizations have a combination of behaviors that can and cannot be observed or controlled, authority and trust co-occur. More generally, we believe that mixed or plural forms are the norm, consistent with Bradach and Eccles (1989). In some situations, however, trust may be the primary organizing principle, such as when monitoring and formal controls are difficult and costly to use. In these cases, trust represents an efficient choice. In other situations, trust may be relied upon due to social, rather than efficiency, considerations. For instance, achieving a sense of personal belonging within a collectivity (Podolny and Barron 1997) and the desire to develop and maintain rewarding social attachments (Granovetter 1985) may serve as the impetus for relying on trust as an organizing principle.
Organizing Principles As Ouchi (1980) discusses, a fundamental purpose of organizations is to attain goals that require coordinated efforts. Interdependence and uncertainty make goal attainment more difficult and create the need for organizational solutions. The subdivision of work implies that actors must exchange information and rely on others to accomplish organizational goals without having complete control over, or being able to fully monitor, others’ behaviors. Coordinating actions is further complicated by the fact that actors cannot assume that their interests and goals are perfectly aligned. Consequently, relying on others is difficult when there is uncertainty about their intentions, motives, and competencies. Managing interdependence among individuals, units, and activities in the face of behavioral uncertainty constitutes a key organizational challenge. Organizing principles represent a way of solving the problem of interdependence and uncertainty. An organizing principle is the logic by which work is coordinated and information is gathered, disseminated, and processed within and between organizations (Zander and Kogut 1995).1 An organizing principle represents a heuristic for how actors interpret and represent information and how they select appropriate behaviors and routines for coordinating actions. Examples of organizing principles include: market, hierarchy, and clan (Ouchi 1980). Other have referred to these organizing principles as authority, price, and norms (Adler 2001, Bradach and Eccles 1989, Powell 1990).2 Each of these principles operates on the basis of distinct mechanisms that orient, enable, and constrain economic behavior. For instance, authority as an organizing principle solves the problem of coordinating action in the face
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Trust as an Organizing Principle At a general level trust is the willingness to accept vulnerability based on positive expectations about another’s intentions or behaviors (Mayer et al. 1995, Rousseau et al. 1998). Because trust represents a positive assumption
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about the motives and intentions of another party, it allows people to economize on information processing and safeguarding behaviors. By representing an expectation that others will act in a way that serves, or at least is not inimical to, one’s interests (Gambetta 1988), trust as a heuristic is a frame of reference that allows actors to conserve cognitive resources (Uzzi 1997). Trust makes decision making more efficient by simplifying the acquisition and interpretation of information. Trust also guides action by suggesting behaviors and routines that are most viable and beneficial under the assumption that the trusted counterpart will not exploit one’s vulnerability. As this discussion demonstrates, trust has been conceptualized as an expectation, which is perceptual or attitudinal, as a willingness to be vulnerable, which reflects volition or intentionality, and as a risk-taking act, which is a behavioral manifestation. Although these facets of trust are closely related, it is important to be clear about which specific facet is the focus. In this paper, we concentrate on trust as an expectation or an intention because we are most interested in explaining the behavioral manifestations of trust that shape and influence organizing. Further, while our definition of trust is inherently relational (i.e., it requires a trustor and a trustee), we also recognize that there is a dispositional element to trust (Rotter 1967). In an organizational context “expectations about another’s intentions or behaviors”’ include “technically competent role performance from those involved with us in social relationships and systems” (Barber 1983, p. 9). In addition to competence, trust is also based on the anticipated behavioral integrity, and the benevolence of others (Mayer et al. 1995). And, trust is based, in part, on a “leap of faith” (Lewis and Weigert 1985). Consequently, while our view of trust includes an element of calculated expectation, it also encompasses a noncalculative component, recognizing the bounded rationality and uncertainty of organizational life. In addition to trust, trustworthiness influences the pervasiveness and efficacy of trust as an organizing principle (although trustworthiness has received far less research attention than trust). Trustworthiness implies being worthy of having trust placed in one (Barney and Hansen 1994). Because we define trust as an expectation, the distinction between trustworthiness and trust is based on the actual versus perceived intentions, motives, and competencies of a trustee—the former being trustworthiness and the latter being trust. Without trustworthiness, trust is not sustainable. Like trust, we view trustworthiness in an organizational context as a social phenomenon too; meaning that it is not only an inherent quality of an individual, group, subunit, or organization. An actor may choose to
