Trust Deterioration in an International Buyer-Supplier Relationship

Geoffrey G. Bell Robert J. Oppenheimer Andre Bastien

ABSTRACT. Despite an abundance of research on inter-organizational trust, researchers are only beginning to understand the process of trust deterioration as an inter-organizational phenomenon. This paper presents a case study examining the deteriorating relationship between two international high-tech firms. We surveyed respondents from the supplier firm to identify major elements that reduced the suppliers trust in its customer, using the dimensions of trust identified by Mayer et al. (1995). While violations of ability, integrity, and benevolence all contributed to trust reduction, early violations of trustee benevolence contributed importantly to trust deterioration. Over time, the relationship became sensitive, and respondents reported many incidents of trust violation. Managers reported primarily integrity- and benevolence-related incidents, while no pattern emerged among operations personnel. We examine the results in light of Hosmers (1995) ethically-based trust principles. The supplier and customer would likely differ in their opinion of whether the customer was Geoffrey G. Bells paper The Influence of Clusters and Networks on Canadian Mutual Fund Company Innovation was nominated for the Newman Award at the 2000 Academy of Management meetings. He is currently Assistant Professor of Management at the University of Minnesota Duluth. Robert J. Oppenheimer, Ph.D., is an Associate Professor of Management at Concordia University. His teaching, research and consulting have been in the fields of Organizational Behavior and Human Resource Management. His industrial experience includes having been Manager of Organizational Development with Nortel Networks and working as a Human Resource Management Administion for Texas Instruments. Andre Bastien is currently employed in Montreals hightech industry, where his expertise includes contract negotiation, building long-term partnership and relationship, and customer support.

acting ethically. This suggests that scholars need to examine how many principles can be violated before trust is eliminated, and whether any of the principles are particularly salient in business relationships. KEY WORDS: business ethics, buyer-supplier relationship, trust, trust deterioration, trust repair

Introduction
I do business with people I trust, not companies per se. I no longer trust the people at (this important customer).

This quote reflects the sentiments of the senior executives at the firm we studied. It also highlights the increasing importance of trust in business relationships, not only to scholars, but also to managers. The literature regarding how trust develops between parties is relatively well developed (e.g., Lewicki and Bunker, 1995; Meyerson et al., 1996; McKnight et al., 1998). However, our knowledge of subsequent evolution of the trust relationship is limited. For example, until recently the literature assumed that trust is symmetric across a dyad (McEvily et al., 2000). Scholars generally have failed to examine the causes or processes underlying trust deterioration over time. Lewicki and Bunker (1996) developed a theoretical model of trust deterioration and repair, but we have yet to find any empirical tests of theirs or other models. Supplier relations are recognized as important in developing a sustainable competitive advantage, yet most buyer-supplier relationships are characterized as adversarial (Mudambi and Helper, 1998). However, in their discussion of

Journal of Business Ethics 36: 6578, 2002. 2002 Kluwer Academic Publishers. Printed in the Netherlands.

66

Geoffrey G. Bell et al. trust as confidence in anothers goodwill and the expectation that an actor can be relied upon to fulfill obligations, behave in a predictable manner, and act and negotiate fairly when the possibility for opportunism exists. Mayer et al. (1995) similarly defined trust as the willingness of a party to be vulnerable to the actions of another party based on the expectation that the other will perform a certain action important to the trustor, irrespective of the ability to monitor or control that other party. Zaheer et al. (1998) clarified dimensions of interpersonal trust and inter-organizational trust that had previously led to theoretical confusion regarding who is trusting whom. They argued that it is individuals, as members of organizations, rather than the organizations per se, who trust. In other words, interpersonal trust refers to the trust placed by the individual in her individual opposite member. Zaheer et al. (1998) defined inter-organizational trust as the extent of trust placed in the partner organization. Inter-organizational trust describes the extent to which there is a collectively-held trust orientation by organizational members towards the partner firm, which is quite different from saying that organizations trust each other. Mayer et al. (1995) discussed three common characteristics of trustees identified in the literature: ability, benevolence, and integrity. This definition is a subset of that identified by Butler and Cantrell (1984), which Hosmer (1995) argued that except for ability are moral values. In the Mayer et al. (1995) definition, ability is the skills, competencies, and characteristics that enable a party to have influence within a given domain. Benevolence is the extent to which a trustee is believed to want to do good to the trustor (aside from an egocentric profit motive). Benevolence suggests the trustee has some specific attachment to the trustor. Integrity involves the trustors perception that the trustee adheres to a set of principles acceptable to the trustor. Mayer et al. (1995) argued that the three dimensions are related but separable. An actors trust in a trustee is a function of the trustees perceived ability, benevolence, and integrity, and of the trustors propensity to trust.

buyer-supplier relationships, Duran and Sanchez (1999, p. 274) report that ethical management will give rise to mutual trust, constant collaboration and a joint approach to problem solving. The literature is starting to explore the complexity of the development and evolution of trust-based buyer-supplier relations. This paper adopts a case study approach (Yin, 1994) to examine a ten-year process of trust deterioration in a buyer-supplier relationship in a high-tech industry from the perspective of the supplier firm. We surveyed individuals in the supplier firm and analyze their responses using the three dimensions of trust proposed by Mayer et al. (1995). We examine their responses chronologically to consider temporal patterns. We consider whether or not specific critical incidents precipitated the deterioration of trust. The following sections review the literature on trust creation and maintenance, propose hypotheses to explain the trust deterioration process, discuss our research method and case setting, analyze our results and discuss implications for managers and scholars.

