Submitted to Track 4.1: New Perspectives on Firm Growth: Between Traditional and Emerging

Submitted to Track 4.1: New Perspectives On Firm Growth: Between Traditional And Emerging Issues.

AIDEA - Convegno del Bicentenario. Il ruolo dell’azienda nell’economia. Esiste un modello aziendale orientato alla crescita?

Lecce, 19-20-21 Settembre 2013

Competitors’ trustworthiness: a way to increase organizational success.

Abstract

Trust is considered by many as a central issue that enables organizations to interact with each other, increasing the level of confidence, and the success of cooperation between them. Many authors studied the role of trust in enabling superior cooperative performance but what it is still missing is a consensus about the role of trust in enabling organizational success. Evidence of the fact that trust pays off also from an organizational point of view is essential in order to make managers invest on mechanisms that increase trust, instead of behaving opportunistically, especially when they are involved in relationships with other competitors. Organizations need to know that when they coopete with other organizations they do it also on the assumption that they rely on trust, which increase assurance of success for both the relationship with others, and the organizations itself. When this explicative power for organizations does not exist it is no sense to invest in developing a relationship based on trust. With this paper, by focusing on the relationship between competitors in the tourism industry, we underline that trust increases organizational success, that it pays off and it is valuable investing on it also from the organizational point of view. In addition to this we confirm that usually the relationship between trust and organizational success depends on the existence of a certain level of opportunism. The findings enabled us to conclude that managers need to invest in procedures that support and develop trust, avoiding to behave opportunistically, especially in the current economic scenario, where uncertainty prevails, and new strategies, such as coopetition between partners, are necessary to succeed.

Keywords: trust, organizational success, competition, cooperation, coopetition.

Introduction

Organizations, now more than ever, need to establish ties with other organizations to reach together long-term goals that alone would not be easy to reach (Maitland, Bryson and Van de Ven, 1985; Mohr and Spekman, 1994; Gulati, 2007). In order to cooperate with others, and to exploit benefits of cooperation, they need to establish ties with other organizations relying on trust, conceived of as the degree to which an individual holds a positive attitude toward others goodwill and reliability, in a risky exchange situation, when unpredictability arises and the risk of opportunism exists (Bradach and Eccles, 1989; Lewis and Weigert, 1985; Sniezek and Van Swol, 2001; Mayer, Davis and Schoorman, 1995), and parties are willing to be vulnerable (Cummings and Bromiley, 1996). In literature it has been underlined that if trust is in place it is easier to exploit benefits that stem from the relationship with other organizations, and that enable the organization to succeed. Although literature recognizes that trust plays an important role in enabling performance, results presented by some authors are contradictory (e.g. Williamson, 1993; Kern, 1998; Zucker, 1986; Zaheer, McEvily and Perrone, 1998; Ring and Van de Ven, 1992, Sako, 1998; Gulati, 1995; Gulati and Wang, 2003).

Our work, provides useful theoretical contributions in showing, empirically, that trust influences positively, not only cooperative performance, but also organizational success, when organizations involved in cooperation are competitors. This would increase the explicative power of trust in enabling superior success, and it may increase managers willingness to invest in procedures that support and develop trust, because trust pays off, avoiding to behave opportunistically.

Theoretical Background

Trust “has been grown strongly to become a central issue now both in its own right and also as a theme that bundles and reflects many strands of current debates on the process, structure, and performance of organizational and inter-organizational relationships” (Bachmann and Zaheer, 2006:1). In the last few years the level of turbulence in inter - organizational relationship has increased, and so has done uncertainty and the need of flexibility. As a consequence the role of trust has risen more than ever, and times when trust was of limited interest, when it was neither a scarce resource nor needed in large quantity (Grey and Garsten, 2001) are gone. Established stream of literature, argue that the more complex and dynamic are social and economic relations and exchanges, the more trust is necessary as a lubricant (Arrow, 1974). Without trust even the simplest forms of economic exchange cannot occur (McEvily, Weber and Bicchieri, 2006). In fact, “We are living in a trust society where much of our well-being depends on the phenomena of trust and trustworthiness” (Bachmann, and Zaheer, 2006:3). In modern organizations mechanism to control behavior and actions used in bureaucratic organizations are not sufficient anymore.

In this new context, organizations are asked, in order to survive and reach their goals, to rethink their strategies and cooperate with other organizations, even with competitors, applying behaviors that are in line with coopetition (Nalebuff and Brandenburger, 1996; Gnyawali and Madhaven, 2001).

When competitors decide to cooperate with others, they usually need to follow the coopetition strategy (Nalebuff and Brandenburger, 1996). According to Nalebuff and Brandenburger (1996: 4) organizations “can compete without having to kill the opposition. If fighting to the death destroys the pie, there’ll be nothing left to capture – that’s lose-lose” and organizations “can cooperate without having to ignore your self-interest. After all, it isn’t smart to create a pie you can’t capture – that’s lose-win. [. . . ] In business, your success doesn’t require others to fail – there can be multiple winners” organizations “can cooperate without having to ignore your self-interest. After all, it isn’t smart to create a pie you can’t capture – that’s lose-win. [. . . ] In business, your success doesn’t require others to fail – there can be multiple winners”. In this approach competition and cooperation, which for long time have been considered opposite strategies, are merged.

