The Role Of Trust On
Knowledge Creation In A Virtual Organization: A Social Capital Perspective
Ji-Hong Park ,
Syracuse University
ABSTRACT:
This paper investigates the influence of trust on knowledge transfer within a virtual organization. Despite huge investment on knowledge sharing practice in a virtual environment in order to create organizational knowledge, people tend to hesitate in sharing knowledge in today’s knowledge-intensive working environment. Trust among people is usually known as a major factor that could encourage this practice. However, little is known about how trust affects knowledge creation. This paper proposes that trust influences knowledge creation through three entities: opportunity, motivation, and capability for the knowledge combination in a virtual organization. Other entities such as informal network structure, shared norms and values, and risk are also proposed to interact with trust to influence organizational knowledge creation.
This paper implies that further theoretical study should be conducted on the relationship between risk and trust in a virtual organization, and in practice that developers of ICTs should consider the social relationship existing between trust and knowledge creation for more effective knowledge transfer.
Keywords: Knowledge Transfer, Trust, Virtual
Organization, Knowledge Sharing, Social Networks, Social Capital
1. Introduction
The purpose of this paper is to investigate how trust affects knowledge creation within a virtual organization’s working environment where most communication is occurred through information and communication technologies (ICTs) with minimum face-to-face interaction. This paper examines it through the lens of social capital perspective.
In today’s knowledge-intensive working environment knowledge creation as the source of sustainable competitive advantage has become widespread among practitioners as well as researchers (Nonaka, 1991, 1998; Pfeffer, 1994).
Sharing knowledge among people is one way of new knowledge creation (Nonaka & Takeuchi, 1995). However, people sometimes hesitate in transferring their knowledge especially when there is potential risk that other people would take advantage of that people’s knowledge. In this sense, the risk refers to ambiguity or uncertainty that the other people could exploit some people’s knowledge. Furthermore, in a virtual organization, this risk is higher than in physical ones as most communication occurs virtually without face-to-face interaction. As the risk is closely related with trust (Gambetta, 1998; Jones & George, 1998), it is important to examine how this relationship affects the knowledge transfer in a virtual organization.
In a virtual organization, social relations are constructed in the ICT-supported communication linkages, as ICTs enable people to communicate with each other without face-to-face meeting. However, trust does not always exist when social relations are constructed. Krackhardt & Hanson (1993) argue that trust networks do not always form coincident with social networks. Then, without trust, can social relations encourage the knowledge transfer in a virtual organization where the risk is higher than a physical organization? This paper tries to examine this problem through a social capital perspective.
Additionally, the study of knowledge transfer in organizational settings using a social perspective lense is not relatively well established. Zander & Kogut (1995) have proposed that firms are social communities which use their relational structure and shared coding schemes to enhance the transfer and communication of new skills and capabilities. This is in contrast to the more established transaction cost theory that is grounded in market exchange. As trust and knowledge creation can be defined in the exchange relationship which is based on social relationship, a social capital perspective is more appropriate than transaction cost theory. Additionally, the social perspective has benefits especially when studying socially-embedded elements such as trust, knowledge, and ICTs, which give broader perspective than non-social perspective such as transaction-cost theory.
Questions explored in this research are: How is trust related with the knowledge creation process in a virtual organization? What other variables could influence trust in a virtual organization?
In this paper, first, the concept of virtual organizations is discussed. Second, the conceptual model is presented with the relationship between trust and knowledge creation. Third, other variables which are related to trust are examined. Finally, research implications and conclusions are discussed.
2. Virtual Organizations
Venkatraman and Henderson (1997) suggest a
framework of virtual organizations which is based on three interdependent
vectors. The vectors are virtual sourcing, virtual expertise, and
virtual encounter. The virtual sourcing is related to supply chain.