What is trust? The organization literature provides two general definitions of trust: confidence or predictability in anothers behavior (Rousseau et al., 1998), and confidence in anothers goodwill (e.g. Ring and Van de Ven, 1992; Hosmer, 1995). Flores and Solomon (1998) proposed that trust is a dynamic aspect of human relationships. It is an ongoing process that must be initiated, maintained, and sometimes restored. Trust is relational (Hosmer, 1995; Flores and Solomon, 1998). Zaheer et al. (1998) conceptualized trust as an expectation reflecting an uncertain anticipation of the referents future behavior. Trust entails risk and the possibility of betrayal. Rousseau et al. (1998) and Sitkin and Roth (1993) defined trust as a psychological state comprising the intention to accept vulnerability based upon positive expectation of the intentions or behaviors of another. The need for trust only arises in a risky situation with the potential for loss. Ring and Van de Ven (1992; 1994) defined

Trust Deterioration in an International Buyer-Supplier Relationship Factors leading to the creation or breakdown of trust Scholars, including Ring and Van de Ven (1992) and McKnight et al. (1998), proposed that trust develops gradually over time as one accumulates trust relevant knowledge through experience with others. Trust levels start low and gradually increase. Other researchers, including Meyerson et al. (1996) found that in some cases, initial trust levels were quite high. Certain conditions must exist for trust to develop or evolve. First, because trust is relational (Flores and Solomon, 1998), persons and organizations must interact for trust to develop. People develop their trusting beliefs based on their direct experiences with others (Granovetter, 1985; Zucker, 1986; Mayer et al., 1995). Second, parties must be willing to depend on another and take risk (Mayer et al., 1995; Zaheer et al., 1998). McKnight et al. (1998) said that initial trust is not based on any kind of experience with or firsthand knowledge of the other party, but based on an individuals disposition to trust or on institutional cues than enable one person to trust another without firsthand knowledge. Third, trust is context-dependent. Even though the level of trust and propensity to trust may be constant, the specific consequences of trust will be determined by contextual factors such as the stakes involved, the balance of power in the relationship, the perception of the level of risk, and the alternatives available to the mentor (Mayer et al., 1995).

67

trust in buyer-supplier relationships. They found that the overall orientation of the organization toward its exchange partner importantly influences performance (Zaheer et al., 1998). In summary, trust is built on three dimensions: ability, benevolence and integrity (Meyer et al., 1995). Trust is perception based and requires interaction to be developed (Zaheer et al., 1998). The risk and the context will also affect how trust will be built (Meyer et al., 1995). Even though firms can have an inclination to trust, in the end individuals trust, not organizations per se (Zaheer et al., 1998). In a buyer-supplier relationship, trust is built by the exchange performance, the negotiations and conflict resolution. Organizational structure, culture and policies will also affect the level of trust. However, while we understand the trust creation process, we still do not understand the trust deterioration process. The rest of our paper examines our research question: What are the factors and processes contributing to the deterioration of trust in a buyer-supplier relationship over time?

Theory and hypotheses Mayer et al. (1995) identified three dimensions of trust: ability, benevolence and integrity and argued that an actors trust level reflects the actors perceptions of the trustee along all three dimensions. They found strong support for all three dimensions in the literature. Thus, we anticipate that perceived breaches in any of the dimensions of trust will lead to a deterioration of trust. Also, because trust is perception-based rather than objective, we expect that trustor perception of violations will matter as much or more than the objective reality. Consequently, if the trustor perceives that the trustee has violated along any of those dimensions, trust will deteriorate, suggesting: H1: Actor perceptions of incidents of trustee failure to act with ability, benevolence and integrity all contribute to decreasing actor trust levels. While it is likely that all three dimensions influence trust deterioration, violations of ability

Trust and buyer-supplier relationships Ring and Van de Ven (1992) stated that interorganizational trust emerges as the overriding driver of exchange performance, negotiation, and conflict. Zaheer et al. (1998) proposed that in buyer-supplier relationships, the behavior of purchasing managers and supplier contacts is nested within their respective organizations. Therefore, interactions take place between individuals in their roles as boundary-spanning organizational agents. Organizations are vehicles through which individual-level behavior is directed, constrained, and facilitated in a way that promotes or inhibits

68

Geoffrey G. Bell et al. opportunistic behavior by alter will come to be seen as the norm, not the exception. Indeed, there is possibly a threshold that, once crossed, leads to a precipitous drop in trust levels. This suggests: H3: Once a threshold is passed, the relationship becomes sensitive and the trustor observes more frequent trust violations. Zand (1972) said that trust is domain specific. That is, people trust others in their areas of expertise. Additionally, people trust others who operate in their own domain. Thus, people who possess the same skills should form more accurate perceptions of each other than of people who use different skills. We can better assess people who are like us than people who are different from us. Supplier operations personnel dealing with buyer operations personnel should be better able to perceive ability-related (technical skills) issues. Conversely supplier management personnel should better perceive integrity- and benevolence-related violations, because such issues relate to management philosophy, suggesting: H4a: Operations personnel will observe primarily ability-based trust violations. H4b: Management personnel observe primarily benevolence- and integrity-based trust violations. As the trustor observes the trustees actions, she forms perceptions and attributes cause and effect relationships to them. One factor facilitating the formation of perceptions is the observability of the actions. The more observable an action is, the more readily we may be able to find a reason for it (Tversky and Kahneman, 1982). This is especially important given that the trustor may seek evidence to refute the hypothesis that the trustee is untrustworthy (Bell and Anderson, 2000). Violations of ability are more readily observable and easier to attribute cause than are violations of integrity or benevolence. Benevolence and integrity reflect a state of mind which is harder to observe and interpret. For these reasons, perceptions of failure in

