The Role of Trust in Successful Long-term Relationships

1. The Role of Trust in Successful Long-term Relationships

2. What is Trust? • “In both serious social thought and everyday discourse, it is assumed that the meaning of trust and of its many apparent synonyms is so well known that it can be left undefined or to contextual implications.” Barber (1983:7) Hosmer (op cit 380)

3. Types of Trust • Reliability • Competence • Specific • Interpersonal • Business Sense • Affect-based (Good will) • Vulnerability • Action-based

4. Reliability • Expectation of performance • Often built on prior contact or experience with a party • Reliability can often be confused with predictability. • Reliability primarily addresses a party’s past behavior while predictability actually takes past behavior and other information to address probabilities of future performance. • Reliability represents a range of observable behaviors and a cognitive state that encompasses predictability

5. Competence • Specific competence • Trust in the other’s specific function or area. • Interpersonal competence • Ability of a person to work with people or people skills. • Business sense • Addresses a person’s experience, wisdom, and common sense.

6. Goodwill (“Affect Based Trust”) • Identified with a heavy dependence on openness between people and emotional investment in the relationship. • Can be confused with interpersonal or “cognitive” trust because personal issues creep into the relationship in terms of problem solving, listening, and sharing. • A key distinction between cognitive and affect-based trust is that while cognitive based trust may or may not exist at the interpersonal level, affect-based trust almost always exists only at the interpersonal level. • Interpersonal relations are recognized to be an important element of trust

7. Vulnerability • Trust without some kind of vulnerability simply cannot exist. • If a party chooses a course of action that involves no vulnerability then the firm has simply made a rational decision. • Trust involves choosing a course of action even if the probability of failure is greater than 50% (Deutch, 1959) • The row boat scenario: both of you are caught in a storm, and you’re in it together, and there is a hole in the bottom! There is one life vest. You can both get out of it faster if you row together. What happens if one jumps out with the life vest?

8. Action and Trust: A Paradox • Trust can exist without action, but trusting behavior is the action taken, based on trust in another party. • Trusting behavior consists of action that (1) increases one’s vulnerability to another whose behavior is not under one’s control, and (2) takes place in a situation where the penalty suffered if the trust is abused would lead one to regret the action • (Lorenz, 1988) • A paradox exists here: to be able to trust you must be willing to take the risk of trusting another party. To be a party to trust, you must take this risk • (Rempel and Holmes, 1988)

9. Rules of Thumb for Developing Trust • Follow through on your commitments, and act in a predictable manner. • Choose a supply chain partner with a documented record of experience in the technology. • Ensure that the partner is assigning competent, knowledgeable, and experienced people to managing the relationship.

10. Rules of Thumb for Developing Trust • In selecting the primary interface with your supply chain partner, choose an individual who has a high level of knowledge in the technology or function, good “people” skills and “common sense”. • The perception of vulnerability needs to be carefully managed by supply partners through information sharing, which assures the other partner that their interests will be protected. • Show genuine responsiveness to your partner’s needs and demand the same of them if necessary. • Be willing to “go out on a limb” if necessary

11. Impatience Arrogance Different Cultures Unrealistic aspirations Complacency Partnering takes time to develop properly; small steps help to deliver results quickly Non-defensive response; learn to acknowledge that your systems and processes might need improving Partnering enterprises should ensure they have similar approaches to doing business, shared goals and strategic ambitions Benefits of partnering are cumulative. Set simple, achievable objectives int eh first years and revise as relationship develops. Establish tight control, monitoring and partnership assessment processes early, invest and test the continuing value. Ten Traps and Tactics Source: Partnership Sourcing Ltd. (UK)

12. Reluctance Changed circumstances Over-dependency Openness / confidentiality Disputes Develop confidence and pursue standards; seek advice to develop key competencies Acknowledge that circumstances change and have an agreed up exit strategy as contingency. Customer becomes dependent on supplier, or vice-versa. Engage in continual partner risk assessment. Know your industry, partners and the markets in which you operate. Partnering is not monogamous; Make informed choices about information sharing that build trust and mitigate risk. Process must be in place to ensure that concerns can be voiced and addressed in an open, respectful way with an agreed up resolution process. Ten Traps and Tactics Source: Partnership Sourcing Ltd. (UK)

13. Power • One of the greatest deterrents to trust is power. • Many industry stories detail the havoc wreaked on supply chains by powerful retailers, automotive OEMs, and other power brokers • How should supply chain executives treat power? • What do we know about power? • If you answer “YES” to the following questions, chances are that these elements are present in your relationship…..

14. Expert Power • The lead company in this supply chain network is an expert in the industry. • We respect the judgment of the lead company’s representatives. • The lead company retains business expertise that makes them likely to suggest the proper things to do. Source: (2000) Maloni, M. and Benton, W.C. Power influences in the supply chain,. Journal of Business Logistics, vol. 21, No. 1.

15. Referent Power • We really admire the way the lead company runs their business so we try to follow their lead. • We often do what the lead company asks because we are proud to be affiliated with them. • We talk up the lead company to our colleagues as a great business with which to be associated.

16. Legitimate Power • The lead company has the right to tell us what to do. • Since the lead company is our customer, we should accept their request and recommendations.

17. Legal Legitimate Power • The lead company often refers to portions of an agreement to gain our compliance on a particular request. • The lead company makes a point to refer to any legal agreement when attempting to influence us. • The lead company uses sections of our sales agreement as a “tool” to get us to agree to their demands.

18. Reward Power • The lead company offers incentives when we were initially reluctant to cooperate with a new program. • We feel that by going along with the lead company, we will be favored on other occasions. • The lead company offers rewards so that we will go along with their wishes.

19. Coercive Power • If we do not do as asked, we will not receive very good treatment from the lead company. • If we do not agree to their suggestions, the lead company could make things difficult for us. • The lead company makes it clear that failing to comply with their requests will result in penalties against us.

20. Commitment • Our firm is committed to the preservation of good working relationships with the lead company. • Our firm believes in the lead company as a partner. • Our relationship with the lead company could be described as one of high commitment.

21. Conflict • Sometimes the lead company prevents us from doing what we want to do. • The lead company does not have our best interest at heart. • We often disagree with the lead company.

22. Conflict Resolution • The discussions we have with the lead company in areas of disagreement are usually very productive. • Our discussions in areas of disagreement with the lead company create more problems than they solve. • Discussions in areas of disagreement increase the strength of our relationship.

23. Cooperation • Our relationship with the lead company is better described as a “cooperative effort” rather than an “arms length negotiation”. • Overall, our firm and the lead company perform well together in carrying out our respective tasks. • We feel that we can count on the lead company to give us the support that other suppliers receive.

24. Trust • The lead company is concerned about our welfare. • The lead company considers how its actions will affect us. • We trust the lead company. • Trust is a faith in the moral integrity or goodwill of others, which is produced through interpersonal interactions that lead to social-psychological bonds of mutual norms, sentiments and friendships (Homans 1962) in dealing with uncertainty (Ring & Van de Ven 1994). • Faith enables people to go beyond the available evidence and feel secure that a partner will continue to be responsive and caring. Feelings of faith begin with past experiences that show how much our partner cares” (Rempel and Holmes, 1986)

25. Performance • The performance of the entire supply chain has improved as a result of our relations with the lead company. • The efficiency of our relationship with the lead company has improved the lead company’s performance. • Without the lead company, our performance would not be as good as it is with them.