Trusting Relationships between Organizations

The aspect of trust discussed in this section concerns, first, organization-to-organization interactions and, second, as an in-depth example, the role of trust in the development of inter-organizational systems. In the former, it reviews the literature to understand the dimensions of inter-organizational trust and to understand trust-building mechanisms. In the latter, this section argues that trust is not given consideration in interorganization systems planning. Indeed, research suggests that the leverage of power and influence are crucial elements in inter-organizational systems planning rather than any formal structures. Issues of trust should loom large in organization-to-organization interactions, yet appear to be either taken for granted or subsumed by power issues. However, it may be that trust is developed on a person-to-person basis in the production of inter-organizational systems via the use of real or virtual teams, despite not being recognized as important at an organizational level.

Trust is seen as a foundation of the digital economy due to the impersonal nature of online environments, the extensive use of online communications, the uncertainty of open infrastructures for transactions, and the relative newness of the medium (Pavlou, 2002). While there has been some attempt to understand the nature of inter-organizational trust, research in the field is, as yet, limited. Pavlou argues that trust is based in institutional structures not in any familiarity or similarity with specific sellers. The reason why firms would be interested in developing and maintaining trust is that trust has been related to competitive advantage, firm performance, and conflict reduction, among other issues. Trust reduces transactions costs, creates social capital, diminishes opportunism, and promotes cooperation. However, Pavlou suggests that trust is not an objective anticipation of the possibility of a beneficial outcome under risk, and that trust will be held collectively by the organization.

Inter-organizational trust has two dimensions—credibility and benevolence; however, little is known about how organizations employ trust-building mechanisms. Pavlou posits that a number of factors may be involved. First is perceived monitoring that promotes responsible behavior. Second is perceived accreditation that may be a surrogate for reputation. Legal bonds, feedback providing an opportunity to react quickly to signals, and perceived cooperative norms complete the set of potential trust-building mechanisms. In his empirical work, Pavlou identifies that inter-organizational trust may influence satisfaction, perceived risks, and continuity.

Against this background of interesting but limited research on organization-to-organization trust, the second element considered in this section concerns the process by which organizations jointly develop information systems. This is an interesting aspect to consider, as 'typical' internally focused information systems planning does not consider inter-organizational aspects or issues of how trust is developed during the development process.

Organization-to-organization systems, or inter-organizational systems (IOS), reduce uncertainty by facilitating communication and providing information, and encourage closer relations with suppliers and customers. However, Finnegan, Galliers, and Powell (1998a, 1998b, 2000) show that the need to involve external parties, and the associated issues of cooperation and control, make planning for such systems different from internal planning. For instance, one supplier negotiated a deal where they would take over inventory management for one of their customers. This is clearly an advanced issue that requires trust.

Finnegan and colleagues reveal that planning helps to establish cooperation, and it is a negotiation tool used by participants to establish inter-organizational arrangements. IOS planning is more emergent than formal. It is necessary to have a strong proponent, both within an organization and in the network. However, it does not have to be the hub firm. They find a personal approach to IOS planning—someone provided direction. Even with a strong proponent, planning requires lower level decision making that occurs in one of two ways. One is the issues are debated to reach a solution. Alternatively, one member decides and sells it to the others. Power and influence of key players are important, regardless of whether the decision-making process is by negotiation or by decree.

A key part of IOS planning is learning about the technology. Learning can be important in achieving cooperative momentum or as a selling aspect to other organizations. "Achieving cooperation is the hardest part of the process," according to a pharmacy owner, "however, once you get cooperation on one issue, you create a precedence which helps the next time." This cooperation is important in getting agreement when influence is equally distributed among participants. It also helps to build trust, which is an essential element in benefiting from IOS.

For pooled and reciprocal networks, the planning process gives a focus to activities and helps projects gain momentum. For sequential networks, the main planning is done by the hub organization, and extended to the spokes. This stand-alone approach is possible because of the power of the hub organization. This power helps negate the need to gain cooperation by engaging in joint planning. Instead of having to use planning as a process for gaining consensus, it focuses on transactional details to implement the IOS. However, even within these networks, influence and cooperation play an important role.

Thus, IOS planning has a far more important role than just giving direction. This role is in achieving cooperation, and is related to the setting in which the inter-organizational system is being developed. A cooperative role is most evident in pooled and reciprocal interdependency networks. Certain inter-organizational activities across all networks are based on cooperation, while others are based on the power and influence of an individual or organization. Finnegan and colleagues describe IOS planning environments, then, as lying on a continuum, characterized as ranging from monarchist to club. The monarchist environment has a strong organization that holds some power. Planning here tends to be traditional in that the dominant organization can set the objectives and design a process where others in the network must meet objectives. Planning is directive. The club environment is based on the premise that no single organization dominates. The planning process is more participative, as those involved need to accommodate each other's needs and expectations. This is more a learning environment where strategies evolve. Even within a club IOS planning environment, the issue of data planning can have monarchist attributes, as the power that data ownership implies can be flexed to influence elements of a cooperative process. Agreement on the transfer of data is central to establishing cooperation and trust.

Trust is evident in both these cases. Even when power resides in a single organization, the others need to trust it to produce a workable solution. However, trust is more evident in 'clubs' where negotiation is paramount. Yet, as Finnegan et al. (1998a) demonstrate, there is a crucial element of individual-to-individual trust here that underlies organization-to-organization trust. While individuals will probably always be important in an inter-organizational setting to establish trust and negotiate details, success of an expanding number of IOSs cannot rest solely on particular individuals.