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Governance Mechanisms as Substitutes and Complements: Explaining Differential Relationships between Contractual and Relational Governance

Thomas L. Huber
University of Bern, Switzerland
Thomas A. Fischer
University of Bern, Switzerland

In recent years scholars have discussed the relationship of contractual and relational governance in information systems outsourcing. For a long time the substitutional view of governance mechanisms originating from transaction cost theory was dominant. As an example, complex contracts were seen as an opposing alternative to unwritten agreements based on trust. Empirical results, however, challenged this view and rather supported the competing perspective, implicating that relational and contractual governance are complements. However, results of novel investigations favor another argument: Relational and contractual governance mechanisms can simultaneously be complements and substitutes. However, if governance mechanisms can be both substitutes and complements, the question arises whether the relationship between governance mechanisms is the outcome of distinct processes of interaction between contractual and relational governance. Therefore our research question is: Which underlying processes explain the relationship (substitutes or complements) between relational and contractual governance? To answer this research question we conducted an exploratory, multiple-case study of five IT outsourcing projects at a leading global bank. Our results show, that there are three archetypical processes that illustrate how the interaction between relational and contractual governance results in their complementarity. Our major contribution is a shift in perspective. While former studies focused on explaining, whether contractual and relational governance are complements or substitutes, we answer the question how and why they become complements or substitutes. We argue that the processes we discovered have the explanatory power to unify contradictory empirical results by tracing them back to differences in the underlying processes. Based on our findings, we give implications for further research.

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Reference:Huber, T.L., Fischer, T.A. (2010). "Governance Mechanisms as Substitutes and Complements: Explaining Differential Relationships between Contractual and Relational Governance," Proceedings > Proceedings of IFIP 8.2/Organizations and Society in Information Systems (OASIS) . Sprouts: Working Papers on Information Systems, 10(113). http://sprouts.aisnet.org/10-113
Keywords:Contractual Governance, Relational Governance, Substitutes, Complements, Outsourcing, Offshoring
Item Type:Article - Volume 10 Article 113 (2010)
Email: Thomas L. Huber (thomas.huber@iwi.unibe.ch)
Thomas A. Fischer (thomas.fischer@iwi.unibe.ch)

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