limit or enhance his/her trustworthiness toward another. For example, one may refuse to allow oneself to become a repository of another’s trust (Coleman 1988). Thus, trust and trustworthiness coevolve. The speed and degree of alignment between trust and trustworthiness are among the factors that determine the effectiveness of trust as an organizing principle. In the case where trustworthy actors are perceived as such, equilibrium is achieved and trust is an effective organizing principle. In contrast, where opportunistic actors are not trusted, trust itself is irrelevant and some other organizing principle is necessary. However when there is a mismatch between trust and trustworthiness one of several outcomes will occur. In the case where opportunistic actors are trusted, there are going to be negative consequences and trust will eventually decline. As a result of the mismatch between trust and trustworthiness, over time equilibrium will be reached where opportunistic actors are distrusted. Another route to equilibrium exists in cases where trust and trustworthiness are mismatched: By placing trust, one signals that another is expected to behave in a trustworthy manner, which can become a selffulfilling prophecy. On the other hand, when trustworthy actors are not trusted, there is an opportunity cost of unutilized latent trustworthiness. Ghoshal and Moran (1996) argue that this distrust can also become a self-fulfilling prophecy, and the trustworthiness of organizational members will decline. Alternatively, this disequilibrium could remain until trust is eventually ventured. Learning to discriminate between those that are trustworthy and opportunistic requires cumulated and diverse relational experiences. In an organizational context, the nature and diversity of relational experiences are shaped in part by the organizational arrangements (e.g., structure, culture, incentives) that influence and constrain individuals’ behaviors (Ferrin and Dirks this issue, Perrone et al. 2003). In our view, trust influences organizing through two main causal pathways: structuring and mobilizing. Because the level of trust varies, the way that activities are organized and coordinated will differ. From a structuring perspective, trust shapes the relatively stable and enduring interaction patterns in and between organizations. For example, by influencing the status and reputation of certain actors, trust affects their positions within a social network and changes the shape and structure of the network itself. In addition, breaches in trust are structuring events in the sense that they initiate a reorganization of the social system, e.g., certain ties are abandoned while others are created; some actors become more central in the social hierarchy, while others are pushed toward the margin and disconnected from the rest of the network. From a mobilizing perspective trust motivates actors to contribute,
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combine, and coordinate resources toward collective endeavors. For example, by increasing openness in knowledge transfer and by speeding the circulation of knowledge, trust facilitates cooperation and joint problem solving. In the next section, we detail specific structuring and mobilizing causal pathways that relate trust to organizational outcomes. In developing our ideas about structuring we utilize network terminology. Because trust occurs at both dyadic and organizational levels, network concepts are particularly applicable.
structuring and mobilizing categories capture many of the key causal chains through which trust affects organizing. We further recognize that trust not only affects organizing, but also is affected by organizing, although these latter effects are beyond the scope of this paper.
Pathways Through Which Trust Affects Organizing We develop the notion of trust as an organizing principle by articulating the causal pathways through which trust influences several important properties of organizations. By “causal pathways” we mean the conceptual logic that explains how and why trust affects certain elements of organization. We previously identified two broad causal pathways: structuring and mobilizing. Within these two broad categories we now describe specific mechanisms that we believe to be among the most central for organizing (see Table 1). Specifically, we theorize that trust operates through the causal pathways to affect two broad properties of organizations: the interaction patterns and processes that enable and constrain the coordination of work among individuals. We note that the set of mechanisms identified in Table 1 is representative but not comprehensive. We do not intend to develop an exhaustive inventory of the consequences of trust. Rather, our aim is to articulate the pathways through which trust influences organizing and to develop a conceptual framework for integrating research on trust. The specific mechanisms discussed are intended to be illustrative of how trust can inform our understanding of organizing. At the same time, we believe that the
Table 1
Influence of Trust on Organizing
Causal Pathways
Organizational Properties
Structuring Patterns Transferability → Density Generative Capacity → Multiplexity Delayed Reciprocity → Stability Role Specialization → Nonredundancy Mobilizing Processes Disclosing and Screening → Knowledge Sharing Identifying→ Committing Suspending Judgment → Safeguarding
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Structuring By structuring we mean the development, maintenance, and modification of a system of relative positions and links among actors situated in a social space. The result is a network of stable and ongoing interaction patterns, both formal (e.g., routines and organizational units) and informal (e.g., cliques and coalitions). Structuring also creates social stratification that produces differential status, power, and knowledge. We argue that trust as an organizing principle molds the social structure of an organizational system in both of these ways. More specifically, trust influences the density, multiplexity, stability, and nonredundancy of social structure through the processes of transferability, generative capacity, delayed reciprocity, and role making, respectively. Transferability and Density. A key assertion of social capital theory is that network density and closure promote trust and norms of cooperation (Coleman 1988). We suggest that trust also increases the density and closure of a network through transferability. The basic premise behind trust transfer is that rather than being based on direct experience with the object of trust, initial trust impressions are based on trust in a source other than the trustee, such as another individual or collectivity (Stewart this issue). At an individual level, two people who have little or no knowledge of each other can develop trust for each other relatively quickly when they share trust in a common third party. Trust in the third party serves as a proxy for trust in the unknown counterpart (Simmel 1950, Krackhardt 1992). More specifically, “[a] third party offers to each person a definition of the other as trustworthy. Each accepts or rejects this definition . . . largely on the basis of his trust for the third party’s judgment” (Strub and Priest 1976, p. 408). In this way, the third party acts as an intermediary who brokers trust (Shapiro 1987). This is Coleman’s (1990) “advisor” form of trust intermediation, whereby a third party makes referrals about the perceived trustworthiness of others. Trust in the third party’s judgment serves as the foundation for trust in an unknown counterpart. Another form of trust transfer occurs when an individual transfers the trust in the group to which they belong to another member of the group with whom they have no direct history or experience. This is Zucker’s (1986) characteristic-based trust, which may be driven by value congruence as well (Sitkin and Roth 1993). An extension
