Lateral Coordination Mechanisms and the Moderating Role of Arrangement Characteristics in Information Systems Development Outsourcing

Although increased information systems (IS) development outsourcing is the trend, many of these arrangements fail to meet client expectations. We take a coordination perspective and adopt an information processing lens used by prior organization theorists to conceptualize sets of formal structural and informal nonstructural mechanisms, and predict their positive impacts on the strategic IT benefits achieved by the client. Utilizing a strategic alliance lens, we also predict that two characteristics of the client-vendor arrangement will moderate the impacts of both sets of coordination mechanisms. We test our hypotheses using hierarchical regression techniques on field survey data collected from 141 IS managers in client firms, responsible for IS development outsourcing arrangements. We found that the implementation of both structural and informal mechanisms positively impact the client’s strategic IT benefits. In arrangements with greater resource provisioning by the vendor, the positive impacts of informal governance mechanisms are strengthened. In arrangements with higher values similarity, the positive impacts of structural governance mechanisms are strengthened, but the positive impacts of informal mechanisms are weakened. A post-hoc analysis of a mediation model reveals that values similarity also has a positive relationship to both structural and informal governance mechanisms. This study therefore provides empirical support for the validity of an information processing lens to theorize lateral mechanism solutions to the coordination challenges of IS development outsourcing. Implications for research and practice are discussed, including the need for future research to better understand how client managers evolve sets of formal and informal mechanisms over the life of an outsourcing arrangement to achieve strategic objectives for their IT organization.