BUSINESS TRENDS AND SMALL BUSINESS TRUST

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        BUSINESS TRENDS AND SMALL BUSINESS TRUST

 Dillard B. Tinsley, Stephen F. Austin State University
 David E. Gundersen, Stephen F. Austin State University

                         ABSTRACT

Trust has long been recognized as an important factor for
small business interactions with customers--and for
interactions between a firm's members. Business trends, such
as alliances, total quality management, and relationship
marketing, are currently increasing the need for small
business leaders to systematically consider trust as a factor
in their decisions. These trends and other developments
increase the need for owner/managers to seek and recognize
trustworthy individuals.

                       INTRODUCTION

The recent publication of TRUST: THE SOCIAL VIRTUES AND THE
CREATION OF PROSPERITY (Fukuyama 1995) should assist the
general public in understanding the importance of trust for
business activities. Such recognition may help influence the
leaders of society, including governmental and educational
institutions, to consider what might be done to foster the
general level of trust in society. Even those who do not
agree with the specific analyses in this book will recognize
that high levels of trust within a society help to facilitate
business relationships.

The importance of trust has long been recognized in the
business community; and recent articles have extended the
scholarly analyses of the role of trust in business
organizations (Hosmer 1995; Mayer, Davis, and Schoorman
1995). Small businesses have a special opportunity to develop
trusting relationships with customers. The ability of
owner/managers, as well as employees, to form personal
relationships with customers is traditionally seen as
enhancing small businesses strengths in attending to customer
needs and flexibility in meeting those needs. "Their managers
have been close to customers and thus able to know and
respond easily to their needs." (Longenecker, Moore, and
Petty, 1994, p. 654) Fulfillment of needs helps to build
trust, especially in the regular customers that personally
know the owner/manager and employees. Chances for personal
relationships are more likely when employees are few. In
other words, the limited numbers of members in a small firm
and the closeness of the owner/manager to customers will
facilitate personal relationships of trust--and should
enhance patronage. In addition, trust in small businesses by
the populace of a local community is enhanced by the
tendencies for small businesses owners to be active in their
communities and civic leaders (Dennis 1993, p. 38; Ellis and
Del Valle 1993).

The smaller number of members in a small firm should
facilitate development of trusting interpersonal
relationships between employees and managers. Such
relationships should lead to a trusting work climate, which
can be "...one of the most valuable assets for the manager in




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the role of motivating employees while allowing them quality
of worklife (Deboval, Cornish, Swindle, and Gaster 1994).

The research into small business ethics indicates that
certain ethical factor structures do influence decisions by
small business managers (Hornsby, Kuratko, Naffziger,
LaFollette, and Hodgetts 1994). However, there seem to be
differences in small business ethics according to community
influences, e.g., nonurban business owners seem to exhibit
higher ethical values than owners in urban areas (Smith and
Oakley 1994). Other research indicates that both small
business owner/managers and their customers evaluate
transactions on the basis of fairness and justice; but
situational factors may cause different ethical evaluations
by the two groups (Humphreys, Robin, Reindenbach, and Moak
1991). Possible problems in small business ethics may be
remedied if small business managers understand the nature of
trust and its implications for business success. In addition,
a number of trends are currently increasing the importance of
trust as a significant factor in managerial decisions. There
is a need for members of small businesses--especially owners
and managers--to systematically consider the salient aspects
of trust as a concept and recognize these trends'
implications.

                        DEFINING TRUST

After finding that there is no generally-accepted definition
of trust, Hosmer developed the following definition in a
recent article: "Trust is the expectation by one person,
group, or firm of ethically justifiable behavior--that is,
morally correct decisions and actions based on ethical
principles of analysis--on the part of the other person,
group, or firm in a joint endeavor or economic exchange."
(Hosmer 1995, p. 399). This definition seeks to integrate the
intellectual traditions of organizational theory and
philosophical ethics, and it is based on a great deal of
scholarly insight. For example, Hosmer's article explains
four different behavioral definitions of trust from
organizational theory. From philosophical ethics, it includes
a useful summary of ten principles that guide the moral
nature of ethical decisions by using different perspectives
to limit the self-interest of the decision maker. Hosmer's
definition, however, is not really suitable for guiding the
members of small businesses. It has been stated in order to
consider the implications of several of its aspects that do
not warrant full agreement.