According to the concept of syncretic rent-seeking behavior (Lado, Boyd and Hanlon, 1997), also behavioral aspects of competition and cooperation are as important as structural characteristics of industries, and internal resource availability. This implies the fact that behaviors may influence the relationship between competitors and have a great potential in generating economic rents. Although genuine behaviors may generate economic rents there is always a threat to coopetition, that stems from the dominance of private interests over collective ones, and in this case opportunism takes over the alliance’s interests (Gulati, 1995; Gulati, Nohira and Zaheer, 2000; Das & Teng, 1998; Williamson, 1975, 1985), and decrease the benefits of coopetition, increasing risk, that need to be manage.

Our analysis brings further insights into the still largely unexplored field of trust and coopetition (Castaldo & Dagnino, 2009), suggesting managers to understand that it is better for them to promote trust and behaviors that promote it, instead of behaving against it, because trust pays off. However, in literature it is missing a clear and unique answer to whether or not trust enhances organizational success, in particular with reference to the relationship between competitors.

Some authors claim that trust has no role in enhancing organizational performance (e.g. Williamson, 1993), some others see trust as an important property of organizational interaction but see it as invariantly associated with high performance (Kern, 1998), some others consider it just as a governance mechanism (Zucker, 1986). Although these and other authors state that trust has no role in enhancing organizational performance, the majority of organization scholars see trust as having a highly positive effect on performance (Zaheer, McEvily and Perrone, 1998). Many consider trust as a precondition for superior performance and competitive success (Ring and Van de Ven, 1992, Sako, 1998). In fact, trust may spur economic success (Alesina and La Ferrara, 2000), it increases efficiency of exchange, reducing the expectation of opportunistic behavior, and associated transaction costs (Zaheer et al., 1998; Bromiley and Cummings, 1995).When, within an inter-organizational relationship there is the feeling that somebody may act opportunistically trust is a mean of mitigating opportunism (Barney and Hansen, 1994) and reducing monitoring costs (Gulati, 1995). When trust is in place partners’ expectations, goals and objectives are aligned thanks to it (Mohr and Spekman, 1994), and partners are more incline towards sharing of knowledge and information (Sako, 1991, 1998; Chiles and McMackin, 1996; Ring and Van de Ven, 1992).

Literature shows a positive relationship between trust and cooperative performance (e.g. Gulati and Wang, 2003; Zaheer et al., 1998; Mohr and Spekman, 1994), but, what is still missing to understand is whether this positive relationship is valid also for organizational success.

The aim of this paper is to test whether or not competitors’ trustworthiness influences organizational success (direct and indirect effect), and to assess whether the relationship between trust and success depends on the existence of opportunism.

It is hypothesized that between trust in partners and organizational successes there is a positive direct relationship, that trust, and in particular the level of counterparts' trustworthiness from which trust comes from, is able to influence, not only relationships performance but also organizational performance. If a positive relationship exists within these variables, this means that managers, and organizations in general should focus their attention on developing relationships with others which are based on trust and its determinants, instead of focusing their attention only on industry characteristics (Porter, 1980), resource availability (Barney, 1991), and opportunism.

Hypothesis 1: The higher the Competitor's Trustworthiness, the higher the Organizational Success.

After testing a direct effect of competitors’ trustworthiness on organizational success, we hypothesized the existence of an indirect effect of competitors’ trustworthiness on organizational success when competitors’ opportunism mediates the relationship. According to this hypothesis, part of the relationship between trust and organizational success depends on the level of competitors' opportunism.

Hypothesis 2: Competitors' trustworthiness causes a decrease in competitors' opportunism, which causes an increase in organizational success.

The aim was to understand whether or not between trust and organizational success exists a mediation effect of opportunism, which means that the independent variable (trust) causes the mediator (opportunism), and the mediator causes the dependent variable (organizational success).

Since in literature it has been shown that trust has a positive effect in reducing opportunism, the effect of trust on organizational success, may depend on the interaction between trust and opportunism. In order to test whether or not the interaction between trust and opportunism has an effect on organizational success the following hypothesis is tested:

Hypothesis 3: Competitors' trustworthiness influences organizational success through the interaction of competitors' opportunism.

