Contract as a Source of Trust--Commitment in Successful IT Outsourcing Relationship: An Empirical Study

Existing studies on IT outsourcing have mainly examined partnership factors that influence IT outsourcing effectiveness. This stream of IT outsourcing research has largely ignored how to foster and manage necessary attributes of partner relationships that promote relationship quality, leaving the role of the formal contract in the context of managing outsourcing relationships untouched. This research extends such studies and integrates the extant views that contracts and relational governance function as a complement and that relationship commitment and trust are the key attributes in the relational governance impacting on the interorganizational performance. Using service level agreements (SLA) we examine how specific elements of formal contracts help firms to shape their relational attributes such as trust and commitment that leads to the success of IT outsourcing. The results show that the effects of well-structured SLA in managing the relational aspects of IT outsourcing contracts are significant. This paper also provides insight into the development of relational governance through a contractual mechanism in IT outsourcing engagements