Six Key Factors for Balancing Control and Trust -- Inter-organizational
Studies - Practitioner Article - Ehric Wenzel
Keywords: supply chain management, supply chains,
inventory control, management science, inter-organizational relations, trust
Six Key Factors for Balancing Control and Trust by Jose M. Sanchez, Maria Velez, and Pedro
Araujo
This article covers the control systems in supply chains and
the issue of whether or not these controls undermine trust in
inter-organizational relationships. Its
purpose is to look at various studies that have been conducted concerning this
issue and arrive at ways in which managers can balance the controls that must
be in place to keep the organizations working together toward the same goals
and the trust between those organizations.
It is important because, in the current global business
environment, inter-organizational
relationships are the norm, and managers need guidance in ways to successfully
combine systems controls and trust to reach the best value and competitive edge
for their companies.
Supply chain control systems have to be in place to mitigate
risk or the partnering organizations might not be able to keep all their
strategies and resources focused on and aligned to their combined goals. So firms must lay out their rules or
performance indicators and expect their partnering organization to comply with
them. Sometimes this erodes the trust, but Sanchez, Valez, and Araujo say that
it doesn't have to do so (p. 32). They
argue that control systems and trust can actually balance each other out if
used properly by managers. A review of the research shows that there are six
variables that can affect how control and trust relate to each other (p. 32).
(1) The Nature and Stage of the Relationship
Depending on the
state the inter-organizational relationship is in, trust and control have
different connections. At the beginning of a relationship, both are low because
the risk and commitment is low. Then, as
the relationship progresses and more information is shared, more trust is
built. But once that trust is built up to a higher level, any new control
measures can harm it. In a mature
relationship, after trust and success have been the basis of the collaboration,
control and trust again work positively (p. 33).
(2) The Type of Control
The control-trust relationship can depend on what kind of
control is used. Many studies have shown that formal controls, such as
contracts, can reduce trust by limiting the discretion of the partners and
curbing autonomy. Informal controls (also called social control) , such as
cultural tools and behavior controls, can improve trust by allowing partner
independence within limits (p.33).
(3) Control Tools
Control tools can be used, and all have different attributes and are used for different
purposes. Two of these are enabling tools an coercive tools. Enabling tools include guidance and
clarification of job responsibilities. This helps stress levels and feeling of
effectiveness within each company. Coercive tools would include the removal of
autonomy. Enabling is by far the better tool (p.33).
(4) Uses of Control
Control systems have two main uses: (1) to control
behaviors, such as monitoring and making decisions, and (2) to enable easier decision
making. When the lead firm shares control system information, trust usually
follows. The degree of effect on this trust varies with the monitoring and
decision making, of course (p.33).
(5) Participation in Design
Design affects the control tools. Allowing input into design and setting goals
is more successful, especially if it is
based on experience and will allow trial and error. If everybody in the lead firm and partner
firm works together in design of the controls, it will only help in the trust
(p.34).
(6) Implementation Style
If the controls are implemented in a positive way and
contact between lead firm staff and partner firm staff is frequent, the controls
flow along without stress or tension. Everybody feels like the treatment is
fair (p. 34).
The implications for managers is obvious. Managers have to
strike a careful balance between developing control systems and keeping the
trust. Figure 1 on page 35 in the article
shows an excellent graphic for managers to follow to keep from damaging trust
and instead build it. It will be helpful
for all levels of managers, from top level to those who design and execute the
control systems, to consider these six key factors to help implement the best
control systems for their inter-organizational relationship and keep the trust
level high (p. 34).
Works Cited:
Sanchez, Jose M., Maria Velez, and Pedro Araujo. "Six Key
Factors for Balancing Trust and Control." International Management
Review. 8.1 (June,2012): 32-36. Web. 2 Jul. 2012.
This is awesome. I’ve seen some of this first hand when I worked in shipping/receiving. The company I worked for had 2 sets of controls (or processes) when we were receiving shipments. One set for companies we “trusted” and the other for companies that had not yet built the trust. Obviously, the trusted companies were treated more leniently; we just took their word for it and didn’t really audit contents too often. There was a set measure for a company to fall into the “trusted” category (minimum number of years, amount & severity of deviations from packing slips, etc.).
ReplyDeleteAll that seems pretty intuitive, but I’ve never really thought of the ramifications of controls actually hurting the relationship you have with a trusted company.
Yet another article based on trust and commitment. This is really well done, and I enjoyed your introduction into the 6 factors that affect trust. Also, as mentioned in the first comment, once your company has built up trust it streamlines business activities between partners. I think that if your company can build a strong reputation within its industry for being very trustworthy, than I think you can start to either get rid of or create some slack in your control systems. If it's common practice at your work to the a good job, do it the right way, and in a timely manner, than I think you can eliminate some of the bureaucratic red tape.
ReplyDeleteYes, trust and commitment do seem to be a major point in a lot of the research on inter-organizational relationships.
ReplyDeleteI agree with both of you. Once a company builds up that trust with you and you know it is reputable and will come through on its commitments, you don't have to have such strict controls that can just put more red tape in the busines arrangement, and you can be a little more lenient and not have to audit them as closely. Too many or too heavy controls can sometimes breed suspicion and distrust. The trick is for managers to be able to balance the control and trust to get the most out of the relationship for both companies.
Good point Ehric. While restrictions can be necessary sometimes, they can very easily hurt performance of employees and business partnerships.
ReplyDelete