Provider's innovativeness and outsourcing performance: The moderating effects of contractual and relational governance

This study contributes to IS literature by answering a question: How do contractual governance or relational governance moderate the effect of provider's innovativeness on outsourcing performance? We develop a research model based on an integration of multiple theories to test the moderating effects of contractual governance and relational governance. First, we examine the main effects of both provider firm capabilities and two governance mechanisms on outsourcing performance. In terms of provider's firm capabilities, we focus on provider's innovativeness, a capability to deliver innovation and continuous improvement, which is largely understudied in IS literature. We find that provider's innovativeness, contractual governance, and relational governance all have significant positive effects on outsourcing performance. Second, we examine the interactions between provider's innovativeness and those two dominant governance mechanisms. We find that relational governance does not have significant moderating effect on the relationship between provider's innovativeness and outsourcing performance, whereas a formal contract which clearly specifies control mechanisms and incentives for providers has a positive moderating effect. Last, we discuss implications for further research and practice in global outsourcing projects management.