and integrity may matter more to deteriorating trust levels than violations of benevolence. Benevolence involves the trustee wanting to do good to the trustor, to be kind to the trustor (Ring and Van de Ven, 1992, 1994; Hosmer, 1995). However, it may be possible to develop trust solely on ability and integrity (i.e., adherence to principles acceptable to the trustor). The kindness inherent in benevolence will reinforce ability and integrity. However, even in its absence, an actor may trust another because of the presence of ability and integrity. Thus, so long as a trustee is able to fulfil its promises and is willing to do so, whether it cares about the trustor may matter little to trust development. Thus, benevolence cements existing trustbased relationships, but its absence does not preclude them. We expect a similar process to operate in trust deterioration. The absence of benevolence should jeopardize trust less than the absence of either ability or integrity. If a trustor ceases to believe that his partner is kind, but he still believes she is capable and someone who fulfills her promises, he will likely still trust her and continue cooperating with her. However, if he begins to question her ability or commitment to her promises (that is, her integrity), his trust will erode. Thus, a violation of benevolence matters less than a violation of integrity or ability because violations of benevolence do not strike the heart of the relationship as do violations of integrity and ability. Hence, we propose: H2: Trustee violation of ability and integrity matter more in trust deterioration than trustee violation of benevolence. Bell and Anderson (2000) introduced the notion of resilience of trust (how resistant trust is to erosion). They argued actors initially seek evidence that apparent trust violations are abnormal behavior for the trustee, which should be discounted. However, repeated incidents of breach of trust results in increasing evidence that trust violation is the trustees normal rather than aberrant behavior, resulting in a rapid degradation of trust. Bell and Anderson (2000, p. 14) proposed that, as evidence of alters opportunism mounts across actors and situations,

Trust Deterioration in an International Buyer-Supplier Relationship ability would appear faster than failures of benevolence and integrity, suggesting: H5: Failures in ability will surface sooner than failure in integrity and benevolence. Methodology Glaser and Strauss (1967) argued that the intimate connection with empirical reality permits the development of a testable, relevant, and valid theory. Because of the paucity of empirical studies on the process and cause of trust deterioration, a grounded case study approach presents a good framework with which to develop theory (Yin, 1994). This case study examines trust deterioration in a buyer-supplier relationship between two high tech firms from the perspective of the supplier firm. The companies had been doing business together for over ten years but in recent years, important issues developed between them that caused the suppliers trust levels to deteriorate to the point it was reevaluating the worth of continuing the relationship. This case study examines the suppliers perceptions of the buyer breaches of trust and also examines the effect and progression of those breaches over time. Sampling design We used an e-mail survey of respondents from the supplier firm. Our sample included the suppliers employees who interacted with the customer, including managers, contract administrators and on-site operations people. We assured respondents of their confidentiality. In our e-mail, we asked recipients to forward the e-mail to others they knew had relevant information but were not on the distribution list. The survey contained one question:
Could you please provide the most critical incidents (positive or negative, 10 maximum) that in (the suppliers) opinion, caused the business relationship with (the customer) to change.

69

reference to trust and did not bias respondents answers towards either positive or negative perceptions of the customer. We used several techniques identified by Dillman (1978) to maximize response rates. We sent a second request by e-mail one month after the original request. One week after the second request, we called respondents directly to see if they intended to respond. Seventeen of twentythree survey recipients responded. Six were top managers directly involved with the customer. Two were top managers not directly involved with the customer, but who had perceptions about the relationship. Six were engineers or contract administrators who interacted regularly with the customer and spent time at the customers facilities and three were permanent on-site people. Non-respondents consisted primarily of top executives who were not directly involved with the customer who lacked relevant information. While non-response bias may exist, its impact is minimal because we received responses from most of the personnel directly involved with the customer.

Operationalizing trust Mayer et al. (1995) dimentionalized trust in terms of ability, benevolence and integrity. However, these concepts have yet to be operationalized in the organizational literature. We therefore operationalized this definition as follows: Ability. Mayer et al. (1995) defined ability as a group of skills, competencies, and characteristics that enable a party to have influence within some specific domain. Zand (1972) argued that ability is domain-specific because the trustee may be highly capable in some areas, but have little aptitude, training, or experience in others. Although such a person may be trusted to do analytic tasks related to his or her technical area, the individual may not be trusted to initiate contact with an important customer. Butler (1991) defined ability as competence. Giffin (1967) included the relevant construct of expertness as a factor that leads to trust.

