Trust and Virtual Organisations - Emergent

Considerations for Virtual Interorganisational Work in

the Global Chemicals Industry

Paul Lewis

and Maria Katsorchi-Hayes

Dept. of Management Science, The Management School, Lancaster University, Bailrigg,

Lancaster LA1 4YX, U.K.

Dept. of Management Science, The Management School, Lancaster University, Bailrigg,

Lancaster LA1 4YX, U.K.

Abstract. The development of Grid computing technologies has stimulated

additional interest in the concept of the virtual organization, with the promise of

‘always available’ processing power seeming to offer sufficient processing

power to overcome any technical obstacles to transparent global inter-

organizational working. However, whilst the academic literature has given

much attention to the theory of virtual organization there have been few viable

real-life examples. This paper reports on research undertaken in the UK

Chemicals industry where the technical design of Grid middleware was

supported by an interpretive investigation of the ‘fit’ between the needs of

industry and the forms of interorganisational working that the middleware was

intended to support. The research suggests that this discrepancy between

interest in, and implementation of, virtual organizations may arise from a

misunderstanding of the role trust plays in existing business practices and the

consequent requirements for supporting trust in a virtual organization. Business

relationships emerge to be deeply rooted in personal contact and popular and

elusive views of looking at virtual organizing need to be reconsidered in favor

of a more context-bounded approach.

1 Introduction

In this paper we present the results of fieldwork carried out as part of a large, UK

research council funded, e-science project. The project is an inter-disciplinary one and

the work described adheres to a tradition of interpretive research that may perhaps be

unfamiliar to some of our audience.

The GOLD project [1] aims to develop Grid middleware as the enabling

technology for dealing with trust, security, lifecycle and information management in

highly dynamic Virtual Organisations (VOs). The potential application domain for

such technology-facilitated interorganisational working is wide, for example

construction, electronics, and military applications. The chosen area for the GOLD

project is though the speciality, agrochemical and pharmaceuticals sector of the

chemicals industry, where the high importance of trust and security imposes very

stringent requirements and thus an excellent testbed for e-Science applications. In

Lewis P. and Katsorchi-Hayes M. (2006).

Trust and Virtual Organisations - Emergent Considerations for Virtual Interorganisational Work in the Global Chemicals Industr y.

In Proceedings of the 3rd International Workshop on Computer Supported Activity Coordination, pages 95-106

DOI: 10.5220/0002475800950106

 SciTePress

addition, there are reasons to believe that the Chemicals industry would greatly

benefit if new and agile ways of working were made possible.

This is a sector where the UK has a modest $9-12bn share of a $250bn global

market [2]. The nature of the products means that much legal paperwork has to be

completed for every interorganisational collaboration and Health and Safety

authorities, customs, even the police have to be aware of the movement of products

between partners. The traditional strengths for companies in this industry have been

IP-protectable knowledge, a skilled workforce, plant efficiency, and good reputation.

In recent years, however, cheap labour and available plant in new economies have

been used to reduce overall price to market, so that production skill and efficiency

have become less important as factors for success. There is therefore increased

pressure upon all to innovate to maintain their advantage and for business

intensification: the ability to commercialise innovations more quickly than

competitors.

Previously reported attempts at virtual organisation in chemicals production [3]

have claimed very significant cost savings of 92%, with time to market reduced by

66%. However, the experiment was not scaleable. The information necessary to co-

ordinate, manage and control outsourced activities in remote locations proved too

large in volume and the necessity for ad hoc reconfigurations in response to external

events and the evolving state of each project was beyond the capability of existing

software platforms.

Recent advances in Grid technologies are seen as the way to render this problem

more tractable, offering sufficient and readily accessible processing power to

participants, wherever located; the way is thus opened to transparent global inter-

organisational working, with outsourced R&D labs, safety assessments, chemical

analysis, data analysis, pilot studies, manufacturing, marketing and distribution

However, moving to such new ways of working would have considerable

implications for an industry where health and safety records and intellectual property

rights play such a large role. So while the GOLD project primarily focuses upon

technical issues one of the six component workpackages [4] gives attention to the

management implications of VO participation and, in particular, business trust

requirements. The initial rationale for attending to trust in the GOLD project thus lay

in the belief that “ … Companies participating in a VO must be able to trust each

other for their relationships to be productive. This workpackage will provide

mechanisms for trust acquisition and management through the use of trust policies. It

will also develop Grid services for contract management and automatic dispute

resolution.”

