Does Technological Modularity Substitute for Control? A Study of Alliance Performance in Software Outsourcing

Although control is presumed to be necessary to curb opportunism, its implementation in alliances can be costly and challenging. Paradoxically, some contemporary firms have counterintuitively developed successful alliances without extensive formal control. A widespread but untested assertion that might help reconcile this contradiction is that technological modularity reduces the need for alliance control. The objective of this study is to develop and test this assertion. We show using data from 120 software outsourcing alliances that, independently, process control, outcome control, and modularity enhance alliance performance. However modularity and control are imperfect substitutes: Modularity lowers the influence of process control but not of outcome control on alliance performance. Our theoretical development and empirical testing of the interactions of alliance control with modularity has significant implications for strategy theory and practice, which are also discussed