By David de Cremer and Jakob Stollberger
In every relationship, trust plays a valuable role to ensure that both ends are not met with infidelity and injustice. Successful companies for that matter compel their employees to apply trust and control on a proportionate rate to deliver just that.
Trust matters to organisations in important ways. The presence of trust has been demonstrated to affect a wide range of variables at both the individual and organisational level, which all combined promote the overall effective functioning of any organisation (Kramer, 1999). For example, when employees trust each other they will report higher job satisfaction, display more voluntarily citizenship behaviours, exchange information more quickly and frequently, and experience greater well-being and happiness at the work place. Organisations in turn benefit from such highly motivated and effective employees, as companies that are effective in fostering a trusting work culture perform better, create more revenue and ultimately lead their industry by being innovative (Colquitt, Scott, & LePine, 2007; Dirks & Ferrin, 2002). If trust has so many benefits, why is it then that so few companies really succeed in establishing a trust culture?
As we all know, organisations are complex hierarchical structures that create frequently conflicts of interests and feelings of fear to be exploited. Trust is commonly defined as people’s willingness to be vulnerable to the actions of others, because they consider the intentions of the other to be honest and caring about interests of others (Rousseau et al., 1998). Many organisations will therefore try to control the complexity of their work setting for trust to blossom. But it is exactly in this effort to try to control the self-interest of employees and coordinate efforts in more transparent and accountable ways that trust may be more difficult to achieve than ever. Why?
[ms-protect-content id=”3162″]It is no secret that people do not like to work in uncertain business settings. The human desire to reduce uncertainty is known to be pervasive and the recent decade of corporate failures and crises has translated this desire into a cry for increased transparency across different industries and work cultures. In most cases, fear dominates and as a result creates work places where one tries to install a sense of control among its employees by employing monitoring systems. Although companies may engage in these practices, few of them are actually able to install a culture of trust where employees are not afraid to be vulnerable to each other. From a rational point of view this may make little sense. If decision-making is made transparent and control systems exist that can punish bad behaviour (and if needed reward good behaviour) then the work place should be considered as a safe environment and voluntarily cooperation should prosper. Research however shows that when control systems are implemented, employees may indeed cooperate but not because they intrinsically trust the others but more because of an induced extrinsic type of trust. This extrinsic type of trust is also referred to as the trust people have in the control system itself and the consequences it reveals, but it does not include trusting the intrinsic intentions of the others. Specifically, employees will cooperate with others and trust them to deliver because they know that else they will be punished by the control system. This kind of trust is installed when a control system is implemented, but will also disappear quickly once this system is removed. Once a control system is removed, employees will not intrinsically trust others, because the reason why they trusted others initially is not in place anymore (Mulder, Van Dijk, De Cremer, & Wilke, 2006). Indeed, if the system is gone there is no reason anymore to trust others.
Another effect that emerges in the presence of a control system is that the increased transparency and accountability makes people feel uncomfortable. We know from much research in psychology and behavioral economics that people are not 100% rational beings. Rather than optimising their behavioural strategies and decisions based on the knowledge that they have, human emotions can disrupt logic and systematic processing of data in ways that may lead them to behave in ways that cannot be predicted by rational models. This is also the case when it comes down to working in transparent work settings. If transparency is established then everyone knows what and how everything is happening. From a rational point of view, one could then say that such an optimal situation of knowledge gathering should motivate employees more to contribute their ideas, knowledge and efforts to the organisation. However, when asked, most people will say that they do not like or even simply refuse to work in a completely transparent setting. So, rather than seeing employees become more loyal and motivated to contribute to the company, we notice that enhanced transparency actually leads employees to take a distance from the company as they feel more stressed and uncomfortable in dealing with such controlled work environment.
