Outsourcing Relational Governance Quality Effects on Hotel Financial Performance under Environmental Uncertainty in Uganda

Abstract

The need to access the scarce quality resources necessary for firms to achievedesired performance has seen outsourcing becoming a global business strategy.Given the uncertain environments in which hotels operate, outsourcingrelationships require proper management if the anticipated benefits are to berealized. This study investigated the effect of outsourcing relational governance(RG) quality on hotel financial performance under environmental uncertaintyin Uganda. The study was guided by the transaction cost economics theory,relational contracts theory and the agency theory. Cross-sectional survey datawere collected from 175 hotel managers in Uganda using a structuredquestionnaire. A hierarchical component model was fitted using variance-basedPLS-SEM with Smart PLS (3.2.9) as an analysis tool. Results revealed thatrelational norms, knowledge and information sharing and conflict resolutionare important components of RG and that RG quality positively andsignificantly affects hotel financial performance due to outsourcing. Further,environmental uncertainty was found to weaken the positive relationshipbetween RG quality and hotel financial performance. Partners in a relationshipshould be dynamic to absorb any shocks arising from environmentaluncertainties. The results of this study provide a model for managingoutsourced resources in hotels under environmental uncertainties. Futurestudies can investigate the role of contractual governance on the financialperformance of a hotel due to outsourcing and explore the potential interactionof the two governance mechanisms in an uncertain environment.Keywords: Outsourcing; relational governance; environmental uncertainty; financialperformance