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of this idea applies to trust transfer to an external group (that one is not a member of). Here trust transfer is driven by perceived similarity among members of the collectivity. Individuals formulate perceptions about the trustworthiness of collective entities based on their history of interactions with individual members of the collectivity. The greater the perceived similarity among members of a collectivity, the more readily trust in one member transfers to trust in others (Williams 2001). Clearly, this assumes that the signal from the source (e.g., third parties or collectivities) is reliable and accurate. Trust transfer implies the formation of a new relationship between previously unacquainted individuals (or, as we discuss in the next section, the creation of a new dimension of a previously more limited relationship between two people). Consequently, transferability helps explain how an individual’s network grows in size and how people come to acquire new trusted contacts. Moreover, trust transfer increases the density of ties in an organizational network. This is particularly true for the third party that connects two individuals. In this case, the third party is effectively closing a “structural hole” (Burt 1992), or disconnect, that had previously existed among contacts. Consequently, the degree of closure increases in the network as well. The implications for organizations are manifold. As the social capital literature suggests, greater closure lays the groundwork for cooperation and social support. More generally, cohesiveness as an organizational property has been shown to be related to a host of organizational outcomes, both positive (e.g., enhanced performance) and negative (e.g., groupthink). Excessively dense networks can lead to “overembeddedness” that could result in exclusionary networks, a reduction in the flow of novel information, and the lack of flexibility and adaptability (Uzzi 1997).
The gradual expansion of relationships to incorporate additional components is akin to the process of social exchange (Cook and Emerson 1978). With little at stake initially, the parties take small risks to assess each other’s reliability, competence, and integrity. Through repeated social interactions, the parties update their information about the counterpart and learn about each other’s trustworthiness (Lewicki and Bunker 1996, Mayer et al. 1995). Over time, as the parties gain confidence in each other, they gradually increase the scope of their relationship to incorporate interactions involving more substantial investments in the tie. This generative capacity of a relationship is built on trust. Because the parties have a shared history and experience base, they are able to use the trustworthiness that is observed in one facet of their relationship as a proxy for anticipated trustworthiness in another realm of interaction (Gulati 1995). One of the most common ways in which the expansion of relationships is observed is by formal role relationships becoming socially embedded in personal relationships that are infused with norms and values (Ring and Van de Ven 1994). As was the case with trust transfer, we would expect similarity to play an important role in determining how readily trust in one dimension of a relationship applies to trust in other dimensions of a relationship. Moving from exchange of information to exchange of advice might be easier than moving from exchange of information to exchange of resources. As the relative distance between different dimensions of the relationship increases, we would expect that the corresponding level of trust required to make the transition to establishing a “thicker” tie would need to be greater as well. Trust, unlike other organizing principles, implies a somewhat “intimate” relationship among individuals involved in organizing and coordinating economic activities. Where high levels of trust prevail, actors are fairly knowledgeable about the competencies of the counterparts with whom they deal. When trust is relied on excessively, parties may find it easy to restrict themselves to local search within their thick ties, instead of scanning the network more broadly. Nevertheless, detailed social knowledge about counterparts’ capabilities provides the basis for discovering opportunities for fruitful collaboration and the generation of innovations. Multiplexity in relationships is one means through which new modes of value creation can be realized. In this respect, trust represents an important component of social capital, defined as the actual or potential value derived from a relationship.
Generative Capacity and Multiplexity. We argue that trust creates multiplexity in ties by providing generative capacity. This is another form of transferability (the main difference being that the transfer is occurring within the same tie rather than across ties with different actors). Multiplexity means that the tie itself becomes thicker because there are additional layers, dimensions, or “relational contents.” Formally, multiplexity is the number of relations within a given link (Fischer 1977, Galaskiewicz and Wasserman 1993). Instead of just involving information exchange, a relationship might also include resource exchange, advice, friendship, and so on. For example, based on the positive experience and the trust developed in their relationship as buyer and supplier, two firms may decide to also form a joint venture to develop a new product, and then eventually enter a consortium for advanced research with a local university.
