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 communication, 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.
Organizational communication is the “gathering of information [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 communication, which involves members from two or more organizations. Intra-organizational communication is effective when employees and managers can promptly gather and disseminate relevant information across their organization (Borrelli, 2018; Graber, 1992; Kalla, 2005). In public organizations, effective intra-organizational communication has been linked to improvements in policy implementation, greater accountability, increased use of information in decision 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 government [the principal organization] can privatize an activity by contracting with a private organization, for-profit, or nonprofit [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 opportunism 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 efficiency (Lee & Lee, 2020; Lee et al., 2021; Lindholst et al., 2018). These studies bring to the forefront the importance of intra-organizational communication for public organizations to reap the benefits of outsourcing.
According to public managers, the main benefit of contracting is increased access to new knowledge and information (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 information 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 arrangements create new roles and expectations, dissemination of information reduces uncertainty over one's role and responsibility 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 outsourcing can reduce an organization's structural complexity (Brown & Potoski, 2006) and enhance the design of communication pathways (Monteduro & Allegrini, 2019), thereby facilitating the diffusion and gathering of knowledge, information, 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 communication. Both the number of contractors and sectoral similarities (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 contractual arrangements can lead to structural, operational, and cultural changes within the principal organization. Results also show 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 performance 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 information 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 mechanisms and reduces goal ambiguity by clarifying expectations for employees (Davis & Stazyk, 2016). Public employees are more motivated when they understand what their organization aims to accomplish (Davis & Stazyk, 2015; Porumbescu et al., 2013). Moreover, the availability of relevant 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 organizations might face delays in performing key operations and are more prone to mistakes, less likely to learn, and less prepared 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).
Prior studies find that organizational characteristics, such as size, culture, structure, and political support, influence intra-organizational communication (Garnett, 1997; Garnett et al., 2008; Melkers & Willoughby, 2005; Pandey & Garnett, 2006; Yang & Pandey, 2009). For instance, hierarchy and centralization can interfere with intra-organizational communication by limiting individual autonomy to gather and share information (Fountain, 2007; Graber, 1992). In contrast, a sense of belonging to the organization improves intra-organizationl communication (Pandey & Garnett, 2006; Willem & Buelens, 2007). Politics also affects intra-organizational communication. While managers privilege unambiguous goals and clear roles, politicians use ambiguity to respond to political conflicts and maintain support from the external environment (Davis & Stazyk, 2015, 2016; Pandey & Wright, 2006). They might act as gatekeepers and prevent public organizations from gathering and diffusing information that undermines their legitimacy (Bourdeaux & Chikoto, 2008). Finally, network-based studies examine how information is internally gathered and passed along formal and informal relationships among public employees and managers (Borrelli, 2018; Nisar & Maroulis, 2017; Siciliano, 2015; Whetsell et al., 2021). Borrelli (2018) shows that communication is the result of individual discretion, personal attitudes, and structural inconsistencies in organizational procedures. Siciliano (2015) finds that public employees rely on closeness and reciprocity when selecting individuals with whom to share information.
This growing body of research provides a solid basis to understand intra-organizational communication in public organizations but it has yet to investigate how its effectiveness might be affected by the delegation of public service delivery to third-party organizations through contractual arrangements. Contracting scholarship also misses an in-depth analysis of intra-organizational communication as it mostly concerns the management of external relationships with contractors (Brown et al., 2018; Leland & Smirnova, 2009; Lindholst & Bogetoft, 2011; van Slyke & Hammonds, 2003). While neither directly addresses the issue, these scholarships offer two competing theoretical perspectives on how contracting might affect intra-organizational communication.
Organizational communication studies 1 see contractors as additional nodes in the network of units composing an organization (Fulk & Boyd, 1991; Galbraith, 1973; Graber, 1992). With each additional node, intra-organizational communication can become less effective for two reasons: fragmentation and complexity. Contractors increase the complexity of an organization's structure and blur the delegation of authority and responsibility among organizational members (Lindholst et al., 2018; Meyers et al., 2001). These changes lead to more fragmented communication pathways (Garicano & Wu, 2012), ambiguous goals, and uncertain expectations (Vrangbæk et al., 2015), all of which hinder intra-organizational communication as public employees do not know where to retrieve information and which information should be disseminated (Davis & Stazyk, 2015; Garnett et al., 2008; Kim & Lee, 2006). Moreover, managing contractors requires the principal organization to integrate different and potentially contradictory logics into its culture (Dawes et al., 2009) such that misinterpretations throughout the communication pathways might arise (Borrelli, 2018). A case study of the Challenger accident demonstrates these processes and the resulting consequences (Romzek & Dubnick, 1987; Vaughan, 2016). Although the external contractor's employees knew about the malfunctioning of one part of the rocket, there was uncertainty about the chain of command and individual responsibilities within the principal organization. As a result, the officials in charge failed to gather and diffuse in time the necessary information to prevent the accident.