The question was worded to exclude specific

70

Geoffrey G. Bell et al. and acceptability of a set of principles are important. Following a set of principles defines personal integrity. However, if that set of principles is not deemed as acceptable by the trustor, the trustee would not be considered to have integrity. Lieberman (1981) included integrity per se as an important trust factor. Sitkin and Roth (1993) used the similar construct of value congruence. We operationalized integrity in three categories. The first was customer adherence to the principles of professionalism and fulfillment of contract obligations. The second was congruence between the customers words and actions. If the customers words and actions continually disconnect, this creates a sense of injustice. The third category was whether both parties shared the same world-view. We defined world-view in terms of a common sense of vision and shared culture.

We operationalized ability in two categories. First, we operationalized ability as a set of skills and competence. Second, we defined ability as the capacity of either party to influence an unrelated third party in a task-relevant domain. Benevolence. (Mayer et al., 1995) defined benevolence as the extent to which a trustee is believed to want to do good to the trustor, aside from an egocentric profit motive. Benevolence is the perception of a positive orientation of the trustee towards the trustor. Benevolence suggests that the trustee has some specific attachment to the trustor and that the trustee is kind to the trustor (Hosmer, 1995). Mayer et al. (1995) gave an example of this attachment as the relationship between a mentor (trustee) and a protg (trustor). The mentor wants to help the protg, even though the mentor is not required to be helpful, and there is no extrinsic reward for the mentor. A number of researchers, such as Hovland et al. (1953) included characteristics similar to the benevolence as a basis for trust. We operationalized benevolence using four categories. The first related to internal consistency of customer actions or customer interpretation of contract provisions. This measures the extent to which various members of the customer firm act in similar ways toward the supplier or interprets contracts with the supplier in a similar manner. The second category was the extent to which the trustee wanted to do good to the trustor, gave a sense of a win-win relationship. The third category related to the loyalty or specific attachment of the customer to the supplier. In a business partnership situation, this means that the customer would put the supplier first and negotiate an I lose-you win contract to demonstrate its attachment to the supplier. The fourth category was the openness or willingness of the customer to share information with the supplier and put its real interests or agenda on the table. Integrity. Mayer et al. (1995) defined the relationship between integrity and trust as the trustors perception that the trustee adheres to a set of principles that the trustor finds acceptable. McFall (1987) illustrated that both adherence to

Data coding Responses were free form and varied in length from one sentence to a paragraph. Almost all of them gave specific examples of incidents in the relationship with the customer. We coded each respondents answer as follows: First, the third author, who was most familiar with the firm, transcribed each respondents answer on a spreadsheet and assigned each response to one or more dimensions of trust. To ensure the reliability of the coding, the first author independently coded the responses as well. We met and compared results. There were disagreements on twentyeight of the 104 items. We referred the items we could not agree upon to the second author, who independently assigned the disputed items to trust dimensions. We settled all discrepancies in a meeting of all three authors. This procedure minimized bias that may be introduced by having only one person code the responses. Once the events were coded, we created a time line of events to establish temporal patterns. To do this, we recorded on a time line the first instance of a given event, presuming that its salience diminished over time. For example, there were many instances of the customer reneging

Trust Deterioration in an International Buyer-Supplier Relationship on terms of its contracts. However, we recorded only the first such occurrence. Hypothesis 3 argues that relationships may become sensitive to trust violation. For us to determine when the relationship had become sensitive, we talked with several senior managers of the supplier-firm. They told us that by 1997 they were clearly of the view that their firm had to be on side with the contracts that is, that the firm had to be in strict legal agreement with all terms of the contract, and that it would not voluntarily exceed the terms of the agreement. This represents a major departure from the firms culture as they pride themselves on being relationship-oriented rather than contract-oriented. They value long-term relationships and always keep this in mind when dealing with a customer. By 1997, the perception of top management was that, with this specific customer, only short-term goals and specific contractual obligations seem to matter. The suppliers perception of the situation and subsequent actions (their way of doing business with this customer) indicate that the relationship had become sensitive by 1997. Results General description of the data

71

The first incidents reported occurred in 1990. The next incidents occurred in 1994 and incidents continued through the date of the data collection (late 1999). We coded a total of 104 incidents. Fifty-nine incidents were reported by senior management and forty-five incidents by operations personnel. Twenty-four incidents were ability-related, forty-two were benevolencerelated and thirty-eight were integrity-related (see Table I). In 1990, the earliest year in which trust violations occurred, operations personnel reported two incidents where the customer failed to act benevolently. In 1994, management reported nine incidents of buyer violations of benevolence. In the following two years (199596), operations personnel reported fourteen violations in ability. In 1997 and 1998, managers reported fifteen violations of integrity and operations personnel reported twelve integrity violations. Violations in benevolence also occurred frequently, with managers reporting eleven incidents and operations personnel reporting nine. Only two new incidents were reported in 1999, one of integrity and one of benevolence, both reported by management. Twenty-one of twenty-four ability-related

TABLE I Summary of incidents Year Ability Mgmt. personnel 1990 1994 1995 1996 1997 1998 1999 Total 0 0 3 1 0 4 0 8 Ops. personnel 00 02 05 09 00 00 00 16 Benevolence Mgmt. personnel 00 09 03 05 06 05 01 29 Ops. personnel 02 02 00 00 04 05 00 13 Integrity Mgmt. personnel 00 03 01 02 10 05 01 22 Ops. personnel 00 03 01 00 07 05 00 16 All incidents 002 019 013 017 027 024 002 104