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Delayed Reciprocity and Stability. Another way that trust affects structuring in organizations is by making reciprocity possible and enabling serial equity (Dyer and
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Chu 2003), which results in more stable and durable relationships (Molm et al. 2000) and, by extension, organizational networks. Whenever exchange is not instantaneous, there necessarily will be some temporary inequity in outcomes between exchange partners. Time lags in the completion of exchange introduce risk for the parties who first fulfill their obligations in an exchange (Coleman 1988). One risk is that compensation will be delayed beyond an acceptable period of time or will not be forthcoming at all. A second risk is that when the goods being exchanged are not perfectly fungible the equality in value may be unclear or questionable. Trust reduces the need for perfect congruence in value in a single exchange because there is an expectation that balance will be reached across a series of exchanges that occur over the course of an ongoing relationship. Trust also reduces the need for instantaneous compensation because each party is confident that commitments will be honored at some point in the future. More generally, trust creates the conditions for expecting serial equity to occur. Specifically, the expectation that the relationship will continue for the foreseeable future (Axelrod 1984, Heide and Miner 1992) and the expectation that a counterpart has taken the focal actor’s interests to heart are preconditions for serial equity to occur. Both expectations are an outgrowth of trust. The ability for an organization to operate on the basis of serial equity provides it with a degree of flexibility because the completion of exchanges can take place over time and through a variety of different currencies, e.g., exchange in kind (Ouchi 1980). Serial equity also increases the capacity of an organization to handle uncertainty while maintaining its basic structure. Uncertainty creates the need to alter the terms of agreements and adjust the design and operation of coordination mechanisms to respond to unforeseen events. By allowing the parties to search for the resolution of inequities across time and across exchanges, serial equity makes both structures and agreements more resilient. Serial equity alleviates the need for renegotiation of agreements each time there is a change that affects the relationship. Moreover, the trust that supports serial equity also eases the adjustment process by reducing the likelihood that it will generate conflict and eventually lead to a breach in the relationship (Carson this issue, Zaheer et al. 1998). In some cases, however, delayed reciprocity may actually reduce a party’s ability to extricate itself from relationships that have ceased to generate value or have become less valuable than other opportunities. For instance, a purchasing manager may feel compelled to continue dealing with a particular supplier, even when better alternatives exist, because of outstanding obligations to that supplier representative.
Role Specialization and Nonredundancy. We propose that a fourth way that trust affects the structuring in organizations is by reducing redundancy in a network through the establishment of specialized roles. As mentioned previously, structuring also includes the differentiation of roles and positions within a social system. By designating differentiated roles and positions, the members of a unit or organization rely on a particular individual to act on behalf of that unit or organization (e.g., leaders, liaisons, or boundary spanners). In many cases, specialized roles act as a bridge between otherwise disconnected individuals, units, or organizations, which makes trust in the role occupant a relevant consideration. For example, one important structuring act that individuals in specialized boundary-spanning roles can perform on behalf of a unit or organization is to extend a link to another unit or organization and serve as a broker. In the absence of trust, delegating the power to establish and maintain linkages with external actors would be exceedingly difficult. Trust engenders confidence that the broker is conveying accurate and timely information from and to external actors, rather than selectively filtering what is shared with other members of the unit or organization. Trust also creates the expectation that brokers will provide access to valuable contacts and referrals when possible, rather than the brokers reserving exclusive ties for themselves. In the absence of trust, the other members of a unit or organization may grow suspicious about whether the broker is playing their interests off of those of external actors to advance his/her own interests (see, for example, the discussion of the tertius gaudens strategy in Burt 1992 and Simmel 1950). Consequently, each member of the unit or organization may seek to establish their own connections with external actors in an effort to bypass the broker, leading to an increase in the redundancy of ties. However, when trust is relied upon to delegate responsibility to brokers, the organization is exposed to certain risks. For instance, the departure of a trusted broker may jeopardize relationships with external parties or compromise information access. Reducing redundancy provides organizations with a measure of efficiency because it allows for a fixed amount of network time to be spread over a larger and more diverse set of contacts. And, the expanded reach of a unit or organization that nonredundancy affords increases the prospects of discovering novel and diverse opportunities for creating value. We should note that we do not view the effect of trust on reducing redundancy as contradictory with trust increasing network density or closure. The two effects refer to two different aspects of network structure. The effect of trust on density and closure highlights the ongoing pattern of interaction. In contrast, the effect
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of trust on redundancy points to the social stratification and role differentiation that occurs within networks. The two effects parallel the two distinct structuring processes that we highlighted at the beginning of this section. Moreover, high network density within the organizational unit can coexist with low redundancy of ties with external actors. In fact, recent research (Burt 2000, Reagans and Zuckerman 2001) suggests that this may be an optimal configuration for accessing and disseminating knowledge.
