The role of governance effectiveness in explaining IT outsourcing performance

Recent studies on IT outsourcing have examined the effect of contract specification and relationship strength on IT outsourcing performance in a separate manner. Previous studies, however, ignored the importance of the governance effectiveness that bonds contractual control and relationship strength together to deliver expected outcomes in IT outsourcing exchange. In this paper, we propose a model of IT outsourcing management where governance effectiveness mediates the effect of both contractual control and relationship strength on IT outsourcing performance. We collected data from 143 client companies of IT outsourcing and analyzed it using the PLS method. Our findings show that both contract specification and relationship strength significantly influence governance effectiveness, although contract specification carries the more effect on governance effectiveness than relationship strength does. The governance effectiveness in turn mediates the effect of contract specification and relationship strength on three sub-dimensions of outsourcing performance: cost efficiency, performance improvement, and overall satisfaction. The results and implications are further discussed.