THE EFFECTS OF CLIENT GOVERNANCE MECHANISMS AND RELATIONAL EXCHANGE ON IS OUTSOURCING EFFECTIVENESS

Although recent years have seen enormous growth in the nature and extent of IT outsourcing, organizations still struggle with factors that contribute to effective outsourcing. Drawing upon two theoretical lenses – formal and informal governance mechanisms and relational exchange theory – this study explores the relationships between four dimensions of governance (contractual governance, structural governance, extra-contractual governance, relational governance), two characteristics of the relational exchange (joint commitment, relationship trust) and four dimensions of IS outsourcing effectiveness (execution-level effectiveness, business benefits, functional benefits, economic benefits). Data collected from a field survey of 141 IS managers from client firms with application outsourcing arrangements are used to test these relationships. Results from PLS SEM analysis indicate that the four dimensions of governance mechanisms have different positive influences on the individual dimensions of outsourcing effectiveness, with joint commitment and relationship trust partially mediating the relationships. By modeling formal and informal governance mechanisms as antecedents to relational exchange, and by disaggregating the effectiveness dimensions, the findings from this study extend prior research and have important implications for researchers and practitioners alike

The Effects of Capabilities and Governance on Information Technology and Business Process Outsourcing Performance: Client and Provider Perspectives

Research on information technology outsourcing (ITO) and business process outsourcing (BPO) has consistently found that client firm capabilities, provider firm capabilities, and governance mechanisms (contractual and relational) are key determinants of outsourcing performance. These key determinants work together to affect outsourcing performance, however, the information systems (IS) literature has investigated them in a separate manner. This study contributes to the body of IS knowledge by examining capabilities and governance mechanisms influence on outsourcing performance independently and jointly. Based on resource-based theory, transaction cost economics, and relational exchange theories, we develop a research model to examine the independent and joint effects of one client\u27s capabilities (i.e., client\u27s provider management capability), three provider\u27s capabilities (i.e., human resources management, risk management, and innovativeness), and two governance mechanisms (contractual and relational governance) on two indicators of outsourcing performance (i.e., provider\u27s service quality, and client\u27s economic benefits). Survey data gathered from 306 practitioners in 21 client firms and 20 provider firms is used to test the research model. Our results indicate that service quality and client’s economic benefits have different sets of determinants. Service quality is determined by three provider\u27s capabilities and relational governance. Client’s economic benefits are determined by contractual and relational governance, client\u27s provider management capability, and provider’s service quality. Our findings also provides evidence that service quality fully mediates the relationships among three provider\u27s capabilities and outsourcing performance. Further, our analyses suggest that there are negative interaction effects between capabilities and governance mechanisms on outsourcing performance. More specifically, in the presence of strong governance mechanisms, the positive effects of client\u27s and provider\u27s capabilities on outsourcing performance are reduced. Last, we also reveal that clients and providers differ in how they view the independent and joint effects of capabilities and governance mechanisms on outsourcing performance. This study provides some important implications for researchers and practitioners pertaining to effective governance of outsourcing arrangements and offers directions for future research

GOVERNANCE MECHNISMS IN IS OUTSOURCING PROJECTS IN TRANSITION ECONMIES

Pevious IS outsourcing research studies failed to provide evidences on how IT client-vendor relationships should be governed to ensure project success and relational continuity. More importantly, it is even challenging for companies to achieve outsourcing success in transition economies facing an environment characterized by institutional instability. This article draws from theories of institutions and organizations to develop a model examining outsourcing relationship governance mechanisms which would affect outsourcing success in state-owned and non-state-owned Chinese companies. Results of 72 state-owned and 54 non-state-owned outsourcing projects show that the positive relationship between contractual governance and outsourcing success is stronger in state-owned firms than in non-state-owned firms. On the other hand, non-state-owned firms have stronger effects on the relationships between relational governance and outsourcing success, and between outsourcing success and relational continuity

When Do Vendors Benefit from Relational Governance? Contracts, Relational Governance and Vendor Profitability in Software Development Outsourcing

We examine the interacting effect of formal contracts and relational governance on vendor profitability in the software outsourcing industry. We argue that the presence of relational governance is driven by perceptions of exchange hazards. In a departure from extant literature, we propose that its benefits depend on the manner in which exchange risks are shared. Specifically, we hypothesize that relational governance provides benefits to an exchange partner only in those contracts in which they are exposed to greater risk. We test these arguments by examining 105 software projects completed by a software vendor. We conclude with a discussion of the implications of our findings

A Mixed-methods Study of Governance Mechanisms and Outsourcing Information System Services on Goal Performance