Methodology

To test hypothesis the tourist sector was chosen. As a matter of fact recent literature found that coopetition suits perfectly the tourism industry (Grängsjö, 2003; Wang, 2008; Kylanen and Mariani, 2012). In the tourist sector organizations, even competitors, are supposed to cooperate and compete at the same time in order to increase destination attractiveness, and to reach organizational goals. In order to provide products and services for consumption, destinations have to effectively coordinate resources and capabilities between participating business, which require both cooperation and competition (Wang, 2008: 129). Organizations in tourism destination should be less in competition with each other in the community, and more in competition with other regions and destinations. When organizations are asked to cooperate with each other, they need to trust each other in order to reach organizational and cooperative goals, i.e., organizational success, and exploit cooperation benefits. To study the relationship between trust and organizational success with reference to competitors, data were collected from tourism accommodations (e.g. hotels, B&B’s, holiday farmhouses, etc.) in Italy with a one-time survey. Cross-sectional data were collected by questioning, owners and/or managers of hotels and other type of tourists’ accommodation. Organizations were invited to fill in a self-administered on-line questionnaire by email, and later each of them was phoned. Data were collected in Spring 2012. Tourism accommodations selected are embedded in tourism destination where there is at least an Albergo Diffuso (Dall'Ara, 2010; Dall'Ara, 2007; Droli and Dall'Ara, 2012; Confalonieri, 2011), a new model of tourism accommodation, that has an impact on the territory where the project is carried out, and where cooperation is essential Although the AD is a single accommodation entity, characterized by joint management which offers hotel services with rooms located in different buildings across the village, it is also, according to the literature, an innovative and sustainable project that involves the entire territory in which it is embedded, in fact for the AD is important to establish ties with other organizations, even competitors, in order to provide its service and to increase destination attractiveness .In this scenario, cooperation is essential, and trust is expected to play an important role, in order to make competitors and other organizations feel more confident when they deal with each other. In May 2012 in Italy there were 55 ADs, members of the National Association of Alberghi Diffusi, and AlbergoDiffuso.net. Tourist accommodations identified in these villages were 436. Suitable cases for the analysis were 55 . To measure variables, we borrowed and adapted already existing scales. Borrowed scales were in English, so that the translation/back-translation technique was used (Behling and Law, 2000 Geisinger, 1997, Hambleton, 1993, Brislin, 1970). Items scores of each scale were summated after scale purification and reliability and validity checks (Spector, 1992). In order to verify hypothesis we used the linear regression analysis. To test mediation and to measure the indirect effect the Baron and Kenny (1986)'s four step approach and the Sobel test (1982) were used. Data were analyzed mostly with R 2.15.0 and Lisrel 8.80. In the following table scale used to measure different constructs are summarized.

Table 1: Scale Measurements

CULTURE (Moorman et al., 1993)
Clan Culturei (α=0.62)
Adhocracy Culture (α=0.73)
Hierarchy Cultureii (α=0.57, Composite Reliability=0.61)
Market Cultureiii (α=0.68)
TRUST (α=0.88, Construct Reliability >0.60 and Average Variance Extracted (AVE) > 0.50) (CFA results: χ2(10)=13.528, Pr(χ2 )=0.196, GFI=0.93, Adjusted GFI=0.853, RMSEA=0.0749, 90% RMSEA CI: (0, 0.175), SRMR = 0.0512, NFI= 0.945, CFI = 0.985)
Congeniality (Moorman et al., 1993) (α=0.75) (CFA coefficient=0.69***)
Ability (Moorman et al., 1993) (α=0.89) (CFA coefficient=0.66***)
Honesty (Cummings and Bromiley, 1996) (α=0.90) (CFA coefficient=0.89***)
Reliability (Keep Commitment)iv (Cummings and Bromiley, 1996) (α=0.95) (CFA coefficient=0.89***)
Benevolence (Johnston et al., 2004) (α=0.82) (CFA coefficient=0.72***)
Similarity (Coote et al., 2003) (α=0.93) (CFA coefficient=0.61***)
SURVEILLANCEv (Curral and Judge, 1995) (α=0.85)
OPPORTUNISM (Cummings and Bromiley, 1996) (α=0.92)
ORGANIZATIONAL SUCCESS (adapted from Reichel and Haber, 2005) (α=0.73, Construct Reliability >0.60 and Average Variance Extracted (AVE) > 0.50) (CFA results: χ2(1)=1.142, Pr(χ2)=0.285, GFI=0.986, Adjusted GFI=0.916, RMSEA=0.0576, 90% RMSEA CI: (0, 0.372), SRMR = 0.0209, NFI= 0.984, CFI = 0.998)
Profitability (α=0.87) (CFA coefficient=0.94***)
Market Responsiveness (α=0.84) (CFA coefficient=0.87***)
Customer Responsiveness (α=0.95) (CFA coefficient=0.63***)
ETHICS AND SOCIAL RESPONSIBILITY (Etheredge, 1999)
Presor 1vi(α=0.80)
Presor 2 (α=0.86)
RESPONDENTS' MOTIVATION (Barbuto and Scholl, 1998)
Intrinsic Motivation (α=0.84)
External Motivation (α=0.77)
i"The organization is a very personal place. It is like an extended family. People seem to share a lot of themselves" was dropped because of its low item-to-total correlation.
ii "The head of the organization is generally considered to be a coordinator, an organizer, or an administrator".
iii "The organization is very production oriented. The major concern is with getting the job done. People aren't very personally involved".
iv "Our competitors (counterparts) try to get out of its commitments".
v "Fell confident after asking our competitors (counterparts) to do something".
vi "Business ethics and social responsibility are critical to the survival of our firm".

Results