According to this model, firms virtually integrate the relationships with
suppliers to manage and coordinate the required assets for products. This
vector is located between the firm and suppliers. The second vector of virtual
expertise is about managing knowledge. It is concerned with leveraging diverse
sources of expertise within and across sub-organizational boundaries within the
firm. Knowledge is expected to contribute more to value creation than physical
assets. This vector is located within the firm. The final vector of virtual
encounter refers to the virtual relationships between firms and their
customers. In supply chain, this vector is located between the firm and its
customer. Although this framework includes external as well as internal vectors
of an organization so that
we can understand a virtual organization with a comprehensive
view, the problem with Venkatraman and
As this paper’s focus is different from supply chain aspects, it needs to reconceptualize virtual organizations. Fundamentally, this paper is grounded in the view that organizations are information-processing systems (Galbraith, 1977). The virtual organization is conceptualized as an ICT-supported network of geographically distributed organizations, functioning like a single organization with virtual combination of knowledge, whose members are bound by a long-term common goal. The ICT-supported network here means a set of communication linkages that enables groups of people to communicate with each other without face-to-face meeting. Thus, ICT-supported refers to a situatiowhere ICTs enable communications without face-to-face meeting. This network provides opportunities for the construction of social relations. Virtual combination refers to the integration of knowledge through active knowledge transfer. For example, while an organization’s members are exchanging their knowledge with each other they could reach a consensus on a certain problem. This combination process is important because it leads towards knowledge creation (Nahapiet & Ghoshal, 1998; Nonaka & Takeuchi, 1995).
Considering the importance of social relations and the concept of virtual organizations, in the next section, this paper proposes a conceptual model. More detailed explanation follow the model.
3. Organizational Knowledge
Creation
One way of distinguishing knowledge comes from whether knowledge may be codified or not. Knowledge can be distinguished by explicit and tacit knowledge (Nonaka & Takeuchi, 1995). Explicit knowledge, otherwise known as codifiable knowledge, is knowledge that is readily and easily codified into text, diagrams, etc. (Nonaka, 1991; Zack, 1999). Tacit knowledge, on the other hand, is subconsciously learned from experience, and can be very difficult to articulate and codify (Alavi & Leidner, 2001). Within the knowledge management literature, there are at least two classifications of knowledge processes. Nonaka & Takeuchi (1995) propose four knowledge processes that build on the distinctions between tacit and explicit knowledge: socialization, internalization, combination, and externalization. For effective, ongoing knowledge creation, all four types of processes need to take place. First, socialization refers to transfer from tacit to tacit knowledge. Individuals have a wealth of tacit knowledge that they share with other members in an organization. Tacit knowledge is exchanged through joint activities such as spending time, being together or living in the same environment. This knowledge exchange may be a one-to-one, one-to-many, or a many-to-many interaction. Traditionally, ‘same place and time’ face-to-face meetings have been the medium for exchange. Today, although ICTs can be used to help inter-connect people, considering that tacit knowledge is difficult to articulate and codify, whether or not ICTs can simulate “being together,” “spending time,” and “living in the same environment” may be an issue. Regarding this problem, the concept of “presence” may help to solve it. Presence has been defined as “the perceptual illusion of non-mediation” (Lombard & Ditton, 1997). This definition says that providing a sense of presence is providing users with an illusion that the experience is non-mediated. By a non-mediated experience we mean that the experience is experienced without any technology in the way. This illusion of non-mediation occurs when a person does not perceive the existence of a medium in his/her environment, and behaves as if the medium is not there.
Second, externalization refers to transfer from tacit to explicit knowledge. Organizations have traditionally documented standard operating procedures, created periodic reports, white papers, etc. The creation of explicit knowledge has been greatly enabled by ICTs. Third, combination refers to transfer from explicit to explicit knowledge. This explicit to explicit interaction is also greatly enabled by ICTs. In addition to e-mail and groupware tools such as Lotus Notes, and web-based systems facilitate explicit knowledge creation. Fourth, internalization refers to transfer from explicit to tacit knowledge. It depends on an individual’s ability to make sense out of explicit information. Successful internalization is a function of individual attributes, including personal expertise, experiences, and mindset. According to the Nonaka & Takeuchi’s (1995) organizational knowledge creating model, organizational knowledge is created through the four knowledge transfer processes. As this paper’s focus lies on an organization, the knowledge creation refers to the organizational knowledge created through the four processes: socialization, externalization, combination, and internalization.
