Improving Work Performance of Services Delivered Off-Shore: Ex Post Inspection or Ex Ante Monitoring?

Advances in Information Technology have allowed companies to deliver varied services from offshore locations with work performance being closely monitored and contracted on. While business reports have focused on the delivered quality of services moved offshore, statistical evidence is needed to study the effectiveness of different instruments on improving the work performance. Based on our primary data, we conduct empirical tests to investigate the effectiveness of different governance instruments, including monitoring and contracting instruments, for improving the work performance of services delivered off-shore. The findings indicate that while monitoring instruments are effective for improving work performance in general, currently used contracting instruments fail to align the incentive of the buyer with that of provider of services off-shored. Furthermore, a buyer company's real-time monitoring is far more effective than a provider company's monitoring for improving the work performance, and this comparative advantage increases as service process codifiability decreases.