How Formal Governance Affects Multisourcing Success: A Multi-level Perspective

Multisourcing has become a common sourcing model in recent outsourcing practice. Yet, the extant and relevant IS literature has so far offered limited insight into how to stipulate both individual (i.e., individual vendor) and joint (the entire vendor network) performance while ensuring governance efficiency. Our study set about addressing this gap by examining how these three dimensions of multisourcing success can be achieved through formal governance. Specifically, we considered bilateral formal control, collective formal control and conflict arbitration (among vendors) as key formal governance elements. Results from a pan-European survey of client firms pursuing multisourcing projects show that bilateral formal control sets the stage to achieve both individual and joint performance, while conflict arbitration strengthens individual performance, and collective formal control strengthens joint performance. Governance efficiency is improved when both collective formal control and conflict arbitration are high. We also found that conflict arbitration strengthens the positive effect of collective formal control on both individual and joint performance. Our findings highlight the importance of governing inter-vendor relationships in multisourcing arrangements as opposed to relying solely on bilateral governance. Our study extends the limited literature on IS multisourcing, and assists managers in considering the strategies they wish to pursue when choosing appropriate governance mechanisms.