Leadership and the evolution of trust between local and global network trajectories
Andrea Ganzaroli
Erasmus University Research Institute for Decision and Information Systems (EURIDIS)
Rotterdam School of Management, Dept. Decision and Information Systems
Erasmus University Rotterdam, P.O. Box 1738, 3000 DR Rotterdam
Luciano Pilotti
University of Padua, Department of Economics “M. Fanno”
Via del Santo, 33 – 35123, Padova
Abstract: The main goal of this paper is to present an evolutionary model of trust between local and global network trajectories. The model is based on the distinction between three trust bases: tacit, explicit and codified. The evolutionary process is characterized by three cycles: internal (from tacit to explicit) internal/external (from explicit to codified) and external (from codified to codified). The paper suggests the existence of three models to manage the evolution of trust: de-coupling, coupling and loosely coupling. The first model de-couples internal and external cycles through the reputation of local market leaders. In the second case local private leaders use their power to transfer the codification of the trust at the local level. In the third case the process of codification is mediated by a local and open interface between local and global. For each of the model we identify examples of district that are following this strategy.
Introduction
In this paper we develop an evolutionary model of trust between local and global network trajectories. According to Granovetter (1992) in literature there are three major perspective on trust: under-socialized, over-socialized and embedded. Trust in the in the under-socialized perspective is conceptualized as calculus- and information-based (Dasgupta, 1988; Gambetta, 1988; Shapiro, 1987; Williamson, 1996). In the over-socialized trust is defined in terms of contextual and shared norms and values (Dore, 1983, Ouchi, 1980, Fukuyama, 1995, Doney et.al. 1998). In the embedded perspective instead trust is conceptualized in terms of strength of the relationships, density and cohesiveness of the network structure (Blau, 1964; Burt and Knez, 1996; Granovetter, 1992; Ring and Van de Ven, 1994, Lewicki and Bunker, 1996).
The three perspectives addressed above focus on three different bases of trust. We name them respectively: codified (under-socialized), tacit (over-socialized) and explicit (embedded). In this paper we suggest that tacit, explicit and codified trust are linked by an evolutionary process of trust conversion characterized by three cycles: internal (from tacit to explicit and vice versa), internal/external (from explicit to codified and vice versa) and external (from codified to codified and vice versa). The level of coupling between the three defines the openness of the local system. We distinguish between three forms: de-coupled, coupled and loosely coupled.
The first model de-couples internal and internal/external cycles. Local private leaders internalized the process of internal/external conversion. Two are main conditions: strong market leadership both internally and externally and long-lead time of production. The second model couples the two cycles. The model of internal/external codification is transferred to the local system with a gradual substitution of the internal model. Two are the main conditions: strong market leadership both internally and externally, shorts lead-time of production (Just in Time). The third model loosely couples the internal and internal/external cycles. This model is based on the development of system of local services to support the internationalization of the district. The main goal is to achieve compatibility between internal and external evolution of trust in order to avoid the two extremes: the two processes divert, the two processes completely converge. We focus on the following cases:
- De-coupling district: textile and glass optical districts respectively in Treviso and Belluno;
- Coupling system: Mechanic and white districts;
- Loosely coupling system: Textile district of Prato.
Leadership and evolution of trust between local and global
The goal of this section is to present an evolutionary model of trust between local and global. It is based on the interaction between three basic forms of trust: tacit, explicit and codified. Two dimensions characterize them: codification and transferability. Three cycles connect tacit, explicit and codified trust: internal (from tacit-to-explicit and vice versa), internal/external (from explicit to codified and vice versa), external (from codified to codified). In our perspective the character of this process is influenced by the prevalent from of leadership in the district.
The evolutionary process of trust creation
Tacit trust is prevalently not codified. It refers to the prevalent norms and values shared within a community (social convention). It functions like a “social chromosome”. It shapes, most of the time unintentionally, the basic character, meaning and behavior of each community-members. Its internalization is mainly consequence of belonging to a shared social space of norms and values. The learning process is mainly instructive and driven by the main institutional groups: family, school, religious, political and corporations.
