The relationship between management control systems and trust over the life cycle of an outsourcing contract

The objective of this thesis is to answer the following research questions: Do management control systems (MCS) (specifically, formal and informal controls) and trust (specifically, competence and goodwill trust) change over the life cycle of an outsourcing relationship? If so, what factors drive this change? The study argues that outsourcing relationships typically operate in a volatile environment which makes it difficult to anticipate all the aspects of the relationship at the beginning. However, as the engagement between the parties develop, the level of learning and knowledge sharing improves which assists in defining the requirements more precisely. Therefore, the design and the use of MCS may be adjusted to accommodate for these changing circumstances. This study analyses the relationship between MCS and trust by considering the transaction characteristics as well as the life cycle stages of an outsourcing relationship. The research questions were investigated using evidence from a single case study of an IT outsourcing relationship. Overall the data demonstrated that MCS and levels of trust do change over the life cycle stages of an outsourcing relationship. The birth stage of the relationship was associated with a lack of clarity around tasks and activities. In this stage, the reliance was on establishing high levels of communications between the parties and managing the relationship through a trust-based pattern of control. As the relationship progressed, the level of information exchanged between the parties increased which assisted in establishing a bureaucratic-based pattern of control to manage the relationship. The reliance on formal controls lessened during the maturity stage of the relationship once the activities became repetitive and the process/procedures and performance targets were developed. The last two stages of the relationship were characterised by a more bureaucratic-based pattern of control.