Trust in corporate real estate management outsourcing relationships

Abstract

Corporate real estate management outsourcing relationships are characterised by intangible services, information asymmetries between principal and agent, bounded rationality, and imperfect contracts. In such relationships, trust may be an important complement to contracts and monitoring to reduce transaction costs. This study tests how economic, social, monitoring and corporate real estate management-specific variables affect two types of trust – calculative and relational – with data collected from US corporate real estate managers. An OLS analysis reveals that service provider expertise and efficient monitoring positively impact calculative trust. Additionally, perceived value, social interaction, communication, service provider dependency and efficient monitoring are positively associated with relational trust. The findings suggest service provider market knowledge is essential to gain a client’s trust in an outsourcing relationship. Proper handling of sensitive information, reliable communications, providing superior value and personal relationships contribute to relational trust that can lead to more stable, enduring relationships. Clients recognise that service provider dependency may contribute to their acting in a trustworthy manner. However, trust and effective monitoring are complements, not substitutes, in these relationships.

Keywords:

• corporate real estate management
• trust
• corporate strategy
• principal–agent problems
• outsourcing

Acknowledgements

We thank Michael Anderson and his staff at CoreNet Global, industry experts Ben Amoson, Matthew Fanoe, John McBreen, Trex Morris, Samuel Unger, Glen Wong, the editor, and three anonymous referees for their guidance and assistance.

Notes

aItem adapted from Gainey and Klaas (2005).

bItem adapted from Doney et al. (2007).

**Significant at 5%

***Significant at 1%

1. Distributing the questionnaire to a large number of CoreNet members would not necessarily be expected to generate a large number of responses. Wagner and Kemmerling (2010) found that increasing sample size from 100 to more than 1000 negatively impacted response rate in logistics survey results published between 1998 and 2007. Research indicates that email survey research response rates have been declining since their introduction in the mid 1980s (Sheehan, 2001) with some industry researchers achieving response rates of less than 10% (Ranchhod & Zhou, 2001). Because CoreNet Global distributes questionnaires several times a year, some members may also be suffering from questionnaire fatigue and opt out of a survey whose topic is not of interest to them (those who would express neutral opinions). It is also possible that some CRE managers are uncomfortable with questions about trust, although none of the CRE managers who reviewed the draft questionnaire expressed any reservations about the topic or the questions. The responses were anonymous and only the respondent knew what service provider relationship was being evaluated.

2. The wording of several items was revised based on comments from CRE experts on the initial questionnaire draft. For example, ‘The agreements with this service provider provide clear descriptions of required performance levels’, was changed to ‘The agreements with this service provider provide specific rewards and penalties’. Another expert recommended being more specific about outsourcing compared to a wording aimed at merely the nature of CRE department–service provider relationship. Additional expert comments on the draft questionnaire are available from the authors.

3. The questionnaire does not ask respondents for their geographical location. Doney et al. (2007) did not find a statistically significant relationship between national culture and wealth on trust in global business to business (B2B) outsourcing service relationships, so no significant geographic bias would be expected in real estate outsourcing relationships.

4. Cronbach’s alpha is a measure of reliability or internal consistency. It measures the proportion of the variability in the answers on the items comprising a factor that reflects true differences in responses/opinions on those items. Thus, the factor measure will give the same results for people with the same opinion about the underlying construct. (For more information on Cronbach’s alpha, see Trochim and Donnelly, 2008, or Cohen, Cohen, West & Aiken, 2003).