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Businesses today have grown in complexity and it is becoming increasingly difficult to do everything in-house. As a result, organizations are outsourcing their processes ranging from non-core operations to mission-critical operations (Yadav & Jaiswal, 2006; Quelin & Duhamel, 2003). Outsourcing is now being seen less and less tactical, cost-saving drive and more and more as a strategic direction that organizations follow (Johnson, 1997). There is a growing body of literature in management that highlights the globalization phenomenon and global corporations’ need to plan for such work environments (Yadav, Gupta, & Saxena, 2007).
Contracts have been the traditional vehicle through which the outsourcing relationships have been governed (Clark, Zmud, & McCray, 1995). The role of contracts is to prevent opportunism by stipulating an acceptable behavior at the outset of the outsourcing project. Contracts come at a price for both the client and the service provider. Proving violation of a contract is costly, thereby potentially limiting the usefulness of contracts (Clark, Zmud, & McCray, 1995). Further complicating the use of contracts is the difficulty of verifying what the outsourcing vendor is doing and determining on an ongoing basis whether the goals of the vendor are consistent with those of the client (Eisenhardt, 1989).
Despite the abundant literature available on outsourcing (Yadav & Gupta 2008; Dibbern, Goles, Hirschheim, & Jayatilaka, 2004), there are very few studies addressing the ‘high risk’ area of outsourcing contracts. The objective of this paper is twofold. Firstly, the paper offers to bridge the gap in outsourcing research literature by bringing forward the importance of quality in the entire contracting process. This research suggests that contracting quality is the prerequisite for outsourcing success. Secondly, the paper proposes a quality framework for planning and analyzing outsourcing contracts.
The paper proceeds as follows. The next section reviews the background literature on outsourcing, contracts and quality. Subsequently, the conceptual model is presented. The paper concludes with potential contributions and future research directions that this study offers to theory and practice.