Trust is essential in company-to-company relationships—principally because the lack of sufficient trust is the primary barrier to outsourcing knowledge work, but also because trust is at the core of all relationship formation and effectiveness, a strategic concern as the business environment speeds up.

The analysis we did here of barriers to outsourcing knowledge work (September ‘99) was from the customer’s perspective, rather than the supplier’s, but the impediments are not one-sided. Many of the customer-perceived reasons are self-fulfilling prophesies. Insufficient trust, the biggest barrier, is a prime example.

Trust develops between two parties because they understand each other fairly deeply. The trust issue that inhibits outsourcing as a consideration generally stems from a superficial and one-sided point-of-view, rather than real knowledge.

Outsourcing the creation of intellectual property (IP) is where the barrier issues become the sharpest. A discovery workshop we conducted at an IP development organization highlighted the supplier perspective on the issues. IP-Dev, as we’ll call it here, had been focused on government contract work, and wanted to move into the commercial sector. It would like to be your company’s out-sourced R&D arm.

It has fundamental strengths in the sciences, and in applying science effectively to the problems and opportunities of product and process design. It is deeply experienced in practical manufacturing, and not lost in a world of inapplicable theory. It has deep talent that you don’t have. It understands things about your work that you don’t understand. It lives to apply its knowledge and talent to your problems and opportunities in ways you would consider effective and innovative. But it finds you very difficult to deal with.

I’m not painting IP-Dev as being unequivocally great. It’s just that it, like some others, such as Sandia National Laboratories, has specialty niche areas of great depth that you could never justify, nor attract, as full time employees—you just don’t have enough really interesting problems to keep this kind of talent engaged.

In seeking commercial R&D work, IP-Dev found its biggest impediments to center on issues of intellectual property: ownership, needs for protection, and methods for protection. It was in the business of applying fundamental principles of science to the solution of specific product and process problems. Too often, would-be customers wanted to prohibit it from solving related problems for others as a condition for a working relationship.

IP-Dev saw these barriers as technology-based issues. In reality, it is the trust issue all over again, in thin disguise. Workshop participants brought in from outside the organization were quick to point this out, and suggested that the commercial market strategy focus on earning a market image and positioning of unparalleled trust. Something no other such organization had yet taken, and yet it was the core issue for IP outsourcing.

The creation and maintenance of trust-based relationships is heralded by many people as a new and necessary strategy for combining cooperation and competition in today’s business environment. In reality, trust-based relationships are the only kinds of working relationships. Always have been, always will be.

Without some basis of trust there is no engagement. Trust is not a new concept, but rather one with a new importance that now requires more explicit knowledge and more attention to management skills.

What is trust all about, anyway? Research referenced in the accompanying figure suggests that there are three types of trust: calculus-based, knowledge-based, and identification-based. They develop sequentially, one building on the other.

Herein lies the nub of the problem. Outsourcing IP development prudently requires a stage-three trust relationship, yet the outsourcer can’t get there without traveling through stages one and two, which takes time, perhaps a year or few. And it happens between people more so than between companies. Meaning that trust cultivated at a single point may be lost with turnover or reorganization.

In the end, the degree of real trust between two parties is directly related to how well they know each other. That it typically takes years to build stage-three trust is not based on immutable law, only on the typical serendipitous way things have been done. Nor does it mean that cultivating a relationship that will eventually lead to IP outsourcing needs to be a loss leader—other less sensitive knowledge work can be done in the interim.

Developing Stage-three Relationships A response ability analysis (August ‘99) of the dynamic issues bares the nature of the problem and provides guidance for a solution. Though both parties in a knowledge work outsource relationship stand to gain, and therefor bear independent responsibility for developing sufficient trust in the relationship, we’ll look only at a sampling of the supplier side here.

Cultivating trust should be a conscious relationship development strategy with managed objectives, performance metrics, and progression monitoring. If trust must first be developed then that’s what must be done, not securing (if you are the supplier) or outsourcing (if you are the customer) a sensitive IP development contract.

Find other less-sensitive project work to begin a relationship. Use this work to enter into collaborative problem-solving activities that expose the values held by all parties and mold those behind the developing relationship.

Note that lots of stage-two information exchange and time do not produce stage three, they only enable it. Stage three is marked by collaborative relationship and respect, whereas stage two is simply enough knowledge about the other party to make its behavior predictable.

Stage three emerges when demonstrations of identification and best interest occur. The wise supplier will recognize and hasten these opportunities. By the time stage three emerges, the IP ownership and protection issues become tractable—both parties respect and trust each other enough to examine the situation and develop an innovative response, rather than stone-wall a demand for standard knee-jerk procedures.

Culture plays a very central role in trust development and maintenance, and should be used as both a tool for hastening and maintaining trust, and as a filter for determining the likely outcome of a relationship pursuit. Culture is all about beliefs and values, precisely what a stage-three trust relationship is all about.

Some corporate culture combinations are incompatible with a stage-three trust relationship. An IP outsource would do well to identify and describe compatible cultures as the targets of opportunity in its mission statement, or at least in its supporting detail. One of the first objectives in a new relationship should be to profile the client culture to determine both its compatibility and the personnel that will be assigned to relationship management.

Personal cultures of individuals involved in relationship interfaces play at least an equally determining role as corporate cultures. Personal culture does not disappear behind the corporate culture, but rather expands the values and beliefs that must be accommodated in a stage-three relationship.

As an organization, an IP supplier is many-headed, and can choose and change relationship managers as compatibility dictates. This says a lot for how agile the account management practices and structures must be.

The nature of IP development talent is highly technical, and generally the antithesis of the social awareness required to understand the precarious nature of trust, let alone the need to cultivate a stage-three relationship. This may explain why no company as yet has seized this pre-emptive market position.