Within this statement lie assumptions concerning the nature of trust, arising partly

from the more technical literature, wherein trust is oft associated with impersonal risk

assessments, and partly from a view of trust that emphasizes trust in systems and

procedures. There is however a very extensive literature in sociology and the

behavioural sciences that discusses trust in quite different terms [5-9] We give below

a brief introduction to those conceptualisations and then describe the trust

requirements that we found existed in practice in the chemicals industry.

2 Conceptualisations of Trust

Trust embraces constructs of ethics, morals, emotions, values and natural attitudes

and combines a variety of fields, including philosophy, psychology, sociology,

political science, computer science, economics and organisational behaviour ([6],

p.115). It is, consequently, a complicated and multifaceted concept [8] and difficult to

frame it in a single definition [10]. In an attempt to unravel this conceptual difficulty

trust is here studied as an element of collaboration in the context of organizations,

rather than as any aspect of individual personality.

Although definitions of trust remain impartial, as they focus only on specific

aspects of the concept they share some common elements. In particular, trust requires

the eagerness of an actor – the ‘trustor’ - to enter into a position of complexity and

uncertainty ([11], p.4) and thus, become vulnerable due to the threat of opportunistic

behaviour of another actor – the ‘trustee’ [12]. Therefore, there are two interrelated

conditions in every instance of trust; the condition of risk [7] and that of

interdependence, which are both prerequisites for trust to arise [13]. This happens

because without both conditions there is no need for trust [12].

In the context of the business environment, with the continual increase in the

number and variety of exchange relationships, complexity and uncertainty cannot be

faced without trust [14]. Luhmann described trust as an effective mechanism of

reducing complexity, and its absence can cause chaos to prevail [11]. He argued ‘” ...

trust is a mechanism by which actors reduce complexity of their system of interaction

through the adoption of specific expectations about the future behavior of the other by

selecting amongst a range of possibilities’ (cited in [14], p.12).

Organisations are, within the trust literature, viewed as mechanisms that develop

shared meanings among the social actors and thus trust [5]; they are patterns of social

action that combine both formal regulations and informal cultural understandings

which have obtained applicability over time and shape social actors’ behaviour [5],

[9]. Consequently, as institutions they depend on shared beliefs, shared experience

and background assumptions among the social actors and are to a high degree self-

validating [9]. However, such mechanisms function in a latent manner [5], as they

direct expectations long before sanctions have to be considered [11]. In such

institutions, rules and norms function as background structures that mitigate against

risk and coordinate people’s expectations during their interactions [14]. Legal norms,

rules and potential sanctions are examples of just such institutional arrangements.

Legal norms seem to encourage trust as on the one hand, and rules provide directions

to people’s actions while, on the other hand; potential sanctions prevent them from

misbehaving [11], [15]. Grey and Garsten emphasize that these regulations must be

socially constructed within communities, in order to function successfully and that

trust is achieved “ ... through the enrolment of individuals into these values rather than

selecting individuals who already share common values” [16]. In addition, systems of

technical and professional knowledge are assumed as source of system trust. More

specifically, Giddens argues that standards of expertise are main sources of system

trust [15]. In this respect, system trust is then integrated into organisational routines

[16], which offer a ‘common grammar’ and lead people’s decisions in their

interaction without at the same time restraining them. What is more, authority also

contributes to the development of systems trust [11], [17]. The roles that people have

in organisations and in society in general is, it is argued, a matter of the specific

competences that they have, making others dependent on them [18],[11]. Despite this

dependency, when roles and responsibilities are explicitly and clearly identified [19],

system trust is encouraged as people place their confidence on the competence and the

abilities that the roles indicate rather than on the persons per se [15], [10]. In the

context of virtual organisations, where hierarchical relations are limited, people need

to know to a greater extent who has what expertise in order to facilitate trust [16],

[11].

Studies of trust in the context of virtual collaborations have identified an especial

difficulty, usually identified as the “virtual paradox”. This paradox arises from the

perceived demands of high levels of mutual trust and collaboration [10], something

that the nature of virtual organisations, i.e. working remotely, seems to impede.

Handy argues that “.... paradoxically, the more virtual an organisation becomes, the

more its people need to meet in person” [20], p.46. . Similarly, Knights et al.

characterize trust as the ‘Achilles heel of the virtual realm’ [21]. It is towards

identifying whether such a paradox would exist in manufacturing speciality chemicals

through short-term and changing virtual collaborations, and what the implications

might be for the technological facilitation of such collaborations that we undertook a

series of interviews with chemicals firms in the UK..

To test our assumptions and to identify some of the practical requirements for

virtual working in the Chemicals industry a matrix, covering all combinations of size

of company, product type etc was created. . With the assistance of a trusted third party

from the relevant trade association representative companies were then selected for

every combination and interviews were conducted with CEOs and senior managers.

