New Research from UT’s Haslam Examines Trading Partner Trust in Energy Industry

Trust is a cornerstone of business. When buyers and sellers trust each other, their relationships strengthen, and transactions proceed more smoothly. As new research from the University of Tennessee, Knoxville, Haslam College of Business reveals, trust is also a precious commodity.

In “Unpacking Trading Partner Trust in the Energy Industry,” a white paper by Haslam Global Supply Chain Institute Distinguished Fellow Kate Vitasek and Georgia College & State University logistics professor Karl Manrodt (HCB PhD, ’00), the co-authors explore the role trust plays in relationships between buyers and suppliers in the oil and gas and utility sectors. In their research, sponsored by multinational enterprise-application software company SAP, Vitasek and Manrodt used the comprehensive Compatibility and Trust^TM (CaT) assessment, which measures relationship health, to delve into the importance of trust among 23 strategic relationships, with the buying organization asked to select a “good” and “typical” supplier relationship to participate in the study.

Don’t Aim for Typical

To determine trust levels between the trading partners, the research duo applied the CaT tool to analyze each relationship in the areas of focus, team orientation, communication, innovation and overall trust in terms of performing to commitments. The CaT assessment revealed a lack of focus as the most notable way typical relationships differ from good relationships. This means trading partners in the typical relationships have misaligned goals and fail to perceive how each contributes to the other’s success.

Vitasek and her co-author’s research also revealed a significant gap between how organizations feel about good and typical relationships. The research validates what might be expected — trust levels between trading partners are higher in good relationships than typical ones. The gap between these trust levels, however, might be larger than anticipated. Describing good trading partner relationships, team members (i.e., representatives from the organizations that participated in the research) used positive adjectives like “collaborative” and “trustworthy” 85 percent of the time. However, team members used positive words only 63.5 percent of the time to describe typical relationships.

When not speaking positively of their trading partners, team members used words like, “frustrating,” “restrictive” and “distant” 25.5 percent of the time and nine percent of the time used strongly negative terms such as “difficult,” “strained” and “dysfunctional.” Vitasek says the results of the study should be alarming for companies.

“Companies can have hundreds — if not thousands of supplier relationships — and when you consider typical supplier relationships have poor trust levels, the impact can be significant in terms of costs and time wasted.”

Lack of Trust Creates “A Race to the Bottom”

Trust in business interactions is essential, as a lack of trust creates frustration and increased friction, leading to problematic transactions. These business effects are known as Transaction Cost Economics (TCE), essentially the hidden costs associated with doing business. TCE is driven up by difficult trading partner relationships that increase the time and cost of working together.

“These business relationships are made up of individuals who feel frustrated and stuck, and if they feel this way, they’re probably not doing the best work they can do,” Vitasek explains. “We have to bring the ‘relationship’ into these contractual trading partner relationships. It’s not a transaction. When we treat these suppliers as transactional, they treat you as a buyer transactionally, and it’s a race to the bottom.”

Creating Healthy Business Relationships

One factor contributing to business frustration is a lack of communication. Interestingly, team members said that while technology increased efficiency in trading partner relationships, it also weakened relationships by reducing face-to-face communications.

Vitasek attributes this development to the COVID-19 pandemic preventing in-person meetings and the subsequent rise in popularity of online communications platforms like Zoom.

“We got used to having Zoom and Teams meetings,” she says. “While it makes you more operationally efficient, it can simultaneously deteriorate the relationship if team members are not putting in the effort to consciously create healthy relationships.”

Vitasek notes that common trust-building activities found in good relationships are often a missing factor in typical relationships.

“If you are in a ‘typical’ [business] relationship, when’s the last time you did a team-building exercise or went out to dinner with your strategic supplier in an effort to create a healthy working relationship?” Vitasek observes.

The researchers suggest trading partners make a conscious commitment to personal communication by engaging in team-building sessions and holding face-to-face business review meetings quarterly, at a minimum.

More Solutions from Related Work

Strengthening communications is a first step in building trust in these relationships, but more can be done. Vitasek, Manrodt and their associates have researched trust in hundreds of trading partner relationships. They have used their research results to help dozens of buyers and suppliers rebuild or improve relationships. Read more about Vitasek and Manrodt’s approach to healing and/or improving trading partner relationships.

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CONTACT:

Scott McNutt, business writer/publicist, rmcnutt4@utk.edu

Contact

Scott McNutt

Business Writer/Publicist

rmcnutt4@utk.edu

Haslam College of Business - New Research from UT’s Haslam Examines Trading Partner Trust in Energy Industry