Contracting scholarship offers a contrasting view, suggesting that outsourcing public services leads to a new way of managing service delivery and can stimulate a substantial array of efficiency changes within the principal organization (Cunha & Cooper, 2002; Hood, 1991; Lindholst et al., 2018). In particular, contracting provides an opportunity to reduce the burden of day-to-day operations on public managers (Vrangbæk et al., 2015), who can focus more on strategic activities, such as gathering and diffusing information relevant to the organization's performance. Moreover, by outsourcing the production of services and goods, public agencies can adopt a leaner structure (Brown & Potoski, 2006; Fernandez et al., 2007) and increase their managerial capacity (O’Toole & Meier, 2004), making it more efficient for public managers and employees to gather information and distribute it across the organization (Graber, 1992). In other words, structural and operational changes within the principal organization might be beneficial to intra-organizational communication effectiveness.
Empirical evidence provides some support for both perspectives (Graber, 1992; Romzek & Dubnick, 1987) but it suffers from various limitations. In particular, prior work only focuses on a single aspect of contractual relationships, missing their multidimensional nature. Both qualitative and network-based studies suggest that different characteristics of contractual relationships may have different effects on organizational operations and outcomes (Klijn, 2002; Romzek & Dubnick, 1987). By independently examining each of these characteristics, we are not able to tease out the theoretical mechanisms through which contracting affects intra-organizational communication. For instance, while outsourcing might have an overall positive effect on intra-organizational communication as suggested by public management studies, other characteristics of the contracting relationships, such as the number of contractors, might hinder intra-organizational communication as suggested by the communication scholarship. Our proposed hypotheses are summarized in Figure 1.
Intra-organizational communication and contracting network characteristics: Summary of proposed hypotheses.
We consider four characteristics of a public organization's contracting relationships: the ratio of contracted services, the number of contractors, the ratio of public sector contracting, and the relationship length. We link these characteristics to two dimensions of intra-organizational communication effectiveness. Information visibility refers to the extent to which members of the principal organization can identify sources of information within their organization and, therefore, promptly gather relevant information (Treem & Leonardi, 2012). Information dissemination is the ease with which organizational members can pass the information on to other members (Graber, 1992). While visibility and dissemination can be sequential to and enhance (or hinder) one another, it is not always the case. For instance, an employee might disseminate some information in their possession without needing to locate and gather the information in the first place. Or, organizational members might need to gather information for their own use without passing it along to others. Information visibility and dissemination are also influenced by different organizational choices. For instance, an organization can have effective communication channels (e.g., enterprise social media tools, a well-organized email address book) but retrieving information might be challenging if the organization lacks an efficient reporting system or if responsibilities for storing and organizing information are not clearly assigned. Therefore, we treat these dimensions as independent and examine their relationship with the same set of contracting network characteristics.
Ratio of Contracted Services
The ratio of contracted services refers to the proportion of an agency's core services delegated to a third party. Public organizations outsourcing a greater ratio of core services are no longer or only partially involved in service provision and, therefore, are likely to undergo profound structural and operational changes to adjust to a new way of managing their activities (Lindholst et al., 2018; Romzek & Johnston, 2002; Thompson & Riccucci, 1998; Vrangbæk et al., 2015). In particular, the principal organization needs to collect information to manage and evaluate the contractor(s), maintain control over key operations, and reduce uncertainty (Garicano & Wu, 2012; Moynihan & Ingraham, 2004). Because of this, it is likely to restructure its internal processes in ways that facilitate information gathering and dissemination.
With the contracting out of a large proportion of core services, public employees are freed from everyday tasks related to service provision and can focus on other strategic managerial activities (Brown & Potoski, 2006; Cunha & Cooper, 2002; Vrangbæk et al., 2015). Lindholst et al. (2018) find that, after the outsourcing of major services, organizational members are no longer burdened by time-consuming operational issues such as “personnel management or investments in machinery” (p. 1057). Instead, they can focus on strengthening managerial controls and enhancing internal processes, including the gathering and dissemination of relevant information to improve the organization's performance.
Additionally, public organizations with a high ratio of contracted services invest more in managerial capacity and allocate more resources for monitoring and overseeing contracting activities (Brown & Potoski, 2006; O’Toole & Meier, 2004; van Slyke & Hammonds, 2003). Monteduro and Allegrini (2019) find that principal organizations invest in information processing capacity—such as reporting and information management systems—to regain control over outsourced activities. The increased managerial capacity allows for the use of formal and standardized reporting systems (e.g., clearly defined procedures to share information), making it easier for organizational members to access and gather information (Fusi, 2021; Garicano & Wu, 2012; Lindholst et al., 2018; Melkers & Willoughby, 2005). Similarly, public organizations are likely to reinforce intra-organizational communication channels to pass along information needed to reduce uncertainty about organizational goals and role expectations that can originate from service outsourcing (Cunha & Cooper, 2002).
Finally, the workforce size of a principal organization tends to decrease as a substantial amount of service delivery is shifted to contractors (Fernandez et al., 2007; Vrangbæk et al., 2015). Because of this, communication pathways become shorter, bridging the distance between organizational members who are supposed to communicate with each other. Shorter pathways make it easier to both identify relevant sources of information and pass such information along to others. In light of these structural and operational changes to the principal organization, we argue that:
Number of Contractors
The number of contractors is the count of contractors that perform outsourced services for the principal organization. When service provision is split among a high number of contractors, public organizations are likely to face increased institutional complexity and fragmentation as they need to interact with and manage multiple external stakeholders (Klijn, 2002; Zhang et al., 2021). Both institutional complexity and fragmentation might undermine intra-organizational communication (Graber, 1992). First, contractors are new nodes added to an organization's network (Galbraith, 1973; Klijn, 2002; Pandey & Bretschneider, 1997), making it necessary to develop new outward communication pathways to manage them (Amirkhanyan, 2011; Lee & Kingsley, 2009). With attention shifted to managing outward communication, we expect the principal organizations’ employees to become less responsive to internal requests for information and invest less energy, attention, and time to disseminate information internally (Zhang et al., 2021).