4. Social Capital
Perspective
Although the definition of social capital varies when focusing on relations, structures, or both types of linkages (Adler & Kwon, 2002), according to Adler & Kwon’s (2002) relatively new definition, social capital is the “goodwill” that resides in the structure of social relations. They conceptualize “goodwill” as sympathy, trust, and forgiveness offered by friends and acquaintances, and the social relation as the exchanging conduit of favors and gifts. Although they tried to converge the related concepts such as informal organization, trust, culture, social support, social exchange, and social network, they still placed the core definition on social networks since they sustain the social relations. Nahapiet and Ghoshal (1998) also found the source of social capital in network structure. They conceptualize it as “the sum of the actual and potential resources embedded within, available through, and derived from the network of relationships possessed by an individual or social unit.” Like these two examples, the social structural perspective is dominant in social capital conceptualizations (e.g. Burt, 1992; Coleman, 1990; Nahapiet & Ghoshal, 1998).
The social structural perspective assumes that social capital resides in the network of social relations regardless of unit of analysis. For example, trust can reside in a social relation between individual A and B; or in multiple social relations among a group of people. This implies that we can easily expand the unit of analysis from individual to organizational level. Considering this study’s core concept, trust and knowledge can be applicable from individual to organizational or social level, it is important to adopt more comprehensive and expandable perspective in terms of unit of analysis. For example, individual level trust can be expanded easily to organizational trust if trust resides in social relations rather than a single individual or group. The relation is constructed through social interactions which are empowered by interpersonal trust. The social relation is also the fundamental basis for the development of intellectual capital (Nahapiet & Ghoshal, 1998).
The key conditions for existence and generation of social capital include opportunity, motivation, and ability (Adler & Kwon, 2002):
·
· Motivation for Virtual Combination: Sources of social capital lie not only in networks but also in norms and trust which is key motivational source.
·
Capability for Virtual
Combination: Capability refers to
competencies and resources at the nodes of the network. This can be easily
understood through an example: a product designer could get valuable
opportunities for reliable advice from manufacturing engineers using network of
ties and motivations of engineers to help, in case the engineers have the
appropriate expertise.
Nahapiet & Ghoshal (1998) also suggest similar conditions especially for the creation of new knowledge through combination and exchange of existing knowledge. According to Adler & Kwon (2002), opportunity refers to a chance that external ties might allow actors to obtain resources. For example, structural holes (Burt, 1992) give actors the opportunity to control information flow: Actor A and actor B linked each other, and actor A and actor C is also linked, then A has competitive advantage and power because the actor A can access higher quality, newer and less redundant information than other actors.
5. Conceptual Model
The conceptual model proposed in Figure 1 combines the two
social capital creation models of Nahapiet & Ghoshal (1998) and Adler & Kwon (2002). This conceptual
framework primarily explains the relationship between trust and knowledge
creation. The relationships among other entities are excluded because they are
out of the topic. For example, the direct relationship between “ICTs” and “collective opportunity for virtual
combination” is excluded because the relationship is not directly related
to trust which is one of main variables.
Figure.
1. Conceptual Framework Of Trust And Knowledge Creation In A Virtual Organization
(Informal Network Structure And Shared Norms & Values Are Developed Through Virtual
Socialization)
5.1. Trust And
Virtual Combination
According to Nahapiet & Ghoshal (1998), trust and cooperation have a two-way interaction: “trust lubricates cooperation, and cooperation itself breeds trust.” This means that both are tightly connected and interdependent, and trust may help solve problems of cooperation. As noted earlier, virtual combination requires social relationships based on various communication linkages. As trust lubricates these social relationships, it provides opportunities for virtual combination. Additionally, given the higher levels of trust, people are more willing to take risks in knowledge exchange (Nahapiet & Ghoshal, 1998). Thus, the next propositions are:
Proposition 1: Trust encourages the opportunity
for virtual combination.
