Trust, Power and Control in Trans-Organizational Relations

Organization Studies, March, 2001 by Reinhard Bachmann

Abstract

This paper analyzes trust and power as means of co-ordinating trans-organizational relationships. It is argued that, depending on the institutional environment, there are two distinct patterns of controlling relationships, where trust and power are interrelated in quite different ways. First, both mechanisms are generated at the inter-personal level and either trust or power dominates the relationship. Second, power occurs at the level of the structural framework of relationships and is highly conducive to developing trust between individual organizations. Thus, specific forms of trust and power are identified and the institutional environment is viewed as playing a crucial role in shaping the quality of trans-organizational relations. The theoretical background of the paper mainly draws on conceptual ideas of Systems Theory, Structuration Theory and New Institutionalism.

Descriptors: trust, power, reduction of risk, co-ordination of interaction, institutional environment

Introduction

Today, a majority of practitioners and academic observers seem to agree that specific forms of long-term oriented co-operation between -- in formal terms -- independent firms imply important advantages which would neither occur simply on the basis of purely opportunistic behaviour and short-term orientations nor would they arise from structures of central control and organizational integration. In the organizational and management literature of the past 15 years or so, many successful inter-firm relationships are described as being based on a hybrid form of co-operation where business partners are 'neither friends nor strangers' (Lorenz 1988) and where the structure and quality of relations are constituted somewhere 'between market and hierarchy' (Williamson 1985). 'Strategic alliances' (Jarillo 1988; Child and Faulkner 1998) and 'organizational networks' (Miles and Snow 1986; Sydow et al. 1995; Ebers 1997) are increasingly seen as a very promising form of trans-organizational relationships. The various reaso ns given for this view are built on the argument that this approach provides a balance between competition and co-operation and can avoid the primacy of one of these principles over the other (Dei Ottati 1994). It can, on the one hand, be conducive to reducing costs through specialization and competition. On the other hand, long-term oriented relationships allow for mutual flexibility, the joint use of technical and economic know-how as well as a collective bearing of risks associated with technological innovation (Loasby 1994). The possible problems connected to hybrid relations, such as the increased vulnerability of individual organizations or possible mutual blockages between them, particularly when fast decisions are needed, obviously rate low compared to the possible advantages, and are often altogether ignored in the literature.

Undoubtedly, the trend towards the establishment of close- and long-term oriented external relationships is strong and has also been confirmed by many contributions which in recent years discussed the characteristics of the system of inter-firm relations in Japan. Primarily drawing on the automobile and the electronics industry, the patterns of 'obligational contracting' (Sako 1992) were viewed as the seed-bed of economic success and it was found that management in Europe and in North America were keen either to imitate Japanese business practices or to develop similar concepts on their own (e.g. Ackroyd et al. 1988; Oliver and Wilkinson 1988; Morris and Imrie 1992). Furthermore, the literature on so-called 'industrial districts' (e.g. Keeble and Weever 1986; Sengenberger et al. 1990) has explained the economic success of geographical regions such as BadenWuttemberg and the Emilia Romagna by the long-term orientations which prevail in the relations between the predominantly small and medium-sized enterprises (SMEs) of these regions. Despite the fact that some of the prime examples referred to in this context lost part of their economic dynamism in the early 1990s, the thrust of the argument of several strands of organizational and socio-economic literature is unmistakable. Largely irrespective of the sector under review, there is a world-wide trend towards stable and tightly woven trans-organizational relations, both in vertical and horizontal co-operations. At the same time, short-term oriented opportunism, as one extreme, and complete organizational integration and central control, as the other, seem to have forfeited much of the attractiveness which they had in previous times. Obviously, the chances associated with hybrid forms of co-operation today are generally deemed much greater than the risk of buying-in the possibly detrimental side-affects of such relations.

Against the background of this observation, the issue of trust has moved centre-stage in many contributions to the analysis of trans-organizational economic activities. Under current macro-economic developments, trust is seen as becoming the central mechanism to allow for an efficient solution of the problem of co-ordinating expectations and interactions between economic actors. While hierarchical relations are mainly controlled by bureaucratic procedures and top-down mechanisms of co-ordinating interactions, market relationships between anonymous buyers and sellers are based on the idea that economic actors simply use their individual resources and market power to follow their idiosyncratic interests, irrespective of what damage they might impose upon others. In both cases, trust may play some role as a useful lubricant in avoiding extreme tensions, but only hybrid forms of co-ordinating interactions are seen as being based on trust as the central mode of controlling them. In other words, this -- and only th is -- form of co-ordinating and controlling the structure and dynamics of relationships is constitutively dependent on the existence of a considerable amount of trust among economic actors. Thus, it is not by accident that, with the trend towards hybrid forms of co-operation, trust has been recognized as an extremely important mechanism in business relationships, although this does not mean that its potential as well as its risks are particularly well understood.