One problem with Hosmer's definition is that it goes beyond
person-to-person relationships. For small business
applications, it is better to refer to Butler's view that the
literature on trust converges toward several beliefs--one of
which is that "...trust in a specific person is more relevant
in terms of predicting outcomes than is the global attitude
of trust in generalized others (Butler 1991, p. 647).
Trusting in a person seems to be more relevant for small
business situations, rather than putting a real trust in
groups and firms. Trust in a person means that the viewer
expects that this specific person will take personal
responsibility for the moral aspects of decisions.




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Another problem with Hosmer's definition is its restriction
to economic matters. People do not want to be viewed strictly
as economic units, especially members of a small firm. In
addition, a person's behavior apart from business matters may
be considered in judging trustworthiness. Even though most
research indicates that trustworthiness is very likely to be
situational in nature, one cannot help but consider behavior
in various situations. Can a person be fully trusted on
business affairs if that person cheats on a golf game or on a
spouse? Of course, questions may also arise from ethics
changing according to the situation. For example, will
someone who is extremely moral in personal affairs "cut
corners" in business affairs?

The recent research and analyses of Mayer, Davis, and
Schoorman (1995) have resulted in a rigorous definition of
trust that fulfills generalized theory needs, but it is
easily restricted to person-to-person relationships. Small
business can fruitfully approach 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
particular action important to the trustor, irrespective of
the ability to monitor or control that other party." (Mayer,
Davis, and Schoorman 1995, p. 713) This definition allows
generalized theories to be extended to small business. For
practical purposes, however, the "party" in small business
trust is assumed to be restricted to individual persons. This
leaves the way open for future theories and research that may
ultimately justify the extension of trust to a generalized
group or firm.

                CHARACTERISTICS OF TRUST

A number of different factors have been proposed as affecting
the formation of trust between parties. Here again, the
recent work of Mayer, Davis, and Schoorman (1995) is useful:
and they present a table of Trust Antecedents, referencing
them to the proposing authors.

Taking all the materials into account, Mayer, Davis, and
Schoorman present a Proposed Model of Trust, which summarizes
significant trust antecedents. This model indicates that a
party's trustworthiness is affected by how a potential
trustor perceives the following three factors: Benevolence,
Integrity, and Ability. This model also indicates that
formation of trust is affected by other people, and the
outcomes of trust placement. All these factors should be
considered in characterizing trust, but the three perceived
factors need to be modified.

The factors of benevolence and integrity are obviously useful
in evaluating a person's trustworthiness. Benevolence
involves the trustee's desire to do good to the trustor.
Integrity means that the trustee follows a set of principles
that the trustor accepts as a framework for performance.
Trust, therefore, is given when the trustee is thought to
seek to do good for the trustor, guided by mutually-
acceptable principles. Note that trust is different from
sincerity, which relates to a person's commitment. A sincere
person may seek to deceive other people "for their own good."




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Trust implies truth that is based on mutual principles.

The Proposed Model of Trust can be improved by removing
ability as one of the Factors of Perceived Trustworthiness. A
number of studies do include ability or capabilities as
antecedents of trust, but such factors are better considered
apart from trust. The factors of benevolence and integrity
have to do with ethics and moral judgements. There is some
debate about whether or not trust is a global aspect of a
relationship. For example, will you trust business
relationships with a person who places illegal bets on
athletic contests?

