The dual role of penalty: The effects of IT outsourcing contract framing on knowledge-sharing willingness and commitment

Abstract

Adding to the collective knowledge on how to craft effective IT outsourcing contracts, this study examines the effects of service level agreement (SLA) framing in terms of bonus versus penalty clauses on two important factors of outsourcing success: service providers' knowledge-sharing willingness and commitment (effort-related vs. affective). Results from an experiment with 198 IT professionals and novices show that penalty framing decreases knowledge-sharing willingness and affective commitment, while increasing effort-related commitment. Our experiment also controls for interaction effects between SLA framing and professional work experience. While we do not find disordinal interaction effects, we find some evidence that novices are affected more strongly by penalty contexts than more experienced IT professionals. Our results imply that the (bonus versus penalty) framing of SLAs can affect the success of IT outsourcing arrangements and that such framing decisions require careful consideration of the specific outsourcing goals.