Monday, 28 April 2014

30. A stop to this blog

The next series on this blog would have been on innovation in networks. But the number of readers is small and decreasing, and continuation on this basis is hardly worth while. Therefore, I am stopping this blog until further notice. If readership increases substantially I will pick it up again. I thank the few readers I had for their interest.

Best wishes,

Bart Nooteboom

Monday, 21 April 2014

29. Roles of a go-between

 Since the art of trust is difficult, it may help to employ the services of a go-between with the appropriate knowledge, skills, experience, wisdom and trustworthiness. It can play a variety of roles. Some of them are more technical and others more relational. I will not mention all roles because some of them require too technical an explanation.  

 On the technical side:

 First, help to cross what I called cognitive distance: help partners to understand each other, technically, concerning the content of collaboration, in purpose, methods and means. For this, the go-between must have the required specialist technical knowledge.

Second, help to judge the partner’s potential and its economic value, in view of possible alternatives, and its reliability in competence.  

Third, provide an assessment of the fields of force facing both parties: risks and opportunities involved in the networks to which they belong, and other strategic risks and opportunities. A risk in a network is, for example, that trust in the partner may not suffice if some third party, a competitor perhaps, may take over the partner.

On the relational side:

Fourth, help mutual understanding of ideas, intuitions, attitudes, habits, positions, cultures and skills of collaboration. Look also at the levels on which trust is needed, and how they are connected: personal (who are we dealing with), organizational (how are they supported by their organization) and environmental (what are the outside pressures of competition, politics and the economy).

Fifth, the go-between can adopt a more or less formal role in arbitration or mediation, to prevent conflicts from arising or escalating to a legal conflict.

Sixth, perhaps the most important but also most difficult, help in the difficult process of building trust, preventing its undue collapse, and, if possible, to repair broken trust. This includes many of the features discussed in previous items in this blog. Help to practise openness, give benefit of the doubt when something goes wrong, help to empathise by understanding the partner’s situation and the circumstances and pressures he faces. Eliminate undue suspicions; help to deal with uncertainty concerning the causes of disappointments (the causal ambiguity I mentioned before). See to it that no unrealistic expectations are raised whose disappointment may destroy trust. Help to explore the limits of trustworthiness and the need for control. Keep an eye on imbalances of dependence, and try to compensate for them.

Seventh, not the least important, help to disentangle, with minimum damage and acrimony, relationships that have become irreparably damaged or where mutual benefit has dwindled, to adapt to changing conditions.    

These roles all require their specific knowledge, skills and experience, and they all require reliability in competence, and trustworthiness in the form of fair dealing. Some roles may be combined in a single go-between, but it would be difficult to combine them all.

Candidates for a go-between are various. There is certainly a market for it, for commercially operating go-betweens, but there would have to be a safeguard for competence and integrity, as with doctors and notaries. Banks, notaries, accountants, consultants, academics, and government agencies might all qualify, in one role or another.

Monday, 14 April 2014

28. Psychology of trust

As I argue in my philosophy blog (, people have an instinct for self-interest and survival as well as an instinct for altruism, at least within the groups to which one feels oneself to belong. According to work in social psychology this is reflected in two opposing mind frames that people have, a frame of defence and mistrust, in protecting one’s interests (self-interest) and a frame of trust, in solidarity with the group (altruism).

A mind frame operates as a mental framework in which observation, sense making and interpretation take place, plus a repertoire of responses. This may be compared with my earlier analysis of scripts (in item 13 of this blog): what is observed is fitted into scripts and that triggers response, again according to scripts. In the defensive frame one will be inclined to scrutinize observed conduct for signs of danger and threat, taking untrustworthiness as the default: one mistrusts until contrary evidence arises. In the solidarity frame one will take trustworthiness as the default.

The default of trust rather than distrust is to be recommended. With mistrust, the trustee has to prove trustworthiness and that is as impossible as proving that a theory is true. And distrust blocks the opportunity for a relationship to develop and demonstrate trustworthiness. With trust as the default, when adverse conduct is experienced one can narrow the room for trust and tighten controls.

The main point now is that one cannot be in two frames at the same time, but the other frame hovers in the background. Being in one frame one may switch to the other, depending on evidence, experience and emotions. The more robust a frame is, the less easily one will switch. When one feels threatened the solidarity frame may switch into the protective frame, and once that happens the reverse switch tends to be difficult. There is a saying that ‘trust comes on foot and departs on horseback’. The solidarity frame often is less robust than the protective frame.

The adoption of one frame or another depends on relational signalling: one treats observed conduct as a signal that indicates the frame the other person is in. That observation is fitted into scripts corresponding with the present frame. The trustee should be aware that what he/she does or says has that effect, and when being in the solidarity frame he/she should prevent doubt and ambiguity. Having received an e-mail message one should always respond to it, lest the sender wonders whether the massage was received and is getting attention, or the receiver is not interested.

