The Role of Vendor Legitimacy in IT Outsourcing Performance: Theory and Evidence

Information technology (IT) outsourcing relationships today are facing increasingly turbulent environments. With rapid changes in technological, commercial, societal, and regulatory landscapes, client firms have to closely and continually assess the desirability and appropriateness, or legitimacy, of their vendors in such dynamic settings. In this research, the focus is on client firms’ perceived legitimacy of vendors, termed “vendor legitimacy.” Specifically, building on institutional theory, vendor legitimacy is conceptualized as consisting of three dimensions − pragmatic, moral, and cognitive − and is examined through their respective impact on IT outsourcing performance. The role of key governance strategies for managing vendor legitimacy, namely contractual governance and relational governance, are likewise explored. Results from a multiple-sourced, matched pair, cross-industry sample of executives and managers of 185 client firms reveal that these various governance strategies exert differential impacts on the aforementioned dimensions of vendor legitimacy, which, in turn, drive performance.