Why Too Much Trust Is Death to Innovation

Image courtesy of Flickr user Easa Shamih (eEko) | P.h.o.t.o.g.r.a.p.h.y.

The Smart microcar, invented by the tumultuous partnership between Daimler-Benz and Swatch, seems to be finally reaping the benefits of its provocative design as more consumers order this compact automobile. By contrast, the minivan codeveloped by Peugeot and Fiat (initially sold as the Peugeot 806 and the Fiat Ulysse) was the result of a harmonious relationship but never garnered much attention. It was just another minivan.

These outcomes contradict common sense as well as a large body of academic literature. The general assumption, after all, is that success grows out of good relationships — based on a common vision, cultural proximity, a sense of fairness and equity and, eventually, mutual trust — while poor cooperation and lack of trust lead to disaster. Yet examples abound of high-trust partnerships that fail to innovate and of turbulent ones that succeed. Admittedly, many factors influence the level of creativity and innovativeness of partnerships, and trust is only one of them. But it is deemed to be a central one.1

Is trust in fact overrated? Is it sometimes an actual hindrance to innovation? Can we think in terms of an optimal level of trust — not too little and not too much?

Trust as a Critical Ingredient One party trusts another not only when he perceives honesty and an absence of opportunism but also when expecting that the other’s attitudes and capabilities will turn out as promised.2 For example, we need to trust that the plumbers repairing our bathroom will not overcharge us and that they have the required competencies — knowledge, acumen, equipment and supplies — to get the job done well and on time.

Trust is, above all, an interpersonal phenomenon. It occurs (or fails to occur) between individuals. Even in terms of trust between organizations, it is their key executives, more or less willing to rely on trust in their dealings with each other, who make or break the relationship. The higher the trust between the executives involved, the higher the “relational quality” between the organizations.3

Companies are increasingly joining forces to develop innovations, such as in supply-chain partnerships or precompetitive alliances. This trend toward joint efforts, or “co-innovation” projects, derives from factors that have lately been affecting most industries — companies need to cope with rising R&D costs, decrease development times, increase R&D project flexibility, access new markets and boost revenues.4 Technology alliances have become particularly important, as evidenced by a recent survey in which over 94% of the technology executive respondents believed that alliances were becoming critical to their strategy.5

Nevertheless, it is not easy for organizations to create, and especially to maintain, such innovation-oriented partnerships. Not only must they find the right partner, negotiate, and agree on common goals, but the organizations must thereafter cooperate on a daily basis — a process that faces many stumbling blocks.6 A partner may be unable to contribute as promised. The decision-making structure may lack sufficient communication. Or the mechanism for cooperation may be unable to adapt to unforeseen changes in the market or the technological environment. It is therefore not surprising that 50% to 80% of such partnerships end in failure.7

Innovation is by its very nature a risky activity, and joint innovation projects can add further complications. For example, even when partners accept the consequences of their risk exposure, they may differ in their risk profiles. In such a situation, partners typically rely on a contract that specifies what is expected of whom under various contingencies. But although necessary, contracts tend to be insufficient for coping with all the difficulties that joint innovation can encounter. In contrast, trust “constitutes a critical ingredient by which partners can weather the conflicts that economic and competitive changes, as well as shifts in corporate priorities, will throw their way.”8 Trust is beneficial to all types of partnerships that face risk and require constant flexibility.

Joint innovation also requires something extra: the sharing of knowledge. Partners look to create innovation-oriented joint ventures largely because they need to combine their own knowledge with others’ in order to find solutions that will probably not materialize if acting alone. But such a relationship is unlikely to occur unless there is a sufficient level of trust to counter fears of abuses of confidential information and know-how. Contracts alone won’t help; in fact, they could inhibit innovation because they imply control of information flow and a range of legal dispositions that typically slow the project down.

Consider the case of Poclain (formerly Europe’s hydraulic shovel leader) and Potain (the leading French tower crane maker), which decided in the 1960s to enter the mobile crane industry by using their complementary technologies. The idea was that Poclain’s mastery of hydraulic circuits would combine with Potain’s competence in crane design and development to create new and improved machines. But the joint venture, under the name PPM, lagged behind because of scant innovation. The two partners’ management teams developed a system of mutual control and double signatures, even on minor expenses, necessitated by an unrelieved mutual suspicion. In this atmosphere, the joint engineering projects dragged along for years with little success, delivering nothing more than “me-too” products.

Can Trust Become Detrimental? Given this example, along with many similar ones in the literature, it is tempting to suggest that higher levels of trust would have produced higher levels of innovation success. After all, trusting partners are more open, more supportive, less hostile, less competitive and therefore show more creativity — that is, generation of new ideas.9 Of course, creativity is not innovation, which is the implementation of new ideas. But one might expect that more creativity would lead to more innovation in a higher trust partnership, which would lead to greater partner commitment and consequently better implementation.

