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Institutional Trust

Author(s):

David N. Burt, Ph.D.
David N. Burt, Ph.D., Distinguished Professor of Supply Chain Management, University of San Diego, 5998 Alcala Park, San Diego, CA 92110-2492, 619-260-4868, dburt@acusd.edu

86th Annual International Conference Proceedings - 2001 

Some seven years ago, I came to appreciate the importance of trust between business organizations. Two colleagues (John Carlisle and Robert Parker, authors of Beyond Negotiation, John Wiley and Sons, 1989) attempted to dissuade me from research in this area. John and Bob both maintained that trust could only be between individuals. Many friends and colleagues still concur: trust can only be between individuals. Seven years ago, two maintained (and still maintain) that if we are to carefully craft and manage supply alliances, than we must be able to develop and manage trust. I use the simple definition of trust: knowing that the other party will do what it says it will do. The growing body of literature addressing alliances almost universally identifies the importance of the presence of trust between the alliance partners (at an institutional level). Thus, I feel somewhat vindicated in my 1993 belief.

Seven years ago, I began preliminary research into the issue of institutional trust. At that time, I called it "strategic trust." I defined institutional trust as the key element that differentiates supply alliances from collaborative relationships. With institutional trust, the parties have access to each other's strategic plans in the area(s) of the interface. Relevant cost information and forecasts casts are shared. Risks and rewards are addressed openly. Institutional trust is measured and managed.

Colleague Seth Ellis, of the University of San Diego, joined me on a three-year research study of factors which support the presence of institutional trust. Some 227 usable responses were received to a 91-item questionnaire. Painstaking statistical analyses led us to the conclusion that our research was ahead of its time. We were asking about an issue (institutional trust) that was not of concern to the respondents.

During these seven years of study, I chaired two Ph.D. dissertations on the issue of trust. Drawing on these experiences, combined with much reading on the subject, I developed the forerunner of the document being presented in Orlando. Earlier versions of today's presentation were shared with practitioners at the University of San Diego's 15th Strategic Supply Chain Management Forum in February, 2000. An updated version was shared with academic colleagues at the third Worldwide Research Symposium on Purchasing and Supply Chain Management at the University of Western Ontario in May, 2000. Thus, what is being presented is a work in progress. But the need to understand institutional trust and to gain insight into how to develop and manage it is so great that I feel it appropriate to share my insights as of November, 2000.

The term "trust" has such a wide variety of meanings and interpretations that we have chosen to coin the term "institutional trust."

Institutional trust is the key element that differentiates supply alliances from collaborative relationships.

(Graphics are not available in text-only version of this document.)

Characteristics of institutional trust include:

  • Institutional trust is based on individual and institutional integrity
  • Institutional trust is greater than individual trust
  • Trust and the relationship are viewed as worthwhile investments
  • The partners have access to each other's strategic plans in the area(s) of the interface
  • Relevant cost information and forecasts are shared
  • Risks and rewards are addressed openly
  • Institutional trust is measured and managed
  • When key individuals leave, finger prints are left behind that hold the relationships together
  • Trust is not blind
  • Trust is visible -- something for others to see, feel, and emulate
  • Informal agreements are as good as written contracts
  • Both parties are sensitive to changes which might affect the cultural bridge and differences between the two firms
  • The relationship is adaptable in the face of changing needs by either party
  • Appropriate senior managers from both firms are involved in the relationship
  • Discussions between the two firm's personnel are conducted in an atmosphere of respect
  • Either party may bring up ethical issues without fear of retribution
  • Within the parameters of the relationship, appropriate members of both firms work together on technology plans for the future
  • Personnel at both firms recognize the interdependent nature of the relationship
  • Personnel at both firms consider the sharing of information to be a means of developing trust in the relationship
  • Conflict in the relationship is openly addressed and resolved
  • Both parties consider the rights, desires, and opinions of their partners during the internal discussions
  • The firms have mutual goals in the area of the interface
  • Firms build a bank account of trust based on many deposits
  • Trust has different meanings in different cultures

Actions which are taken to develop and manage trust include:

  • Institutional trust is developed over time -- part of a process
  • Internal trust is developed before external trust
  • The CEO's make a personal investment
  • An ombudsman is available at both firms
  • An inter-firm team consisting of representatives of relevant functional areas is appointed to develop and manage the relationship
  • The inter-firm team receives guidance and training in the implementation of practices which facilitate the development of strategic alliances before addressing specific project details
  • The development of trust requires listening, understanding, time, and energy
  • Senior leadership acts as a champion to teams
  • Members of the inter-firm team share in the development of the communication system between the firms
  • Members of the inter-firm team take specific actions to develop and measure trust in the relationship
  • Negotiation is viewed as a trust-building opportunity
  • Technical personnel from both firms visit their partners to learn and observe how the other's products are developed, manufactured, and utilized.
  • Contractual relations must be designed to enhance trust
  • Contractual relations must focus on continuous improvement
  • Team and relationship skills are developed early
  • Create a formal relationship agreement signed by both company leaders -- an agreement that memorializes a commitment to work well together
  • Develop a contracting philosophy and legal infrastructure designed to enhance buyer-supplier relationships rather than create the legal mechanism (t's and c's) to protect each firm

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