Evergreen Insight

In Trust We Trust: the trust-based organization

This section, to mark 50 years since the founding of SDA Bocconi, presents a selection of the ideas advanced by faculty members representing seminal work in management research: relevance, concreteness, scientific rigor, and impact on the community are the four pillars underpinning the path proposed here. The SDA Insight initiative is part of the broader project, “50 Years of Ideas.”

Trust is a serious thing, not only in human relationships, but in organizations as well. This has direct, positive effects on vital dynamics such as communication, crisis management, negotiation processes, job satisfaction and performance (at both an individual and a team level). What’s more, trust helps to establish and enhance optimal working conditions and compounds cooperation, with ripple effects that benefit business performance. But if we take a closer look, trust has even deeper organizational, psychological and social roots, extending beyond the perimeter of the company to encompass stakeholders and territories, public institutions and private individuals.

In a 2003 article entitled “Trust as an Organizing Principle”, along with my colleagues Bill McEvily and Akbar Zaheer, I took a deep dive into the concept of trust, conceptualizing it as an organizing principle that closely coordinates with the economic activity of the company.

In a company or a network of companies, an organizing principle is what provides the foundation for performing and coordinating work, and for collecting, processing and disseminating information. Our findings showed that trust influences the organization along two pathways: structuring and mobilizing. For the first, trust molds the company’s internal interactions, forging the status and the reputation of specific actors, and altering their positions within the social network. This in turn changes the shape and the structure of the network itself. In other words, some links disappear and others develop; some actors shift closer to center in the social hierarchy while others are pushed aside and disconnected from the rest of the network.

As far as mobilizing, trust prompts people to make a collective effort to contribute, combine and coordinate resources. For example, they become more open to conveying their knowledge, accelerating the circulation of that knowledge and facilitating cooperation and shared problem solving.

Designing organizations by starting from the social resource of trust is an idea that’s more topical today than when our article was first published. The reason for this lies in the relative failure of two alternative coordination mechanisms: one based on authority (i.e. obedience to the hierarchy) and the other instead linked to monetary rewards (where cooperation happens because it’s economically worthwhile, and continues as long as it pays off). Flat companies that have to react quickly to rapidly changing business environments, have been looking for ways to move beyond a hierarchical organization and instead adopt new trust-based models of cooperation. What’s more, especially after the shock of the pandemic, fewer and fewer people are willing to commit to an organization just for the salary. People are asking for meaningful work, and a sense of wellbeing while they work. They want quality relationships in the work environment, and the only organizations that can satisfy this desire are the ones that are capable of inspiring and preserving trust.

Although trust isn’t the only solution for supporting an organization, it can generate tremendous value by producing and preserving cognitive resources, lowering transaction costs, simplifying decision making and boosting transaction value. Trust is what makes an organization more organic, in the sense that its members are more autonomous and don’t need to rely solely on simple company rules. Without trust, a number of motivational dynamics are encouraged, such as committing to goals, following through on feedback, and gaining a sense of fairness, all of which generate returns in in efficiency and value creation.