Intra-Organizational Communication in Public Agencies: The Effects of Contracting Out Core Services
| Published date | 01 July 2023 |
| DOI | http://doi.org/10.1177/02750740231162346 |
| Author | Federica Fusi,Fengxiu Zhang,Eric W. Welch |
| Date | 01 July 2023 |
| Subject Matter | Articles |
Intra-Organizational Communication in
Public Agencies: The Effects of
Contracting Out Core Services
Federica Fusi
1
, Fengxiu Zhang
2
and Eric W. Welch
3
Abstract
This article develops and tests a set of hypotheses examining how contracting out of public services affects intra-organizational
communication in public agencies (i.e., the principal organization). We draw from two competing perspectives: contracting
scholarship argues that outsourcing reduces an organization’s structural complexity and enhances intra-organizational com-
munication, while organizational communication studies suggest that outsourcing might lead to fragmented communication
pathways and a loss of information. In order to reconcile these perspectives, we examine how different characteristics of
an organization’s contracting network affect both the internal gathering and dissemination of information. Using survey
and contractual relationship data from approximately 200 US transit agencies, we find that contracting out a large portion
of services improves intra-organizational communication but this positive effect decreases as the number of contractors
grows. Long and stable relationships with contractors negatively affect intra-organizational communication, especially when
occurring with private—as compared to public—contractors. Our results suggest the need to further investigate intra-
organizational communication in contracting networks and better understand how it may affect organizational performance
and contract management.
Keywords
organizational communication, contracting, transit agencies, networks, organizational design
Organizational communication is the “gathering of informa-
tion [data and knowledge] for collective purposes, processing
it, and passing it on to others”(Graber, 1992, p. 3).
Intra-organizational communication specifically refers to all
formal and informal communication occurring between
members of the same organization (Kalla, 2005). It needs
to be distinguished from inter-organizational communica-
tion, which involves members from two or more organiza-
tions. Intra-organizational communication is effective when
employees and managers can promptly gather and dissemi-
nate relevant information across their organization
(Borrelli, 2018; Graber, 1992; Kalla, 2005). In public organi-
zations, effective intra-organizational communication has
been linked to improvements in policy implementation,
greater accountability, increased use of information in deci-
sion making, and innovation (Borrelli, 2018; Monteduro &
Allegrini, 2019; Moynihan & Pandey, 2010; Suh et al.,
2018; Zhang et al., 2021).
Contracting is “a form of privatization in which govern-
ment [the principal organization] can privatize an activity
by contracting with a private organization, for-profit, or non-
profit [the contractor] to perform work”(Leland & Smirnova,
2009, p. 856). In the past decades, contracting out of public
organizations’core services has greatly increased across all
policy areas (Government Business Council, 2015). This
trend has spurred a vast scholarship on whether contracting
enhances or hinders organizational performance and how
public organizations can reduce moral hazard and opportun-
ism across their contractors (Brown et al., 2018; Carnochan
et al., 2019; Lee & Kingsley, 2009; Lindholst & Bogetoft,
2011). More recently, contracting scholars have taken an
organizational approach by examining how contractual
arrangements affect the principal organization’s activities
and workforce and, ultimately, its effectiveness and effi-
ciency (Lee & Lee, 2020; Lee et al., 2021; Lindholst et al.,
2018). These studies bring to the forefront the importance
1
Department of Public Policy, Management, and Analytics, University of
Illinois Chicago, Chicago, IL, USA
2
Schar School of Policy and Government, George Mason University,
Arlington, VA, USA
3
Center for Science, Technology and Environmental Policy Studies, School
of PublicAffairs, Arizona State University, Phoenix, AZ, USA
Corresponding Author:
Federica Fusi, Department of Public Policy, Management, and Analytics,
University of Illinois Chicago, 400 S. Peoria St., 2100 AEH, Chicago, IL
60607, USA.
Email: ffusi@uic.edu
Article
American Review of Public Administration
2023, Vol. 53(5-6) 224–242
© The Author(s) 2023
Article reuse guidelines:
sagepub.com/journals-permissions
DOI: 10.1177/02750740231162346
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of intra-organizational communication for public organiza-
tions to reap the benefits of outsourcing.