Proposition 2: Trust encourages the motivation for virtual combination.
5.2. Trust And
Risk
Trust is a very complex construct, which has many definitions (Rousseau et al., 1998). For example, there seems to be a distinction between interpersonal trust and organizational trust. Interpersonal trust is trust in which the trustee is another individual. The target of trust is the person, which is not based on their position, title, or because they represent an organization. Organizational trust is when the trustee is an organization. Example includes that an employee trusts his or her company. Another aspect of organizational trust is that the trustee could be the representative of an organization. In this case, the representative such as a manager is the target of organizational trust rather than that of interpersonal trust. This aspect of organizational trust also applies to group or institution. Since this paper focuses on an organization’s collective trust, organizational trust is selected. In this paper, the trust refers to the organizational trust embedded in a virtual organization which is constructed by ICT-supported networks.
Key characteristic of trust include that, without it, it is hard to transfer knowledge, since the risk and uncertainty is high for the exchange of intellectual capital (Boon & Holmes, 1991; Gambetta, 1998; Handy, 1995; Jones & George, 1998). There seems general agreement that risk is essential in understanding trust (Rousseau et al., 1998), whether it is interpersonal or organizational. For instance, Boon and Holmes define trust as “positive expectations about another’s motives with respect to oneself in situations entailing risk” (1991; pp. 194). The idea is that trust is a relevant factor only in risky situations, and without uncertainty in the outcome, trust has no role of any consequence. This leads to reciprocal relationship between trust and risk so that risk creates an opportunity for trust, which in turn leads to more risk taking (Rousseau et al., 1998). Since this paper proposes trust as positive expectations in a risky situation, it will focus on the role of reducing risk in a relationship.
The risk-reducing aspect of interpersonal trust leads to the collective trust that is proposed to facilitate social interactions through lubrication (Jones & George, 1998; Williams, 2001). According to Gambetta (1988; pp.217), “the probability that an actor will perform an action that is beneficial or at least not detrimental to us is high enough for us to consider engaging in some form of cooperation with him.” Especially in a setting where tasks require cooperation across disciplines, the collective trust becomes an invaluable resource. Engaging in cooperative actions, social interactions are conducive to broader transfers of knowledge within an organization. Theses social interactions create value in terms of social capital.
5.3. Information Communication
Technologies (ICTs)
If we view organizations basically as information-processing systems (Galbraith, 1977; Scott, 2002), the ICTs provide the opportunity of communication linkages between geographically distributed groups of people for the processing, exchange, and distributing of information. However, ICTs can enhance the risk because of the distributed nature of the virtual organization. Informal network structure and shared norms and values are also influenced by ICTs. From a transaction cost theoretical aspect, ICTs could reduce transaction cost by eliminating face-to-face meeting; in social aspect, they also could increase social capital by encourage the chance of constructing informal network and shared norms and values.
Proposition 3: ICTs
encourage risk in a virtual organization.
Proposition 4: ICTs
encourage the chance of forming informal network structure in a virtual organization.
Proposition 5: ICTs
encourage the chance of forming shared norms and values in a virtual organization.
5.4. Trust And
Informal Network Structure
The basic assumption of social capital theory is that the network structure provides access to resources (Nahapiet & Ghoshal, 1998). As the informal network structure provides informal communication linkages, it provides an opportunity to build social relations which are fundamental for trust building. Conversely, trustworthy relationship concrete the social relationships in which the trust is embedded, which leads to building informal network structures.
Informal network structure play a crucial role in virtual organizations. A key characteristic of virtual organizations is a high level of informal communication or interaction. Because of a lack of formal rules, procedures, and clear reporting relationships, more extensive informal communication is required (Monge & Contractor, 1998). Informal communication is personal and interactive, and determines a network structure, as members of the organization perform their tasks. Researchers have found that if interactions of informal groups are tracked over time, they exhibit a pattern of communication and reveal what has been referred to as network structure (Brass, 1985).