Second, an increased number of contractors lead to fragmented authority and responsibilities as service provision is split across two or more organizations (Garicano & Wu, 2012; Meyers et al., 2001). This means that the principal organization needs to integrate multiple and diverse information systems to gather information (Lee & Kingsley, 2009; Meyers et al., 2001). Integration of information systems is often underfunded and ineffective in government (Kim & Lee, 2006; Thompson & Riccucci, 1998). As the tasks are split among multiple contractors, the principal organization employees might also require additional time to identify and gather relevant information through multiple channels (Garicano & Wu, 2012), resulting in lower information visibility. Because an increased number of contractors amplify the institutional complexity and fragmentation that a public organization needs to manage, we expect that:
Ratio of Contracted Services * Number of Contractors
The ratio of contracted services and the number of contractors are two independent dimensions of an organization's contracting relationships, and public organizations can change one but not the other. For instance, an organization that currently contracts 20% of its services with five contractors can split the same ratio of services among eight contractors; or it can double the ratio of contracted services to 40% with the same five contractors. The ratio of contracted services and the number of contractors affect intra-organizational communication through different theoretical mechanisms; structural and operational changes on one hand, and institutional complexity and fragmentation on the other. Because of this, we need to examine their conjoint effect on intra-organizational communication.
As discussed above, an increase in the ratio of contracted core services can stimulate structural and operational changes in the principal organization in ways that enhance intra-organizational communication to address new information needs. However, when a high ratio of core services is delegated to a large number of contractors, public organizations experience an increase in both information needs and institutional complexity and fragmentation. A large number of contractors means that information about core services is fragmented and codified differently across multiple information systems (Lee & Kingsley, 2009; Meyers et al., 2001). The principal organizations’ employees need to engage in a time-consuming process to collect information across multiple information systems and harmonize it with the organization's norms and practices (Zhang et al., 2021). This increased need for information coupled with greater fragmentation can overload communication efforts.
Moreover, the principal organization might experience an increase in bureaucratic layers stemming from coordinating and managing a large ratio of contracted services across multiple contracting relationships (Diefenbach, 2009; Patterson & Pinch, 1995). Activities linked to managing multiple contractual relationships, such as contract paperwork or reporting and accountability requirements, greatly increase red tape for both the principal organization and its contractors (Feeney & Bozeman, 2009). Increased bureaucracy might undermine the ease and autonomy with which employees can gather and diffuse information, thereby hampering the effectiveness of intra-organizational communication channels (Fountain, 2007; Graber, 1992). Moreover, employees in the principal organization might be less motivated to gather and disseminate information when faced with more rigid procedures and structures (Pandey & Garnett, 2006).
In light of these arguments, we expect that, as both the ratio of contracted services and the number of contractors increase, their joint effect on intra-organizational communication will become negative.
Ratio of Public Sector Contracting
Public agencies outsource services to both public and private contractors that operate according to different logics of action. Public contractors are characterized by a logic of appropriateness drawing from democratic norms and principles (March & Olsen, 2011), whereas private contractors favor a logic of efficiency focused on maximizing outputs and minimizing inputs (Jolley, 2008; Vrangbæk et al., 2015). Communication practices reflect those values. In the public sector, communication requires dealing with bureaucratic requirements and political tensions (Davis & Stazyk, 2015; Garicano & Wu, 2012; Pandey & Wright, 2006; Yang & Pandey, 2009), which public contractors are deeply embedded in. Private contractors are less attuned to a logic of appropriateness and do not equally conform to the political, accountability, and transparency requirements that characterize democratic institutions (Monteduro & Allegrini, 2019). They are more disposed to prioritize their interests, leading them to restrict access to information or delay requests when it is beneficial to do so (Egan, 2010; Fusi, 2021; Zhang & Welch, 2022).
Organizational communication literature suggests that institutional complexity stemming from cultural differences might negatively affect intra-organizational communication (Graber, 1992; Pandey & Garnett, 2006). When working with private contractors, cultural differences can put a strain on the principal organization (Brown & Potoski, 2006; Carnochan et al., 2019; Dawes et al., 2009; Fusi, 2021) as its employees need to juggle different and potentially contradictory logics at the same time. Studies find that contracting creates pressures on public employees to “develop business-like, proactive attitudes” (Lee & Lee, 2020, p. 388), which do not align with the public sector's traditional values. This misalignment of values creates ambiguity and uncertainty over organizational goals and role expectations (Meyers et al., 2001; Vrangbæk et al., 2015), thereby making it more difficult for the principal organization's employees to identify relevant information, and to know how and to whom to pass it along (Garnett et al., 2008).