According to public managers, the main benefit of con-
tracting is increased access to new knowledge and informa-
tion (Government Business Council, 2015; Lee & Lee,
2020; Lindholst et al., 2018). This benefit is fully realized
when information and knowledge can be easily disseminated
among members of the principal organization instead of
being accessible only to the individuals and departments
directly working with contractors. Prompt gathering of infor-
mation is also necessary to evaluate contractor performance
and correct deficiencies (Amirkhanyan, 2011; Romzek &
Johnston, 2002) as well as to foster trust and organizational
learning (Ipe, 2003; Lee & Lee, 2020). Additionally, scholars
find that effective intra-organizational communication can
mitigate internal challenges caused by contracting. Lee and
Lee (2020) show that intra-organizational knowledge sharing
reduces the negative effect of contracting on job satisfaction
among the principal organization’s employees. As contractual
arrangementscreate new roles and expectations,dissemination
of information reduces uncertainty over one’srole and respon-
sibility and, therefore, improves morale among employees
(Fernandez, 2007; Lindholst et al., 2018).
Given this evidence, public organizations need more
insights into how contractual arrangements affect intra-
organizational communication to understand the challenges
they need to address. Prior scholarships offer two competing
perspectives. Contracting scholarship suggests that outsourc-
ing can reduce an organization’s structural complexity
(Brown & Potoski, 2006) and enhance the design of commu-
nication pathways (Monteduro & Allegrini, 2019), thereby
facilitating the diffusion and gathering of knowledge, infor-
mation, and expertise among members of the principal
organization. By contrast, organizational communication
scholarship argues that increased outsourcing and reliance
on long-term contractors lead to fragmented intra-
organizational communication pathways and a gradual loss
of control over information (Graber, 1992). This study aims
to test and reconcile these perspectives by examining how
different characteristics of a public organization’s contracting
relationships affect intra-organizational communication. We
ask: (1) When agencies outsource their core services, do
public managers report less effective intra-organizational
communication? (2) Which characteristics of an agency’s
contracting network (e.g., the ratio of contracted services,
number of contractors, ratio of public sector contracting,
and relationship length) impact the effectiveness of intra-
organizational communication and how?
We combine 2019 survey data of 1000 top-level public
managers in the 300 largest fixed-route transit agencies in
U.S. metropolitan areas and 2013–2017 data on contracting
of core services from the National Transit Database. We find
that the ratio of contracted services is positively associated
with effective intra-organizational communication but the
number of contractors negatively moderates this relationship.
Transit agencies with longer and more stable relationships
with contractors report weaker intra-organizational commu-
nication. Both the number of contractors and sectoral similar-
ities (i.e., contracting with other public agencies) enhance the
gathering of information but not its dissemination. By linking
intra-organizational communication to characteristics of
contractual relationships, our results bridge scholarships on
organizational communication and contracting and provide a
more nuanced understanding of how contractualarrangements
can lead to structural, operational, and cultural changes within
the principalorganization. Results alsoshow the importance of
developing a theory of intra-organizational communication in
the public sector, a topic that has been understudied in current
scholarship (Pandey & Garnett, 2006).
Intra-Organizational Communication and
Contracting
Public organizations face both goal ambiguity and perfor-
mance uncertainty because they are subjected to competing
political influences and lack market signals to evaluate their
outcomes (Davis & Stazyk, 2015; Pandey & Garnett,
2006). Scholars have repeatedly emphasized the need for
public organizations to generate, use, and distribute informa-
tion relevant to understanding and measuring organizational
performance (George & Desmidt, 2018; Moynihan &
Ingraham, 2004). Relevant information provides “a basis
from which leaders make capacity decisions”(Moynihan &
Ingraham, 2004, p. 430) in the absence of market mecha-
nisms and reduces goal ambiguity by clarifying expectations
for employees (Davis & Stazyk, 2016). Public employees are
more motivated when they understand what their organiza-
tion aims to accomplish (Davis & Stazyk, 2015;
Porumbescu et al., 2013). Moreover, the availability of rele-
vant information facilitates learning among employees, who
can adjust their actions so as to enable goal attainment
(Moynihan & Landuyt, 2009).
Effective intra-organizational communication is critical to
reducing the burden for employees to search for and obtain
relevant information. Prompt communication increases the
likelihood that public employees and managers will use
information to make decisions and evaluate alternatives
(Julnes & Holzer, 2001; Moynihan & Pandey, 2010).
When intra-organizational communication is inhibited and
relevant information fails to reach the right unit or individual,
decision-makers struggle to coordinate the execution of
complex tasks across units (George & Desmidt, 2018;
Moynihan & Ingraham, 2004). Moreover, public organiza-
tions might face delays in performing key operations and
are more prone to mistakes, less likely to learn, and less pre-
pared to address unexpected challenges and crises when
intra-organizational communication is ineffective (Comfort
et al., 2019; Garnett et al., 2008; Moynihan & Landuyt,
2009; Pandey & Bretschneider, 1997).
Fusi et al. 225
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