Trust within Organizations of the New Economy (eBook)

Dr. Marco Tulio Zanini promovierte bei Prof. Dr. Birgitta Wolff am Lehrstuhl für Betriebswirtschaftslehre – Internationales Management – der Otto-von-Guericke-Universität Magdeburg. Er lehrt und forscht an der Fundação Dom Cabral, Brasilien.

Foreword 8
Preface 10
Abstract 12
Table of Contents 14
List of Tables 20
List of Figures 22
List of Abbreviations 24
List of Variables 24
Glossary 26
1. Objectives and Structure of the Argument 29
1.1 Thesis Objectives 32
1.2 Relevance of the Study 36
1.3 Division of Chapters 37
2. Trust from the Economic Perspective 39
2.1 Trust and Monitoring 39
2.2 Cooperation and Trust 42
2.3 An Economic Definition of Trust 45
2.4 Properties of Trust 47
2.5 Trust within Organizations 54
2.6 Trust and Organizational Performance 73
2.7 Specific Functions of Trust 82
2.8 Conditions for Trust Development 94
2.9 Trust and Institutional Uncertainty 104
3. The New Economy (NE) 117
3.1 Definition 117
3.2 A Knowledge-Based Economy 122
3.3 Institutional Innovations 132
3.4 New Economy and Old Economy 139
3.5 Effects of New Economy Characteristics on Organizations 149
3.6 The New Telecommunications Industry 159
3.7 Institutional Uncertainties 168
3.8 The Work Conditions in the New Economy 178
3.9 The Brazilian Telecommunications Case Study 183
4. Empirical Analysis: Hypotheses and Methods 189
4.1 Condensing Literature into a Basis for Empirical Research 189
4.2 Main Hypothesis 191
4.3 Secondary Hypotheses 192
4.4 The Organizations Used for the Study 197
4.5 Validation of the Companies’ Grouping 207
4.6 The Questionnaire Survey 224
5. Hypotheses Test and Analysis: Trust Thrives Where It is Least Needed 241
5.1 Validity Checking of the Variable Relationships 241
5.2 Hypotheses’ Analytical Framework 244
5.3 Main Hypothesis Test 249
5.4 Secondary Hypotheses Test 262
5.5 Main Theoretical Implications 271
6. Conclusions and Outlook 281
6.1 Contributions to Management Studies 284
6.2 Managerial Usage 286
List of References 289
APPENDIX 315
Appendix 1: The Questionnaire 315
Appendix 2 - Comment Sheet Analysis 331
Appendix 3 – E-Mail model to the CEO 345
Appendix 4 – Company’ s Guideline / Research Agreement 347

1. Objectives and Structure of the Argument (p. 1)

Many economic transactions only take place because people trust each other. The cooperation which is generated through trust relationships between individuals creates interdependence. Investments will only pay off, if one or more agents stick to their promises. Trust is a social mechanism that has been approached by many economists, sociologists and organizational theorists. Academics and researchers have pointed to the importance of interpersonal trust in promoting consensual relationships and facilitating cooperation between individuals within organizations.

The increasing interest of organizational economics and management studies in trust issues is associated with the search for solutions of cooperation problems both within and between contemporary business organizations. Luhmann (2000) notes that unconditional trust which is generated in families and small-scale societies cannot be automatically transferred to complex societies based on the division of labor. According to Luhmann trust relationships are necessary for the reconstruction of special social institutions like friendship networks and patron- client relations. These relationships may guarantee an efficient coordination of economic activities with lower costs.

Given that business organizations consist basically of bureaucratic and hierarchical organizational structures, trust becomes an implicit mechanism for coordination and control of the routinely organizational tasks among individuals. Earlier on, Max Weber (1906/1946) had already noted the many advantages of the abstract regularities of bureaucracies in the execution of authority as efficient structures to coordinate and sustain production of collective actors, basically through the expansion of rationality. Bureaucracies would come to supplant personalized relationships which were highly susceptible to the exclusive dependence on individual influence as a way to govern social systems.

The existence of trust within bureaucratic relationships considerably expands the potential to produce cooperative relationships and managerial efficiency by increasing managerial control through an informal mechanism. Trust allows a reduction of formal hierarchical control and the expansion of the possibilities of producing results through bureaucracies, and therefore, a possible reduction in transaction costs. Intraorganizational trust may enhance organizational performance in a number of ways. The implicit role of trust in coordination and control of many organizational tasks has been observed, facilitating, for example, the knowledge transference process, improving organizational efficiency and productivity, and thus, decreasing transaction costs.

In the economic perspective, insights about trust have come mainly from Transaction Costs Economics (TCE) and Game Theory. In the reasoning of such Rational Choice approaches, trust is defined as "the voluntary risk investment, in advance, in a relationship under the abdication of explicit safeguard mechanisms of control against opportunistic behavior, in the expectation that the other party, despite the absence of such safeguards, will not behave opportunistically." , The economic analytical framework considers trust as a sub-class of risk situations related to human behavior.

It is assumed that trust works as a mechanism in economic systems whereby it increases the effectiveness of transactions, whether they take place in markets or within hierarchies. In line with some authors like Ouchi (1980/1998), Bradach and Eccles (1989/1998), and Adler (2001) we adopt the assumption that trust produced by social structures does not simply replace the market or hierarchies but operates as a third complementary governance structure with these two forms. Therefore, we assume that these three distinct mechanisms may be present in differing degrees in any real existing organization.