By contrast, when contracting with public contractors, congruent institutional logics, shared public service goals, and a common accountability framework facilitate communication workflow. The gathering and disseminating of information are done more effectively when employees can clearly understand the organizational mission and outcomes (Kim & Lee, 2006; Pandey & Garnett, 2006). Moreover, congruence of values increases public employees’ identification with the organization's goals, thereby encouraging the collection and dissemination of information that might enhance organizational performance (Kim & Lee, 2006; Willem & Buelens, 2007). Therefore, we expect higher information visibility and dissemination when the principal organization contracts at a higher ratio with public contractors.
Relationship Length
Public organizations typically maintain long relationships with the same contractors (Lee & Kingsley, 2009; Smirnova & Leland, 2014). The cost of switching is high because they have to open a new bid, select a new contractor, and establish new procedures to collaborate. Moreover, public organizations that often switch contractors might experience disruptions (Romzek & Johnston, 2002; Vrangbæk et al., 2015). Contracting out initially leads to goal ambiguity and red tape (Lindholst et al., 2018), both of which negatively influence intra-organizational communication (Garnett et al., 2008; Pandey & Garnett, 2006). To protect their position, employees in the principal agency might refrain from exchanging their unique knowledge and information with others, therefore hindering or delaying effective communication (O’Flynn & Alford, 2008; Romzek & Johnston, 2002). When a public agency interacts with contractors on a short-term basis, instability magnifies these issues as the principal organization continuously adapts to new contractors (Amirkhanyan, 2011; Lindholst et al., 2018; Romzek & Johnston, 2002). In the long term, however, contracting can have diverging effects on information dissemination and visibility.
Contracting scholarship finds that public organizations working with the same contractors on a long-term basis learn about the contractors’ procedures (Monteduro & Allegrini, 2019) and adjust their structure and practices (Cunha & Cooper, 2002; Romzek & Johnston, 2002) in ways that might enhance information dissemination (Graber, 1992). Long-term relationships provide an opportunity for the principal organization to modify existing structures and social practices (Amirkhanyan, 2009) so as to capitalize on changes such as workforce reduction (Fernandez et al., 2007) and greater autonomy (Lee & Lee, 2020) to improve its operations, including intra-organizational communication. Long-term relationships also facilitate the integration of values and practices, easing the transmission of information among organizational members (Tinoco & Arnaud, 2013). Indeed, Cunha and Cooper (2002) find that public organizations that undergo privatization report improved internal communication and cooperation among their units as soon as two years after outsourcing their services. Therefore, we expect that:
Specific to information visibility, however, it can become difficult for the principal organization's employees to gather information as the generation and stewardship of information are progressively shifted from the principal to the contractors (Bromberg, 2016; Joaquin & Greitens, 2012). Particularly, moral hazard is likely to arise or aggravate in longer relationships as the contractor learns how to skillfully shape interactions with the principal to its advantage (Bloomfield, 2006). In fact, while contracting can lead to knowledge gains (O’Toole & Meier, 2004), public managers report a loss in institutional memory and operational control as contractors take over organizational activities over time (Government Business Council, 2015; Lindholst et al., 2018). Moreover, in long-term relationships, information is often managed through informal rather than formal channels as trust develops between the contractor and the principal organization (Bromberg, 2016; Romzek et al., 2014). As trust mitigates goal conflicts, it increases belief in one's goodwill or competence to act in the other's interest, thereby reducing the need for formal control mechanisms (Ouchi, 1979). Informal channels might be detrimental to the internal retrieval of information. As the use of formal information systems decreases, organizational members are less likely to know who is in charge of collecting and storing information (Fusi, 2021; Garicano & Wu, 2012; Melkers & Willoughby, 2005).
In summary, a principal organization will likely report lower information visibility when it has long relationships with its contractors:
Research Setting
Transit agencies provide an ideal context to examine our theoretical relationships. They operate on geographically dispersed and complex infrastructure systems where employees have to coordinate and execute a cascade of multi-unit tasks, highlighting the criticality of communication across organizational units and levels. Intra-organizational communication is key to gathering and diffusing information relevant to the organization's performance, including information on service quality and costs, ridership, compliance with industry laws, service timeliness, and disruption, among others. The interconnectedness and interdependence of transit systems also make them particularly vulnerable to delays, interruptions, or errors in intra-organizational communication. Many U.S. transit agencies rely on some form of outsourcing to either private companies or other public agencies to provide their core services, namely transit services (Leland & Smirnova, 2009; Zhang & Welch, 2022). Understanding how contracting affects intra-organizational communication is therefore important because inadequate, delayed, or wrong information can generate poor decisions with severe consequences for the agency and the community it serves.
Methods
The study draws data from a 2019 national survey on the largest U.S. transit agencies conducted by the Center for Science, Technology, and Environmental Policy Studies at Arizona State University (ASU). The survey study was approved by ASU Institutional Review Board. Survey data were matched with agency profiles and contractual relationships from the Federal Transit Administration's (FTA) National Transit Database (NTD).
Survey Data
The survey's sample frame was drawn from the entire list of agencies in the NTD. The target population includes all major US fixed-route public agencies in metropolitan areas operating bus and/or rail transit services with annual fare revenue of at least one million dollars in 2013. Agencies having a small fleet (i.e., 30 or fewer vehicles according to FTA's definition of “small systems”) or those run by universities were excluded from the study. The resulting sample frame included 312 public transit agencies.
