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 achieve
desired performance has seen outsourcing becoming a global business strategy.
Given the uncertain environments in which hotels operate, outsourcing
relationships require proper management if the anticipated benefits are to be
realized. This study investigated the effect of outsourcing relational governance
(RG) quality on hotel financial performance under environmental uncertainty
in Uganda. The study was guided by the transaction cost economics theory,
relational contracts theory and the agency theory. Cross-sectional survey data
were collected from 175 hotel managers in Uganda using a structured
questionnaire. A hierarchical component model was fitted using variance-based
PLS-SEM with Smart PLS (3.2.9) as an analysis tool. Results revealed that
relational norms, knowledge and information sharing and conflict resolution
are important components of RG and that RG quality positively and
significantly affects hotel financial performance due to outsourcing. Further,
environmental uncertainty was found to weaken the positive relationship
between RG quality and hotel financial performance. Partners in a relationship
should be dynamic to absorb any shocks arising from environmental
uncertainties. The results of this study provide a model for managing
outsourced resources in hotels under environmental uncertainties. Future
studies can investigate the role of contractual governance on the financial
performance of a hotel due to outsourcing and explore the potential interaction
of the two governance mechanisms in an uncertain environment.

Keywords: Outsourcing; relational governance; environmental uncertainty; financial
performance