This paper explores the relationship between relational governance and formal contracts in creating better supplier performance in outsourcing.
"In sum, our study is the first to empirically explore a complementary relationship between relational governance and formal contracts. Our arguments and empirical conclusion depart sharply from most current work in strategic management, which highlights relational governance and trust as a substitute for contracts. Further work is clearly needed to explore the relationship among the features of governance that supports inter-organizational relations. In particular, we see a need to explore the relationship between relational governance and formal contracts over the life of an exchange relationship, and to develop more precise measures of contractual clauses and of the underlying costs of these governance structures."
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