Cost-cutting and hire 'em, fire 'em policies have killed loyalty in the workplace, writes Roger Trapp
If use of the word "trust" is on the rise in management circles it is largely because of the perceived lack of it.

A business environment in which short-term pressures seem to take precedence over long-term ambition has not just spawned a "hire 'em, fire 'em" approach to people management - that is only the beginning of its effects.

Management might have started off in the driving seat when, at the start of this decade, it used the powerful combination of recession, the enthusiasm for the then-new management concept of re-engineering, and anxiety about the coming millennium to change the rules of employment. But the ending of the so-called psychological contract - under which employees expected a certain amount of job security in return for their loyalty - and its replacement by what was termed "flexibility" (in reality longer hours and greater responsibility for little extra reward) led to what was probably an unexpected response in the workforce.

While many employees have either lost their jobs or been forced to work under increasingly stressful conditions, many others have recognised their value to organisations and, seizing on the new freedoms, have set themselves up as consultants or contractors and offered their services to the highest bidder or to those employers for which they really want to work.

The result is a kind of free-for-all in which, thanks to the vogue for outsourcing and temporary employees, it is often difficult to see where one organisation begins and another ends.

It is this situation that Peter Herriot, one of the first researchers to write about the "new deal" in the employment market, and two colleagues at Sussex University's Institute of Employment Studies explore in their book Trust and Transition (John Wiley & Sons). Subtitled "Managing Today's Employment Relationship", the latest in a series of strategic human resource management books argues that senior executives face an acute dilemma: "How can we innovate into new markets, services and products when we have destroyed over the last two decades, but especially over the last five years, the conditions necessary to do so?"

Innovation, point out Herriot, Wendy Hirsh and Peter Reilly, is born of a willingness to take risks, and therefore a degree of psychological security. Innovation can only flourish if employees have autonomy - a sense that what they do affects outcomes and that they can decide what action to take. And, while ideas often come to individuals on their own, teamwork is often required to bring those ideas to fruition.

Yet, the book's authors add, "in our desire to cut costs, we have reduced these very conditions to breaking point. By downsizing, we have reduced employees' sense of security. By setting tight budget targets and reducing resources we have decreased agency and autonomy, despite all the rhetoric of empowerment. And by concentrating on motivating individuals by performance- related pay, we have shown what little value we place on teamwork."

Nor are they the only ones to take this view. A recent survey by management consultants at Coopers & Lybrand came to the conclusion that the key to high performance in innovation was trust. Moreover, some of the companies that have the strongest records in this area make a point of placing their trust in employees. In place of the old command-and-control attitudes, their executives set general guidelines and - taking the view that most people have sufficient pride in what they are doing not to wilfully mess around at work - let their workforces get on with the tasks set them.

In his book The Trust Effect (Nicholas Brealey), consultant Larry Reynolds argues that "not only is trust the key issue for business, but business is trusted less than ever before".

Pointing out that new organisational arrangements have fractured the bonds of loyalty that have made trust possible in the past, he quotes US futurologists Jim Taylor and Watts Wacker, who believe that trust is an increasingly scarce commodity in the modern business world.

Trust, says Reynolds, is about relationships. In fact, it is just one of three basic ways of conducting a relationship. The other two are based on "power" - the typical command-and-control set-up - and "hope", where, in yet another manifestation of the either/or mentality so prevalent in business, those that feel that power has not worked instead abandon all controls. Reynolds makes clear that he feels this can be worse than power, because it allows people's spirits to be raised only to be dashed.

Trust, on the other hand, is based on people doing things, "not because they have to, not because they hope it will do them good in the end, but because they genuinely want to". And they want to because on one level they are confident that the organisation is genuinely concerned about them and on another because they identify closely with its values and beliefs.

Reynolds is also at pains to point out that this is no easy street. Trust works, he says, because it brings accountability. People are expected to meet certain targets and if they fail they typically receive coaching aimed at bringing about an improvement or they are ushered out of the organisation. "Trust is tough," he says.

He cites the respected US retailer Nordstrom as being strong on trust. The company's success is generally put down to its attitude towards its staff: its employee handbook apparently says little more than "Use your good judgement in all situations."

But, as Herriot and company point out, trust in business is generally in short supply. Organisations' typical responses to the changing employment relationship have tended to "decrease further the already diminished social capital available to them. They have lost the trust of their employees. A pervasive insecurity among employees throws further into jeopardy what little trust is still around."

Nor is it just employees whose trust they have lost; customers, too, no longer trust many of the organisations with which they carry out transactions. After all, Richard Branson's Virgin has only been able to make the inroads it has on the financial services industry because of the general distrust of other operators in the sector.

But, bleak as the picture is, Herriot and his colleagues believe that trust can be re-created - largely though senior managers abandoning their lofty perches and going at least some way towards empathising with employees' predicaments.

That, though, will demand a different style of leadership to the one with which most organisations are familiar.