This analysis further emphasizes the importance of openness discussed in the previous item of this blog. I add here that when one is in the solidarity frame one should make sure that this is reflected in what one says and does: demonstrating commitment, competence, and fair play. It is also important not to create too high expectations that can only lead to the disappointment that may trigger the partner’s switch to the self-interested frame.      

Monday, 7 April 2014

27. Trust and openness

Trust pricks up its ears when expectations are disappointed. What is going on? The problem is that when expectations are disappointed, the cause is often ambiguous. What went wrong? Was there a misunderstanding in expectations? Was there an accident that was none on the trustee’s fault and prevented him/her from acting as expected? Was his/her competence less than thought? Did he/she not pay attention; was there lack of commitment? Or was he/she deliberately taking opportunistic advantage at the expense of the trustor? This is the causal ambiguity of trust. Often one cannot establish what cause is at work, for lack of information or ability to interpret what happens. Especially the opportunist will claim a mishap for an excuse.

When the trustor is under pressure or lacks self-confidence or is inclined to distrust he/she may jump to the worst conclusion, that of opportunism. If the trustee is in fact reliable, he should therefore when making a mistake or incurring an accident immediately report it, explain what happened, announce his commitment to immediately try to mitigate the problem, and promise that after the crisis he/she will engage in deliberation about how such problems may be prevented in the future.
That is trustworthy conduct. In other words, the problem of causal ambiguity yields the need for openness about failures. Secrecy does not pay. The trustor will conclude that the trustee acted opportunistically, because if not, why didn’t he/she come clean earlier, and help to solve the problem?

Take the bankers. Many people say that the bankers should have apologized for the financial crisis. But such apology alone is cheap. One should add what I just indicated: clarification of the causes, attempts to redress the problem, and commitment and deliberation for future prevention. Since the bankers did not do any of that all trust in them was destroyed. The conclusion was that they acted deliberately and opportunistically. 

The reverse side of this coin is that when something goes wrong the trustor should not jump to the conclusion that the trustee is opportunistic, but should extend the benefit of the doubt to the trustee and let him/her explain. Here empathy also comes in: the trustor should put him/herself in the shoes of the trustee, to try and understand what was going on.

There are further arguments for openness for the sake of trust. Not only should the trustee be open about his/her failures, the trustor should also be open to the trustee about his fears concerning the relationship. That gives the trustee the opportunity to try and reduce the risk involved. Secrecy robs the partner of opportunities to help. Good negotiation is not seeking to yield as little information and advantage as possible, as instinct may dictate, but to seek out problems on the part of the partner that carry great weight for him/her, and see if one can prevent or mitigate the problems at comparatively low cost. If the partner does the same, then in this give and take both partners will flourish.   

Tuesday, 1 April 2014

26. Sources of trust

Trust is emotional, since it is related to vulnerability, risk, fear, and hope. It depends on character. With less self-confidence one feels more vulnerable and less inclined to trust. It depends on experience. Disappointments reduce trust. Trust can also be rational, in an analysis of the motives and conditions for people to be reliable.

Trust depends on conditions. Under threat of survival trust will be less. If there is no alternative for partners, and they ‘are condemned to each other’, there is pressure to make trust work, as among marriage partners, and government departments.   

Rational analysis goes as follows. As indicated in the previous item in this blog it is useful to distinguish between reliance, which includes both control and trust beyond control. Control can be based on formal hierarchy (the trustor is the boss), a contract, dependence of the trustee on the trustor, or the need for the trustee to maintain his/her reputation. In one-sided dependence the most dependent submits to the power of the least dependent, and while this is not necessarily fatal, it is wise to aim at a balance of mutual dependence. 

There is also the possibility of a hostage: the trustor has something of value to the trustee and can threaten to treat it badly unless the trustee acts reliably. In old times that took the form of family or nobility surrendered to the trustor. Nowadays it typically takes the form of information that is sensitive to the trustee, such as knowledge concerning a product or technology. The trustor can threaten to make information public or to pass it on to a competitor of the trustee. Ït is a form of blackmail.

Beyond control, trust can be based on norms, morality or ethics, or on personal empathy or identification, or simply on routine: a relationship has become habitual and the question of reliability no longer comes up. Empathy is the ability to put oneself in the shoes of the partner, to understand his/her position and how he/she thinks. Identification goes further, in feeling a bond, thinking like the other, or making his/her fate part of one’s own. Empathy is needed for trust, but identification may go too far, locking a relationship up.

Trust and control are both complements (they go together) and substitutes (they replace each other). Control can never be complete and where control ends one must surrender to trust. And vice versa: trust can hardly be absolute, trust should not be blind, and where it ends one may want to have some control. But the more trust one has the less control one needs to exert, which gives more room and flexibility for the relationship.

The greater uncertainty is, concerning behaviour and conditions, and the more difficult it is to monitor conduct of the trustee, the more difficult it is to exert control, and the more one needs trust. That is the case, in particular, in innovation. There, one must leave room for the unexpected. And uncertainty limits the scope and force of contracts and monitoring of compliance.

