A mixed-methods study of governance mechanisms and outsourcing information system services on goal performance

Background: Information systems outsourcing (ISO) is one of the critical businesses in information technology outsourcing (ITO). Due to the increasing complexity of ISO, the failure rate of such outsourcing increases. Outsourcing information system services (OISS) was thus proposed to deal with this. A conceptual framework based on the information processing view was developed to investigate how the client firms assess OISS goal performance. Governance mechanisms (governance structure, relational governance, and IT coordination) were treated as antecedents of transaction cost and outsourcing flexibility; these would further affect goal performance (goal achievement and goal exceedance) with task complexity as a moderator. Method: A mix-methods study was conducted; the qualitative approach was employed to validate the conceptual framework by interviewing three managers with experiences in OISS from the client firms, whereas the quantitative approach, with 206 responses from those with OISS experiences from the client firms, provides empirical evidence. Results: The results indicated that relational governance effectively reduced transaction cost and increased outsourcing flexibility; the governance structure was also vital for outsourcing flexibility. Transaction cost was found to negatively affect goal achievement, and outsourcing flexibility positively affected both goal achievement and goal exceedance. The moderating effects of task complexity were also confirmed. Conclusion: The results extended the information processing view to OISS and proved that transaction cost and outsourcing flexibility are necessary to link governance mechanisms and goal performance. Practically, the client firms are suggested to maintain a positive relationship with the OISS provider. The OISS provider should offer an exclusive channel during and after the execution of the OISS project to reduce the possible cost that occurs during the implementation and improve the outsourcing flexibility to allow the client firms to consider their goals have been achieved and beyond their expectations. By doing so, the effect of goal performance can be maximized.