Department of Management Science and Systems, School of Management, State University of New York at Buffalo, Jacobs Management Center Buffalo, NY 14260-4000 U.S.A.
This study extends the view that formal contracts and relational governance function as complements rather than as substitutes. We investigate how specific characteristics of service level agreements (SLAs) impact relational governance in information technology outsourcing relationships. Eleven contractual elements (categorized into three SLA characteristics: foundation, change, and governance characteristics) are hypothesized to act as complements of three relational governance attributes: relational norms, harmonious conflict resolution, and mutual dependence. Data for the study were collected through a survey of South Korean IT executives. Results of the study support the fundamental proposition of complementarity between formal contracts and relational governance, and indicate that well-structured SLAs have significant positive influence on the various aspects of relational governance in IT outsourcing relationships. However, the study also reveals that change characteristics of SLAs may act as a substitute for relational governance as these characteristics were found to dampen the level of trust and commitment through moderation effects. Overall, the findings support the proposition that well-developed SLAs not only provide a way to measure the service provider's performance, but also enable effective management of outsourcing engagements through the development of partnership-style relationships with high levels of trust and commitment.
This paper conducts a two-period dynamic analysis of sourcing mode choices for e-commerce projects implemented by large firms during 1999-2002. We differentiate e-commerce assets that are the focus of a sourcing decision in terms of whether they are in the growth or maturity stages. We also consider hybrid governance mechanisms, such as minority equity arrangements, as a potential sourcing mode in addition to the conventional distinction between insourcing (i.e.. hierarchical governance) and outsourcing (i.e., market governance). The rapid evolution in e-commerce technologies and their markets during this period allows us to test whether asset maturity plays any role in sourcing decisions. Results indicate that when the strategic intent of an e-commerce project is more business focused during the growth phase, hybrid governance is preferred over hierarchical governance for sourcing of e-commerce assets. Strategic intent is found not to influence sourcing mode choices during the technology/market maturity phase. Hierarchical governance is the preferred sourcing mode during the growth phase, when task complexity is high. For managing task complexity, as technologies and their markets mature, both hierarchical and hybrid governance modes become preferable to the market governance mode.