Week 7 – Reading Summary – Gopal and Koka (2012) – Xi Wu

Gopal, A., & Koka, B. R. (2012). The Asymmetric Benefits of Relational Flexibility: Evidence from software development outsourcing. MIS Quartely, 36(2), 553–576.

Situating the vendor-client relationship in the center of a series of economic and social interactions between organizations. As exchange hazards increase in the relationship, formal contracts are limited in their ability to rein in opportunism due to their incompleteness. Thus, relational governance plays a critical role in the relationship. There are two gaps in current views, one is assumption that these enacted relational mechanisms provide symmetric benefits to all parties. The other gap is, how is value from relational governance captured for different parties in inter-organizational economic activities.

This paper argues that the enacted observation of relational flexibility is driven by perceptions of exchange hazards. This paper proposes that the benefits accruing from relational flexibility are asymmetric and depend on how the exchange risks are apportioned by the formal contract. In addition, it hypothesizes that these benefits manifest on the performance dimensions that are of importance to the risk-exposed partner. These hypotheses are tested on 105 software projects completed by a software outsourcing vendor for multiple clients.

The results show that relational flexibility positively affects profitability in only fixed price contracts, where the vendor faces greater risk, while positively affecting quality only in time and materials contracts, where the client is at greater risk. In contrast, the impact of relational flexibility on quality is higher in T&M contracts where the client bears the greater portion of risk. The findings highlight the need to establish risk exposure first, and then examine the effects of flexibility on performance contingent on risk exposure. They also highlight the implications of relational governance for the performance dimensions of interest. In addition to the theoretical contributions, this paper also makes a methodological contribution by using a triangulating approach to examine the endogenous interactions of relational flexibility and contract type on project outcomes.