An empirical investigation of governance mechanism choices in service outsourcing

Abstract

PurposeDrawing on transaction cost economics (TCE) theory and organizational information processing theory (OIPT), this study investigates how the alignments between the characteristics of service (i.e. task complexity and measurement ambiguity) and governance mechanisms (i.e. contract specificity and monitoring) can affect service performance.Design/methodology/approachThe paper uses a rigorously designed survey to collect data from professionals who manage service outsourcing contracts in various industries. The respondent pool consists of randomly selected members of the Institute of Supply Management (ISM). The authors’ research question is analyzed using 261 completed and useable responses. Structural equation modeling is adopted to examine the data and test the proposed hypotheses.FindingsThe authors find that both contract specificity and monitoring have a positive impact on supplier performance. Further, for high task complexity services, contract specificity is more effective than monitoring, and for high measurement ambiguity services, the opposite is true. Moreover, the effect of contract specificity is mediated by monitoring.Practical implicationsService outsourcers should use both contract specificity and monitoring in governing outsourced services and know that the former depends on the latter during execution. Facing resource constraints, they can prioritize crafting detailed contract provisions over implementing monitoring for highly complex services but consider monitoring as the primary governance tool in services whose outcomes are difficult to measure.Originality/valueThis study is the first to couple TCE with OPIT and consider the nature of outsourced services in the choice of governance mechanisms and empirically test the simultaneous effects of contract specificity and monitoring in the context of service outsourcing.

The effects of supply chain governance on supply chain resilience based on information processing theory

“…Integration measures a relational competency to the process of combining efforts to integrate supplier and customer information and inputs into internal planning, and the items from Wieland et al (2013) are taken to measure integration. Lin et al (2023) confirms that the interaction between contractual governance and digital market orientation has no significant effect on SCR, and this interaction is related to contractual governance (Bonatto et al, 2020;Ye et al, 2022b). Thus, this study uses the interactions between contractual governance and digital market orientation as the instrumental variable of contractual governance.…”

“…The empirical study by Wieland et al . (2013) suggests that integration does not have a significant effect on resilience, and integration is positively related to relational governance (Bonatto et al ., 2020; Ye et al ., 2022b). Thus, this study uses integration as the instrumental variable of relational governance.…”

“…Lin et al . (2023) confirms that the interaction between contractual governance and digital market orientation has no significant effect on SCR, and this interaction is related to contractual governance (Bonatto et al ., 2020; Ye et al ., 2022b). Thus, this study uses the interactions between contractual governance and digital market orientation as the instrumental variable of contractual governance.…”

“…In the equation, a good instrument variable for the estimation needs to be exogenous (exogeneity condition) and strongly correlated with the explanatory variable (relevance condition). The empirical study by Wieland et al (2013) suggests that integration does not have a significant effect on resilience, and integration is positively related to relational governance (Bonatto et al, 2020;Ye et al, 2022b). Thus, this study uses integration as the instrumental variable of relational governance.…”

Impact pathways: managing relational risk in project operations

“…There is also, though, a recognition in the wider operations management literature on service outsourcing that the choice to focus on managing the contract as the main governance mechanism might be context specific i.e. where outcomes are difficult to measure, as could be the case in project environments, other monitoring activities could be a more effective (Ye et al 2022). Hence, given that PM is a service, PM Deliverables in other areas besides the contract are potentially as important.…”