in sharing knowledge with the receiver (Nahapiet and Ghoshal 1998, Ouchi 1981). Such openness provides the foundation for organizational learning because it increases the potential for the exploitation of knowledge to be more widely dispersed and because it creates the conditions for the exploration of how knowledge can be recombined in novel ways. From the standpoint of the receiver, trust affects the perceived veracity of knowledge. When knowledge is received from a trusted source, the receiver is less likely to verify the knowledge for accuracy and is more inclined to accept the knowledge at face value. This allows the receiver to immediately act on the knowledge and use it to generate additional knowledge. In this way, the receiver uses the trustworthiness of the source as a proxy for the quality and veracity of the knowledge conveyed. This further highlights how trust works as a heuristic to conserve cognitive effort. Without trust, receivers would have to expend time and effort verifying the accuracy and validity of knowledge received, rather than immediately using and refining the knowledge. Another way that trust acts as a heuristic in knowledge sharing is by allowing the receiver to economize cognitive effort in locating the most relevant and useful knowledge. Because the receiver expects the source to take the receiver’s best interests into consideration, the receiver can assume that the knowledge conveyed is important and relevant. As a consequence, knowledge from a trusted source changes the cognitive map of the receiver by directing her attention and search toward the domain of the transferred knowledge. Such shortcuts in knowledge acquisition can speed organizational learning, alertness, and responsiveness. On the contrary, knowledge transferred from a source that is not trusted is less likely to have the capacity to reorient a receiver’s attention, to be stored in memory, and to be immediately used in the production of new knowledge. At the same time, there are limits to the effectiveness of sharing knowledge solely on the basis of trust. Even the most reliable and best-intentioned source can mistakenly share knowledge that is inaccurate, invalid, or outdated. This is one reason why organizations that rely excessively on trust as an organizing principle may experience strategic blindness, overconfidence, inertia, or the inability to innovate.
Mobilizing Mobilizing is a second causal pathway through which trust affects organizing. By mobilizing we mean the process of converting resources into finalized activities performed by interdependent actors. Resources, both material and nonmaterial (such as time, effort, attention, and knowledge), are decentralized and unevenly distributed among actors. Mobilizing involves motivating actors to contribute their resources, to combine, coordinate, and use them in joint activities, and to direct them toward the achievement of organizational goals. Mobilizing results in organizational action and, we argue, trust influences the pathways through which such actions arise. Specifically, trust influences the processes of knowledge sharing, committing, and safeguarding through the mechanisms of disclosing and screening, identifying, and suspending judgment, respectively. Disclosing, Screening, and Knowledge Sharing. Trust encourages knowledge sharing by increasing the disclosure of knowledge to others and by granting others access to one’s own knowledge (Dirks and Ferrin 2001). Trust also reduces the screening of knowledge received from others. This highlights the fact that trust affects knowledge sharing in two ways: from the point of view of the receiver and of the sender of knowledge. From the perspective of the knowledge sender, trust in a receiver reduces concerns about knowledge appropriation and misuse. Organizational actors are expected to be more willing to share sensitive and proprietary details about themselves, others, and their unit or organization when trust is in place. For example, a subordinate that trusts his manager will be more inclined to reveal his limits in skills and abilities because he expects that his manager will not use the disclosure of this knowledge against him. And, managers of different units of an organization are more likely to convey knowledge about innovations and best practices when they are confident that their counterparts will not divulge such knowledge to competitors or other actors that could undermine the value of the knowledge. More generally, a sender’s trust in a receiver influences the sender’s degree of openness
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Identifying and Committing. The social identity literature has shown that identity fosters trust (e.g., Kramer 1993). Lewicki and Bunker (1996) suggest that a reciprocal effect may operate as well; trust strengthens identity. An initial stage of calculus-based trust is followed
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by knowledge-based trust, which in turn develops into identification-based trust. “As the parties come to learn more about each other [through knowledge-based trust], they may also begin to identify strongly with others’ needs, preferences, and priorities and come to see them as their own” (Lewicki and Bunker 1996, p. 125). The literature on social identity suggests that identification can increase the salience of group goals and values, and increase the perception that an actor’s own goals and values are similar to those of other group members (Kramer and Brewer 1984, Kramer et al. 1996). As identification intensifies, the strength of attachment, or commitment, to a collectivity and their objectives increases as well (Kramer 1993). Identification fosters commitment by shaping expectations about the behaviors and intentions of the members of a collectivity. Specifically, “when ingroup members perceive similarities in goals and values, they believe that other ingroup members are more likely to behave in accordance with these values (i.e., beliefs about ingroup members’ integrity) and that ingroup members are more likely to care about goals that are good for all group members (i.e., beliefs about ingroup members’ benevolence)” (Williams 2001, p. 382). The cognitive processes of social categorization and ingroup bias tend to lead people to make positive attributions about the cooperativeness and commitment of other ingroup members (Kramer 1999; Brewer 1981, 1996). The expectation that other members of a collectivity are willing to cooperate partially determines an individual’s own willingness to cooperate and commit to collective efforts (Brann and Foddy 1988, Kramer 1991, Messick et al. 1983). Shared identity also increases the perception of interdependence and common fate with a collectivity (Gaertner et al. 1999, Kramer 1991), which are key components of commitment and cooperation. When individuals are committed to a collectivity, they are more loyal to it and are more willing to invest their time, effort, and attention on behalf of it. Over-identification, however, carries its own set of problems for the organization: Organizational members are less likely to countenance alternative views and critically evaluate their own organization resulting in groupthink, the not-invented-here syndrome, and other forms of constrained thinking. In extreme cases, overidentification can engender inertia and core rigidities that may hinder the organization’s ability to adapt and respond to environmental change.
