Despite the importance of outsourcing engagements, little research has been done on effectiveness of governance mechanisms. In particular, the effectiveness of governance mechanisms were not examined in the presence of risks such as ex post opportunism and uncertainty. Specifically, this research examines the effectiveness of transactional and relational governance mechanisms in the management of outsourcing engagements. Consequently, answers to three main research questions are sought as part of this dissertation.First, this research examines the effective governance mechanisms in the presence of ex post opportunism and project uncertainty. The results indicate that the configurations of effective governance mechanisms are different for different configurations of risk. Second, the research explores if there are any specific patterns of governance mechanisms that are being currently used by outsourcing engagements. The results indicate that managers tend to choose specific patterns of governance mechanisms based on the strategic importance as well as risk faced in the engagement. Finally, this research examines if transactional governance mechanisms and relational governance mechanisms are complements or substitutes. The results indicate that transactional and relational governance mechanisms act as complements to each other. Specifically, the results depend on the level of opportunism exhibited by the supplier and the strategic importance of the outsourcing engagement. When the supplier is cooperative, relational governance mechanisms provide superior outsourcing performance. On the other hand, when the supplier is uncooperative (i.e., behaves in an opportunistic manner), the results diverge. Transactional governance mechanisms are beneficial when the outsourcing engagement is strategically important.Based on the results, both transactional and relational governance mechanisms are seen as important. The effectiveness of the governance mechanisms differ based on the level of risk and the strategic importance of the outsourcing engagements. Managerial insights corresponding to these results are presented in this dissertation. The results provide clarity and recommendations to managers on instituting appropriate governance mechanisms in outsourcing engagements.
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