The study includes the lead manager in five departments or functions: operations, maintenance, service planning, strategic planning, and engineering. Names and contact information were collected using a standard protocol consisting of three search methods: (1) online sources including the NTD, American Public Transportation Association, and the agency's website; (2) telephone calls; and (3) Freedom of Information Act requests. Agencies that refused to participate or were non-reachable after repeated attempts were dropped from the sample, resulting in an adjusted sampling frame of 292 agencies (93.6% of the target population). As not every agency has all five departments or functions, the final individual-level sampling frame included 1,010 respondents, equivalent to an average of 3.5 persons per agency.
The survey was administered online using Sawtooth Software®. We conducted a pretest with seven lead managers across multiple transit agencies to validate survey questions before administering the survey to the entire sample. The survey was administered from April 9th to June 3rd, 2019. Respondents first received a hard-copy invitation to participate in the survey to increase the legitimacy and credibility of the study (Dillman et al., 2014). Then, respondents received an invitation via email, including a link, a personal id, and a password to access the online survey. The research team sent out six reminders, including hard-copy postcards, and called individual respondents to encourage participation.
The final adjusted sample was 911 after dropping ineligible, retired, and non-reachable individuals. We received responses from 313 public managers in 194 unique transit agencies for a survey response rate of approximately 34.4% according to the American Association of Public Opinion Research (AAPOR) standards. Our non-response bias analysis shows that responding and non-responding agencies are comparable in terms of organizational size (measured by total revenue, ridership, and level of annual service provisions), geographical locations, and service area characteristics (measured by area size and population).
Federal Transit Administration's (FTA) National Transit Database (NTD)
The NTD is the primary source of information and operational statistics on US transit agencies. All variables on the contractual relationships are constructed using data reported by the end of 2017 to the NTD, the most recent data available at the time of this research. We are not concerned about the approximately one-year gap between the contracting and the survey data. Contractual relationships are extremely stable over time (Lee & Kingsley, 2009; Smirnova & Leland, 2014) and organizational structures do not change in the short term, such that a small gap is reasonable to estimate the effect of contracting on intra-organizational communication while reducing endogeneity concerns. NTD data focus on the outsourcing of routine transit service delivery across various transit modes. We aggregated the contractual relationships across all modes of service an agency provides, including motorbus, commuter bus, bus rapid transit, light and heavy rail, demand tax, and vanpool.
Dependent variable
We measure the two dependent variables, Information Visibility and Information Dissemination by asking public managers to what extent they agree on a set of statements regarding communication within “their agency in general, not just their specific division or section” (1 = Strongly disagree, 5= Strongly agree). Top managers are a good source of information on intra-organizational communication and their perceptions shape their strategic choices regardless of whether they correspond to reality or not (Borrelli, 2018).
Information Visibility includes three items: 1) People here know who to go to for the information they need, 2) I know who in this agency has the information I need, and 3) I am very familiar with the knowledge and skills of other people in this agency. A higher score indicates that employees can more promptly identify relevant sources to gather information. Information Dissemination also uses three items: 1) It is sometimes difficult to communicate with people in other departments (reverse-coded), 2) The structure of this agency makes communication easy, and 3) Sometimes important information is not communicated across units (reverse-coded). A higher score indicates that information can be more easily disseminated among organizational members. Taken together, these two variables reflect the information-gathering and disseminating aspects of intra-organizational communication. The factor loadings for information visibility are 0.55, 0.77, and 0.60 and those for information dissemination are 0.73, 0.66, and 0.68. The Cronbach's alpha is 0.66 and 0.77, respectively. Scholars generally agree that a value between 0.6 and 0.7 is acceptable when the scale is composed of a few items (Lance et al., 2006).
Independent Variables
Ratio of contracted services is the proportion of contracted vehicle revenue hours (VRH) to the total VRHs an agency provided. VRH is the number of hours that transit vehicles are available for passenger travel. The choice of VRH provides a standardized measure of service costs, eliminating bias stemming from variations in the local area layout, price level, and traffic patterns (Zullo, 2008). For this reason, it is a better measure compared to other indicators such as vehicle revenue miles or ridership.
Number of contractors includes the total number of private and public contractors across all modes of services.
Ratio of public sector contracting captures the proportion of services at which a transit agency contracts to public agencies. We aggregated the total fare revenue generated by an agency's public contractors and divided it by the total amount of contractor-generated fare revenue. While it would be ideal to use data on the contracted VRH, data availability on the NTD confines us to use data on purchased fare revenue. We note that the NTD only distinguishes between public and private organizations by classifying them as “contractee agencies” and “contractee companies”, respectively. This distinction does not focus on the legal status of the organization but on whether the organization depends on federal government funding or generates its own revenue. In other words, it captures the resource publicness of each contractor and, therefore, the different values and institutions in which they are embedded (Bozeman & Bretschneider, 1994).
Relationship length measures the average relationship length across all contractors over a five-year timespan (2013–2017). The variable is right-censored and does not capture the entire duration of each contract, but a 5-year timespan is commonly considered long enough to capture the influence of past events on an organization's operations (see McGuire & Silvia, 2010; Zhang & Welch, 2022). Our variable captures whether the principal organization has recently experienced instability because of short-term relationships with its contractors or it has relied on long-term relationships which provided stability to adjust its structure and practices (Cunha & Cooper, 2002). Intra-organizational communication is likely affected by the characteristics of temporally proximate contracting networks.