Explicit trust is partially codified. It is consequence of the experience of to be embedded within communitarian network of social relationships. Community-members strength their relationships with other members perceived as compatible, reliable and trustworthy. The explicit component of trust is given by the ability of each member of the communitarian-network to browse and select reliable paths of relationships with respect to specific goals. It is not codified because based on the mutual experience of interaction. Explicit trust is acquired and internalized by the community members through continuous and ongoing process of learning by interacting.
The codification of trust is based on two major components: adoption of formal language to express the reliability of the relationships and institutionalization of a system that certifies the truthfulness of the representation. Both these elements should be recognized and trusted by external-parties. The codification of trust, in other words, aims to transfer the ability to browse and select reliable paths of relationships and/or parties within the district also to outside parties. The distinction between inside and outside is expressed in cognitive terms. An actor is outside of the system when have only limited experience of dealing within the system itself.
The process of internalization of trust is based on the process of social interaction within the boundary of the community. On the one hand, this process supports the consolidation and retention of useful norms and values in the community. On the other, the same process supports the development and diffusion of new practice, norms and values in the community. The shared norms and values are the base of socialization and interpretation of the behaviors in the community. On this common base parties strength relationships with other parties that perceive compatible and trustworthy.
The second cycle supports the codification of the explicit base of trust according to languages and methodologies trusted at the global level. Through this mechanism new elements of trust are diffused in the community. This process implies a reconfiguration of the explicit base of trust in order to integrate the interface between explicit and codified trust. Trust in the community evolves both spatially and cognitively. The spatial evolution is given by the possibility to expand the number of potential reliable connections between local district and global market. The cognitive evolution is consequence of the introduction of new languages and working modality. The experience of adoption of these languages and methodologies support the selection and internalization of new efficient practice within the system[1].
The codification of trust has the major consequence of transferring the ability of selection to external-parties. In other words the codification of trust increments the openness of the local system. An excessive codification of the trust base may result in an excessive openness to opportunistic forces with the major consequence of gradually eroding the internal mechanisms of internal trust reproduction. The excessive closure instead has the opposite effect. Internal and external evolution of the trust base may increasingly divert. The industrial district is gradually marginalized because inaccessible to external parties. The degree of codification of the trust base between local and global should be proportional to two major forces: the market demand for codification and the requirement of protecting the internal mechanism of trust reproduction.
Fig.1 Evolutionary model of trust sequence as a part of complex continous chain
The influence of the form leadership on the process of trust codification
We distinguish between two major form of leadership: private leadership versus public-private partnership. In the first case few market leaders dominate the district. The second form leadership has two major characteristics First, the private leadership is distributed. Second, public leaders are efficient promoters of common project to improve the efficiency of the district. In other words the public sector is able to catalyze the private forces around common project.
In our perspective there is positive correlation between form of leadership and the process of codification of the trust interface between local and global. Dominant private leaders may either decide to de-couple the internal and internal/external cycles or couple the two. Their decision is dependent from the character of the production cycle: short versus long lead-time. Private leadership in sector characterized by a short lead-time of production couples the two cycles. The main motivation is that the competitive pressure pushes them to adapt to this strategy. Their main focus, however, is on their internal efficiency and less on the efficiency of the entire system. On the contrary, private leadership in sector characterized by a long-time of production de-couples the two cycles. Two are the major reasons to reduce the openness of the local system: protecting their competitive advantage over its competitors, preventing the rising of internal competitors.
Form of public private leadership instead loosely couple the two cycles. The public leadership focuses on the efficiency of the system and tries to identify the correct balance between openness and closeness. The lack of private leadership implies that anyone of the private leaders is able to govern the dynamic of the district. The public leadership became an important driver of the innovation by promoting project compatible with the efficiency of the entire system. Public and private leaders indeed cooperate in the design of open service infrastructure to promote the openness of the district and at the same time invest on the internalization and diffusion of these practices in the district (Albertini, Pilotti, 1996).
