Organizational Controls, Social Ties and Performance in Plural Sourcing

Abstract

This paper seeks to shed light on the effect of organizational controls and social ties on sourcing performance in a plural sourcing setting. In plural sourcing, the controller makes organizational control choices for both internal and external sourcing providers. The plural sourcing context offers the controller the benefit of insight into the effectiveness of organizational controls in each sourcing mode (i.e., external and internal), thus allowing the controller to both mitigate risk and also attempt to enhance performance where risk is not present. We therefore posited that a plural sourcing controller has three strategies to improve performance when considering the use of organizational controls. First, a controller may follow a risk-mitigation strategy against specific hazards to defuse supplier opportunistic behavior, coined here as risk-mitigating controls. Secondly, the controller may use organizational controls that enhance performance (i.e., performance-enhancing controls), while not necessarily mitigating risk. Last but not least, the controller may improve relationships with controllees in order to improve the effectiveness of organizational controls. Based on the results of a survey of senior managers involved in plural sourcing in 122 large firms in the UK and USA, we find support for the use of both risk-mitigating and performance-enhancing controls in the internal provider setting, but no support for similar strategies in the external provider setting. Instead, stronger social ties demonstrate a greater moderating effect in the external provider compared to the internal provider setting.