Title: Measurement costs and control in outsourcing relationships

Authors: Alnoor Bhimani; Alexsandro Broedel Lopes; André Carlos Busanelli De Aquino

Addresses: Department of Accounting, London School of Economics, Houghton Street, London WC2A 2AE, UK ' Department of Accounting, University of Sao Paulo, Av. Professor Luciano Gualberto, 908 - FEA 3, São Paulo 05508-900, Brazil ' Department of Accounting, University of Sao Paulo, Av. Bandeirantes 3900 - Monte Alegre - 14040-900, Ribeirão Preto, São Paulo

Abstract: Past research suggests that when an organisation outsources an activity, its control over the execution of the service is reduced whilst service quality monitoring increases. Little accounting research has been documented on the links between measurement costs and control sharing in contracts entailing the provision of industrial services. We analyse 35 contracts involving 80 non-spot transactions and 749 contract terms at an iron and steel mill in Brazil. The study complements this data with information from 32 interviews. We find that the measurement costs of the contracted services are associated with the complexity of activities and the tightness of control maintenance by the contractor, where such costs are high, legal contract enforcement and use of extra-contractual coordination mechanisms is low. Additionally, variances between the conceptually expected enforcement mix and that operating in practice is associated with service performance level.

Keywords: management control; measurement costs; outsourcing relationships; transaction costs; iron and steel industry; Brazil; service contracts; industrial services; service performance.

DOI: 10.1504/IJMFA.2016.081859

International Journal of Managerial and Financial Accounting, 2016 Vol.8 No.3/4, pp.296 - 318

Received: 08 Dec 2015
Accepted: 18 Oct 2016
Published online: 29 Jan 2017 *

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