Cummings 1995). By suspending judgment we mean adopting an orientation toward another actor that assumes the other party’s intentions and motives are benevolent, or at least benign. It involves giving others the “benefit of the doubt” when uncertainties arise or potential conflicts emerge (Carson this issue). For instance, when an apparent breach of an agreement occurs, the parties do not immediately assume that their counterpart has sought to take advantage of them. Suspending judgment is the opposite of being calculating and attempting to specify in as much details as possible the terms of an agreement. In the absence of trust, monitoring and safeguarding are measures used to manage uncertainty by influencing others’ behaviors and protecting oneself. As Ouchi noted, “People must either be able to trust each other or to closely monitor each other if they are to engage in cooperative enterprises” (1979, p. 846). This suggests that relying on trust as an organizing principle entails relaxing oversight and granting autonomy to others. For example, one way trust reduces safeguarding is by allowing actors to accept incomplete contracts or agreements based on the expectation that their counterpart will not exploit their tolerance for ambiguity. Trust gives actors the confidence that they will be able to work things out with their counterpart in an equitable and reasonable manner as unforeseen contingencies arise in the future (Dore 1983, Macneil 1980). By reducing efforts and investments in taking precautions against potential losses, trust liberates resources that can be put to better use. Monitoring and safeguarding generally represent nonproductive organizational activities (McAllister 1995). As a consequence, trust reduces transaction costs (Dyer and Chu 2003, Zaheer et al. 1998). Moreover, trust grants a degree of flexibility and adaptability to the process of organizing, enabling the parties to exploit opportunities to generate transaction value (Zajac and Olsen 1993). Taken together, the lowering of transaction costs and the enhancement of transaction value may represent a sustainable source of competitive advantage (Barney and Hansen 1994). Of course, the transaction cost savings and value creation stemming from the use of trust are premised on a close alignment of trust with trustworthiness. Where trust exceeds trustworthiness, the trustor risks hold-up, adverse selection, and moral hazard (Barney and Hansen 1994). Moreover, the use of legalistic “remedies” in organizations where interpersonal relations are strained can actually inhibit and undermine the development of trust.3 While the adoption of bureaucratic procedures and controls can engender a sense of reliability in an organization, these same mechanisms often thwart efforts to
Suspending Judgment and Safeguarding. Trust reduces the inclination to guard against opportunistic behavior (e.g., through monitoring and safeguarding) by encouraging actors to suspend judgment of others (Bromiley and
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achieve the congruence of values that serves as a foundation for trust (Sitkin and Roth 1993). Excessive monitoring and safeguarding have the potential of becoming a self-fulfilling prophecy. In the same way that trust begets trust (Lewis and Weigert 1985), formal control mechanisms can foster attitudes of ill-will, skepticism, and distrust by signaling suspicion. In addition, when organizations limit the role autonomy of their agents, it is more difficult to ascertain the trustworthiness of individuals because their true intentions and motives are masked by excessively restrictive role constraints (Perrone et al. this issue). In such circumstances it is difficult to determine if observed trustworthy behaviors are a result of the individuals’ volition or role constraints. For trust to emerge, organizations must grant agents the freedom to use their own discretion as a means of conveying their willingness to fulfill obligations and meet the positive expectations of those with whom they deal.
The Williamsonian view of trust is also inaccurate because individuals in an organizational context do not trust unconditionally. Trust is not a naı¨ve faith, where people take for granted the reliability, competence, and integrity of their counterpart based on a decision made in the distant past. Those that do would rightly be considered gullible. On the contrary, individuals in an organizational context periodically process information and clues about their counterparts to assess: the fragility of trust, whether it is appropriately placed, how they should interpret contradictory events and behaviors, and if and when they should increase their trust and vulnerability. Trust requires intermittent information processing because it is an intrinsically social organizing principle. Members of organizations actively probe their counterparts to see if they can maintain or increase their level of trust. This is the case, for example, when a supervisor assigns a more difficult than usual job to a subordinate she wants to test before risking her credibility by recommending him for a promotion. This is also the case when a client company asks its supplier to collaborate in the development of a new product before placing new orders, or when two firms spend time in an alliance with each other before agreeing to merge. It is this fragility of trust that lends it its heuristic quality, rather than being something that can be decided with precision, once and for all. Trust operates like a “rule of thumb,” using the information that is available to formulate an expectation, rather than acquiring all of the relevant information to make a comprehensive, rational decision. The gaps in information and uncertainties that preclude quantification are what necessitate “judgment calls” and “leaps of faith” based on social knowledge. These are also the very elements that distinguish the placement of trust from the calculation of risk. Nevertheless, the fragility of trust does not imply that it is an antiquated or irrelevant concept for understanding modern organizations. Indeed, trust is seen as a critical feature of several contemporary organizational forms, such as strategic alliances, distributed groups, electronic commerce, and knowledge-intensive organizations. More generally, whenever actors are simultaneously dependent on and vulnerable to the actions and decisions of others, trust is a relevant organizing principle that warrants consideration.
