Promoting Trust and Relationship Commitment through Service Level Agreements in IT Outsourcing Relationship

As business organizations are moving to become agile and responsive to a dynamically changing business environment, firms increasingly employ Information Technology (IT) outsourcing to support strategic IT decisions that lead to sophisticated forms of business process outsourcing (Mani, Barua, … Whinston, 2006), offshore outsourcing (Rottman and Lacity 2004) and capability outsourcing1 (Gottfredson, Puryear, … Phillips, 2005). As organizations outsource more and more of their IT operations, the skill sets that manage the relationship between the service recipient (SR) and the service provider (SP) becomes new strategic asset (DiRomualdo … Gurbaxani, 1998). Most recent outsourcing practices put more emphasis on managing the outsourcing relationship and on nurturing a high level of trust and commitment during the course of the relationship (Datz 2003). As in marriages or friendships based on trust and commitment, however, not all outsourcing relationships work well. The participants may find themselves wishing they had planned better in addition to exclusively relying on trust and commitment. As the overall relationship deteriorates the results will be higher costs, operational disruption and lost business opportunities (Goolsby, 2002). It is expected that an outsourcing relationship would fail to achieve both parties' desired results if it is not organized and managed well from the outset. Thus, greater understanding of how to manage IT outsourcing relationships that create and sustain strategic value for the client firm is required. The paper attempts to improve the specifications of IT outsourcing management solutions by exploring the complementarity between two governance mode s in the interorganizational relationship (IOR) literature.