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.
Our results indicate that service quality and client’s economic benefits have different sets
of determinants. Service quality is determined by three provider's capabilities and relational
governance. Client’s economic benefits are determined by contractual and relational governance,
client's provider management capability, and provider’s service quality. Our findings also provides
evidence that service quality fully mediates the relationships among three provider's 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's and
provider's 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
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's capabilities (i.e., client's provider management capability), three provider's 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's service quality, and client's economic benefits). Survey data gathered from 306
practitioners in 21 client firms and 20 provider firms is used to test the research model.implications for researchers and practitioners pertaining to effective governance of outsourcing
arrangements and offers directions for future research.
Third, as suggested by Barney et al. (2011), firm's resources and capabilities are always
linked with other external sources in maintaining performance of inter-firm arrangements. Also,
prior literature has suggested that firm's capabilities and governance mechanisms jointly influence
buyer-supplier relationship (Parmigiani and Mitchell 2010). Therefore, we propose that the
interaction effects of provider's capabilities and governance mechanisms, and of client's capabilities and governance mechanisms affect provider's service quality and client's economic benefits respectively (Argyres and Zenger 2012)