January 26, 2005 Sally J. F. Baron, Ph.D 1

TRUST, RISK & AEROSPACE SOFTWARE:

BALANCE AND OPTIMIZATION

January 26, 2005 Sally J. F. Baron, Ph.D 2

Trust• TRUST IN A NUTSHELL

– Trust as Encapsulated Interest– Formation and Basis of Trust: “Grounding”– Traditional & Swift Trust

• ORGANIZATIONAL TRUST• TRUST IN THE CONTRACTOR RELATIONSHIP• TRUST AND RISK

– Escalation– Balance

• MOVING FORWARD• CONCLUSION

January 26, 2005 Sally J. F. Baron, Ph.D 3

Trust in a Nutshell

• Trust as encapsulated interest– Trust can be a result of shared interest.

(Russ Hardin, 2002)

• Trust and risk– Trust requires some risk.

January 26, 2005 Sally J. F. Baron, Ph.D 4

Trust Dyad

A B

(Because A views B as trustworthy.)

trusts

January 26, 2005 Sally J. F. Baron, Ph.D 5

Trust Dyad

A B

(Because A views B as trustworthy

and B views A as trustworthy.)

trusts

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Trust Triad

X

A Btrusts

to dorequires

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Grounding of Trust

A B

X

trusts

to dorequires

basis for trust

January 26, 2005 Sally J. F. Baron, Ph.D 8

Grounding of Trust

• Friends and family

• Shared interests

• Past experience or performance

• Rich social cues & organizational context

• Examination & objectivity (data)

January 26, 2005 Sally J. F. Baron, Ph.D 9

Traditional & Swift Trust

• Traditional trust– Heavily embedded– Usually built over time– “Thick”

• Swift trust– Temporary groups

• Surgical teams (Edmonson et al. 2000)• Cockpit crews (Hackman, 1993)

– Time pressure – trust is essential to success.

January 26, 2005 Sally J. F. Baron, Ph.D 10

Organizational Trust

• Individual trust– Usually easy to collect data– Simple form of trust

• Organizational trust– More complicated– Perturbed by people, budgets, politics,

environmental change

January 26, 2005 Sally J. F. Baron, Ph.D 11

Trust in the Contractor Relationship

• Market economics– Fundamental transformation (Williamson, 1975)– No chance for fair market invisible hand– Can result in opportunism & malfeasance

• DOD– Long term ties with contractors– What about new companies?

January 26, 2005 Sally J. F. Baron, Ph.D 12

Trust in the Contractor Relationship

• Case 1:– COTS software company Beta bids against

defense contractor Gamma for government contract.

– Gamma wins bid.– Gamma subs work to Beta

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Trust in the Contractor Relationship

• Case 2:– Government agency Rho puts out RFP– COTS software company Alpha bids $1M to

provide commercial product that is viable– Defense contractor Lambda bids $100M to design

and build a new system

Who won the bid?

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Trust in the Contractor Relationship

• Case 2, continued:– Lambda for $100M– 5 years later had nothing running– Broken baseline at $113M– Rho turned back to Alpha– Alpha provided functioning system within a year

for $1M

WHY?

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Trust in the Contractor Relationship

• Perceived trust is dangerous.

• Trust needs to be grounded in hard data.

• Trust leads to embedded relationships.

• Often can limit market search.

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Trust and Risk

• To trust is to take a risk• Believes that outcome will outweigh the risk

– (Risks must be taken in order to gain)

• Monitors contractor to mitigate risk• What do we get?• Rooms filled with paper

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Trust & Risk

“Look, you guys need to get somebody else because this is doing nothing… and it’s wasting time. And if you want to do this, then that’s fine, but find somebody who would feel fulfilled doing a lot of paperwork. If you want me to answer the question that you fundamentally asked… then stop having reviews and let’s get down to doing work.”

-- Military program manager

January 26, 2005 Sally J. F. Baron, Ph.D 18

Trust & Risk

• Perceived & misguided (or even blind) trust is bad

• Too much verification and monitoring is costly

• Seek balance

January 26, 2005 Sally J. F. Baron, Ph.D 19

Trust & Risk

• Balance– prudent paranoia (Rod Kramer, 2002)– constructive suspicion (Kramer, 2002)– “Doverjai no Proverjai” (trust but verify)

(Ronald Reagan)– quasi-trust (Hardin, 2002)

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Moving Forward

• Software has unique trust issues:– Cost can vary wildly due to things other than

quality– Difficult to assess – can’t see it…

• So…– Thorough market evaluation is essential– Fly before buy– Forget who and what you know!

January 26, 2005 Sally J. F. Baron, Ph.D 21

Conclusions

• Trust has long been touted as a market asset.

• Misguided trust is detrimental to market search.

• Balance is important – trust but verify.

• Move to the COTS market will be critical for DOD with wars and new cuts.

January 26, 2005 Sally J. F. Baron, Ph.D 22

Questions & Discussion