Facilitating relational governance through service level agreements in IT outsourcing: An application of the commitment-trust theory

Firms increasingly rely on outsourcing for strategic IT decisions, and the many sophisticated forms of outsourcing require significant management attention to ensure their success. Two forms of interorganizational governance-formal control and relational-have been used to examine the management of IT outsourcing relationships. Contrary to the conventional substitution view, recent studies have found that these two governance modes are complementary; however. the dynamics of their interactions remain unexplored. Based on the commitment-trust theory, this paper focuses on how the formal control mechanism can influence the relational governance in an outsourcing engagement. Using service level agreements (SLAs) as a proxy for formal control, this study finds that eleven contractual elements, characterized as foundation, governance, and change management variables in an SLA, are positively related to the trust and relationship commitment among the parties. Trust and commitment, in turn, positively influence relational outcomes that we theorize would contribute to outsourcing success. Both research and practical implications of the results are discussed. (c) 2008 Elsevier B.V. All rights reserved.