These were semi-structured interviews lasting one to three hours, focusing upon the

ways in which business was currently done and the prospects for virtual working. All

interviews were recorded, transcribed and analyzed with the help of hermeneutic

analysis software. We below discuss the key points emerging as the situated meaning

of trust towards customers and suppliers.

3 Customer Relations: The Meaning of Trust

Interactions with customers are naturally the key activities in chemical companies, so

having a trusting relationship with customers was highly valued by most of the

individuals that were interviewed. Trust does not, however, seem to be associated

with the protection and secure use of data. As one CEO explained:

“... If the customer has a patent for a product, it is already in the public domain.

So exchanging the structure, there is no secret in that, it is in the pattern they

published it they have the rights. It is a highly regulated industry. I think people are

sometimes a bit neurotic about secrets. There is so much b******* about it! “

This finding contradicts studies which view the ‘secure’ interchange of data as a

priority for the creation of VOs, ignoring the importance of existing, accepted ways of

working and shared values. Kasper-Fuehrer & Ashkanasy [19], for example,

recognize the importance of shared beliefs and identity but overemphasize the

reliability of secure ways of working in order to establish trustworthiness. Similarly,

early results from the GOLD project gave emphasis to technical interpretations of

trust, secure exchange of data and authorization-authentication tools.[22]

But the meaning of trust in the day-to-day operations of chemical engineering

organizations is more experiential and distant from many of the descriptions of trust

in the literature of computing and virtual organizations. One CEO tried to explain the

process he follows to trust others in the following way:

“ ... I think if you know somebody a lot and you have an experiential relationship

you can look at your experience and decide how many times has that person

disappointed you. I think there is another level of trust when you are looking

forward and people normally need to be able codify the information you are giving

them in their own matrix. So, I come along and say we need to work on this and this

will make loads money. Firstly, you will be thinking the issue of being credible in

believing in this idea and secondly it is sharing the benefits of the credible, what

evidence do I have for that? So I think there are a lot of value judgments that happen

that are either made, or that are chucked away and destroyed because they are not

credible nothing to do with the purchase. Too good to be true or completely not

understandable…Then it does not start. It is a complex issue. “

3.1 Experience and Personal Judgment

This description of trust illustrates a surprising finding that we encountered many

times. Decision-makers in the chemical engineering sector rely heavily on experience

and personal judgment and to a lesser extent on accepted norms such as the proof of

financial credibility. This complements earlier findings in the engineering sector and

virtual organizations which have stressed the importance of ‘personal trust’ rather

than ‘system trust’ in this context [12, 23]

Table 1 presents some initial aspects of trust in everyday life of chemicals

organisations. This table summarises the findings of this research so far in themes of

what is meant by trust; the means of communication in establishing trust; symbols of

trust; and those actions or events that might represent a perceived violation of trust.

Table 1. Emerging meaning of trusting customers in chemical engineering organisations.

Meaning of

trusting

Means of

communication

in establishing

trust

Actions of trust

Symbols of

trust

Perceived

violation of

trust

Customer

interested to

buy

Face-to- face

contact, e-mail,

phone call

Initial

commitment to

buy.

Verbal

agreement that

both parties

will proceed in

collaboration.

Customers are

genuine

businesses in

the ch.eng.

sector

Phone, e-mail

Ask for name

and address

Phone call or e-

mail message to

establish

identity of

customer

Customers are

creditworthy

E-mail, post

Ask for a bank

reference, letter

of credit

The bank

reference or

letter of credit

Customers

operate in a

legal and safe

way

E-mail, post

Ask for

references from

health and

safety

authorities,

Chamber of

commerce,

even the police.

The references

themselves.

Confidentiality

agreements.

Customer will

pay for order

Contract, terms

and conditions,

penalty clauses.

Fail to pay at

all or do not

pay on time

A first obvious meaning of trust when entering in a relationship with a customer is

their genuine interest to buy. Such interest is expressed via sales visits, in professional

exhibitions, or via e-mail and phone call. Face-to-face is very important at this early

stage of dealings with customers and even with customers that are already known to

the company face-to-face interaction is considered irreplaceable. In the words of one

CEO: “ … We use big words like trust. I think it is easier if you look somebody eye to

eye to decide whether you trust them or not…Nothing can replace face-to-face

contact particularly at the early stages of negotiation”.