What is the result of companies focussing primarily on control strategies to enhance their trust beliefs about their employees? By promoting transparency on the work floor and as such being able to monitor the decisions and actions taken by the work force, does not lead to more trustworhy behaviours within the company but actually to less trust when employees work together. Does this indicate that monitoring systems are always bad news when it comes down to promoting a trust climate within the company? Not necessarily. As we noted earlier, when employees know that their actions are being monitored (as transparency is high), they will be confident that they can work together with others as exploitative behavior is very likely to be punished by the company (via its control systems). However, this extrinsic type of trust is not sufficient to build trust in a sustainable manner. The primary reason for this is that monitoring and control systems in organisations are usually employed in ways that reinforce the perception among employees that the control system is an end in itself and not a means towards an end. What does this mean? Too often companies do not explain well why they employ a control system and in what way and for what purpose they will use the data gathered via a transparent system. It is especially the lack of explaining the purpose behind the control system that creates an ambiguous situation about the reason for the control system and hence the real intentions of the company. It is human nature that in ambiguous situations, people are more inclined to interpret the situation in more negative rather than positive intentions. As such, employees will not give the company using a control system the benefit of the doubt and be more likely to conclude that the control system exists because the organisation does not trust its employees and therefore control is the ultimate purpose or an end in itself.
If trust however is so important to the performance of organisations, is having oversight over one’s workforce and being in control of important decisions then always a bad thing? Of course not. Control and trust can go together, but it is important to know that trust and control are not the same thing. Trust is good and control can be good, but only if used wisely. This implies understanding only control will not reveal trust and trust on its own will not promote optimal performance. To achieve this kind of balance requires a company culture that actively tries to promote insights into human nature and motivation and integrates those insights in the efforts of the organisation to make more transparent and monitoring systems acceptable to employees without damaging their intrinsic motivation to establish trusting relationship with the others and the organisation as a whole.
A company that is led by a leader who emphasises the need to continuously learn more about human motivation to improve management efficiency in building work cultures that create innovation and a sustainable level of competitiveness is Huawei. Huawei is founded by Ren Zhengfei in 1987 in Shenzhen, China. In the meantime, the company has developed into one of the world leading telecom companies. The founder is someone who is fascinated by thinking about what drives humans and how these insights can be used to benefit Huawei in its aim to provide the best service and products to customers at a global level (Tao, De Cremer, & Chunbo, 2017). He does not shy away to use these insights to experiment with different incentive methods and leadership training sessions. Throughout these phases of experimentation, Ren Zhengfei has concluded that trust and control need to be aligned in terms of communication (what is the meaning and interpretation of the control system in place), so that both can be present at the same time.
Being in balance – in his view – thus means that control cannot be too present. As he noted last year when discussing the new Human Resources (HR) practices in Huawei: “As the company continues to grow, we need to improve our performance assessment methods. Need to harvest more crops within the boundaries of internal and external compliance. To achieve this, we need to strip out process checkpoints that are set because of lack of trust and we need to ask for fewer reports. The role of HQ is to provide support and service.” This idea rests on the assumption that too many checkpoints make that employees will feel that their worth of being an employee at Huawei is only considered within a metric framework in which humanity is slowly taken out of the equation.
Does this mean that Ren Zhengfei does not believe at all in the concept of control as part of the management system? Not at all. He very much does so, but in more sophisticated ways. His favorite way to reflect the need to pursue balance in any management activity and thus also in the strategy to build a trusting work climate is the fire place. In the fire place, flames represent the passion and energy employees bring with them in the company. According to Ren Zhengfei it is the ability of any good leader to unleash this human capital by relying and trusting on the motivations and ambitions of employees to do well. At the same time however, it is necessary that the flames are also contained and therefore a fire place is limited as well. The image of a restricting fire place suggests that leadership can be seen as delegating and giving freedom to employees which enhances employees’ experience of feeling trusted, but at the same time develop a control system that is guiding and prevents escalations that will negatively disrupt the work climate.