72

Geoffrey G. Bell et al. reported in 1990 to see if those potential outlying observations were skewing the data. The result of the subsequent chi-square test (P-value of 0.1070) provides additional support for the original hypothesis that all three dimensions matter. Hypothesis 2. Hypothesis 2 stated that the trustee violation of ability and integrity matter more than violation of benevolence in explaining trust deterioration. Given the support for H1 (all dimensions contribute to deterioration of trust levels), it is not possible to simply compare the number of incidents to indicate relative importance. Therefore, we examined the temporal patterning of the responses. If there is violation of ability and integrity prior to violation of benevolence, especially before the relationship becomes sensitive, one may presume that ability and integrity matter more than benevolence to trust deterioration. We tested this two ways. First, we ran a chi-square test to examine temporal patterns. The P-value of 0.0000 indicates that, contrary to expectation, benevolencerelated trust violations occurs prior to ability or integrity-related violations. Subsequent separate examination of the temporal patterns for ability, benevolence and integrity show that violations in benevolence occurred early and late (P-value of 0.0062), violations of ability occurred in the middle of the time period (P-value of 0.0833), and violation of integrity occurred late (P-value of 0.0000). Hypothesis 3. Hypothesis 3 stated that once a threshold passed, the relationship becomes sensitive and the trustor becomes sensitive to trust violation. Our discussion with management personnel indicated that they had become sensitive to trust violations by 1997. Hypothesis three would be supported if there were a large number of reported incidents in the period in and immediately after the one in which the relationship became sensitive. In fact, a large number of incidents were reported in 1997 and 1998. A chi-square test produced a P-value of 0.0000 and high positive residuals for 1997 and 1998, supporting hypothesis 3.

violations were skill and competence-related. This indicates that the supplier felt the customer was not capable of executing its obligations and that it was missing fundamental skills that either its management claimed it had or that supplier firm management thought it had when they entered into the relationship. Thirty-seven violations of benevolence came from the category of demonstrate a positive attachment towards the trustor or a specific attachment towards the trustor. This suggests that the customer was not attached to the supplier, which appeared to create an I win-you lose atmosphere in the relationship. This is problematic because this supplier normally uses a relationship approach to its business deals. Twenty-three out of thirty-eight integrity-related incidents were attributed to breaches in adherence to and acceptance of a set of mutually agreed upon principles. These were incidents when the customer did not fulfill its fundamental contractual obligations. Additionally, there were ten violations of the assumption that both parties share a common world-view. Shared views included common principles, vision and culture, which were often taken for granted when doing business.

Test of hypothesis Hypothesis 1. Hypothesis 1 proposed that trustee failure to demonstrate ability, benevolence and integrity all contribute to the reduction of trust levels. Table I shows face support for the hypothesis. To generate further evidence regarding H1, the observed results were compared with the expected levels using an F-Test. The associated P-value of 0.6003 suggests that the observed results arise from pure chance, supporting hypothesis one. Further, we examined the importance of each dimension using a chi-square test to see if one dimension contributed more to the trust reduction than any other one. The results were marginally significant (P-value of 0.0760), suggesting marginally fewer ability-related incidents than expected. This indicates marginal support for the alternative hypothesis, that ability matters less than benevolence or integrity. We ran a separate test eliminating the two incidents

Trust Deterioration in an International Buyer-Supplier Relationship Hypothesis 4. Hypothesis 4a stated that operations personnel will observe primarily ability-based trust violations. This hypothesis is not supported by the data. Operations people reported violations of trust relatively uniformly across all three dimensions. The chi-square test confirms that operations personnel had no greater propensity to report ability-related violations than integrity or benevolence. Hypothesis 4b stated that management will observe primarily benevolence and integritybased trust violations. This hypothesis is supported by the data (P-value of 0.0186). Management reported fewer violations of ability and more violations of benevolence then expected. The chi-square test (P-value 0.0003) supports the hypothesis that managers report more benevolence and integrity-related incidents and fewer ability-related ones. Hypothesis 5. Hypothesis 5 stated that failure in ability would surface sooner than failure in integrity and benevolence. Hypothesis five is not clearly supported by the data in Table I. A chi-square test on ability shows marginal significance of 0.0833 with a high negative residual in 1994, which indicates that relatively few ability incidents occurred that year. The chi-square for benevolence was significant at 0.0062 with high positive residuals in 1994 and again in 1997 and 1998, indicating that more violations of benevolence were reported in early and late years than in intermediate years. A similar chi-square for integrity is significant (P-value = 0.0000) with high positive residuals in 1997 and 1998 confirming that more violations of integrity were reported than expected those two years. In summary, while violations of ability, benevolence and integrity all contributed to the reduction in trust, early violations of trustee benevolence contributed importantly to the trust deterioration. Over time, the relationship became sensitive and actors subsequently reported many incidents of trust violation. Interestingly, while managers reported primarily benevolence and integrity-related incidents, operations personnel showed no significant pattern of reporting ability-based violations. Discussion

