Conflict resolution in business services outsourcing relationships

Many organizations source administrative business services like information technology, human resources, procurement, legal, financial and accounting services through external service providers, a practice known as Business Services Outsourcing (BSO). Many of these relationships are strategic, in the sense that they are large, underpin clients’ business strategies, and the client can become highly dependent on service provider capabilities and performance. The BSO market is over $1 trillion in size and has been growing for two decades. Despite the size and maturity, up to 50% of BSO relationships result in poor outcomes, partly because partners cannot resolve conflicts. Based on interviews with client and provider leads from 13 BSO relationships, we answered the research question: “What types of inter-organizational conflicts arise in BSO relationships and how do partners resolve them?” We extended the prior literature on inter-organizational conflict frameworks by conceptualizing three types of conflicts specific to BSO: commercial conflicts, service conflicts, and relationship conflicts. Conflicts as we study them here are not minor disagreements, but have a strategic dimension. Commercial conflicts were the most serious because outsourcing relationships are firstly commercial transactions—a provider must earn a profit and a client must meet its economic business case to be viable. Theoretically, we found Thomas and Kilmann’s typology of conflict resolution styles to be robust enough to characterize the BSO conflict cases, provided a switched style category was included. In our data, we found that only the collaborative and switched-to-collaborative styles resolved conflicts to the satisfaction of both partners, which is consistent with theory. Novel findings that extend or contest prior theory are identified as part of a future research agenda. For practitioners, we also identified five effective conflict resolution behaviors.