Relational Risk Mitigation: The Relationship Approach to Mitigating Risks in Business Process Outsourcing

Managing risks in outsourcing has been widely researched but is still not fully understood by either academics or practitioners. Recent research on IS outsourcing relationships has addressed the relationship between formal and relational governance, but has not revealed how individual relational factors affect outsourcing risk. Surveying 335 business process outsourcing initiatives, our data supports the separation of an operational, performance-driven approach and an embedded, financial-driven one in order to mitigate risks through relational factors. Our findings show that relationship processes, particularly conflict resolution, are the most important for controlling performance risk, while inherent relationship attributes, such as trust, are the most suitable and promising for managing financial risk. Overall, our findings recommend a more integrated, specific study of contractual and relational governance mechanisms on individual risk and benefit measures.