In contrast, ability has to do with innate mental and
physical characteristics that may limit a trustworthy
person's performance--even though the "heart is willing."
Ability also involves levels of proficiency that are
specific, rather than global in nature. For example, an
excellent accountant may not be good at marketing. A
brilliant engineer may not be an adequate manager. For
reasons such as these, a better concept than trust for
considering ability is competence, which involves abilities
that are developed into capabilities with proficiency in
their use.

Considering trust and competence separately is a fruitful
form of analysis, and there is a concept that does integrate
the two in a useful fashion. For some years, a great deal of
research and analysis has been done into the concept of
"source credibility." Credibility is affected by situational
variables, and a number of factors have been found to affect
it. However, the two factors that have consistently emerged
as the foundation of credibility are expertise and
trustworthiness (Perloff 1993, p. 139). Small business
owner/managers should consider and judge a person's
competence and trustworthiness as separate characteristics,
which, when combined together, give an estimation of the person's
credibility. There may be some competent people who are not trustworthy
and some other people who are trustworthy but not competent.

                       EXTERNAL TRENDS

Research indicates that owner/managers of entrepreneurial
firms use networking to tap resources that are external to
their firms, and the fastest-growing seem to make more use
than the slower-growing firms (Jarillo 1989). There are
also a growing number of small business chief executives
that are forming special networks among themselves where
they act as consultants to each other on strategic
decisions (Bowers 1993). Such networks are alliances where
trust between the participants is necessary for resource-
sharing, especially when sensitive information on
strategic issues is involved. Trust between participants
is also a factor in other types of alliances, and research
indicates that a significant number of small business
organizations are involved in strategic alliances of
various types (Peterson 1994).

The growing trend to alliances between business
organizations of all sizes intuitively makes trust an




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increasingly important factor, and research into alliance
formation indicates that trust must be developed in the
formation stages of the alliance. Kanter (1994) asserts
that business alliances follow patterns much like
relationships between people, but the rapport that is
initially developed between chief executives of the
involved firms must be approved by other significant
members of the firms. If the companies decide to become
significant allies, the evolving relationships between the
companies' members reveal differences and other roadblocks
to full collaboration. Kanter's analyses present insights
into developing alliances that feature effective
collaboration between members.

Considering the processes by which trust facilitates
successful alliances goes beyond this paper. Formation of
alliances is analyzed in Kanter's (1994) article, which
can be very useful to small business owner/managers. They
should also be aware of the research of Bleeke and Ernst
(1995) that reveals even stronger reasons for seeking
trustworthy allies. Bleeke and Ernst have found that
alliances are usually failures unless they involve
complementary equals in business strength. Failure is not
only common in other types of alliances, such alliances
often end in sales of the weaker firm to the stronger
firm. Small business owner/managers should be aware of the
pitfalls discussed by Bleeke and Ernst. They should be
careful to assure that the leaders of possible allies are
trustworthy enough not to take advantage of an alliance
that has unforeseen difficulties. Unethical leaders may
even be tempted to institute an alliance as the path to
acquire a small firm.

The other major external trend which increases the focus
on trust is relationship marketing. The close
relationships that small businesses offer to their
customers are being threatened by large organizations
seeking to develop longterm relationships with their
customers (Berling 1993). Relationship marketing is being
facilitated by computerized data bases with extensive
information on customers (Berry 1995). Large manufacturers
and retailers use such databases to supply their
salespeople with information on customer needs, buying
behavior, and personal characteristics (Bessen 1993; De
Lisser 1994). To reinforce personalized attention by these
salespeople, tailored promotional communications can go
directly to specific targets through media such as
telephone, mail, fax machines, and internet.

Relationship marketing is being used by large
organizations to directly challenge small businesses'
traditional advantage of personalized attention. Large
organizations are gaining the information to increase
trust levels in customers, as well as the capabilities to
target their communications. Such pressures will continue
to grow because of the generalized recognition that
marketing should be regarded as an investment with returns
that build up over time and that certain groups of
customers can be targeted as switchable, high-profit, and
share determiners (Slywotzky and Shapiro 1993). The focus




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is especially intense on developing customer loyalty for
repeat business (Jacob 1994), which reflects customer
trust that a supplier will provide the best offerings on a
continuing basis.