73

All three dimensions of trust ability, benevolence and integrity matter in relationships. Temporally, benevolence seems to trigger companies to reassess their trust levels. In this case study, once the supplier observed violations of benevolence, it then noticed issues of customer capability and finally, integrity. This is surprising because the scant evidence in the literature suggests that benevolence-related failure would occur relatively late in the process of trust deterioration, only after ability and integrity-related failures. Even more, the supplier noticed violations of benevolence in two distinct time periods early and late in the relationship. This temporal pattern differed from that observed with ability and integrity, where violations occurred primarily in a single time period. This could result from the suppliers corporate culture that emphasizes long-term relationship with and attachment to its customers. Given this orientation, evidence that the customer did not adhere to a similar world-view may be particularly salient. Recall the introductory comment from one of the executive that said: I do business with people, not companies per se. More research is needed to see whether the primacy of benevolence violations is normal, or whether this case is exceptional. One reason why respondents report a difference in world-view between the supplier and customer may be that suppliers tend to seek long-term oriented buyer-supplier relationships (Zaheer et al., 1998; Strauss, 1999), producing a focus on benevolence. Before committing to a new relationship, the supplier would seek evidence that the new customer was also longterm oriented. Suppliers who have been promised that a new relationship would be longterm oriented when the customer actually had a short-term goal orientation would subsequently be more attentive towards violations of benevolence. Also, if suppliers are used to win/win relationships, they may seek to confirm that new customers adhere to similar principles, again producing a focus on benevolence. The concept of a threshold in trust deterioration was also supported. Managers should

74

Geoffrey G. Bell et al. versal rules (Kant), economic efficiency (Smith), utilitarianism (Bentham and Mills), contributing liberty (Nozick), religious injunction (Augustine), and distributive justice (Rawls). In examining the actions of the supplier and customer in this case, seven of the ten ethical principles provide guidance in understanding why there was a sense of trust violation. Three principles utilitarian benefits (doing greater good than harm for society), liberty (interfering with the rights of others), and justice are not directly applicable to this situation. The supplier and buyer would likely agree that the customer was fulfilling two of the ethical principles: government requirements and economic efficiency. In this case, there was no evidence that the customers actions violated the law, or that they were acting in anything other than a profit-maximizing manner. However, it is quite possible that the supplier and customer would disagree on the other five principles the customer arguing it adhered to them, and the supplier arguing it violated them. It is quite likely that the customer would argue it was acting in its long-term interests. The problem is that the supplier defined long-term to include win/win behaviors, which the customer (apparently) did not. Thus, the supplier argued that the customer was sacrificing the long-term relationship for the short-term. The customer would likely also argue that it adhered to the principle of personal virtue, acting in an open, honest, and truthful manner, while supplier responses indicate that it felt that the customer was not open, honest, and truthful in its representations. Specifically, the customer often advocated a partnership with its suppliers, but the suppliers perception was that this only meant that the supplier was expected to bear more risk. There would also be disagreement on the universality of the customers actions. The customer would have probably argued that it expects that its competitors follow similar rules and that it would expect its suppliers to do so also. Conversely, the supplier would argue that the trust violations it experienced would only serve to destroy all business relationships, were they made universal principles. Although one might argue that Augustines

closely monitor trust levels because, once the threshold has passed, trust deteriorates rapidly and impairs the relationship. Unless drastic changes are taken at the time that the threshold is approached, it appears that very little can be done to salvage the relationship. Operations personnel reported violations along all three dimensions. Such personnel are located on the customers site and interact with the customer daily. This may allow them to develop a sense of I know what the customer is really thinking even though it is not what he is saying because I know him. Additionally, since operating personnel are on-site, they see much more of the customers day-to-day operations than do management personnel and therefore develop a better perception and understanding of the customers assertions than do the supplier firms management (who are less intimately involved with the customer).

Trust and ethics Hosmer (1995) examined numerous definitions of trust and concluded that ethics is an integral aspect of trust. He defined trust as: the expectation by one person, group, or firm of ethically justifiable behavior that is, morally correct decisions and actions based upon ethical principles of analysis on the part of the other person, group or firm in a joint endeavor or economic exchange. In this case at least, the relationship between the suppliers trust and the customers ethical behavior is not clear-cut. We resort to conjecture because we gathered no direct evidence from the customers perspective. However, we know that the suppliers trust in the customer had deteriorated dramatically. Despite this it is quite possible that the customers management would not have perceived itself to be behaving unethically. If this is the case, then behaving ethically may be a necessary, but not sufficient condition for establishing trust. Hosmer (1995) provided brief summaries of ten ethical principles: self-interest (Protagoras), personal virtues (Plato and Aristotle), government requirements (Hobbes and Locke), uni-

Trust Deterioration in an International Buyer-Supplier Relationship religious injunction (act only in a manner to build community and a sense of working together) has no place in business, the suppliers managers would likely argue vehemently against such a stance. In fact, building a sense of community and working together is the essence of their philosophy of building win/win relationships with their customers. Thus, they would argue that this was fundamental to their business dealings. Conversely, the customer would argue that they are working together with their suppliers through their partnership agreements. However, the supplier would argue that what the customer regards as partnership is really nothing more than risk-transference. Finally, there would be disagreement over the issue of abridging agreed on rights. The customer had a policy of reopening old contracts when new (unrelated) contracts were signed. While it (apparently) viewed this as sound business practices everyone uses, the supplier saw it as an indication of opportunistic behavior. The suppliers other major customers did not adhere to these business practices, so it perceived the customer as violating agreed-upon rights. Thus, it appears that there may be great difference of opinion between the supplier and customer about the customers apparent violation of ethical principles. The customer would perceive that it was behaving ethically, while the supplier would see many ethical violations. This leads to the question of how great a violation of ethical principles is required before trust is adversely affected? Is only a violation of one principle sufficient to impair trust, if not, how many? Is violation of some principles more critical than others? For example, it might be seen that opportunistic behavior (a violation of personal virtue) is acceptable in some circumstances, while a violation of individual rights is not.

