Impact of Organizational Trust on the Performance of a Company

Abstract

‘Trust’ has an important role to play in the performance of any organization. This paper studies the role of trust in enhancing the asymmetric formation of partnerships among different firms. In fact, there is not much time for the organizations to develop natural trust in each other based on incremental investments and social or character similarity. However, there is a need for the development of rapid trust. This paper suggests some managerial action for the purpose of organizational trust-building.

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Introduction

Since the individual specialization and organizational focus on the development of core competencies usually narrow the competency levels there is always the need for complementary knowledge and skills to improve upon the organizational performance. There is always the need for mutual interdependencies in a social system that helps actors in the system to actualize by relating to others. The swiftness in knowledge transfer and the learning process depends largely on the ability of the social actors to connect and develop trust. Research states that each system tends to test the bond of trust in the first instance and then only it starts to process the transfer of knowledge. Thus this paper emphasizes that ‘trust’ forms the basis of the actual relationship in any social system including a business organization.

Aim and Objectives

The aim of the paper is to identify and elaborate on the role of trust in organizational performance. For achieving this aim the following objectives have been included for study and reporting:

  1. To study the role of trust in organizational performance including the need for trust
  2. To suggest possible managerial actions for the promotion of trust among organizations

Literature Review

This section of the paper makes a review of the available literature on the role of trust in organizational performance and the concept of building trust. The objective of the review of the available literature is to get a deep insight into the topic of ‘the impact of trust on organizational performance’.

Role of Trust

Although there is no one authoritative definition of trust, certain key characteristics can be identified (Carsten Greve & Niel’s Ejersbo, 2002). The first trust acts to do away with the uncertainty. Having built trust into a relationship the actions of the actors become more predictable. Secondly, trust reduces complexity by ensuring that the social system is dependent on the mutual expectations of the parties in an action. “Third, trust is seen as a coordination mechanism based on shared moral values and norms supporting collective co-operation and collaboration within uncertain environments” (Reed 2001)

A different perspective of trust has been established by the agency theory. According to agency theory relationship management, e.g. socialization of corporate values, policies and industry norms may control moral hazard inherent in such relationships. There has been disagreement among the researchers as to whether trust can be created intentionally. Sydow (1998) observes that trust is a phenomenon that is difficult to develop and sustain. However, it has been emphasized that the conditions like processes, routines, and settings that affect the creation of a trust can be maneuvered.

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Building Trust

Trust has become a topic of greater attention in the social sciences (Grey and Garsten, 2001). Greve (2000) talks of the increased use of public-private partnerships as signals for identifying the growing recognition of trust between organizations. Trust is a necessary element for promoting innovations within an organization like in the case of project teams (Jones and George, 1998) and between different organizations say in the form of a strategic alliance (Zaheer et al 1998). “Like most concepts, trust and control can be made to mean, at least to some extent, what the theorist or practitioner wants them to mean.” (Bachmann, Knights and Sydow 2001)

. Trust for the purpose of this paper is defined as “actor’s expectation of the other party’s competence, goodwill and behavior“. The basic assumption behind this definition is that in any business context it is important to have both competence and goodwill at the required levels to enable the development of trust among organizations. Thus the relevant competence in the form of the required technical capabilities, skill sets, and technical know-how is considered as a pre-requisite forming the basis for trust in professional relationships that exist between the businesses. This is applicable more aptly in the case of technology partnerships where the assumption about the possession of technical knowledge and competencies is considered as pre-existing in the relationships formed.

Inter-Organizational and Interpersonal Trust

Atkinson & Butcher (2003) note that at the individual level trust is based on interpersonal interactions. At the organizational level trust is considered as a collective phenomenon (Shamir & Lapidot 2003) However there are no clear thoughts that have been evolved establishing a clear relationship between the two. It may be quite logical to express that the trust is always between the people and not between the organizations as such. It is to be appreciated that exchanges between the firms are nothing but exchanges between the individuals belonging to the organization or small group of individuals. However, it is also true that the organizations do develop reputations and images over the period which leads to organizational routines, cultures, and processes that guide the behavior of organizational members and mentor their responses to the external agencies. This paper advocate that there exist both interpersonal and inter-organizational trust and that the people in the organizations always trust each other. According to Tan & Tan (2000), Organizational processes communicate the organization’s views of its employees and their roles, and employees will respond to trust relations communicated by the organization.

Values associated with Trust

According to Jones and George (1998), positive moods and emotions form the basis for a favorable evaluation of the other party in order to create trust. It is generally believed that values that are more generic may create a propensity to trust under specific circumstances and relationships (Jones and George, 1998). Values being relatively permanent provide the necessary setting for the experience of trust by the parties. However, it is very likely that the values of individuals change over the long run with the additional knowledge gained by the individuals and change in the attitude due to a possible negative experience earned on the opportunistic behavior of the partners. Thus this experience may change the degree of trust.

Research Methodology

This research will be completed using the qualitative method, which in turn will use an exploratory research approach and content analysis approach by collecting secondary data from all available resources. Exploratory research becomes useful when a problem could not be defined clearly on which a research study needs to be undertaken. By undertaking exploratory research, the possibility of choosing the best research design and the data collection method is greatly enhanced. The exploratory research relies largely on the information and data collected through secondary research. The method of content research analysis enables the researcher to analyze a large volume of data and systematically evaluate them to find out the relevance and suitability of the various information and data collected during the process of an exploratory study. While conducting detailed research by adopting the qualitative method, the researcher is usually provided with a large volume of data, which needs to be evaluated by the researcher using his expertise and knowledge in the topic under study. The researcher has to take a clear stand on the research material he is going to use and categorize the information and data according to the degree of importance. While doing this the authenticity and importance of the source need to be considered by the researcher. In fact, content analysis is an important step in completing any research.

