Trust in Virtual Organisations

Introduction

This research looks at various forms of trust and how trust can be developed within virtual organisations.

Background

The rapid development of information technology over the last decade (Holland & Lockett, 1999) and the increase in the number of online communities (Ridings, Gefen & Arinze, 2002) has driven down business coordination costs by promoting online business relationships. Nowadays, organisations adopt business strategies which involve outsourcing some of their activities thereby allowing them to concentrate on their core deliverables. These strategies rely mainly on collaboration across similar economic groups. This therefore raises the issue of trust in such relationships (Holland & Lockett, 1999). According to Moss Kanter (1990) and Fulk and DeSanctis (1995), these strategies are developed in response to the need to simplify complex business environments and the associated pressures that these place on organisations (Holland & Lockett, 1999).

Research Objectives

• Analyse the effect of trust in virtual organisations
• Highlight ways of building trust in virtual organisations

Research Approach

This research was conducted by referring to secondary data and information. The main resources included electronic journals, web pages and books from the Northumbria University library as well as personal experience.

Definitions

Trust

In the literature, there are several attempts to define trust and a single definition is difficult to come by. Therefore trust can only be defined in the context in which it is studied (Holland & Lockett, 1999). For the purpose of this research, I chose Hosmer’s (1995) definition which states that, ‘trust is an expectation of fair behaviour by the other party in the partnership, together with acceptance of the rights and interests of the other party’ (Kasper-Fuehrera & Ashkanasy, 2001). Trust can either be directed towards an individual or a group of people (Holland, 1998).

Traditionally, trust has been studied in terms of long-term relationships (Kasper-Fuehrera & Ashkanasy, 2001) and most models are based on the belief that trust grows over time; i.e. people’s trust increases as they get to know each other better (Iacono & Weisband, 1997). However, in temporary organisations there is not enough time to develop trust; because these organisations require people to make decisions together on the spot, they cannot afford the gradual process of building trust (Iacono & Weisband, 1997). This is discussed later in this research paper.

Forms of Trust

Various researchers have analysed trust according to its forms and types. Shapiro, Sheppard, and Charaskin (1992) in Holland, (1998) proposed three time-dependent forms of trust between two business partners who would have had no previous relationship: (1) deterrence-based trust, (2) knowledge-based trust, and (3) identification-based trust. Deterrence-based trust occurs when the party involved performs the assigned task because of fear of punishment. Knowledge-based trust occurs when the knowledge of the one trusting (trustor) allows him or her to predict the behaviour of the one trusted (trustee). Identification-based trust is when the involved parties share values, understanding and goals.

Ridings, Gefen and Arinze, (2002), in their study on what promotes trust within virtual communities, found that there are two separate dimensions of trust. These are ability and a combination of benevolence and integrity. Ability refers to the power of virtual members to trust others while benevolence and integrity relate to the desire of members to do good by reciprocating in the community. Holland (1998) argues that there are two types of trust; dispositional and subjective. In a similar study, Kanawattanachai and Yoo (2002) discovered that interpersonal trust is strongly supported by cognitive and affective foundations. Cognitive-based trust refers to the professional characteristics demonstrated by trustees and therefore relies on information-sharing between members. Affection-based trust, on the other hand, relates to the affection one member has for the other; that is, the trustor could easily trust a trustee whom he or she cares for.

Virtual Organisations

Different terms have been used to describe the ‘novel forms of economic organisations’, for example, virtual organisation, strategic web, network organisation and strategic cooperative alliances (Holland & Lockett, 1999). This inability to agree on a particular name is common in new and developing areas, but it is important to note that these writers were only defining virtual organisations in different contexts. Holland (1998) defines it as ‘a temporary or permanent coalition of geographically dispersed individuals, groups, organisational units or entire organisations that pool resources, capabilities and information to achieve common objectives’ (Holland, 1998). On the other hand, Holland and Lockett (1999) capture the complexity of virtual organisations by defining the concept as a taxonomy which can be used to differentiate between different forms of economic organisations. This approach accepts that there are different types of virtual organisations which can be ranked on different levels on the taxonomy.

Fuehrer and Ashkanasy (1998) choose a more technical approach and define virtual organisations as a swift gathering of people to utilise their individual competencies to ‘exploit an apparent market opportunity’ which is supported by information and communication technologies (Kasper-Fuehrera & Ashkanasy, 2001). This definition implies that virtual organisations are ICT-enabled and based on computer-mediated communication (CMC). According to Jarvenpaa (1998) and Leidner 1999, CMC is not as easily transmitted as face-to-face communication (Kasper-Fuehrera & Ashkanasy, 2001). This represents a limitation to the value of virtual organisations.

Therefore, we can categorise virtual organisations into to two; the electronic virtual organisation and the non-electronic virtual organisation (Strader, Lin & Shaw, 1998). They are differentiated by the way they operate. The non-electronic virtual organisation ‘uses close geographic proximity for coordination’ while the electronic virtual organisations are connected electronically ‘across decentralised business networks’ (Strader, Lin & Shaw, 1998). This research focuses on the electronic virtual organisations.