Control Variables
Based on our literature review on the antecedents of intra-organizational communication, we include several control variables in our model. Since different structures, norms, and cultures can lead to different intra-organizational communication patterns, we include a set of dummy variables indicating the respondent's department: operation, maintenance, engineering, service planning, strategic planning, and others (such as directors of administration or safety managers). We also control for organizational characteristics. Authority is coded 1 if the agency is an independent transit authority and 0 if the agency is affiliated with a city, county, or state government. We used an agency's total fare revenue in 2017 as a proxy of Organization Size. It is worth mentioning that a few variables indicating an organization's size, such as annual revenue hours, ridership, revenue miles provided, and annual fare revenue, are highly correlated (r > 0.90), so we kept only the total revenue measure to reduce multicollinearity and avoid redundant variables in the model.
Additionally, we added latent variables about an agency's structure and norms that can exert an influence on organizational communication (Graber, 1992; Pandey & Garnett, 2006). Both variables use a scale of items asking respondents to indicate their level of agreement. Centralization includes the following four items: 1) Even small matters have to be referred to someone higher up for a final answer; 2) Top management exerts strong control over the agency; 3) Managers in this agency have a lot of decision-making autonomy (reverse-coded); 4) There can be little action taken until a supervisor approves a decision. Routineness uses responses to the following three items: 1) People here do the same job in the same way every day; 2) One thing people like around here is the variety of work (reverse-coded); 3) Most jobs here have something new happening every day (reverse-coded). The Cronbach's alpha is 0.65 and 0.69, respectively.
Summary Statistics
For all variables constructed from multi-item scales (Information Dissemination, Information Visibility, Centralization, and Routineness), the analysis extracted the factor scores using Bartlett's method where only the shared variances across the indicators are included in calculating the scores (Bartlett, 1937). The scores of the four factors are standardized at a mean of zero.
Table 1 presents the summary statistics of all the variables. There exist large variations in contractual relationships across the agencies. The data suggests three contracting strategies—no contracting (26%), partial contracting (52%), and complete contracting (22%). The number of contractors ranges from 0 to 33 across all transit service modes. Contracting agencies predominantly rely on private contractors to operate services and generate fare revenues, with only less than 10% of the revenues generated by public contractors. The agencies show strong path-dependence in their relationships with contractors—the average length of their relationships is 3.51 years out of 5, and approximately 39% of agencies have kept the same contractors throughout the five years. A breakdown of the relationships suggests that transit agencies mostly outsource to the same set of private contractors over time. The correlation matrix is reported in Table 2.
Summary Statistics of Dependent (DV) and Independent Variables.
Correlation Matrix.
* Indicates p-value < 0.05.
Results
The two dependent variables are approximately normally distributed. Treating them as continuous, we performed an ordinary linear regression incorporating all the independent variables to predict each of the two dependent variables. We used robust standard errors to adjust for the likely heteroscedasticity in the residuals. Moreover, our dependent variables are measured at the individual level. Since there are multiple responses from some responding agencies, we applied clustered standard errors by agency to account for the nested data structure.
According to the post-estimation diagnostics, the residuals are approximately linear, normally distributed, and have equal variance across the predicted values. The VIFs for all the models are smaller than 4, except for the interaction terms whose VIFs range from 4 to 5.
To evaluate the interaction effect between the ratio of contracted services and the number of contractors, we estimate two models, one with and the other without the interaction term for both dependent variables. Table 3 shows the regression results. Model 1 and Model 2 explain about 17% of the variance in Information Visibility, whereas Model 4 and Model 5 account for approximately 24% of the variance in Information Dissemination. The interaction term is significantly associated with both dependent variables and increases the adjusted R-squared by one percentage point. We, therefore, rely on Model 2 and Model 5 for hypothesis testing.
Model Results for Information Visibility and Dissemination.
Standard errors in parentheses.
# p < 0.1, * p < 0.05, ** p < 0.01, *** p < 0.001.
In addition, we conducted two robustness checks. First, we aggregated the data to the organizational level and applied the same model specification. With a sample of 187 unique agencies, the results of the regression are qualitatively comparable to the individual-level analysis. We prefer the latter model as it controls for possible differences across department types and results are less biased by differences in the number of responses received by each transit agency. Second, our study draws independent and dependent variables from two separate sources, which alleviates concerns over potential common method bias. However, we note the dependent variables share the same data source (i.e., the survey) as the centralization and routineness variables. We conducted additional robustness checks on these two measures as displayed in Appendix A. Our results show that common method bias is of little concern in our analysis.
Hypothesis Testing
Since all dependent variables and key independent variables are on continuous scales, the model coefficients can be interpreted as the effects on the dependent variable for each unit increase in the independent variables, while holding all other variables constant. For instance, because the ratio of contracted services ranges from 0 to 1, the first coefficient in Model 1 suggests that for each one percent increase in the ratio of contracted services, we can expect an increase of 0.0026 units in information visibility at the principal agency. As we constructed our variables using the factor scores (p. 24), all changes refer to changes on the scale of the factor scores (see summary statistics in Table 1).
