Academic journal article Entrepreneurship: Theory and Practice

How Much Do You Trust Me? the Dark Side of Relational Trust in New Business Creation in Established Companies

Academic journal article Entrepreneurship: Theory and Practice

How Much Do You Trust Me? the Dark Side of Relational Trust in New Business Creation in Established Companies

Article excerpt

Entrepreneurship in established companies centers on new business creation that is essential for profitability and growth. Yet, it is a complex process that is riven with technical, organizational, and political uncertainties. In this article, we explore the role of trust in the new business creation process in established companies. While there is agreement that trust is conducive to entrepreneurial activities in these companies, research on the dysfunctional effects of trust on new business creation initiatives has been sparse. We contribute to the literature by discussing the various stages of the business creation process (focusing on opportunity recognition, evaluation, refinement, championing, and implementation) in established companies, examining the positive effects of relational trust on each of these stages, and analyzing the negative effects of overreliance on relational trust for each stage. We conclude by highlighting the key managerial and theoretical implications of our analyses and by outlining promising avenues for future research.

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New business creation is important for the continuous success, profitability, and growth of established firms (Burgelman & Valikangas, 2005). These companies often need to venture beyond their existing businesses to overcome competence traps that preclude them from adapting to their environments (Ahuja & Lampert, 2001; Zahra & Hayton, in press). In order to create new businesses, established companies have to combine their existing (or new) resources in new ways (Schumpeter, 1934). These recombinations can open new paths for building new skills, renewing operations, or venturing into market arenas within existing or new industries (Garvin, 2002).

The process of new business creation in established companies is costly, time consuming, and complex because it involves formal and informal activities across multiple levels within the organization (Garvin, 2004). It is also laden with information asymmetries where different people in different parts of the organization control specialized knowledge that they do not always share (Zahra, Nielsen, & Bogner, 1999). The gestation period for new business ventures is frequently long, taking years to pay off (Van de Ven, Venkataraman, Polley, & Garud, 2000). New business creation also requires the participation of different groups with different outlooks and perspectives (Garvin, 2004; Kanter, 1985). These conditions make formal monitoring and controls difficult and costly. The complexity of the analyses involved in new venture creation, the interdependencies that develop across organizational units, and the different information that different groups control highlight the role of trust as a useful mechanism in managing the interdependencies and uncertainties encountered in recognizing, evaluating, and exploiting new business opportunities (McEvily, Perrone, & Zaheer, 2003). Relation-based trust promotes cohesion, unity of direction, and cooperation that facilitates the introduction and acceptance of new business ventures.

Trust has been defined differently in the literature. Most definitions view trust as "a psychological state comprising the intention to accept vulnerability based upon positive expectations of the intentions or behavior of another" (Rousseau, Sitkin, Burt, & Camerer, 1998, p. 395). Trust becomes relevant when people become dependent on and vulnerable to the actions and decisions of others (McEvily et al., 2003). These people possess and control different types of knowledge, view the purpose of the organization differently, have different motivations in supporting new business creation, and often differ in the evaluation of new business opportunities. When ambiguity and social complexity surrounds decision making, traditional organizational control systems may fail to bring about or sustain an effective alignment of interest among these people. Relational trust that is grounded in mutual respect and shared interests could be an effective complement (Mellewigt, Madhok, & Webel, 2004; Poppo & Zenger, 2002) or supplement (Das & Teng, 1998) to these organizational controls. …

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