Governance Mechanisms as Substitutes and Complements – A Dynamic Perspective on the Interplay between Contractual and Relational Governance

Huber, Thomas L.; Fischer, Thomas A.; Dibbern, Jens (2011). Governance Mechanisms as Substitutes and Complements – A Dynamic Perspective on the Interplay between Contractual and Relational Governance. In: Kotlarsky, Julia; Willcocks, Leslie P.; Oshri, Ilan (eds.) New Studies in Global IT and Business Service Outsourcing : 5th Global Scourcing Workshop 2011, Courchevel, France, March 14-17, 2011, Revised Selected Papers. Lecture Notes in Business Information Processing: Vol. 91 (pp. 46-65). Berlin, Heidelberg: Springer 10.1007/978-3-642-24815-3_3

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In recent years scholars have discussed the relationship between contractual and relational governance in information systems (IS) outsourcing. Findings regarding this relationship are still mixed. Some hint at a substitutional relationship, others at a complementary relationship. Moreover novel investigations favor another argument: relational and contractual governance mechanisms can simultaneously be complements and substitutes.
If governance mechanisms can be both, substitutes and complements, the question arises whether the relationship between different types of governance mechanisms is the outcome of distinct processes of interaction. To answer this question we conducted an exploratory, multiple-case study of five IS outsourcing projects at a leading global bank. We identified four archetypical interaction processes (archetypes): Three archetypes yield complementary relationships, one yields a substitutional relationship. Based on these findings, we searched for patterns in the occurrence of the archetypes as well as for their underlying reasons.
Our analysis revealed three salient patterns in the occurrence of the archetypes, each representing a sequence of archetypes: In the first two Patterns sequenced archetypes reinforced each other leading to either a “success” (pattern 1) or “failure path” (pattern 2). Pattern 3 - the “interrupted path” - demonstrates how a success path is broken and turned into a failure path induced by an external stimulating event.
Our major contribution is a shift in perspective. We show that the relationship between governance mechanisms is not static but dynamic. Dynamic interactions between governance mechanisms facilitate or corroborate perceived quality of IS outsourcing governance. Our findings pave the way towards a process-theoretic view on IS outsourcing governance.

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