H1 expects the ratio of contracted services to positively affect both information visibility and dissemination. A positive and significant coefficient in Model 2 and Model 5 confirms our hypothesis. A one percent increase in the ratio of contracted services is associated with an increase in information visibility and dissemination by 0.0045 and 0.0065 units, respectively.
H2 posits a negative relationship between the number of contractors and the two dependent variables. Results show a positive and significant effect of the number of contractors on information visibility and a non-significant effect on information dissemination, lending no support to H2. For one additional contractor, we expect information visibility in the principal agency to increase by 0.037.
H3 suggests that the number of contractors negatively moderates the effect of the ratio of contracted services. Both Model 2 and Model 5 show a negative and significant coefficient on the interaction term, highlighting the importance to interpret the effects of the ratio of contracted services in the context of service fragmentation across contractors. In Figures 2 and 3, respectively, we show the average marginal effect of the ratio of contracted services on information visibility (Model 2) and information dissemination (Model 5) across all levels of the number of contractors while holding other variables at the mean. The average marginal effect on information visibility is significant when the number of contractors is 0 (p < 0.01) or above 18 (p < 0.10). Concerning information dissemination, the marginal effect of the ratio of contracted services is significant when the number of contractors is below 3 (p < 0.05) or above 12 (p < 0.05 when the number of contractors is above 15 and p < 0.10 otherwise). It is clear from both graphs that as the number of contractors grows, the average marginal benefit of the ratio of contracted services diminishes. Despite its overall positive influence on intra-organizational communication when the number of contractors is small, the effect of the ratio of contracted services is neutralized or becomes negative as the number of contractors grows. Therefore, H3 is supported.
Average marginal effect of ratio of contracted services on information visibility across all levels of the number of contractors.
Average marginal effect of ratio of contracted services on information dissemination across all levels of the number of contractors.
H4 postulates a positive effect of the ratio at which agencies contract with public agencies on both intra-organizational communication activities. Model 2 demonstrates a positive and significant effect of the ratio of public sector contracting on information visibility, while Model 5 shows a non-significant effect on information dissemination. H4 is supported partially. When the ratio of contracting with public agencies increases by one percent, information visibility in the principal agency on average increases by 0.0037 units.
H5 focuses on the diverging effects that relationship length has on information dissemination (positive) and information visibility (negative). Reading Model 2 and Model 5, the relationship length has consistently negative effects on both dimensions. Each one-year increase in the contracting duration is associated with a reduction of 0.089 and 0.070 units in information visibility and information dissemination in the principal agency, respectively. The results contradict H5a while supporting H5b. Since our descriptive analysis finds that public agencies have longer relationships with private contractors (mean = 3.58 years) than public ones (mean = 0.38 years), we broke down the relationship length variable by distinguishing between private and public contractors. Our results could be driven by long-term relationships with private contractors, where intra-organizational communication is further hindered by sectoral differences as discussed by H4. The results are presented in Model 3 and Model 6, in which Relationship Length with Public Agencies and Relationship Length with Private Firms measure the average relationship length between the principal agency and its public or private contractors, respectively. Considering both the coefficient significance and effect size, we indeed find that the negative effect is due to the length at which the agencies contract with private firms.
With regard to control variables, the model results align with previous research on intra-organizational communication (Graber, 1992; Kim & Lee, 2006; Pandey & Garnett, 2006). Both information visibility and information dissemination are on average lower in larger organizations. Routineness has a negative effect only on information visibility, while higher levels of centralization negatively affect both dependent variables. We find no significant differences across the departments.
Discussion
This paper draws from two competing perspectives—organizational communication studies and contracting scholarship—to explain the relationship between contracting and intra-organizational communication. Our results confirm some of our hypotheses, notably that the ratio of contracted services positively affects intra-organizational communication but that the effect decreases as the number of contractors increases. We also find that contracting with other public agencies enhances information visibility, while the relationship length reduces it.
There are, however, some unexpected results. The number of contractors positively affects information visibility, in contrast with scholarship on institutional fragmentation (Garicano & Wu, 2012; Klijn, 2002; Meyers et al., 2001). We advance an explanation. A larger number of contractors may mean that each contractor is specialized to perform a specific task. If that is the case, selected individuals or units in the principal organization might be in charge of managing each contractual relationship and devising communication pathways to channel specialized information (Garicano & Wu, 2012). Specialization can enhance information visibility as there is a clearly designated “owner” of information (Graber, 1992). The excessive fragmentation caused by a high number of contractors might become problematic only when combined with a large ratio of contracted services (H3). Future research should verify this claim by looking into the internal management of high numbers of contractors.
Our analysis also shows that the average length of contracting relationships is negatively associated with information dissemination. Recent studies on the principal organization's workforce might explain this result. Over time, transit agencies become heavily reliant on contractors’ expertise and knowledge (Bromberg, 2016), which risks distancing their employees from the core mission of the organization. Studies show that long-term contracts lead to lower job satisfaction (Lee & Lee, 2020; Yang & Kassekert, 2010) and higher turnover (Lee et al., 2021) among the principal organization's employees. Employee demoralization and turnover can lead to a loss of knowledge and can compromise the capacity of the principal organization to build reliable intra-organizational communication pathways (Yang & Maxwell, 2011). As employees feel more detached from the organization and the capacity to monitor contractors drops, it is also possible that demand for information declines, thus reducing the need to disseminate information. Our results indicate that longer relationships with private contractors are especially troubling for intra-organizational communication as cultural differences might further demoralization and disengagement, and weaken information visibility and dissemination (Lee & Lee, 2020).