The difference between virtual and traditional teams is that virtual teams work across the boundaries of space, time and communication (Kanawattanachai & Yoo, 2002). Virtual organisations can be related to virtual communities in which people meet to build formal or informal relationships with their virtual partners.

Trust in Virtual Organisations

Rempel et al., (1985), Rotter (1980) and Zand (1972) show that traditional working relationships, based on continuous physical interaction (Kanawattanachai & Yoo, 2002), develop and change over time, because the face-to-face interaction allows members to assess one another’s behaviours. In virtual relationships, where members only work together for short periods, members must trust each other right from the start of the project rather than wait for personal experience to judge trust (Kanawattanachai & Yoo, 2002). Such trust is referred to as swift trust and was developed by Meyerson et al. in 1996 (Holland, 1998). It was developed to explain how temporary teams can enjoy high levels of trust, even though members only meet to achieve the set goal with no plans to work together in the future. Meyerson et al.’s (1996) concept of swift trust maintains that, ‘unless one trusts quickly, one may never trust at all’ (Holland, 1998).

Sproull and Faraj (1997) note two characteristics that differentiate virtual communities and physical organisations: (1) participation in virtual communities is independent of location and (2) virtual communities are cheaper and easier to manage (Ridings, Gefen & Arinze, 2002). Therefore virtual communities tend to be larger and more dispersed in space and time.

Virtual organisations are characterised by lateral relationships rather than by the hierarchical, vertical ones that are common in traditional corporate environments (Kasper-Fuehrera & Ashkanasy, 2001). The traditional vertically structured organisations are easier to control and coordinate; the established hierarchical structure adopted in such organisations leads to direct supervision and mechanisms of control. These mechanisms are absent in lateral organisations and, therefore, trust stands-in to fill the vacuum (Kasper-Fuehrera & Ashkanasy, 2001). Kanawattanachai & Yoo (2002) found that in close social relationships such as couples, affect-based trust is stronger than cognitive-based trust; it is the opposite in the work environment. However, in virtual organisations, people relate on a professional level rather than social relationships and therefore the development of trust is more cognitive-based.

Trust was identified as the heartbeat of virtual organisations (Kasper-Fuehrera & Ashkanasy, 2001). It is the key element in fostering the voluntary, online cooperation between strangers who meet in virtual environments (Ridings, Gefen & Arinze, 2002). We need to also keep in mind that trust developed in relationships in virtual organisations is temporary and therefore we should concentrate more on how to build trust quickly between virtual partners (Kasper-Fuehrera & Ashkanasy, 2001).

Benefits of Trust in Virtual Organisations

• Trust can prevent geographical and organisational distances of team members from turning into unmanageable psychological distances (Holland, 1998).
• It can also help promote relationships between:

– the customer and the virtual organisation

– the partners within the virtual organisation

– the partners and the virtual organisation as an entity (Holland, 1998).

Limitations of Trust in Virtual Organisations

• Lack of face-to-face communication, therefore leaving communication open to multiple interpretations. This also removes the advantage of turn-taking in communication (Ridings, Gefen & Arinze, 2002).
• Virtual organisations bring together partners with little or no past experience of working with each other (Holland, 1998)
• the ad hoc nature of the virtual organisation and the speed at which the consortium and its processes must be assembled, raises questions of consistent identity that can have an impact on trust, accountability, contractual liability, etc (Holland, 1998).

Factors affecting trust in virtual organisations

Iacono & Weisband (1997), in research carried out see how trust is developed between virtual teams, were able to analyse what factors affect trust. Graduates and undergraduates from three distant universities in the United States were asked to form teams of three. The teams were given the same project instructions, while communicating via email. The analysis shows that successful teams were those that initiated and responded to communication the most. Also, most of the successful teams concentrated more on the work content rather than on the work process (Iacono & Weisband, 1997).

Ridings, Gefen & Arinze (2002) found that trust was developed between virtual community members because of dependence on each other for information. People join virtual communities to give and seek information and communication is based on the trust between the members. If this trust ceases to exist, the virtual community may cease to exist. Sitkin and Roth (1993) believe that personal relationships with frequent face-to-face interactions, shared social or demographic characteristics and cooperative behaviour can evoke trust (Holland, 1998). The kind of business being done in these virtual communities could also determine the level of trust needed for success.

(Ridings, Gefen & Arinze (2002) also found that perceived responsiveness, confiding personal information and disposition to trust could affect trust levels. Quick responses show members’ ability to exchange accurate and helpful information, thereby building confidence in their partners. Confiding personal information promotes an informal relationship which creates good working relationships. A member’s willingness to depend on others could also affect the level of trust created. Kasper-Fuehrera and Ashkanasy (2001) propose that the following factors have a part to play in Virtual Organisations:

– Common business understanding: this refers to the common understanding of the network partners about the culture and objectives of the organisation and this understanding is facilitated by ICT. Klein (1994b) and Scott and Lane (2000) emphasised that to achieve a common understanding among the teams, mutual aims, vision and responsibilities must be shared to manage team members’ expectations.