How does Huawei approach the establishment of such a balance in their daily management practices? In this process, the company considers three management pillars as important to building trust in a work setting where control systems are being used:
1. Give responsibility to employees
The old Chinese management style influenced by Confucian values, included a strong emphasis on respect for the existing hierarchy. The manager at the top made the decisions and in line with the idea that the older and more powerful manager also guides the others lower on the hierarchy as a father figure, he acted in a very hands-on way. However, in both the East and the West the idea has been embraced that a higher position on the hierarchical ladder cannot go together with a kind of micro-management style. Instead, the higher you are in the hierarchy the more you should delegate because this signals to employees that you trust them and willing to give them responsibility over the tasks and projects allocated. Or as Ren Zhengfei puts it: “We should set rules, and draw clear boundaries, but also leaving enough space in between the lines. That way we delegate more authority to our field teams.”
In addition, an increased sense of responsibility will also go together with a sense of ownership where employees will consider the task they are responsible for truly as their own. In this specific case, Ren Zhengfei very much emphasises the learning process involved in the act of taking responsibility. In his words: “Where the business happens, you have to let business managers take responsibility. That is the only way they will learn about their responsibility.” Such actions have strong motivational power and can thus be coordinated by incorporating insights from human nature into your management system. In Huawei this idea of making employees responsible for the tasks they do in order to encourage ownership has been translated into the saying that within Huawei any talented employee can become an entrepreneur within the family of Huawei.
2. Fairness of the outcomes earned
Huawei as an organisation is run with the belief that innovation is best achieved by creating a trusting work climate to satisfy the entrepreneurial motives of the employees. At the same time, the company aims to establish the benefits of such a trust climate within the context of a guided management system. This dual approach means that this type of balance between trust and control can only be sustained if the resulting outcomes and achievements are regarded as fair by the employees.
Building a fair work culture is however not an easy thing to do in the technology industry. In fact, it has been suggested that work cultures in this specific type of industry is less motivated to build inclusive relationships where the job and its outcomes are experienced as fair (De Cremer, 2018). Corroborating this view, a recent survey by the Kapor Center for Social Impact and Harris Poll showed that a significant number of employees working in technology companies raised the issues of unfair practices as one of the major sources of stress and low job satisfaction (The Guardian, 2017). Ren Zhengfei has tried to promote feelings of fairness in several ways.
First of all, by enhancing the sense of entrepreneurship among Huawei employees (especially the knowledge workers), Ren Zhengfei aims to speak to the sense of ownership of these employees. Specifically, Huawei adopts the assumption that when the most creative employees are given freedom and responsibility to pursue their projects like entrepreneurs, that the outcomes they will receive will also be experienced as more fair. Indeed it is the belief of Huawei that the rewards, salaries and bonuses employees receive as a function of how successful they are as an entrepreneur within the company make that these outcomes are perceived as more legitimate and hence fairer. To achieve this, Huawei has designed a system in which the most qualified employees are provided equal access to a pool of project opportunities that could earn them higher salaries, bonuses and promotions. Of course, the distribution of outcomes and rewards will not be equally, as it will depend on the performances of those employees, which corresponds with the notion of equity. The harder you work the more you can earn. It is important to note here that working overtime is only rewarded extra if the work addresses directly the needs of their customers. Projects in overtime that do not reveal direct positive consequences for the welfare of the customers are not paid out extra (De Cremer & Tao, 2015a).
The importance of equity in keeping employees motivated and willing to perceive the organisation as fair was demonstrated by the decision of Dan Price, CEO and majority owner of Gravity Payments, to increase the minimum salary for all his employees to $70 000. Initially everyone at the company was a big fan of this enlightened capitalism. Nevertheless after a while, some of the most skilled employees left the company as they did not consider this policy to be fair – they resented the fact that the highest raises seemed go to the ones who showed the least skills. Huawei is very cautious to avoid such a Dan Price scenario and therefore provides a strong sense of ownership among those employees acting like entrepreneurs, so they also feel (at least partly) responsible for what they earn.