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This is in contrast to much of the literature, wherein enthusiasts of distant ways of

communicating argue that the great advantage of virtual work lies in reducing the

need to travel [24]. We have found in our interviews support for the notion of the

‘virtual paradox’, whereby virtual working generates an increased need to travel ([20,

21, 25]. This seems most evident at the early stages of a relationship. The customers

of the chemical engineering industry studied are, in general, other businesses and

none of the companies in our study had dealings with the general public. The B2C

models of e-business were not applicable. In fact, in none of the interviewed

companies was business initiated electronically. Although customers might approach

the companies via the web this would be merely the initiating signal for personal

contact. Most of the individuals interviewed stressed the importance of face-to-face

interactions at the initial stages of dealing with any customer. Sales representative

visits and trade exhibitions are valued for the opportunities they provide to meet face-

to-face. After establishing a relationship with a customer then other means of more

distant communication can be added or even substitute for the face-to-face contact.

3.2 Document Transmission

An area where the technical concerns over authentication and security have been

thought to be of particular importance is the storage and secure transmission of

documents. Our interviews confirmed document handling as a requirement for virtual

working since we found formal documentation acts to some degree as a trust-

surrogate. The most basic requirements for trust, in so much as without these there

can be no business discussions are provision of permanent address and to be

accredited as creditworthy; the latter normally being done by a bank reference. In

some cases more credentials are required, as an Operations Manager explains:

“...With Europe it is very simple. We have to make sure that the samples’

documentation & form are correct and that they are properly labelled and identified.

There are some countries that we need a letter of credit. We do not give them the

goods until the money is in a reputable bank. Then we deliver the goods. Again

different countries have different formalities in terms of the documentation that you

have to have and things that have to be stamped or signed by the Chamber of

Commerce. This is no problem really.”

Furthermore, in an industry that is so heavily regulated many documents are

required concerning health and safety, the allowed legal use of products, safe

transport etc. This is a highly complex process and each product has to comply with

the regulations of each country it is transferred through (if transported by land).

However, producing and collecting such documentation is part of the procedure that

chemical engineering organisations have to follow and there are generally no

problems in producing or gaining such documentation. This finding suggests that

although ‘system trust’ [11, 15] is of great importance in the context of the chemical

engineering sector it is encapsulated in well established codes of practice and business

norms and not regarded as problematical. This finding partly contradicts studies

which overemphasise the importance of system trust, reliance on formal rules and

legalised procedures, regardless of the business context. [26]

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3.3 Legal Redress

Perhaps the most fundamental element of a trust relationship between two

organizations is that the customer will pay for the products that have been ordered.

Most of the literature on VOs supposes this may be taken for granted but we found

that, intentionally or unintentionally, customers fail to pay on time or (fortunately

very rarely) fail to pay at all. These represent breaches of contract so a company

certainly has cause for legal redress and compensation; the VO literature tends to

assume that redress to the law is automatic but we found this is not so. In some cases

the manager recognizes the difficulties of the defaulter as ones that he/she might

themselves fall prey to, is sympathetic to a degree and work towards a solution.

Chemical engineering organizations will seek legal advice but only in extreme cases

will follow the legal route since there is great sensitivity about not wanting to damage

their image and reputation.

This very ‘real’ dimension of trust about the consequences of paying (or not) and

the willingness (or not) to follow the legal route, in the context of chemical

engineering organisations and possibly in other business sectors, is frequently

neglected in studies of trust in virtual organisations. Actions taken as a result of such

consequences resemble Ciborra’s concept of drifting [27] and the continuous

interventions of actors in order to ‘make things work’.

4 Supplier Relations: The Meaning of Trust

Another important interaction with others is the dealings with suppliers. Similarly to

Table 1, Table 2 describes some key stages and relations of trust with suppliers in the

context of chemical engineering organizations.

4.1 Shared History

When dealing with suppliers, as with customers, face-to-face contact is very

important in the early stages of a relationship. Supplier relationships differ somewhat

though in that these, as many of our informants stressed, become established over

time and do not change just because prices of raw materials fluctuate slightly. This is

a crucial finding since so many of the business models in the literature naively assume

a free global market in which the electronic version of ‘economic man’ reacts to seek

lowest price. In reality a shared history with existing suppliers is of key importance

and in many cases more important than commercially competitive prices of raw

materials. As a chemist in one of the organisations explained:

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Table 2. Emerging meaning of trusting suppliers in chemical engineering organisations.

Meaning

of trusting

Means of

communication

in establishing

trust

Actions of

trust

Symbols of

trust

Perceived

violation of

trust

Suppliers have

the

appropriate

raw material

Face-to- face

contact, e-mail,

phone call

Initial

commitment to

sell.

Verbal

agreement that

both parties will

proceed in

collaboration.