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The above review of the literature thus has made an attempt to provide a deeper insight into the topic of organizational trust and its influence on organizational performance.

In line with the above methodology, several publications and articles being the secondary sources on the topic of ‘organizational trust’ have been reviewed to arrive at the exact information required for completing the research. In addition, an extensive search has been made for the available resources on the internet. In this respect ‘Google’ search engine was of immense help to locate several secondary sources of information on the topic under study. By using the keywords ‘organizational trust’ and ‘building organizational trust’ an extensive search was conducted on the internet to select the appropriate secondary sources that will help to complete the research. A number of articles and contributions from research scholars have been reviewed out of the internet sources to identify and incorporate the required information from the secondary sources.

Findings and Analysis

The following are some of the findings out of the review of the available literature on the issue of trust-building and organizational performance:

  • Competency is the basic element and source of building trust among organizations. Competency may relate to technological or economic realms
  • Equity is found to be the profound base for cooperation. Similarly, reciprocity is also regarded as vitally important for the development of organizational trust.
  • Shared values are another factor that determines the extent and scope of synergistic social behavior and the consequent trust created by the shared values will enable the persons’ will to stretch his role in the organization.
  • Social and character similarity also helps in building trust. The social similarity is characterized by the individuals’ character, educational qualification, competency levels, and personality. At the organizational level, the character similarity is expressed by the organizational culture and values which are compatible with each other and the organizational values also determine the character similarity of the organizations.
  • Managerial philosophy is another factor that needs consideration in the issues relating to the building of trust. The managerial philosophy is reflected by the attitude of top management towards economic life. The managerial philosophy can be visualized by consistent managerial behavior and organizational norms like honesty, ethical dealings, openness, and keeping promises.
  • It is necessary for the organizations in a partnership to converge their organizational goals jointly in order to create trust and commitment. Sometimes organizational structures may be complex making it difficult for the other parties to understand. Organizational structures are represented by the ability and authority of the organizational actors to adhere to their defined roles and responsibilities. With the clarity in the organizational structures, it would become easier to build upon organizational trust. At the individual level, the role clarity may help the predictability of the reaction of the individuals so that individual trust can be nurtured.

Conclusion and Recommendations

From a review of the literature, it can reasonably be concluded that ‘trust’ has a major role in reducing friction and costs in asymmetric technology partnerships. If the nature of trust and the ways in which trust can be experienced are known in advance, it may be possible for the organizations to initiate such actions that will promote the chances of building more trust by increasing the scope and amount of communication among the partners. The impact of self-reference and self-confidence on the trust-building exercises at a personal level and the internal level of trust within a company are bound to have an effect on the external parties (Sydow 1998). It may be worthwhile to note that in a large organizational context the professional managers might not have felt the need to build trust among organizations due to the levels of authority and power available within the organization. They may not also have learned to build trust due to the authority and power they possess. It would be possible to build trust among the organizations through human and organizational interaction. Even under conditions where it is not likely that trust can be created internally or manage the propensity of the other party to build trust, still, the organization can enhance the conditions for trust-building.

The following are a few of the recommendations made to enhance the chances of building trust among the organizations:

  1. Since organizational trust is based on individual trust, it is imperative that there should be open lines of effective communication between the organizational members.
  2. The information source should be made effective as in order to communicate needs and expectations precisely and efficiently the sources of both rational and emotional information should be adequate and efficient
  3. The attitude and awareness among the top managers about trust-building and the impact of trust on organizational performance should be enhanced so that they remain committed to the building of trust.

References

Atkinson,S. and Butcher,D.(2003) “Trust in Managerial Relationships”, Journal of Managerial Psychology,Vol.18 No.4,pp.282–304.

Bachmann, R, D. Knights and J. Sydow. (2001) ‘Editorial’ Organization Studies 22 (2).

Carsten Greve & Niel’s Ejersbo (2002) ‘Serial Organizational Monogamy: Building Trust in to Contractual Relations’ International Review of Public Administration Vol. 7 No. 1.

Greve, C. (2001) ‘New Avenues for Contracting Out and Implications for a Theoretical Framework’ Public Performance and Management Review 24 (3): 270 – 284.

Grey, C. and C. Garsten (2001) ‘Trust, Control and Post-bureaucracy’ Organization Studies 22 (2): 229-250.

Jones G. and George J. (1998), The Experience and Evolution of Trust: Implications for Cooperation and Teamwork, Academy of Management Review, 23: 3.

Reed, M. (2001) ‘Organization, Trust and Control: A Realist Analysis’ Organization Studies 22 (2): 201 – 228.

Shamir,B. and Lapidot,Y.(2003) “Trust in Organizational Superiors: Systemic and Collective Considerations”, Organization Studies,Vol.24 No.3,pp.463–491.

Sydow Jörg (1998), Understanding the Constitution of Interorganizational Trust in Trust Within and Between Organizations, ed. by Lane Christel and Bachman Richard (eds). Conceptual Issues and Empirical Applications, Oxford University Press.

Tan, H.H. and Tan C.S.F (2000) “Toward the Differentiation of Trust in Supervisor and Trust in Organization”, Genetic, Social, and General Psychology Monographs, Vol.126 No..2,pp 241-60.

Zaheer A., McEvily B., Perrone, V. (1998), Does Trust Matter? Exploring the Effects of Interorganizational and Interpersonal Trust on Performance in Organization Science, vol. 9, No. 2, 141-159.

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