After close observation of numerous joint innovations, however, it is obvious that very high trust partnerships sometimes fail to be innovative. Fiat SpA and PSA Peugeot Citroën SA’s long and lucrative alliance in the commercial and passenger van markets serves as a useful example.

In the late 1970s, the two companies launched Sevel, a partnership to design and manufacture a commercial van that would be marketed separately as the Fiat Ducato and Peugeot J5. It met with immediate success. Sevel was able to exceed all expectations, exhibiting a production capacity twice that of the original plan. As a result, Fiat and Peugeot announced in 1988 the Sevelnord project, which would try to build on Sevel’s achievements and aim to compete in the passenger minivan market as well. The partners adopted the same governance structure, the same general economic principles of cost and investment sharing and even the same key executives as in the previous successful venture. After all, why fix what isn’t broken?

Both partners publicly hailed the excellent atmosphere of camaraderie they had established. “We find solutions together,” they reported. “Whether it is Fiat or Peugeot that has the idea — both groups come out ahead. There is an exchange of experience that is extremely rich.”10 Unfortunately, after Sevelnord introduced the resulting passenger minivan — Peugeot’s 806 and Fiat’s Ulysse — in 1994, the product did not attain even half of its predecessor’s success. It was simply not a very innovative minivan and thus failed to gain much of a share in a market already dominated by competitors.

How could this happen, given the “extremely rich” possibilities? Although partners who trust each other may commit more of their resources to a joint venture, this does not ensure a high level of creativity, which requires a certain level of tension that may not exist in a high-trust environment. On the contrary, a high level of mutual trust between partners may result in soft, unchallenging and accommodating teamwork behaviors — the opposite of what is needed to develop creative solutions. In fact, recent studies do not find a positive link between R&D teams’ mutual trust and resulting creativity.11

The Trust Experiments Case studies such as the above are not adequate for evaluating whether trust level is associated with higher or lower levels of innovativeness, as it is impossible to disentangle this factor from the many other contributors.

For this reason, we decided to set up a series of experiments. We enrolled groups with up to 30 players each, assigned them to as many as 15 pairs and instructed each pair to design and build an object in the most creative way possible. Because we needed to ensure that the pairs represented a spectrum from very high to very low levels of trust, we chose individuals who already knew each other and who had sufficient prior experience together so as to have formed distinct trust perceptions. To compose the pairs, we used an algorithm that we had developed to minimize the difference of mutual trust between partners in a pair and maximize it among pairs. A betting mechanism was also included to gauge partner confidence in each pair’s prospects.

About the Research >>

The results point to a major finding: As mutual trust increases, the partnership’s creativity goes up, reaches a maximum point and then starts to decline. To control for the inherent creativity of individual participants in the experiment, we considered not the individuals’ creativity but the pairs’ creativity arising from the partnership. The difference between the two was termed “partnership effectiveness.”

Partnership Effectiveness as a Function of Mutual Trust

As the level of trust increases, effectiveness rises to a maximum level and thereafter decreases. As trust gets very high, effectiveness even goes negative.

As expected, there was also a strong correlation between trust in the partner and the amount bet in the partnership, suggesting that trusting partners are more likely to commit the resources needed to implement jointly developed ideas. If innovation is the combination of creativity and commitment to bring new ideas into fruition, then innovativeness in a joint venture is the partnership payoff resulting from the combination of the partners’ commitment and their respective creativity gains.

If we define innovativeness as the amount that an individual gains on his investment thanks to the creativity realized from cooperation with his partner, we can quantify its value as the product of an individual’s initial investment (amount bet) and creativity gained (percentage difference between an individual’s creativity and the pair’s creativity). So if those betting 300 euros exhibit high creativity (say, twice their own creativity), they will obtain 600 euros as a payoff. By contrast, if a player betting 120 euros experiences a creativity loss in the partnership (say, 50% lower than his own), he will only get 60 euros back. When we plot the average payoff as a function of the pair’s mutual trust, we observe another bell-shaped curve.

Innovativeness as a Function of Combined Mutual Trust

Although innovativeness, like partnership effectiveness, also decreases after passing an optimal point, its values are higher than those realized at lower levels of trust.

Our findings show, as one would expect, that low trust is not conducive to innovation. But counterintuitively, too much trust is bad for innovation too. As mutual trust goes up, innovativeness increases, but only to a certain point (9.5 on our trust scale). Afterward, innovativeness declines, even though it stays at higher levels because of greater commitment. Creativity gains, on the other hand, can become negative (creativity loss) for very high levels of mutual trust. There seems to be an optimal level of trust, above or below which innovativeness or creativity is impeded.