75

On the other hand, studying one firm in-depth generated a richness of detail that a general survey of many firms could not provide.

Implications for research and practice Additional research needs to be done to continue to extend and generalize these findings. The importance of benevolence in trust-based relationship needs to be reassessed. Our findings show that benevolence is a fundamental dimension of trust and violations of benevolence seem to precipitate, rather than follow, a decline in trust. We need to see if it is particular to this firm or if it could be generalized across buyer-supplier relationships generally. Further research is needed regarding what can be done to repair trust, or whether it can be repaired, once it has started to deteriorate, especially after a threshold is reached. Lewicki and Bunker (1996) provide a four-step process for repairing trust. This entails the violator acknowledging the violation, what caused it, admitting it was destructive and accepting responsibility. This, however, requires the violator of the trust to assume a major role in the process, which often is unlikely to occur. Scholars of business ethics need to examine the impact of violation of ethical principles on trust. Is a violation of a single ethical principle sufficient to impair trust, or (as occurred here) is a violation of multiple principles required to impair trust? Is there an ordering of the principles, such that some may be violated as a regular business practice (such as opportunistic behavior) while a violation of others immediately destroys trust? Practicing managers also can learn from this study, particularly in two areas. First, managers should pay careful attention to the perspectives and insights of operations personnel. Operations personnel, particularly the ones located on the customers site, seem to develop impressions faster and more accurately than management personnel, who are not as closely connected with the customer. Additionally, when operations personnel are located on-site, they seem to develop a more balanced perspective of incidents of trust violation than do management personnel.

Limitation of the study These findings are limited in their generalization because we only studied one buyer-supplier relationship. Thus, it would be worthwhile to extend this study by conducting a large-scale survey across many buyer-supplier relationships.

76

Geoffrey G. Bell et al. the violations of trust. This would be done to create a better understanding of the underlying issues. Then, they could jointly develop multiple alternative strategies for moving toward a collaborative, trusting working relationship. If deemed necessary, the aggrieved party may also communicate the strategies they will engage in if they cannot agree upon a way of working collaboratively. That is, to communicate why it would be in the other partys best interest to work toward reestablishing a relationship built upon trust.

Moreover, supplier firms should pay careful attention not to overweight the importance of perceived violations of benevolence. These violations appear to provide a trigger that the customer is no longer trustworthy. It is therefore imperative that such perceptions be accurate. Perhaps this could be achieved by implementing the idea proposed by Bell and Anderson (2000) that a third party be used for confirmation of trust violations. That is, a supplier (or buyer) who feels that their customer (or supplier) is no longer acting with honesty, integrity, or benevolence may be able to discuss the perceived trust violations with a trusted third party. Ideally, this third party would have been identified and agreed upon by both parties, early in the development of their relationship. The agreed upon third party, could provide assurance to the supplier (or buyer) as to whether its suspicions were well founded, groundless or somewhere in between. If acceptable to the buyer and supplier, the third party could then work with them to restore the trust and strengthen the working relationship. An alternative approach would be for the supplier (or buyer) to demonstrate to the other party that their working collaboratively is more in the others long-term interest. This would entail developing strategies that demonstrate that the continued use of the tactics that negatively impact upon their trust in the other party would not be productive. That is, let the other party know that their behavior, which is perceived as non-benevolent or lacking integrity and win-lose in nature, would become very costly. This may entail demonstrating a willingness to engage in win-lose behaviors. The objective would be to develop alternatives that convince the other party that working collaboratively (or in a win-win manner) would be as beneficial or more so, than engaging in behaviors that cause trust to diminish. After developing these strategies, the aggrieved party would need to meet with the other party to determine whether the other is interested in a long-term mutually beneficial relationship. If they are, they could then start the rebuilding process by sharing their perceptions of

Conclusion This study examined the process of trust deterioration in a buyer-supplier relationship using a case-study approach. It found that, while incidents of violations of ability, benevolence, and integrity-related dimensions of trust all played a role in the overall deterioration of trust in the relationship, early incidents of violations of benevolence were particularly important. Additionally, once a certain level was reached, the relationship became sensitized, and the supplier reported many incidents of trust violation. Finally, while operations personnel reported roughly similar numbers of ability, benevolence, and integrity-related incidents, the supplier firm management tended to report relatively more benevolence-related incidents and relatively fewer ability-related incidents. References
Bell, Geoffrey G. and Marc Anderson: 2000, Trust, Positional Security, and Information Transfer in Four Network Ideal-Types: Exploring the Linkages Between Forms of Social Capital (Academy of Management. Toronto, Ontario, Canada). Brenkert, George G.: 1998, Trust, Morality and International Business, Business Ethics Quarterly 8, 293317. Butler, J. K.: 1991, Toward Understanding and Measuring Conditions of Trust: Evolution of a Conditions of Trust Inventory, Journal of Management 17, 643663.

