The importance of trust in the digital networked economy Howard Rosenbaum hrosenba@indiana February

1. The importance of trust in the digital networked economy Howard Rosenbaum hrosenba@indiana.edu February 19, 2004

2. The importance of trust in the digital networked economy I. On the meaning of trust • Why is trust important in e-business? II. Towards an understanding of trust • A typology of trust • What do we know about trust in ebusiness? III. A research agenda for trust • The social construction of trust

3. I. On the meaning of trust • Why is trust important in e-business? In a global networked environment, cooperation and collaboration are necessary The digital economy depends fundamentally on collaborative work and complex partnerships Firms are experimenting with new organizational forms Virtual organizations, designing organizations, learning organizations… Partnerships and interorganizational systems are becoming increasingly common (short- and long-term)

4. I. On the meaning of trust A working definition of e-business focuses on : Exchange of goods and services across an interactive digital network Computer-mediated, virtual markets with new relationships among businesses and consumers Digital means of exchange (ecash, secure transactions) New business strategies, models, and processes to gain a competitive edge in the digital marketplace Technologies for privacy and to protect IP Supportive legislative and regulatory environment

5. I. On the meaning of trust Emarketer.com (2001). http://www.emediaworx.com.au/images/marketing/b2bstats.gif

6. I. On the meaning of trust E-business systems are fast-paced, competitive, and complex Negotiation of partnerships is a challenge Numerous stakeholders with different objectives, constraints, and requirements Firms often do not have total control over systems on which their e-applications depend Relationships among stakeholders responsible for different parts of the system are important A mutual sense of trust is a critical success factor in establishing and maintaining these organizational forms

7. I. On the meaning of trust The problem is especially acute for small and medium enterprises With limited social capital and resources, how can they best locate suitable partners? In a digital networked environment, what features matter in the decision to enter into business relationships? How can these features be represented in an interactive online environment? How can the social construction of trust be digitally encouraged, enhanced and managed?

8. The importance of trust in the digital networked economy I. On the meaning of trust • Why is trust important in e-business? II. Towards an understanding of trust • A typology of trust • What do we know about trust in ebusiness? III. A research agenda for trust • The social construction of trust

9. II. Towards an understanding of trust • A typology of trust Psychological or behavioral trust Interpersonal trust Organizational trust Legal trust Product trust Technology trust Situational trust Swift trust

10. II. Towards an understanding of trust Psychological or behavioral trust A predisposition towards having confidence that the other will carry thorough on their obligations; can also be a learned behavior based on prior knowledge and experience Warrington, et al., 2000; 164; Mayer, et al., 1995; 712 Interpersonal trust An expectancy based on the experience of an individual or group that another individual or group can be relied upon. This is reciprocal. Davenport and McLaughlin, 2004;Aschmoneit and Lenz, 2001; Dibben, 2000

11. II. Towards an understanding of trust Organizational trust The belief that an organization will meets its obligations Cummings and Bromiley, 1996 Legal trust Belief in the power of contracts and other statutory instruments to regulate the fulfillment of obligations Froomkin, 1996 Product trust A buyer’s belief that goods and services will perform their functions as claimed by the seller Ratnasingham, 1998

12. II. Towards an understanding of trust Technology trust A belief that technologies will perform reliably and will not be used for untoward purposes Chiravuri, 2001; Kollock, 1999; Guttman, Maes, and Moukas, 1998 Situational trust Dependence on cues and clues in the immediate social environment when deciding whether to trust another individual, group, organization, institution, or object Karake-Shalhoub, 2002

13. II. Towards an understanding of trust Swift trust Trust that relies on virtual interaction alone Originally used in the context of teams It occurs among people limited history of working together and with little prospect of working together in the future Constraints of the interaction mean that there is little time for relationship building Meyerson, Weick, and Kramer, 1996; Jarvenpaa and Leidner, 1998; Iacono and Weisband, 1997

14. II. Towards an understanding of trust A general definition of trust The willingness of a party to be vulnerable to the actions of another party based on the expectations that the other party 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 The expectation that commitments undertaken by another person or organization will be fulfilled, especially in relationships where the trusting party lacks control over the trusted party but must still depend on it Gefen, 2002

15. II. Towards an understanding of trust • What do we know about trust in ebusiness? It is a social construction and a basic component of all social relationships The process of the formation, maintenance, change, dissolution, and possibly repair of trust is dynamic Much of this process is deeply routinized and taken for granted We take notice of it more easily when it is breached It always takes place in complex social, institutional, organizational, interpersonal, and psychological contexts What elements of these contexts make a difference?

