Trust Management in Virtual Product Development Networks

Trust Management in Virtual Product Development Networks

Eric T.T. Wong (The Hong Kong Polytechnic University, Hong Kong)
DOI: 10.4018/978-1-60566-026-4.ch611
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Abstract

The basic hypothesis forwarded in this chapter is that a major cause for VPN failure is managerial, and therefore controllable and potentially avoidable. Although today’s managers are well-trained in competitive behavior, cooperative processes in VPN require special trust management(TM) skills, skills that a majority of managers do not possess. As a result, cooperation often appears to be managed reactively, rather than being based on a deliberate, proactive cooperation strategy. For a VPN to be competitive and successful in a dynamic environment characterized by constantly changing customer demands and technological innovations, it must be capable of rapid adjustment in order to reduce the time and cost needed to deliver to the customer quality products. The main objective of this chapter is to propose essential guidelines for developing and maintaining partnership trust in Virtual Product Development Networks (VPDN) such that these networks can be managed in a proactive manner. In the following sections, the background of VPDN collaboration will be described, followed by an analysis of the key factors likely contributing to successful VPN collaboration. Based on findings reported in the trust and product development literature, basic requirements for developing and maintaining effective partnership trust in VPDNs have been proposed. Barriers likely to occur in practice are also outlined.
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Introduction

Business-to-business partnerships are gaining rising attention in management and academic research. Increasingly, companies are advised to pursue their collaborative advantage (Dyer, 2000) in order to co-create world-class products, attract the most valuable customers and generate exceptional profits. Today, there is significant global overcapacity in most industries. In this environment of scarce demand, customers are becoming more demanding of customised and innovative products or services. With the advance of information and communication technology (ICT) and the resulting globalisation of markets and manufacturing, innovative product designs are generating new opportunities. In such a change-driven environment, a single manufacturer rarely provides everything on its own anymore. Rather, the most attractive offerings involve buyers and suppliers, allies and business partners in various combinations. Consequently, manufacturers or suppliers do not really compete with one another anymore. Rather, it is offerings that compete for the time and money of customers. The networked business can take different shapes ranging from integrated product development through a key player, to virtual production networks, strategic alliances, virtual organizations, extended enterprises, and so forth.

A review of business publications indicates that companies are extensively using ICT in their new product development activities. Based on an analysis of numerous industrial, high-tech, and business-to-business applications, it appears that ICT can facilitate new product development in a number of areas. These areas can include: speed, productivity, collaboration, communication and coordination, versatility, knowledge management, decision quality, and product quality (Ozer, 2000).

The number of strategic alliances between large, established firms and small, new ventures is on the rise, especially in industries affected by technological change. Theoretically, the combination of a smaller firm’s innovative design capabilities with a larger firm’s production system and financial prowess promises synergies that can contribute to both firms’ competitive advantage, for example, Parts Manufacturers Approval (FAA, 2006) parts as an alternative to Original Equipment Manufacturer (OEM) parts in the aviation industry. Yet, not many of these partnerships result in successful collaboration.

New product development is inherently risky, particularly when new technology or emerging markets are involved. Although collaborative product development has been promoted as a means for reducing or at least sharing risk, such partnerships have their own limitations. Collaboration can also accentuate many of the risks inherent in product development projects. In the case of virtual production networks (VPN), this challenge is even greater because the new product development team spans geographical as well as organizational boundaries.

The basic hypothesis forwarded in this chapter is that a major cause for VPN failure is managerial, and therefore controllable and potentially avoidable. Although today’s managers are well-trained in competitive behavior, cooperative processes in VPN require special trust management(TM) skills, skills that a majority of managers do not possess. As a result, cooperation often appears to be managed reactively, rather than being based on a deliberate, proactive cooperation strategy. For a VPN to be competitive and successful in a dynamic environment characterized by constantly changing customer demands and technological innovations, it must be capable of rapid adjustment in order to reduce the time and cost needed to deliver to the customer quality products. The main objective of this chapter is to propose essential guidelines for developing and maintaining partnership trust in Virtual Product Development Networks (VPDN) such that these networks can be managed in a proactive manner. In the following sections, the background of VPDN collaboration will be described, followed by an analysis of the key factors likely contributing to successful VPN collaboration. Based on findings reported in the trust and product development literature, basic requirements for developing and maintaining effective partnership trust in VPDNs have been proposed. Barriers likely to occur in practice are also outlined.

Key Terms in this Chapter

Virtual Enterprise: A temporary business organization set up between trading partners operating from geographically dispersed sites, for the duration of a common project. The design and manufacture of new products or services frequently requires the talents of many specialists. When many corporations combine their specialties to create a product or service, the result can be called a virtual enterprise. A virtual enterprise must be able to form quickly in response to new opportunities and dissolve just as quickly when the need ceases.

Agile: Being agile means being proficient at change, and allows an organization to do anything it wants to do whenever it wants. As virtual enterprises do not own significant capital resources of their own, this helps to make them agile, as they can be formed and changed very rapidly.

Self-Fulfilling Prophecy: A predetermined idea or expectation one has toward oneself that is acted out, thus “proving” itself. For example, in the stock market, if it is widely believed that a crash is imminent, investors may lose confidence, sell most of their stock, and actually cause the crash.

Ethical: Conforming to standards of professional or social behavior agreed by all members of a virtual enterprise.

Virtual private network (VPN): A private communication network often used within a company, or by several different companies or organizations, to communicate confidentially over a publicly accessible network.

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