Trust Deterioration in an International Buyer-Supplier Relationship

Butler, J. K. and R. S. Cantrell: 1984, A Behavioral Decision Theory Approach to Modeling Dyadic Trust in Superiors and Subordinates, Psychological Reports 55, 1928. Cook, J. and T. Wall: 1980, New Work Attitude Measures of Trust, Organizational Commitment, and Personal Need Nonfulfillment, Journal of Occupational Psychology 53, 3952. Dillman, Don A.: 1978, Mail and Telephone Surveys: The Total Design Method ( John Wiley & Sons, New York). Duran, Jose Luis and Fernando Sanchez: 1999, The Relationships between the Companies and Their Suppliers, Journal of Business Ethics 22, 273280. Flores, Fernando and Robert C. Solomon: 1998, Creating Trust, Business Ethics Quarterly 8, 205232. Fukuyama, Francis: 1995, Trust: The Social Virtues and the Creation of Prosperity. Giffin, K.: 1967, The Contribution of Studies of Source Credibility to a Theory of Interpersonal Trust in the Communication Department, Psychological Bulletin 68, 104120. Glaser, Barney G. and Ansel M. Strauss: 1967, The Discovery of Grounded Theory: Strategies for Qualitative Research. Granovetter, Mark: 1985, Economic Action and Social Structure: The Problem of Embeddedness, American Journal of Sociology 91, 481510. Hosmer, LaRue Tone: 1995, Trust: The Connecting Link between Organizational Theory and Philosophical Ethics, Academy of Management Review 20, 379403. Hovland, C. I., I. L. Janis and H. H. Kelley: 1953, Communication and Persuasion (Yale University Press, New Haven). Jones, Thomas M. and Norman E. Bowie: 1998, Moral Hazards on the Road to the Virtual Corporation, Business Ethics Quarterly 8, 273 292. Kanter, Rosabeth Moss: 1989, Becoming PALs: Pooling, Allying, and Linking Across Companies, Academy of Management Executive 3, 183193. Lewicki, Roy J. and Barbara Benedict Bunker: 1995, Trust in Relationships: A Model of Development and Decline, in B. B. Bunker and J. Z. Rubin (eds.), Conflict, Cooperation, and Justice ( Jossey-Bass Publishers, San Francisco), pp. 133173. Lieberman, J. K.: 1981, The Litigious Society (Basic Books, New York). Mayer, Roger C., James H. Davis and F. David Schoorman: 1995, An Integrative Model of

77

Organizational Trust, Academy of Management Review 20, 709734. McEvily, Bill, Akbar Zaheer and Vincenzo Perrone: 2000, Trust Asymmetries in Interorganizational Dyads: Exploring Causes and Consequences, Working paper. McFall, L.: 1987, Integrity, Ethics 98, 520. McKnight, D. Harrison, Larry L. Cummings and Norman L. Chervany: 1998, Initial Trust Formation in New Organizational Relationships, Academy of Management Review 23, 473490. Meyerson, Debra, Karl E. Weick and Roderick M. Kramer: 1996, Swift Trust and Temporary Groups, in R. M. Kramer, and T. R. Tyler (eds.), Trust in Organizations: Frontiers of Theory and Research (SAGE Publications, Inc., Thousand Oaks, CA), pp. 166195. Mudambi, Ram and Susan Helper: 1998, The Close but Adversarial Model of Supplier Relations in the U.S. Auto Industry, Strategic Management Journal 19, 775792. Ring, Peter Smith and Andrew Van de Ven: 1992, Structuring Cooperative Relationships Between Organizations, Strategic Management Journal 13, 483498. Ring, Peter Smith and Andrew H. Van de Ven: 1994, Developmental Processes of Cooperative Interorganizational Relationships, Academy of Management Review 19, 90. Rousseau, Sim Sitkin, Ronald Burt and Camerer: 1998, Not so Different after All: A cross-discipline View of Trust, Academy of Management Review 23, 393404. Sitkin, Sim B. and Nancy L. Roth: 1993, Explaining the Limited Effectiveness of Legalistic Remedies for Trust/Distrust, Organization Science 4, 367392. Strauss, Karyn: 1999, Trust is the Key to Buyersupplier Relationships, Nations Restaurant News 33, 94, 116. Tversky, Amos and Daniel Kahneman: 1982, Availability: A Heuristic for Judging Frequency and Probability, in D. Kahneman, P. Slovic and A. Tversky (eds.), Judgment under Uncertainty: Heuristics and Biases (Cambridge University Press, Cambridge, U.K.), pp. 163178. Yin, Robert K.: 1994, Case Study Research: Design and Methods, 2nd ed. (SAGE Publications, Thousand Oaks). Zaheer, Akbar, Bill McEvily and Vincenzo Perrone: 1998, The Strategic Value of Buyer-supplier Relationships, International Journal of Purchasing and Materials Management 34, 2026.

78

Geoffrey G. Bell et al. Geoffrey G. Bell University of Minnesota Duluth, 110 SBE, 10 University Drive, Duluth, MN 55812, U.S.A. E-mail: ggbell@d.umn.edu Robert J. Oppenheimer and Andre Bastien Concordia University, Department of Management, 1455 de Maisoneuve Blvd. West, Montreal, Quebec, H3G 1M8, Canada

Zand, D. E.: 1972, Trust and Managerial Problem Solving, Administrative Science Quarterly 17, 229239. Zucker, Lynne G.: 1986, Production of Trust: Institutional Sources of Economic Structure, 18401920, in L. L. Cummings and B. Staw (eds.), Research in Organizational Behavior ( JAI Press), pp. 53111.