Background: Information systems outsourcing (ISO) is one of the critical businesses in information technology outsourcing (ITO). Due to the increasing complexity of ISO, the failure rate of such outsourcing increases. Outsourcing information system services (OISS) was thus proposed to deal with this. A conceptual framework based on the information processing view was developed to investigate how the client firms assess OISS goal performance. Governance mechanisms (governance structure, relational governance, and IT coordination) were treated as antecedents of transaction cost and outsourcing flexibility; these would further affect goal performance (goal achievement and goal exceedance) with task complexity as a moderator. Method: A mix-methods study was conducted; the qualitative approach was employed to validate the conceptual framework by interviewing three managers with experiences in OISS from the client firms, whereas the quantitative approach, with 206 responses from those with OISS experiences from the client firms, provides empirical evidence. Results: The results indicated that relational governance effectively reduced transaction cost and increased outsourcing flexibility; the governance structure was also vital for outsourcing flexibility. Transaction cost was found to negatively affect goal achievement, and outsourcing flexibility positively affected both goal achievement and goal exceedance. The moderating effects of task complexity were also confirmed. Conclusion: The results extended the information processing view to OISS and proved that transaction cost and outsourcing flexibility are necessary to link governance mechanisms and goal performance. Practically, the client firms are suggested to maintain a positive relationship with the OISS provider. The OISS provider should offer an exclusive channel during and after the execution of the OISS project to reduce the possible cost that occurs during the implementation and improve the outsourcing flexibility to allow the client firms to consider their goals have been achieved and beyond their expectations. By doing so, the effect of goal performance can be maximized

CONTRACTUAL AND RELATIONAL GOVERNANCE OF SOFTWARE OUTSOURCING PROJECTS: A PROPOSED RESEARCH MODEL AND RESEARCH AGENDA

Organizations are under increasing pressure to exhibit the value of their outsourcing. However, previous IS outsourcing research studies failed to provide evidence on how IT client-provider relationships should be managed to ensure outsourcing success. This article draws on theories of transaction cost and social exchange to develop a model examining outsourcing relationship governance mechanisms. Important determinants of contractual and relational governance and the effectiveness of the control mechanisms on relational outcomes, opportunism and commitment, are examined. This research agenda may theoretically extend IS outsourcing research by incorporating a framework to explore outsourcing relationship management and to practically explain software outsourcing phenomenon

Towards Better Understanding of the Relationship between Formal Controls and Trust in IS Outsourcing

It is interesting to discover that there is a reasonably small but growing literature on the issue and role of trust in IS outsourcing in the past few years. Built on the premise that over-reliance on outsourcing contract and/or other form of formal controls do not necessarily deliver a successful outsourcing partnership and/or outcomes, we have explored another dimension of outsourcing relationship – ‘trust’. This paper is written to further explore the role of trust and its relationship with formal controls within the context of IS outsourcing. The paper advocates that ‘trust’ is a powerful factor that is intricately linked to the success of outsourcing activities and that those engaged in an outsourcing relationship needs to find a balance between trust and formal controls

An Empirical Examination of Relational Governance and Service Capabilities on the Success of Professional Service Firms Offshore Outscoring the Client Perspective

Professional services, such as accounting, finance, engineering and management consulting, are significant contributors to the U.S. economy accounting for the largest value added industry within the private sector. Knowledge-intensive professional services reached this level of economic prominence by responding to heightened competition, managing rising costs, utilizing key resources, and re-directing their focus to internal core competencies through the strategic decision to engage in offshore outsourcing relationships. By 2015, the Congressional Research Study report predicts 3.4 million, or 13.7 of professional service jobs will be offshore outsourced. Offshore outsourcing is a firm level strategic decision to relocate business activities to an offshore third party primarily to emerging markets. Based on existing theories of transaction cost economics, resource based view, and resource dependence theory, this dissertation empirically validates a comprehensive model evaluating the multi-dimensional relational governance mechanism of collaboration on the capabilities of the offshore service provider. In addition, the model examines the influence of the service capabilities on the success of the client firm. One of the key contributions of this study is the client perspective examination of the relationship between the U.S. client firm and offshore service provider thereby addressing a stated need for additional academic research. The importance of governance mechanisms established by professional service firms have evolved over time from minimizing transaction costs and opportunistic behavior, to maximizing access to complementary resources, to building long-term relationships based on communication, commitment and information sharing. These governance mechanisms are integral to a collaborative client-vendor relationship. This dissertation develops hypotheses, from existing outsourcing literature, evaluating the influence of collaboration on the client\u27s perception of the learning capability, the se

Exploring The Balance Between Trust And Formal Controls In Information Systems Outsourcing Relationships

Trust and formal controls are critical in contemporary information systems outsourcing arrangements. Trust has been recognized as the relationship facilitator, while formal controls have been treated as the governance mechanism. Achieving a balance between trust and formal controls has received much attention in the literature as it leads to better management of inter-organisational relationships and performance results. Although existing research on the balance offers interesting insights, it is largely descriptive and does not establish a sound conceptual base. In contrast, the current studies that investigate the interaction of trust and formal controls have been based on contradictory conceptualisations and conflicting research outcomes, leading to controversial and exhausting debate about trust and formal controls being complements and/or substitutes. In this study, we investigate the dynamics of trust-controls nexus in IS outsourcing arrangements and build a conceptual framework that captures various interplays between trust and formal controls. We argue that different types of balance (antithetical, orthogonal and synergistic) and outsourcing outcomes can mutually influence each other. Based on our framework, we explore the synergistic balance in twocase studies and reveal the existence of dynamic patterns of interaction between trust-controls nexus and outcomes, and the changes in the achieved balance. The study provides a new way to explore the balance as the outcome of dynamic interactions between trust and formal controls and its link to the outcomes in IS outsourcing