Moderate Trust Could Be the Most Effective We can explain this seemingly strange pattern by observing how conflicts affect team performance. According to some management thinkers, tension does not always play a negative role in team dynamics.12 Indeed, while relational conflicts (which may arise, for example, from personal contempt for one or more team members) are extremely detrimental to 7team performance, task-oriented conflicts are beneficial because they foster critical thinking and in-depth analysis of the team’s goals and actions. From our findings, we could say that low levels of trust cause relational conflicts, while high levels of trust may induce a reduction in task-oriented conflicts.

According to this analysis, participants who do not trust each other experience relational conflict, which prevents them from working together efficiently. If, on the other hand, a team enjoys a high level of trust and mutual caring, individuals might become too accommodating, quickly accepting their partners’ ideas and thus reducing the amount of dynamic task-oriented conflict. The team would then have lower creative tension, consequently reducing the partnership’s effectiveness.

Trust is a combination of integrity, reliability and mutual caring, and each component is likely to play a different role in creativity and innovativeness. We can expect integrity and reliability to generally favor joint problem solving and innovation. On the other hand, mutual caring, or the extent to which one partner empathizes with the other, may result in excessive accommodations. Under such circumstances, a team member would prefer to please his partner than to openly question the partner’s ideas, decisions and actions.

Consider the example of the Renault Espace, which was the product of a hugely successful partnership that lasted for nearly two decades. Undoubtedly one of most innovative car models in Europe in the 1990s, the Espace originated from a challenging partnership between Renault SA and Matra Automobile (now part of Lagardère SCA). While the companies’ CEOs were said to have a good relationship, Renault’s engineering and product-management teams questioned Matra’s ability to develop a successful car, given its modest achievements with previous models (such as the Bagheera, Murena and Rancho). While the Renault teams liked the freshness of Matra’s ideas, they were skeptical about its design solutions.13

For example, when Renault’s advanced marketing group members found that customers increasingly valued modular interiors (in which the car owner could modify the seating arrangement) and deemed that Matra’s minivan idea made this feature possible, they insisted that the car incorporate it. At the same time, however, the group was unsure that Matra would be able to engineer the car on a high enough level to reach minimum quality standards. Renault’s marketing executives were so concerned that the Espace would not sell effectively as a passenger car that they demanded it be designed with a flat floor, to easily convert into a delivery van if need be. Matra engineers, who had designed racing cars, did not appreciate this compromise.

Nevertheless, the Espace gradually became the leader in its category in Europe, causing the two partners to repeatedly adjust the production capacity upward, eventually reaching an impressive 600% of its initial level.

Renault and Matra, despite a stormy relationship, were able to find an effective balance in their partnership and offer the market an innovative concept that competitors later adopted. The tensions and limited trust between the two teams resulted in a set of unconventional solutions, and a unique car design, that enjoyed long-term success.

Managerial Implications Our findings clearly confirm that joint innovation projects benefit from a committed and trusting environment. But companies not only should avoid very low mutual trust among the individuals working on the project, they also should avoid situations in which it is very high.

Trust that matters is not just at the sponsor or executive level; it is also essential in the teams formed to be creative and produce innovations. Leaders entering a joint innovation partnership should therefore consider the following:

• Do not expect much innovation from new partners (or new teams); it takes time for trust, and the consequent openness and cooperative behavior that generate benefits, to develop.
• Help teams involved in a joint innovation project to build trust early. This implies that a minimum level of trust should be created through trust-building activities such as those of the FAcT-Mirror method.14
• Monitor the level of mutual trust during the project in order to avoid a rift and improve efficacy. Too often, managers pay no attention to trust; it is left to develop, or degrade, haphazardly. Proper monitoring should include a clear warning system.
• Ensure that there is an appropriate level of healthy criticism. If too much trust develops, it might be necessary to remind the team of its objectives and priorities. Here again, careful monitoring can alert management to an excessive buildup of groupthink.
• The risk of excessive trust should not be overestimated, however. Barring extreme conditions, there is still a creativity gain. It is just lower than the peak that occurs in the medium-to-high-trust range.

At this writing (late 2009), Daimler-Benz and Swatch’s codeveloped Smart car is reaping the benefits of its innovative design. As gas prices increase, global warming concerns grow and consumers flock to microcar dealerships, the Smart factory in Hambach, France, is running at full capacity. Despite initially disappointing sales and a fair amount of mockery among observers, the market seems ripe to adopt the microcar concept, and other automakers must now catch up if they hope to compete in this new product category.

When innovation analysts study this chapter of the car industry’s history, surely they will debate who was the mastermind behind the microcar: Nicolas Hayek, CEO of Swatch, or Helmut Werner, then head of Mercedes-Benz. But given our findings about the dynamics of innovation, it may be that neither gentleman was the true innovator. Rather, it was the tension between the two companies (and their respective teams) that caused the partners to explore new concepts and designs that led to the Smart car breakthrough.

When inventing together, trust is good; but avoiding too much trust is better.