Stepping Back and Looking Forward Trust as an Organizing Principle Trust as an organizing principle is sometimes looked at with suspicion as a premodern concept that provides a slippery basis for the organization and coordination of economic transactions (Williamson 1993). From this perspective, rational economic actors should not rely on trust when managing interdependencies and the allocation of scarce resources. Moreover, Williamson argues that the need for personal acquaintance reduces the likelihood of economic exchanges among strangers, thereby limiting economic progress. Accordingly, trust binds and blinds, making economic actors insufficiently vigilant and excessively vulnerable. We believe that the Williamsonian view reflects an under-socialized view of the organization and coordination of economic activity and the relationships between economic actors, based on a limited understanding of how trust really works. Rather than limiting economic progress, trust in fact is a basic necessity for virtually all forms of exchange (Arrow 1974). From our perspective, trust expands the opportunity set for the coordination of work both inside and outside the organization (Barney and Hansen 1994). Without trust, the uncertainty that pervades the organization and coordination of economic activity would be debilitating. Although trust is not the only solution to the organization of work, trust can generate efficiencies by conserving cognitive resources, lowering transaction costs, and simplifying decision making. Moreover, trust may enhance the value of transactions (Zajac and Olsen 1993).
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The Downside of Trust Our focus on the properties of trust as an organizing principle should not, however, blind us to the considerable downside of trust. Scholars have noted that trust by itself does not guarantee trustworthy behavior; in fact, it may lead to even greater fraud than if it were absent
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(Granovetter 1985, Shapiro 1987). This arises not only from misplaced trust, but also from a surfeit of trust. Despite careful calibration, trust in organizational contexts includes a probabilistic leap of faith, which may lead the trustor astray. As situations change, supporting commitments may unconditionally become untenable for individuals and organizations at some stage. It is in such situations that the need arises for “pardons and paroles” to smooth over and maintain amicable and trusting organizational and interorganizational relationships (Doz and Hamel 1998). From a research perspective, this suggests that rebuilding trust—in addition to creating and maintaining it—is an important area of study; one that organizational researchers have only begun to consider (Ferrin 2002). Another downside of trust draws from its heuristic quality. Using “rules of thumb” to formulate expectations about the trustworthiness of others is expedient and quite often reasonably accurate (Ferrin and Dirks this issue). However, as with cognitive heuristics (Kahneman et al. 1982) trust as a heuristic may produce systematic biases that can result in judgments that are substantially flawed and costly. The identification of such biases, and the conditions conducive to formulating faulty assessments of trustworthiness, represent important areas for future research. Indeed, little systematic research exists on the downside of trust, with some notable exceptions (e.g., Soda and Usai 1999, Gulati and Gargiulo 1999). We believe that the structuring and mobilizing causal pathways described above can guide research in this area, as we have illustrated and highlighted for each mechanisms. To advance our understanding of trust as an organizing principle, attention to both its beneficial and detrimental effects is required. Moreover, quite apart from the downside of trust are the costs involved in creating, upholding, and maintaining trust. Research has also neglected this aspect of trust, which is likely to have a significant bearing on the trade-offs inherent in establishing trusting relationships and on the overall efficiency of trust as an organizing principle.
