This study extends the view that formal contracts
and relational governance function as complements rather than as
substitutes. We investigate how specific characteristics of service
level agreements (SLAs) impact relational governance in information
technology (IT) outsourcing relationships. Eleven contractual
elements (categorized into three SLA characteristics: foundation,
change, and governance characteristics) are hypothesized to act as
complements of three relational governance attributes: relational
norms, harmonious conflict resolution, and mutual dependence. Data
for the study were collected through a survey of South Korean IT
executives. Results of the study support the fundamental proposition
of complementarity between formal contracts and relational
governance, and indicate that well-structured SLAs have significant
positive influence on the various aspects of relational governance
in IT outsourcing relationships. However, the study also reveals
that change characteristics of SLAs may act as a substitute of
relational governance as these characteristics were found to dampen
the level of trust and commitment through moderation effects.
Overall, the findings support the proposition that well-developed
SLAs not only provide a way to measure the service provider’s
performance, but also enable effective management of outsourcing
engagements through the development of partnership-style
relationships with high levels of trust and commitment.
Keywords:
IT outsourcing, interorganizational
relationship, service level agreement, SLA, formal contract,
relational governance, relational norms, harmonious conflict
resolution, mutual dependencies, trust, commitment, partnership,
relational exchange theory, PLS