                   INTERNAL TRENDS

Business organizations increasingly see human capabilities
as their most vital resources, especially as embodied in
processes (Stalk, Evans, and Shulman 1992). Total Quality
Management (TQM) is currently the most-discussed method of
bringing out the best from human resources and tying this
best to customer satisfaction. TQM has been successfully
used by small businesses (Shea and Gobeli 1995). It is
sufficiently discussed in business literature so that no
detailed discussion of TQM is needed here. Trust between
the firm and customers is implied by its customer
satisfaction aspect, and relationship marketing is a valid
approach for external application of TQM.

TQM's internal aspects also imply trust. For example, members
of the firm are empowered and trusted to take personal
initiative. In addition, trust levels must be high because
members of the firm are expected to work together effectively
--often across functional boundaries and often in teams.
Small firms may be able to gain an advantage over large
organizations in developing internal trust because fewer
people are involved, which allows more-frequent and longer
interactions than a company with many employees.
Owner/managers, however, should realize that by the start of
the 1990s, researchers could "...classify 48% of the American
workforce as cynical, having adopted a cold, calculating
outlook on life. Cynics agree that lying, putting on a false
face, and taking advantage of others are fundamental to human
character and conclude that, basically, people are just out
for themselves. The remainder have either a somewhat wary or
wholly upbeat opinion of human nature." (Mirvis and Kanter
1991, pp. 50-52) During the 1990s, cynical outlooks have
probably been increased by developments in politics, the
legal system, and business, e.g., downsizing.

Jones (1995) has shown how prevalence of trust within an
organization reduces costs both internally and externally to
an organization. Trustworthiness reduces the needs for
monitoring costs, bonding costs, search costs, warranty
costs, residual losses, and contracting costs. Jones develops
a theory of why and how increased trust within an
organization can develop competitive advantage for the
organization.

                       CONCLUSION

There may be questions as to whether or not trustworthiness
really does offer a path to competitive advantage for an
organization. However, just the trends in cynicism should be
enough to cause an increased interest by small business
owner/managers in the elements of building trust. Trust
between a small firm's owner/managers and the employees, as
well as the customers, is a traditional characteristic of
small businesses. Beyond this, research results in the 1980s




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revealed that managers ranked integrity as the most important
personal quality that they would like to see in their peers,
superiors, and subordinates (Posner and Schmidt 1984).

Each person must develop personal capabilities to exhibit
trustworthiness and to judge it in others. Of course, this
would be expected in our lives, whatever the trends; but the
trends indicate that its importance in business is growing.
The situations offer certain challenges to small businesses,
but certain opportunities are also offered. In addition to the
trends discussed here, other developments increasingly cause
situations where owner/managers face strong needs to systematically
consider trustworthiness. Examples of such situations include (1)
a small manufacturer who faces a large "power" retailer; (2) a
small manufacturer who is seeking to go international; and (3) a
small retailer whose supplier uses multiple channels that may compete
with the retailer.

The elements of trust that were mentioned earlier,
benevolence and integrity, are a good starting place for
owner/managers to start their consideration. Because trust is
situational, other elements that influence the development of
trust should also be considered. Some of the antecedents
given by Mayer, Davis, and Schoorman (1995) include the
following: past interactions, fairness, discreetness,
openness, receptivity, shared values, and reliability. Jones
(1995) asserts that trustworthiness is signaled by avoiding
signals of opportunism, and this indicates that trust
elements can only come from experience with a person over
time. However, more and more business is conducted through
computerized interactions, especially by large organizations.
This implies that personalized interactions over time may be
ever harder to conduct between people. Small business
owner/managers may ultimately be able to use their advantage
of fewer people with which they must interact. Small size may
yet be seen to offer the opportunity to best large
organizations in establishing trustworthiness and receiving
its benefits.

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