Trust is essential to interpersonal and group behavior. It is an equally essential ingredient in organizational theory and institutional transactions. Trust is based on the underlying assumption of an implicit moral duty, which makes a precise definition difficult. A clear understanding of trust requires a familiarity with philosophical ethics and moral philosophy, which this article provides.

Although trust never appears in the organizational design literature as a key structural variable, this article argues that trust is a linchpin for organization, economic, and social structures. The organizational theory literature does suggest that trust is generally expressed as an optimistic expectation about the outcome of an event or the behavior of another person or organization. Trust is generally associated with willing cooperation and with the benefits resulting from that cooperation. Trust is generally difficult to enforce.

Trust is an important foundation for ethical behavior in organizations. Virtuous actions that contribute to collective well-being in an organization are founded on an individual moral duty to act in a trustworthy fashion. Whereas it is clear that moral behavior is doing what is right and immoral behavior is doing what is wrong, it is much less clear in organizational practice to determine which specific acts and behaviors are moral and which ones are immoral. Thus, trust is an implicitly important connective variable in the organization.

SOURCE: L. T. Hosmer, "Trust: The Connecting Link between Organizational Theory and Philosophical Ethics," Academy of Management Review 5 (1995): 379-403.

ORGANIZATIONAL REALITY

Nissan Shuts American Factories

Organizations do not inevitably grow in size. There are times when the best organizational strategy is to resize, downsize, and/or curtail operations in some markets. The devaluation of the Mexican peso precipitated an economic crisis that had ripple effects throughout the Mexican economy and affected Mexico's relationships with its trading partners.

In early January, 1995, Ford Motor Company announced the closure of its small-car assembly plant in Mexico. This announcement followed one by Volkswagen de Mexico that suspended production of all model cars in Mexico by the German company.

Nissan, the Japanese company, had two automotive assembly plants in Mexico. The economic crisis led to a price dispute between Nissan and its Mexican suppliers. This dispute in turn led to a shortage of parts in the assembly plants.

Conducting business in different national markets carries uncertainties and complications, which may lead to closing operations for various periods of time. As the Mexican economy becomes stronger and more stable, Nissan is likely to continue to expand the size of its business operations there.

SOURCE: Associated Press, "Nissan is Third Automaker to Shut Factories Temporarily in Mexico," Dallas Morning News, January 24, 1995, 7D. Copyright © 1995 Associated Press. Reprinted with permission.

ORGANIZATIONAL REALITY

Horizontal Organization in Sweden

The prestigious Karolinska Hospital in Stockholm, Sweden, faced financial difficulties in 1992 with a 20 percent reduction in funding. This change in funding challenged Jan Lindsten, Karolinska's chief executive, to reexamine the way in which the hospital was organized. He was deeply concerned about the quality of patient care in the face of the reductions in funding.

Over several years, the hospital and its staff reorganized their work around patient flow rather than around the doctors and the medical departments. At one point, due to a major decentralization, Karolinska housed 47 departments. Lindsten brought that number down to 11. With the new horizontal organization, a patient sees a surgeon and doctor of internal medicine at the same time, rather than being shuttled from one department or office to the other. More radically, nurse coordinators proactively minimize the number of visits a patient must make by looking for inefficiencies in the system. Some doctors at Karolinska are still not quite comfortable reporting to a nurse on administrative matters, which the nurse coordinator concept requires. However, doctors and surgeons now concentrate on clinical matters, not administrative matters.

While the hospital closed 3 of its 15 operating theaters through the reorganization, the number of operations increased by 3,000 annually, up 25 percent. Change in hospitals, and other organizations, may not come easily, yet can be very successful.

SOURCE: R. Rao, "The Struggle to Create an Organization for the 21st Century," Fortune, April 3, 1995, 90-99. © 1996 Time Inc. All rights reserved.

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