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Why Too Much Trust Is Death to Innovation

S U M M E R 2 0 1 0 V O L . 5 1 N O . 4

R E P R I N T N U M B E R 5 1 4 1 1

Francis Bidault and Alessio Castello

SUMMER 2010 MIT SLOAN MANAGEMENT REVIEW 33

I N N O VA T I O N

THE SMART MICROCAR, invented by the tumultuous partnership between Daimler-Benz AG & Co. and The Swatch Group Ltd., finally seems to be reaping the benefits of its provocative de-

sign as more consumers order this compact automobile. By contrast, the minivan codeveloped by

PSA Peugeot Citroën SA and Fiat SPA (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 com-

mon 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 partner-

ships 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?

When companies collaborate, low trust is detrimental to innovation. But so is very high trust. The optimal level, yielding maximum impact, lies in between. BY FRANCIS BIDAULT AND ALESSIO CASTELLO

THE LEADING QUESTION Can very high trust between innovation project part- ners be too much of a good thing?

FINDINGS ! Some kinds of

conflict between collaborators can be good for innovation performance.

! While personality conflicts hinder innovation, conflict- ing opinions about tasks can spur new solutions.

! Trusting partners are more likely to commit the re- sources needed to implement jointly developed ideas.

Why Too Much Trust Is Death to Innovation

The tensions between the Smart car’s codevelopers led them to explore new concepts — and engineer a breakthrough solution.

COURTESY OF SMART USA

34 MIT SLOAN MANAGEMENT REVIEW SUMMER 2010 SLOANREVIEW.MIT.EDU

I N N O VA T I O N

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 com-

petencies — knowledge, acumen, equipment and

supplies — to get the job done well and on time.

Trust is, above all, an interpersonal phenome-

non. 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 de-

ve lop 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, in-

crease R&D project flexibility, access new markets

and boost revenues.4 Technology alliances have be-

come 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 environ-

ment. 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 com-

plications. 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 contin-

gencies. 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 corpo-

rate 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 oth-

ers’ in order to find solutions that will probably not

ABOUT THE RESEARCH The pairs of partners were given an assignment to design and build a construction using 200 colored plastic bricks on the theme of a small-scale clothes stand. We in- formed the partners that the other players would evaluate the construction by voting on its originality and novelty, both in terms of functionality and aesthetics. In particular, we asked participants to assess all constructions (other than their own) by distributing 20 tokens in ballot boxes next to each construction. We then collected the scores and entered them into the data set, but we did not communicate the results to participants.

At this stage, participants received virtual capital of 300 euros each and were in- vited to bet all or part of their money on the ranking of the partnerships’ next construction. Before betting, we informed all participants that at the end of the session one of them would be selected randomly to receive the value of their capital in actual euros. We introduced this reward to ensure more rational betting among participants.

After betting, participants joined their partners, and the process started again. This time they designed and built a small-scale clothes stand using 400 bricks, then once more assessed and voted for the resulting structures made by others.

Each run was limited to a maximum of 30 participants. We conducted 18 work- shops in total, involving 364 players. Participants were executive MBA students (with an average age of 28.2 years) with employment experience.

In addition to the experiment itself, questionnaire data were also needed from each player. The first questionnaire, conducted before the experiment, assessed the amount of contact the two partners had experienced beforehand (work, study, lei- sure) and the level of trust within the pair. We also asked questions designed to assess each individual’s propensity to trust others in general. The second question- naire, conducted after the experiment, asked about the task itself and the role that each partner played. It also polled the participants’ general propensity to trust and their individual character and self-esteem traits. Finally, we collected demographic information in an attempt to link one’s propensity to trust, and the individual’s own trustworthiness, to personal characteristics.

We must acknowledge that our methodology does not eliminate the risk of bias in participant behavior. With up to 30 participants, it is difficult to ensure that each voted in- dependently and objectively for the best design, regardless of outside factors such as friendship. To check for this possible bias, we ask a panel of outside observers to rank the different constructions in some of our test rounds.

In any case, we believe that the methodology merits consideration from scholars interested in R&D management as well as from companies involved in the setup of joint development teams.

COURTESY OF MANITOWOC SUMMER 2010 MIT SLOAN MANAGEMENT REVIEW 35

materialize if they act alone. But such a relationship is

unlikely to occur unless there is a sufficient level of

trust to counter fears of abuses of confidential infor-

mation 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 com-

bine 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 part-

ners’ management teams developed a system of

mutual control and double signatures, even on minor

expenses, necessitated by unrelieved mutual suspi-

cion. 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 ex-

ample, 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, generate

more new ideas.9 Of course, creativity is not innova-

tion, 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 con-

sequently, better implementation.

