An empirical investigation of governance mechanism choices in service outsourcing
International Journal of Operations & Production Management
ISSN: 0144-3577
Article publication date: 11 July 2022
Issue publication date: 12 August 2022
Abstract
Purpose
Drawing 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/approach
The 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.
Findings
The 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 implications
Service 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/value
This 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.
Keywords
Acknowledgements
The authors are grateful to the chief editor Tobias Schoenherr and anonymous reviewers for their constructive comments throughout the review process. The authors are grateful to Dr. Sean M. Handley (Darla Moore School of Business, University of South Carolina) for his insightful feedback on an earlier version of the paper. The authors also thank the Institute for Supply Management (ISM) for their support of this study.
Erratum: It has come to the attention of the publisher that the article, “An empirical investigation of governance mechanism choices in service outsourcing” by Yuan Ye, Xiaosong (David) Peng, Raymond Lei Fan and Arunachalam Narayanan published in International Journal of Operations & Production Management, incorrectly listed Arunachalam Narayanan’s affiliations as ‘Seidman College of Business, Grand Valley State University, Grand Rapids, Michigan, USA and Department of Information Technology and Decision Sciences, G Brint Ryan College of Business, University of North Texas, Denton, Texas, USA’. The correct affiliation for Arunachalam Narayanan is ‘Department of Information Technology and Decision Sciences, G Brint Ryan College of Business, University of North Texas, Denton, Texas, USA ‘. This error was introduced in the editorial process and has now been corrected in the online version. The publisher sincerely apologises for this error and for any inconvenience caused.
Citation
Ye, Y., Peng, X.(d)., Fan, R.L. and Narayanan, A. (2022), "An empirical investigation of governance mechanism choices in service outsourcing", International Journal of Operations & Production Management, Vol. 42 No. 9, pp. 1467-1496. https://doi.org/10.1108/IJOPM-01-2022-0025
Publisher
:Emerald Publishing Limited
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