Sunday, 23 March 2014

25. Trust

Collaboration requires management of its risks. It requires trust, but what does that mean? Trust is a slippery concept and needs clarifcation. Here I make use of my book Trust: forms, foundations, functions, failures and figures (Edward Elgar 2002).

Trust is a psychological state, a disposition that can lead to trusting behaviour.

What can one trust? The subject of trust is the trustor, the object is the trustee. One can trust things (the car) but it becomes interesting and more difficult when the object has a will of its own. One can trust a person but also an organization (e.g. on the basis of its reputation) or an industry (banking) or an economic system.

To trust one needs trust on all levels. People with good intentions may be caught in larger, countervailing interests. One needs trust in the people, the organization they work for and one has to take into account the pressures of survival on both. Will teaching ethics to bankers eliminate their misconduct? Bankers claim that they would prefer not to misbehave (taking too much risk and hiving it off on society; paying exorbitant bonuses) but can afford to do so only if other banks go along, and since all banks argue like that they lock each other up in their misconduct (in a prisoners’ dilemma). Thus one will either have to impose a way out of that dilemma or change financial markets to eliminate the incentives for misconduct. Ethical reform may help but does not suffice.

A distinction has been made between confidence and trust. With the first, one has no choice; one cannot regret to have become dependent, it was inevitable. Thus one speaks of confidence in the economy, or God, or the legal system.

Another important distinction is that between trust in competence, the technical ability to act in line with agreements, and trust in intentions, the will and commitment to do so according to the best of one’s ability, and not to cheat. Failure in competence requires a different response from failure in intentions.

A preliminary definition of trust may be: one is vulnerable to actions of an other and yet one feels that no great harm will be done. That leaves open many reasons to have trust.

A useful notion is that of reliance, which includes trust and control. The trustor may exert control over the trustee, for example with a contract, or as ‘the boss’. Trust goes beyond control, where the trustee is trustworthy on the basis of morality, ethics, friendship or custom or habit.

A narrower, tighter definition of trust then is that one expects no great harm to be done even though the trustee has both the opportunity and the incentive to cheat or to neglect the relationship, because his ethical stance will prevail. However, it is too much to expect the trustee to be loyal even at the cost of his/her own survival. The extent to which the trustee foregoes advantage at the expense of the trustor depends on his/her moral strength and on pressures of survival.

In sum, trust is a four-place predicate: the trustor (1) trusts the trustee (2) in some respect (3, competence, intentions), under certain conditions (4, pressures).

Monday, 17 March 2014

24. Problems of cooperation

 What are the risks of collaboration? First, there are risks of dependence. Collaboration is no problem as long as partners do not become dependent on each other and can easily step out when dissatisfied. But relationships without dependence are usually shallow. Dependence can arise from unique value of the partner, for which there is no replacement, from specific investments that have value only in the relationship, or because one is not allowed to step out (as in tasks assigned in public administration). When dependence is one-sided the least dependent partner is tempted to use the resulting power to exact a greater share of jointly created value.

One remedy is to equalize dependence, in shared ownership of specific assets, an offer of unique quality, or market position. One-sided dependence may also be mended by building coalitions with others to build countervailing power.

A second risk is that of spillover: unintended transfer of knowledge or competence that is expropriated or imitated and used to compete. This risk can be direct, in the partner becoming a competitor, or indirect, in spillover through the partner to a competitor with whom the partner collaborates. This risk has often been overestimated. The issue is not only whether sensitive information reaches a potential competitor, but also whether he then has the absorptive capacity for it, and the resources needed to exploit it, and the incentives to do so. If by the time all those conditions are fulfilled the information has become obsolete, the risk disappears.

One instrument of control of spillover is to demand exclusiveness: to forbid application in collaboration with third parties. For this one pays a price of locking the partner up in a conceptual prison. It is important for oneself that the partner keeps on learning and improving, and it is by engaging in relationships with others, also one’s competitors, perhaps especially one’s competitors, to tap from more varied sources of knowledge and competence, that the partner learns.

An important factor is reputation: partners are withheld from doing damage because it will affect their reputation and thereby options for future collaboration, also with others. . For this, it is important that a reliable reputation mechanism is in place.

Beyond control, one can aim for trust on the basis of values, ethics, morality or empathy, identification, friendship and routinization. Trust is a slippery and complex notion that I will discuss in some detail later in this blog.

In view of the problems it is tempting to integrate the collaborating parties under an overarching management with the authority to demand information, resolve conflicts and impose sanctions, in ways that would not be possible between separate, autonomous organizations. However, unified hierarchy mostly reduces variety as a source of ideas, reduces speed of decisions and implementation, and reduces the motivation to perform that comes from independence and one’s own responsibility to survive. The challenge is to resist this reflex of integration and to learn the art of managing the risks of collaboration between autonomous parties.