After close observation of numerous joint inno-

vations, however, it is obvious that very high trust

partnerships sometimes fail to be innovative. Fiat

and Peugeot’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 atmo-

sphere 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 creativ-

ity, which requires a certain level of tension that may

not exist in a high-trust environment. On the con-

trary, a high level of mutual trust between partners

may result in soft, unchallenging and accommodat-

ing 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 in-

novativeness, as it is impossible to disentangle this

factor from the many other contributors.

For this reason, we decided to set up a series of ex-

periments. We enrolled groups with up to 30 players

each, assigned them to as many as 15 pairs, and in-

structed each pair to design and build an object in the

most creative way possible. Because we needed to en-

sure 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

The promise of Potain’s collaboration with Poclain was hampered by mutual suspicion and mistrust, and ultimately produced disappointing results.

36 MIT SLOAN MANAGEMENT REVIEW SUMMER 2010 SLOANREVIEW.MIT.EDU

I N N O VA T I O N

prior experience together to have formed distinct

trust perceptions. To compose the pairs, we used an

algorithm that we had developed to minimize the dif-

ference 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. (For more detail on the procedures

employed, see “About the Research,” p. 34.)

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.

(See “The Sweet Spot of Mutual Trust.”) To control for

the inherent creativity of individual participants in the

experiment, we considered not the individuals’ creativ-

ity but the pairs’ creativity arising from the partnership.

The difference between the two was termed “partner-

ship 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 to fruition, then innovativeness in

a joint venture is the partnership payoff resulting

from the combination of the partners’ commit-

ment 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 part-

ner, 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 part-

nership (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 effec-

tiveness, 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 coun-

terintuitively, too much trust is bad for innovation

too. As mutual trust goes up, innovativeness in-

creases, 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 observ-

ing how conflicts affect team performance. According

to some management thinkers, tension does not al-

ways play a negative role in team dynamics.12 Indeed,

while relational conflicts (which may arise, for exam-

ple, from personal contempt for one or more team

members) are extremely detrimental to team perfor-

mance, 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 con-

flicts, 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 effi-

ciently. 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 re-

ducing 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 innovative-

ness. We can expect integrity and reliability to

generally favor joint problem solving and innova-

SLOANREVIEW.MIT.EDU SUMMER 2010 MIT SLOAN MANAGEMENT REVIEW 37

tion. On the other hand, mutual caring, or the

extent to which one partner empathizes with the

other, may result in excessive accommodation.

Under such circumstances, a team member would

prefer to please his partner rather 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 part-

nership 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 prod-

uct management teams questioned Matra’s ability

to develop a successful car, given its modest achieve-

ments with previous models (such as the Bagheera,

Murena and Rancho). While the Renault teams

liked the freshness of Matra’s ideas, they were skep-

tical 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 Es-

pace 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 en-

gineers, 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 capac-

ity upward, eventually reaching an impressive 600%

of its initial level.

Renault and Matra, despite a stormy relation-

ship, were able to find an effective balance in their

partnership and offer the market an innovative

concept that competitors later adopted. The ten-

sions 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 com-

panies 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 matters not just at the sponsor or execu-

tive level; it is also essential in the teams formed to

be creative and produce innovations. Leaders en-

tering a joint innovation partnership should

therefore consider the following:

■ Do not expect much innovation from new part-

ners (or new teams); it takes time for trust, and

the consequent openness and cooperative behav-

ior 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 ac-

tivities such as those of the FAcT-Mirror method.14

■ Monitor the level of mutual trust during the proj-

ect 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 moni-

toring 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 overesti-

mated, however. Barring extreme conditions, there

THE SWEET SPOT OF MUTUAL TRUST The degree to which collaborators trust each other has a large effect on their ability to innovate. But more trust isn’t always better. Innovativeness increases with the degree of trust until a “sweet spot” is reached, after which it declines even as trust becomes greater.

0

08

00

-04

-06

-08 2 6

Effectiveness

4

06

04

02

16 Mutual Trust

8 10 12 14

-02

38 MIT SLOAN MANAGEMENT REVIEW SUMMER 2010 SLOANREVIEW.MIT.EDU

I N N O VA T I O N

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 ben-

efits of its innovative design. As gas prices increase,

global warming concerns grow and consumers flock

to microcar dealerships, the Smart factory in Ham-

bach, 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: Ni-

colas Hayek, CEO of Swatch, or Helmut Werner,

then head of Mercedes-Benz. But given our find-

ings about the dynamics of innovation, it may be

that neither gentleman was the true innovator.

Rather, it was the tension between the two compa-

nies (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.

Francis Bidault is a professor of management at the European School of Management and Technology in Berlin, Germany. Alessio Castello is adjunct profes- sor of management at the Institut d’Administration des Entreprises, l’Université de Nice, in Nice, France. Comment on this article or contact the authors at [email protected].

ACKNOWLEDGMENT

The authors wish to express their gratitude to the Peter- Curtius Stiftung (Peter Curtius Foundation) for its generous support of the research project reported in this article.

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