Proposition 6: Trust encourages informal network and vice versa in a virtual organization
5.5. Informal Network Structure
And Virtual Combination
The main argument in this paper is that, within the context of the framework of virtual combination, the informal network structure facilitates the virtual combination while creating knowledge. This is achieved through the ways in which various opportunities affect access to parties for integrating knowledge in a virtual organization.
Proposition 7:
Informal network structure encourages the opportunity for virtual
combination.
5.6. Trust And
Shared Norms And Values
As shared norms and values enhance social interaction and the expectation of binding (Coleman, 1990; Nahapiet & Ghoshal, 1998), trust is established through more frequent social communications. At the same time, trust provides antecedents for social interactions, which are fundamental requirements of shared norms and values.
Shared norms & values determine the effects of social capital and holds groups together. They include tacitly agreed social rules such as languages or manner codes, which makes us the same or differentiates them. For example, dress codes vary from one social situation to another, as do manners and speech. These norms and values are internally linked with each other through “bonding” ties, and externally linked with outside values and norms through “binding” (Adler & Kwon, 2002).
Proposition 8:
Trust encourages the shared norms & values in a virtual organization
5.7. Shared Norms And Values And Virtual Combination
Shared norms and values refer to a common assumption among members of an organization established by long-term social relations. According to Nahapiet & Ghoshal (1998), these shared norms and values enable a group of people to exchange their knowledge. Such norms and values include a response to diversity, openness to criticism, and a tolerance of failure, which facilitate “groupthink” that shows a high level of knowledge creation (Nahapiet & Ghoshal, 1998). As virtual combination requires ICT-supported social interactions, shared norms & values allow a group of people to have an initial chance to interact among a group of people.
Proposition 9: Shared norms & values encourage
the opportunity for virtual combination.
Proposition 10: Shared norms & values encourage the capability for virtual combination.
5.8. Virtual Combination
The virtual combination refers to the transfer of knowledge (both tacit and explicit) in the virtual organization where social relations are a fundamental element. As noted in Nonaka & Takeuchi’s (1995) model, organizational knowledge is created through the four processes; thus this paper argues that, in the virtual context, knowledge is created through the virtual internalization, virtual combination, and virtual externalization. Since the focus of this paper is on trust and knowledge creation in a single organization, this paper only examines the virtual combination.
Proposition 11: Virtual combination encourages creating new organizational knowledge supported by collective opportunity, motivation, and capability for virtual combination.
6. Discussion
Knowledge management is more than data management, it is a social process. Important aspects of knowledge management such as organizational knowledge creation processes are influenced by social phenomena. One approach to facilitating knowledge creation is through geographically dispersed virtual organizations. Dispersed teams have long existed but their prevalence has accelerated with improvements in computer-mediated communications. Dispersed or virtual ways of working is supported primarily by ICTs.
This paper proposes that trust influences knowledge creation through the opportunity, motivation, and capability of the knowledge combination in a virtual organization. Other entities such as informal network structure, shared norms & values, and risk, also interact with trust to affect the knowledge creation. With a conceptual development, this paper explains the positive role of trust on knowledge creation in a virtual organization. Trust may increase opportunity, motivation, and capability of virtual combination with positive support of informal network structure, shared norms & values, and negative effect of risk. Finally, this paper argues that, through the socially embedded communication linkages, a group of people combines and exchanges their knowledge, which as a result generates new knowledge.
As all research has limitations, first, this study only views organizations as information-processing systems, which treats a particular aspect of the virtual organization in this paper. Second, due to the complex and unclear concept of trust, this paper over-generalizes the concept of trust. There are several classifications of trust and each has different application. Thus, further study is necessary.
However, this paper implies that further theoretical study should be conducted on the relationship between risk and trust in a virtual organization, and in practice that developers of ICTs should consider the social relationship existing between trust and knowledge creation for more effective knowledge transfer.
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Contact the Author:
Ji-Hong Park, Ph.D. Candidate, School of Information Studies, Syracuse University, 221 Hinds Hall, Syracuse, New York 13244-4100; Email: jpark12@syr.edu