The role of trust in the governance of business process outsourcing relationships: A transaction cost economics approach

Business process outsourcing (BPO) has become so prevalent that a new term, the extended enterprise, has arisen to describe this approach to structuring an organization. The purpose of this paper is to integrate the information systems and the interfirm governance literatures to develop a framework for the role of trust in the governance of extended enterprises.

This paper uses transaction cost economics (TCE) to identify the elements and stages of BPO relationships. This paper then integrates those elements with the types of trust identified in the information systems (IS) literature to develop a framework.

TCE identifies three elements that influence the design and function of interfirm relationships: the transaction, the transaction environment and the parties (the client and the vendors). TCE also recognizes three stages in the transaction: contact, contract, and control. The IS literature identifies three types of trust: trusted systems, trusted institutions, and trusted partners. The paper links the two literatures into a framework identifying the type of trust related to each of the TCE elements; it then uses these linkages to identify the types of trust appropriate for each stage of the BPO relationship.

This paper integrates the IS and interfirm governance literatures concerning trust in interorganizational relationships in an effort to offer a framework for building and sustaining trust between BPO vendors and clients and to identify potential directions for future research.