Conflict Resolution or Informational Response? An Empirical Analysis of the Determinants of Governance Choice in Business Process Outsourcing Relationships

This study integrates perspectives from neo-institutional economics, organization theory and information systems to examine why firms choose different governance structures across business process outsourcing (BPO) relationships. In particular, we focus on the information processing (IP) requirements that must be managed during the course of the BPO relationship and antecedent uncertainty in the business environment, outsourced business process, and BPO relationship that influence governance choice through their impact on such IP requirements. Further, we theorize that the influence of IP requirements on governance choice is moderated by the choice of technological capabilities. Survey data on 130 BPO initiatives provide empirical support for our hypotheses. Our results emphasize that in modern information intensive BPO relationships, hierarchical controls embedded in the governance structure are an important IP mechanism that helps the user firm effectively respond to IP requirements of the relationship and resolve incentive and cognitive conflict between the participant firms.