Some evidences
The past literature on industrial district identifies in the communitarian and tacit base of trust one of the key factors of success. The strong connectivity and cohesiveness of the network have supports the reproduction of these culture. The globalization of the market, however, requires a growing codification of the trust base as precondition for the circulation of information, products, services and knowledge at the global scale. Goal of this section is to introduce some evidences for the validity of our theory.
De-coupling leadership: the case of the textile district of Treviso and the optical glasses of Belluno
These two districts are characterized both by a strong private leadership (Benetton, Stefanel and Diesel in the case of the textile district; and Luxottica, Safilo in the optical glass district of Belluno) and a long-lead time of production (production on commission on a seasonal base). In both the case the leaders have choose to de-couple the mechanism of internal reproduction of trust from the external one. These companies have developed internal or quasi-internal distribution networks. The main strategic functions - marketing, product design and production planning, quality control – are internalized. The relationship with the local suppliers is governed at a personal base. In most of the case these companies supports directly or indirectly the investment of their supplier in production machine and production capacity. The inter-organizational information system infrastructure is well developed downwards. In the district the diffusion of IOS and quality certification is low. Thus the leaders have a quasi-monopolistic position on the accessibility to the resources of the district (Pilotti,1999). The main consequence is a reconsideration of district dynamic between adaptation and evolution.
Coupling leader: the case of Fiat and Zanussi-Electrolux
Both the two companies have largely invested and push their suppliers to invest in quality and EDI application. The EDI applications are based on a public standard (EDIFACT). In both the cases their decision to coupling the trust base can be explained by the competitive pressure. Both companies in fact operate in sectors where Just-in-time production is not an opportunity, but an obligation to remain in the market. The necessity to achieve continuos and fast rescheduling of the production process has obliged these companies to expand their information system outside the company-boundaries. The necessity to reduce the time spent to verify the quality of the products supplied has obliged the company to transfer the responsibility over the quality to their suppliers. In these districts the diffusion of IOS systems and quality certification results high. Some companies, after having experienced some initial difficulties, have internalized the advantage deriving from the combination EDI-quality certification to expand their market to others leaders of the sector. The consequence is a relative concentration of supplier market.
The loosely coupling leaders: the case of Prato
In the district of Prato the private leadership is highly distributed and, at the same time, there is strong cooperation between public and private leaders. A key role in the district is played by the role of impannatore, which plays the function of collecting the orders from the market and redistributes them on the district. The imapannatore do not exercise any formal control on the production process. Coordination is achieved through horizontal communication between independent companies. In this scenario a group of public institutions and private companies and associations (ENEA, the European Union, the regional and local government, the Florence Chamber of Commerce, unions, local banks such as the Cassa di Risparmio of Prato, unions, and the various professional and industrial associations) have promoted the project Sprintel. The goals of the project were mainly two: developing a communitarian information system infrastructure to improve coordination and control, to support the diffusion of quality certification in the district. After an initial success the project of IT infrastructure failed (see Kumar et.al. 1998 for an extensive review on the subject). However, the project has succeed in largely diffusing quality control and accounting techniques in the district (Bonaccorsi et.al 1996; Pilotti.1999).
Conclusion
In this paper we present an evolutionary model of trust between local and global network trajectories. The evolution of trust is based on the interaction between three dimensions of trust: tacit, explicit and codified. We identify three major cycles: internal, internal/external, external. On the base of this distinction we identify three models to manage the evolution of trust between local and global: de-coupling, coupling and loosely coupling. The three models are strongly correlated with the structure of the leadership in the district. Districts characterized by private leadership and long-lead time of production tend to de-couple internal and internal/external cycle. Districts characterized by private leadership operating in sector with a short lead-time of production tend to couple the two cycles. Forms of public private leaderships instead tend to loosely couple the two cycles. The cases we present evidences the existence of these three models of coupling.
In our perspective the third model, loosely coupled, performs better because allow to achieve compatibility between internal and external development. The main limit of de-coupled model is that internal and external evolution of trust may divert with the major consequence of marginalizing the district from the global market circuits. On the other hand, the coupled one may have the major consequence of eroding the internal system of trust reproduction. Confirming this hypothesis requires further empirical investigation. This will be object of our future work.
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