where trust is the dominant organizing principle should have a different structure and set of behaviors than a form where authority or price predominate. Viewing trust as an organizing principle also calls into question our understanding of the issue of organizationenvironment fit (Lawrence and Lorsch 1967, Thompson 1967). It suggests that the realization of an organizational form depends on not only environmental contingencies, but also on ingrained organizing principles that act as implicit frameworks for establishing relationships and fostering behavior. Organizational forms can accordingly be viewed as partially closed systems that are shaped by the organizing principles that its members internalize. As with the concept of equifinality (von Bertalanffy 1968), organizations structured in accordance with different organizing principles may change in response to external stimuli in different, but equally effective ways, while keeping intact the core organizing principle. Such stability may counterbalance the pressures for destabilizing change and assure the identity and continuity to organizational forms in the face of changing strategic priorities and external stimuli. How resistant organizing principles are to changes in external environments (whether trust when employed as a dominant organizing principle is more or less susceptible to external change than other organizing principles) and with what consequences are important questions for future research. Apart from casting new light on existing organizational perspectives, we also believe that conceptualizing trust as an organizing principle stimulates novel and fresh avenues of organizational research. The structuring and mobilizing mechanisms described earlier provide fodder for further theoretical development and empirical investigation. For instance, the structuring mechanisms encourage us to think about how trust defines and alters the character and capacity of a network of stable and ongoing interaction patterns. This entails a subtle but important shift in research attention from trust in dyadic relations to trust in aggregate social systems. Research topics representative of this line of inquiry might include questions addressing: the establishment of trust as a reputation within an organization or community (transferability and density); how trust can be signaled or used strategically to influence others and enhance centrality and power (transferability and density); the role of trust in promoting new organizational arrangements conducive to innovation and value creation (generative capacity and multiplexity); how trust affects the resiliency, or inertia, of organizations to exogenous shocks (delayed reciprocity and stability); and, the role of trust in legitimating individuals across organizational boundaries (role making and nonredundancy). The mobilizing mechanisms, on the other
Implications for Future Research By conceptualizing trust as an organizing principle we believe that researchers are able to consider traditional perspectives of organizations anew. For instance, trust makes organizations more organic in the sense that members do not need to rely exclusively on mechanistic coordination devices and impersonal rules to manage interdependence in the face of uncertainty. Considering trust as an organizing principle also furthers our thinking on the configuration of organizations. Organizational forms are the outcome of the workings of dominant organizing principles and, in theory, should have different characteristics depending on the underlying principle. A form
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hand, draw our attention to the role of trust as a theory of action in organizations. Trust provides a powerful lens for scrutinizing the social motives driving individuals to combine their efforts toward common goals. Examples of research topics based on the mobilizing processes include: the extent to which trust defines the propriety and exclusivity of knowledge and the efficacy of learning in organizations (disclosing, screening, and knowledge sharing); how trust within (e.g., among peers) and across (e.g., subordinates in managers) levels of organizations moderates motivational dynamics such as the acceptance of goals, interpretation of feedback, and perceptions of equity (identification and committing); and, the means by which trust translates into efficiency gains and value creation (suspending judgment and safeguarding). While by no means comprehensive, these research questions do illustrate the trajectory of new research directions that are generated by conceptualizing trust as an organizing principle. One additional issue that we believe is important for future research is laying to rest questions about the definition of trust. While the field has made important advances in defining trust, from an empirical standpoint definitional issues have continued to stymie progress as researchers conceptualize and operationalize trust in different ways. For instance, we observed earlier that trust could be an expectation, a willingness, and a behavior. Rather than debating which of these definitions is more correct, we believe that the field would be better served by researchers acknowledging that trust is a multifaceted concept, clearly identifying which definition is most relevant for their particular research question, and applying that definition consistently.
Notes
Conclusion Research on trust in an organizational context has made considerable strides in recent years as an impressive body of knowledge has accumulated on the topic. To leverage the progress made thus far, and to ensure that continuing research has enduring effects on organizational science more broadly, it is important to clarify the pathways through which trust affects the organization and coordination of economic activity. Our paper aims to advance the literature by connecting the psychological and sociological micro-foundations of trust with the macro-bases of organizing. The framework developed here represents a step in this direction, one that we hope will be followed by additional efforts to further articulate the significance of trust for organizational life. Acknowledgments The authors are grateful to Kurt Dirks, Don Ferrin, Mark Hansen, Sim Sitkin, Andy Van de Ven, and Jeanne Wilson for comments and suggestions on a previous draft of this paper. All errors are the authors’.
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1
The notion of an organizing principle has clear parallels to a long tradition of scholarship on the origins, purpose, and boundaries of alternate forms of organizing (Barnard 1968, Blau and Scott 1962, Coase 1937, March and Simon 1958, Thompson 1967, Williamson 1985). 2 Adler (2001) distinguishes between “organizational forms” and their corresponding “coordinating mechanisms.” The market form relies on the price mechanism, the hierarchy form on the authority mechanism, and the community form on the trust mechanism. Our notion of an organizing principle is analogous to Adler’s concept of a coordinating mechanism but also encompasses the cognitive processes through which organizational arrangements (such as routines, structures, and processes) are selected and interpreted. Bradach and Eccles (1989) also identify trust in their discussion of organizational forms. Whereas Bradach and Eccles conceptualize trust as a control mechanism for governing interfirm exchanges, we view trust as an organizing principle that informs decision making and guides action in organizations based on its heuristic quality. 3 For an exception to this argument, see Sitkin who notes “legalization does not necessarily undermine trust, but only does so when it is used as a substitute rather than a support for trust” (1995, p. 187). (Emphasis in the original.)
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