Second, Ren Zhengfei perceives Huawei as an organisation wealth can be shared with everyone who contributes significantly to the existence and growth of the company. It is an implicit assumption that Huawei belongs to everyone in the company and that therefore Ren Zhengfei expects everyone to act like bosses themselves. If this can be achieved then Huawei employees will maintain a culture of great entrepreneurial spirit, allowing the company to stay motivated to learn and innovate where possible. An interesting consequence is that by building Huawei as an employee-owned company (Ren Zhengfei owns 1.4% of its shares – and he is currently thinking about reducing this percentage even further – whereas the rest is owned by the Chinese employees (not foreign employees!)) a consequence is clearly that employees will experience even a stronger sense of ownership. The result of such personal ownership management strategy is that employees will feel responsible by making them see their own efforts as the primary input into the rewards they receive and therefore are likely to perceive almost any reward as a fair one. This way of working also makes that existing gaps between what employees earn are more easily acceptable. Gaps that exist in terms of wealth distribution are often a source of fairness concerns. If this gap becomes too big, people become less motivated and will search for ways to beat and cheat the system. As noted earlier, the fact that the relationship between feeling responsible for their own salary (to some extent) and the knowledge that the founder shares most of the wealth generated by the company among its employees will enhance a feeling of fairness based on input-output logic.
3. Leadership
Work cultures where too many control systems are in place leave no room for leadership to have any influence. This is an important fact to take into account because one of the main key factors of leadership is that leaders are able to influence others, preferably in ways that motivates and inspires them to contribute to the welfare and interests of the collective. Huawei has always been keen on having a clear way of leading (see De Cremer & Tian, 2015b) so, this is another reason why the company has shied away from being too controlling and leaving more room to delegate and hence allow trust to be formed. In fact a recent trend in Huawei is that managers in Huawei need to be more able to take the perspectives of the ones they lead (to understand their needs and as such respond to those needs) and be compassionate (to deal with failures and learn from it; De Cremer & Tian, 2017).
Is the focus on these kind of leadership styles a simple fat where Huawei joins the massess to deliver what the public wants? Knowing Ren Zhengfei’s passion to rely on science and using experimental approaches towards working with human needs and emotions (De Cremer & Tian, 2016), the choice for this leadership style is evidence-based. Indeed research shows that being willing to be compassionate towards the concerns of others and hence taking their perspective releases the neurochemical oxytocin, makes that more trusting relationships are formed. Specifically, neuroimaging research shows that compassionate leaders motivate employees to trust their bosses (Boyatzis, Passarelli, Koenig, Lowe, Mathew, Stoller, & Phillips, 2012) and increase loyalty among their employees (Qiu, Qualls, W., Bohlmann, & Rupp, 2009). One way to increase perspective towards the working conditions of employees is to ensure that the company not only looks at what you eventually achieve but also evaluates how you arrived at the outcome. In the words of Ren Zhengfei when he talked about the change in the Human Resource assessment system at Huawei: “HR is going to transition to a trust-based assessment system. We will look at how many crops have been harvested, but also how right the soil has become.” How many crops harvested refers to what you achieved and will account for 70% of your assessment, whereas the right soil will refer to how you work and in what kind of work culture and this will account for 30%. With respect to the latter criteria (the “how”), it is important to note that Ren Zhengfei does not simply focus on whether the employee complies with ethical standards and practices, because that would still be a controlled way of compliance. No, for that 30% he looks at the supervisors and those in leadership positions to ensure that they create the right conditions for employees to do well in the right manner. As such, leadership skills and being compassionate and supportive towards your subordinates is a crucial condition to maintain the delicate balance between trust and control.
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About the Authors
David De Cremer is provost chair, professor of management and organisation at National University of Singapore (NUS) Business School, a fellow at the University of Cambridge, and a fellow at the Hoover Institution at Stanford University. Before moving to NUS he was the KPMG endowed professor in management studies at Cambridge Judge Business School. He has published over more than 250 academic articles and book chapters and is the author of the book Pro-active Leader: How to overcome procrastination and be a bold decision-maker and and co-author of “Huawei: Leadership, culture and connectivity.”
Jakob Stollberger is assistant professor at Aston Business School, Aston University, UK. Jakob’s research examines the interplay between leadership, emotions, and innovation at work. He also works as a practitioner consulting businesses in these areas. Prior to joining Aston Business School, Jakob held research positions at Judge Business School, University of Cambridge and the University of Birmingham.
