A tale of two outsourcing contracts

Abstract

This study analyzes two extreme outsourcing situations. In the first case, contractual problems derailed the original agreement and precipitated a disastrous divorce. In the second case, the strategic alliance between the firm and its suppliers was supported by governance mechanisms that paved the way to a successful and harmonious relationship. Agency theory provides a conceptual background for analyzing the cases. Lessons are drawn from the experiences of the firms studied, and recommendations are made for the design of outsourcing contracts that curb contractual opportunism.