– Business Ethics: the concept of business ethics differs from business understanding. It is the backbone for the formation of mutual business understanding. The role of business ethics in virtual organisations includes developing values to avoid bad reputations, to provide a replacement for corporate ethics and the need to incorporate a diversity of culturally based values and morals.

Developing/Building Trust in Virtual Organisations

Jarvenpaa and Leidner (1999) suggest that trust could be swiftly developed in virtual teams by socialising at the initial stage of the project (Kanawattanachai & Yoo, 2002). Of the teams studied, they found that the high-performing virtual teams exchanged personal and background information at the very beginning of the project. However, Kanawattanachai and Yoo, (2002) argue that, though socialization strategies may help managers develop trust, they may not be adequate to maintain it when conflicts arise.

With the rapid increase in virtual organisations, there should be some pre-existing commercial, contractual and technical framework for co-operation. Holland (1998) suggests that technology partners could set up ‘enterprise networks’ of virtual organisations within particular industries. These networks would be bound by agreements and procedures which all member virtual organisations must adhere to. The enterprise networks would have standards and commitments; this would mean that proof of memberships is evidence of trustworthiness, thereby promoting trust (Kasper-Fuehrera & Ashkanasy, 2001). These networks would provide basic business needs such as security and group marketing for the Virtual Organisations within its domain. They would also act as a pool of virtual services to potential customers (Holland, 1998).

Iacono & Weisband (1997) studied how to maintain trust in virtual teams by focusing on the communication between the teams. They argued that effective communication would only be achieved by adopting the concept of initiation and responses. The initiation publicises the initiator’s preference and implicates the receiver for a response (Iacono & Weisband, 1997). Responses show that the sender has contributed his part to the team. This two-way series of interaction cycles can be supported by shared information systems (Holland & Lockett, 1999). Examples of mechanisms that can help virtual organisations achieve common business understanding by interaction include Livelink and Visto. These are web-enabled software which allows users to share files, exchange mails and calendar information. (Kasper-Fuehrera & Ashkanasy, 2001)

Conclusion/Recommendation

Conclusion

This research paper has looked at the effects of trust in virtual organisations as well as how it can be developed. Based on the above sections, the following can be concluded:

– The development of swift trust at the beginning of the project can be used to predict success in virtual teams (Kanawattanachai & Yoo, 2002)

– In virtual corporate environments, high-performing teams are more likely to build interpersonal trust than low-performing teams (Kanawattanachai & Yoo, 2002)

– There is a reciprocal relationship between trust and team performance (Kanawattanachai & Yoo, 2002)

– Shared information systems amongst virtual partners will help to speed up the trust/ distrust development process. (Holland & Lockett, 1999)

Further Research

Other areas that need to be researched include:

– Relationship between trust and the use of the community (Ridings, Gefen & Arinze, 2002)

– Effects of culture and religious beliefs on trust in virtual organisations

– Measuring levels of trust in virtual organisations

References

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Holland, C. P. (1998) Organizational Virtualness: The Importance of Trust and Business Relationships in the Formation of Virtual Organisations. University of Bern April 27-28, 1998. Switzerland.

Holland, C. P. & Lockett, A. G. (1999) ‘Business Trust and the Formation of Virtual Organizations’, Annual Hawaii International Conference on System Sciences. IEEE, pp. 602-611. [Online]. Available at: http://ieeexplore.ieee.org/stamp/stamp.jsp?tp=&arnumber=654821 (Accessed: January 01, 2010).

Iacono, S. C. & Weisband, S. (1997) Developing Trust in Virtual Teams,” hicss, vol. 2, pp.412: Thirtieth Annual Hawwaii International Conference on System Sciences. Hawaii IEEE Computer Society.

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Kasper-Fuehrera, E. C. & Ashkanasy, N. M. (2001) ‘Communicating trustworthiness and building trust in interorganisational virtual organizations’, Journal of Management, 27 pp. 235-254 [Online]. Available at: http://jom.sagepub.com/cgi/reprint/27/3/235 (Accessed: December 30, 2009).

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Ridings, C. M., Gefen, D. & Arinze, B. (2002) ‘Some antecedents and effects of trust in virtual communities’, The Journal of Strategic Information Systems, 11 (3-4 ), pp. 271-295 [Online]. Available at: http://tinyurl.com/yhlglsz (Accessed: December 29, 2009).

Strader, T. J., Lin, F.-R. & Shaw, M. J. (1998 ) ‘Information infrastructure for electronic virtual organization management’, Decision Support Systems, 23 (1), pp. 75 – 94 [Online]. Available at: http://portal.acm.org/citation.cfm?id=288914 (Accessed: January 01, 2010).