Why Delegating Decisions Can Erode Trust

Suppliers might do better to inform, not advise, their clients.

HOW FAR SHOULD suppliers go to help their clients make decisions? If suppliers want to build trust, they should provide only the facts—and nothing more. Otherwise, their inherent conflicts of interest can degrade trust, weaken relationships, and even result in decreased profits. This is the conclusion of a study by Özalp Özer, professor of management science, and Upender Subramanian, associate professor of marketing, both of the Jindal School of Management at the University of Texas in Dallas; and Yu Wang, associate professor of marketing at the College of Business Administration at California State University in Long Beach.

Özer, Subramanian, and Wang examined how a retailer’s request for information from a manufacturer—for example, a grocery store asking a supplier about the proper shelf space for a certain product—could affect the sense of trust between them. They examined three forms of what they call the “assistance process”: information sharing, in which the supplier simply provides factual details to its customer; advice provision, in which it recommends a decision; and delegation, in which it makes a decision on its customer’s behalf within parameters the customer has approved.

These processes can be seen most readily in industries such as healthcare or financial planning, the co-authors explain. Both physicians and financial planners can set out the facts, recommend plans of action, or make decisions on behalf of their clients within pre-arranged limits.

In one experiment, 108 participants were paired with one another through networked computer terminals to complete 12 rounds of a simulation. In each pair, one played the role of retailer and one, the role of manufacturer. They switched roles at random for each round. During each round, those acting as manufacturers sent reports to their retail partners, and those acting as retailers indicated the trustworthiness of the information they received. Profits for manufacturers were calculated based on the value of the information. During practice rounds, all participants were informed of the types of assistance they could request or offer.

The researchers found that when those in manufacturing roles engaged in information sharing, those in retailer roles indicated that the information was more trustworthy, and manufacturers realized greater profits. On the other hand, when manufacturers engaged in advice provision, their behavior was viewed as more self-serving and their profits suffered. Delegation, in which manufacturers acted within limits set by the retailers, resulted in the least trust and poorest performance.

The researchers believe their findings could apply to any relationship in which an individual or organization seeks out an expert’s opinion. Because an expert “has incentives to manipulate his or her opinion to gain personal advantage,” says Özer, it makes sense for all involved to limit this kind of interaction to information sharing alone.

“Information Sharing, Advice Provision, or Delegation: What Leads to Higher Trust and Trustworthiness?” was published online January 23 in Management Science. An earlier version is available at ssrn.com/abstract_id=2565577.