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.