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Title: The importance of trust in the digital networked economy


1
The importance of trust in the
digital networked economy Howard
Rosenbaum hrosenba_at_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
buyers 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-Sha
lhoub, 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 others 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 Vendors 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-ba
sed 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_at_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
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