Suppliers are

genuine

businesses in

the chemicals

industry

Phone, e-mail

Ask for name

and address

Phone call or e-

mail message to

establish

identity of

supplier

Suppliers

operate in a

legal and safe

way

Visits, audits,

use of local

agents

Ask for

references from

health and

safety

authorities,

chamber of

commerce, even

the police.

The references

themselves.

Audit

documents.

Confidentiality

agreements.

Suppliers

delivering on

time

Phone call, e-

mail, post

Commitment to

deliver on time

Promise to

deliver on time

Missed delivery

dates

“ … Because of the nature of the products we are making we have to go through

quite a long drawn out approval \process. Because of the fact that we have to

produce, store, a lot of evidence that we can change supplier without actually

affecting our product. That means that we have a lot of barriers in changing

suppliers. Normally we will not change suppliers that frequently. Typically, for a

major raw material and we will have one or two suppliers and w e might change

every couple of years. We will not change just because prices dropped a couple of

cents’.

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4.2 Visits and Inspections

A further difference arises from the need for a company to be assured that its

suppliers operate in a safe and legal way. This is not merely a question of assuring the

quality of the received product; it is feared that the purchaser may be liable if the

supplier is breaching health and safety regulations and social or environmental

consequences ensue

Many of the organizations we interviewed routinely visit overseas production

locations, especially the location of strategic suppliers, carrying out inspections and

periodic audits. The use of local agents who act on their behalf is also common

practice in the industry. The existence of these ‘local’ agents is underlines the

importance given by the chemicals companies of understanding local needs despite

operating in a global environment. It confirms Woolgar’s rule of virtuality that ‘the

more global the more local’ [25] and contradicts studies which suggest that distance is

not important in the age of the virtual organizations [24].

4.3 Meeting Expectations

Finally, the most important thing for a supplier to be considered trustworthy is that

they deliver on time. Considerable delays at delivery times do not seem to occur very

often. As an Operations Manager explained:

“ … Ok, you get occasions that suppliers let you down. But it is not very often. The

supplier wants to sell the chemical, they do not do it deliberately, and they want to

make the profit. They vary in terms of their reliability, do what they say. Because it is

very important in supplier chain to have the chemical when we want it so time is very

important. If we say we need such a product on such and such a date because our

manufacturing programme is set up for that date. If it does arrive we have to change

programme and lose time.”

By experience and past knowledge of the supplier, individuals in chemicals

organisations tend to know which suppliers are more likely to delay delivery.

Depending on the length of the delay fines could be imposed for a considerable delay

and in cases where the delay has caused great financial loses the supplier will most

likely not be used in the future. This finding is emphasising the importance of

experience and knowledge in trust relationships in the context of chemical

engineering organisations. Again, personal and experiential knowledge [28] seem to

be of greater importance in choices of suppliers rather than abstract rules and

procedures. This has significant implications for the technologies that one might

choose to develop to facilitate virtual working. There would, for example, be little

chance that supplier selection by autonomous software agents would be accepted by

the chemicals companies to which we spoke.

5 Concluding Observations

One workpackage of the GOLD project has used interpretive methods to augment the

technical development of tools and middleware. Part of this work has attended to the

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meaning of trust in the context of chemicals trading relationships. Despite being a

heavily regulated industry and one that follows to a great extent legalised processes in

doing business, experiential knowledge and personal trust seem to be of great

importance in the instituting and the operating of contacts with customers and

suppliers.

The GOLD project has been mainly focused on providing the technical means by

which to support standardised mechanisms for virtual collaboration in the chemicals

industry. The already existing demonstrator software shows that software facilitation

for virtual working is possible, and that automatic audit trails of communications,

protection of documents etc will be useful to the industry. But whilst necessary such

things are not sufficient. Consideration must be given to legacy ways of working and

accommodating the requirements and idiosyncrasies of the particular industry.

Informing the technical development with the interpretive strand has been extremely

valuable in this.

The importance of face-to-face communications both with customers and suppliers

and the understanding of the local (country) context in which customers and suppliers

operate has emerged from this study. This complements previous discussions on the

contradictory nature of virtual organisations [25]. It seems that trust in chemical

engineering organisations is heavily dependent upon personal, professional and

experiential knowledge rather than reliant upon rules and legal processes. Formal

rules and procedures remain important, providing the basis for contractual

collaborations with suppliers or customers. However, the final decisions on making a

deal with a customer or a supplier, as this study has suggested, is mainly based on the

professional and personal judgments of individuals.

These are initial findings and are still in an early stage; however they underpin the

importance of understanding how trust relationships develop in practice in a specific

context prior to the design of technical artefacts.

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