Trust in Supply Chain Relationships: Faith in the Moral Integrity of Others – Part II

Continuing from our last piece, we will discuss the different elements of trust and how they play out in supply chain relationships.

Competence
Competence is one’s perception of the ability of a party to meet commitments. Gabarro breaks competence based trust into three key areas. First, specific competence which is trust in the other’s specific function or area. Second, interpersonal competence is the ability of a person to work with people or people skills. Finally, business sense which addresses a person’s experience, wisdom, and common sense. A key takeaway from this research is that to trust a supply chain partner, you have to have some confidence that they are able to do the work effectively. For a procurement manager, this might mean visiting a supplier and evaluating them, to ensure that they have the facilities, people, and knowledge to carry out the contract.

Goodwill
This was first defined by McAllister (1993), and is identified with a heavy dependence on openness between people and emotional investment in the relationship. Affect based trust could almost be confused with interpersonal or personal 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. The importance of interpersonal relations is recognized to be an important element of trust (McAllister 1993; Granovetter 1985).

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)

Vulnerability
A key breakthrough in the use of the term trust is the relationship between vulnerability and trust. Vulnerability is a key issue, because 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. One of the first definitions to include vulnerability was provided by Deutsch (1958), who stated that trust involved choosing a course of action even if the probability of failure was greater than 50%.

Others believed that trust goes beyond expectation outcomes under uncertainty to expectation outcomes under vulnerability. Vulnerability projects a feeling of being unprotected or exposed while including an element of uncertainty or risk. If there is no uncertainty or risk, then the party is freely giving the other party something. If there is no exposure by both sides, then the firms are simply making a rational decision based on probabilities.

• Sabel (1993:1133) Trust is the mutual confidence that no party to an exchange will exploit another’s vulnerabilities.
• Zand (1972) Trust is a risk relationship which increases the trustor’s vulnerability.

• Gambetta (1988: 217) Trust is a particular level of the subjective probability with which an agent assesses that another agent or group will perform an action, both before he can monitor such an action and in a context in which it affects his won action. For trust to be present there must be the possibility for disappointment or betrayal.

The discussion on vulnerability uncovers a key distinction that must be made between trust and trusting behavior. Trust can exist without action, but trusting behavior is the action taken, based on trust in another party. Lorenz discusses how vulnerability is a key component of trusting action:

• Lorenz (1988: 197) 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.

A paradox which exists in was uncovered by Rempel and Holmes (1986), who wrote that 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. MBA students taking the newly designed “Supply Chain Relationships” class this semester will be working in a simulation, in which they will negotiate contracts and manage business with key customers/suppliers over a two-year simulated period. They will also answer questionnaire that demonstrate their feelings about the other party, including how much they trust them! We hope to be able to share with you the results of this exercise, and identify some of the important insights that emerge!