24 Apr 2014

Understanding how trust impacts delivering superior performance


Why does one company succeed, while another fails? The research of Rebecca M. Henderson (MBA 1985, AM 1988, PhD 1988), University Professor, indicates that a fundamental difference concerns informal relational contracts between employers, employees, and suppliers that depend on trust. Relational contracts rely on subjective measures of performance that cannot be fully specified or verified; they are understandings enforced by what Henderson terms “the shadow of the future.”

Henderson makes the case that General Motors’ decades-long decline was based largely on its inability to implement relational contracts—a practice its rival Toyota successfully deployed—which are essential to all modern design and manufacturing. A focus on relational contracts could lead to superior performance. “Public support for economic growth has long focused on the diffusion of technology-based insights, but this research suggests that learning more about when, and what type of relational contracts are likely to be valuable, may be just as important,” says Henderson.

(Published April 2014)


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