16. II. Towards an understanding of trust Trust is a basic component of all social interaction It is a key element in the emergence of social structure and interaction It is at the core of successful transactions and exchanges It is transitive It can be based on emotioonal intelligence, shared experience, reputation, demonstrated competence, trusted third parties With no prior experience of the other, it can be based on rapid calculations of cost/benefit

17. II. Towards an understanding of trust All forms of trust have antecedents Three major antecedent factors of trust in ebusiness: Information quality, web site interface design, company reputation Fung and Lee 1999 Another view Prepurchase knowledge Before interacting, partners may have an opinion about each other’s trustworthiness Reputation, previous on- or off-line or reports from trusted third parties

18. II. Towards an understanding of trust Antecedents of trust Interface properties System usability, familiar terminology and domain model First impression of the system with respect to services available, information architecture, and graphic design Informational content Evaluation of information about risk and guarantees Vendor’s openness with respect to business policies and, in particular, its privacy policy Egger, 2000

19. II. Towards an understanding of trust In social or business relationships, the early formation of trust involves Dispositional trust Situational trust The categorization mechanisms of interactors Illusory trust System trust Maintenance of trust is based on perceptions of the other These include: benevolence, honesty, competence and predictability

20. II. Towards an understanding of trust What do we know about the context of trust in ebusiness? Four broad categories of drivers shape new perspectives on trust requirements in e-business applications Increasing globalization The complexity of large-scale open information infrastructures The transition to a digital virtual environment Rapidly evolving systems and environments European Dependability Initiative, 1998

21. II. Towards an understanding of trust Trust is “crucial whenever risk, uncertainty, or interdependence exist. These conditions flourish in many settings and certainly exist in the relationship between e-commerce vendors and customers. As conditions become more uncertain because business complexity increases through computer-mediated commerce, the need for trust grows.” McKnight and Chervany, 2001; 1

22. II. Towards an understanding of trust The importance of trust building and maintenance as a foundation for successful businesses is well accepted It is also critical in the digital networked economy We are learning more about it with each passing year Does the fundamental nature and role of trust change in any significant ways in ebusiness? How does the social construction of trust take place in an ebusiness environment? How can this social process best be modeled?

23. II. Towards an understanding of trust Trust and SMEs It is a basis of relationships with partners or customers SMEs as customers Large companies will not trust them initially because they are unknown and not yet trustworthy The relationships seem more dangerous because of higher risks with SME SMEs will rarely get a loan or credit from suppliers Also worse delivery conditions than a trusted company The larger companies pass risks to the SMEs Deelmann and Loos, 2001

24. II. Towards an understanding of trust Other scenarios: SMEs as suppliers to business They have little market power and reputation This makes the risk of trading with SME high They have to carry financial disadvantages to supply larger companies SMEs as suppliers to consumers They do not have a well-known brand Customers do not know and do not trust SMEs and will not buy from their online shops

25. II. Towards an understanding of trust A decision making model for prospective partnerships Gallivan and Depledge, 2003; 164

26. II. Towards an understanding of trust Different bases of trust Trust type Trust basis Measure in e-context Calculus-based Reliance on independent Web ombudsman trust third party Reference-based Green light clues from Web seals trust environment Knowledge-based Past experience in joint Track and trace trust transactions projects functionality Identification-based Mutual identification Push-technology trust each other's goals agent-based commerce Van den Berg and Van Lieshout, 2001; 516

27. II. Towards an understanding of trust There are models of the formation of trust Tan and Thoen, (2000)

28. II. Towards an understanding of trust There are even models of the formation of distrust McKnight and Chervany, 2001; 886

29. The importance of trust in the digital networked economy I. On the meaning of trust • Why is trust important in e-business? II. Towards an understanding of trust • A typology of trust • What do we know about trust? III. A research agenda for trust • The social construction of trust

30. III. A research agenda for trust “The development of trust [among] stakeholders is … crucial to the expansion of e-business markets … However, the way in which trust may be gained in this context is not yet well understood. Requirements relating to trust are seen from many different perspectives by different stakeholders, and often expressed in different terms. There is … a need for a common framework or language that will support a shared understanding of the concept of trust and will allow the requirements of different stakeholders to be discussed in common terms” Jones, Wilikens, Morris, and Masera, 2000

31. III. A research agenda for trust “There is ... a need to understand the psychological and social dimensions of ‘trust,’ since trust is a critical component of any sort of commercial transaction.” National Research Council, 1998; 3 Trust “is even more important in the case of ecommerce because of the less verifiable and less controllable business environment of the web” Gefen, 2002; 40

32. III. A research agenda for trust • A major goal for a research agenda studying trust is to understand the social construction of trust in ebusiness This can be done at multiple levels of analysis Macro (societal) level: cross-cultural studies of the formation, maintenance, and dissolution of trust focusing on Cross-cultural communication Cultural differences: individualist-collectivist Language differences Cultural norms and soft rules for doing business

33. III. A research agenda for trust Researching trust at multiple levels of analysis Middle (institutional) level: studies of trust in organizations What is the role of organizational structure, culture, and processes on the development of trust? How do organizational structure, culture and processes and managerial practice shape the various forms of trust? In what ways does it make sense to use the metaphor of the trusting organization?

34. III. A research agenda for trust Studying trust at multiple levels of analysis Micro (interpersonal) level: focus is on interpersonal and situational trust What is the relationship between cognitive-based and affective-based trust? What is the effect of the workgroup on the development of trust? What components of the situation matter in situational, interpersonal, and swift trust?

35. III. A research agenda for trust There is a need for qualitative and quantitative work on trust This should be done in the laboratory and in the field Simulations of agents and trust Ethnographic studies of the social construction of trust Field experiments such as OPAL Understanding the role of social capital in the formation of trust among SMEs Developing the infrastructure to allow this to occur online (procedures, visualizations)

36. The importance of trust in the digital networked economy Howard Rosenbaum hrosenba@indiana.edu http://www.slis.indiana.edu/hrosenba/www/Pres/opal-trust-04/index.htm http://www.slis.indiana.edu/hrosenba/www/Pres/opal-trust-04/trust_bib.rtf