Overall, our results demonstrate a complex and contingent interplay between contracting and intra-organizational communication. On the one hand, theoretical mechanisms highlighted by contracting scholarship explain how a high ratio of contracted services might provide an opportunity for public organizations to focus on strategic internal activities and invest more in managerial capacity, thereby improving intra-organizational communication. In this sense, our findings reinforce previous work showing that contracting increases the efficiency and effectiveness of public organizations (Amirkhanyan et al., 2008; Brown & Potoski, 2006). Effective intra-organizational communication might be a key mechanism through which the principal organization's performance is enhanced. On the other hand, organizational communication studies highlight and explain the potential drawbacks caused by fragmented networks involving too many contractors or long-term relationships with private contractors, both of which negatively affect intra-organizational communication. Only by acknowledging and integrating both perspectives are we able to comprehensively understand the relationship between contracting and intra-organizational communication.
Interpretation of our results should acknowledge some limitations. First, we investigate outsourcing of core organizational activities (i.e., transit services). Organizations can contract out other functions, such as training, marketing, and consulting services. While these contracts represent a smaller portion of the contracting expenditure, delegating these functions might affect intra-organizational communication. Future studies should expand the generalizability of our findings to other public agencies, such as education and health care, where contracting out of non-core activities is more common. Second, while public managers are a good source of information, our data on communication effectiveness are self-reported and, therefore, might suffer from over- and under-reporting issues. Third, principal agencies could devise strategies to manage contractual arrangements and minimize their impact on intra-organizational communication. For instance, clear goal-setting between contractors and the principal agency might facilitate intra-organizational communication (Davis & Stazyk, 2016; Moynihan & Ingraham, 2004). Similarly, we do not consider the political environment as an antecedent or inhibitor of effective intra-organizational communication (Bourdeaux & Chikoto, 2008; Moynihan & Ingraham, 2004). However, intra-organizational communication might be blocked or delayed due to political considerations that have nothing to do with their operational or structural changes. Future studies should consider how politics affect the free dissemination and gathering of information in public organizations.
Conclusions
This research adds to the very small number of studies investigating the antecedents of effective intra-organizational communication in public organizations (Borrelli, 2018; Garnett et al., 2008; Graber, 1992; Pandey & Garnett, 2006). It also enriches the body of research exploring the conditions under which contracting produces positive outcomes for public organizations (Brown et al., 2018; Lindholst & Bogetoft, 2011; van Slyke & Hammonds, 2003). In particular, we contribute to a growing scholarship calling for a more “rounded” approach to evaluating the effects of contracting out in the public sector (Lindholst et al., 2018, p. 1047). These studies (recent examples: Fernandez et al., 2007; Lee et al., 2021) emphasize the importance of effective intra-organizational communication to capitalize on knowledge gains from contracting and reduce public employees’ skepticism toward contractors (Lee & Lee, 2020; Lindholst et al., 2018). However, they have not yet linked intra-organizational communication to the structural, operational, and cultural changes occurring within the principal agencies.
We fill this gap by unpacking the effects of the multiple characteristics of contractual relationships on intra-organizational communication. We follow the lead of prior quantitative studies by looking at whether the level of contracting out, measured by the ratio of contracted services, affects intra-organizational communication (among others, Amirkhanyan, 2011; Brown & Potoski, 2003; Brown & Potoski, 2006; Cunha & Cooper, 2002; Fernandez et al., 2007; Lee et al., 2021; Lee & Lee, 2020; Leland & Smirnova, 2009, p. 2009; Monteduro & Allegrini, 2019). But we also integrate insights from qualitative (Meyers et al., 2001; Romzek & Dubnick, 1987; Romzek & Johnston, 2002) and network-based (Agranoff & McGuire, 2001; Klijn, 2002) studies, which highlight how contractual relationships are not all equal and other dimensions, such as the relationship length or the number of contractors, also impact organizational outcomes. A multi-dimensional approach allowed us to reconcile theoretical perspectives and better understand how intra-organizational communication is influenced by contracting.
Overall, this paper moves the focus from inter-organizational communication between contractors and the principal organization to communication within the principal organization. Without effective intra-organizational communication, information relevant to performance cannot adequately circulate, stimulate organizational learning, and be used in decision-making. Prior research shows that inter- and intra-organizational communication have different predictors (Pandey & Garnett, 2006; Yang & Maxwell, 2011), making it important to specifically develop a theory of intra-organizational communication in contracting networks and, more generally, in the public sector. For instance, we find that relationship length, which is generally positively related to inter-organizational communication (Lee & Kingsley, 2009), decreases internal information visibility. This result is worth further investigation; a non-linear relationship between relationship length and intra-organizational communication might manifest when considering a longer time, with intra-organizational communication becoming less effective in the first few years and more effective over a longer period.
Future studies should also investigate the interplay between intra- and inter-organizational communications as they likely reinforce one another. For instance, principal organizations where public employees are more used to sharing knowledge and information might be better at creating effective inter-organizational communication channels with contractors (Lee & Lee, 2020). Or, as trust develops between the principal organization and its contractors, employees might become more accustomed to exchanging information and knowledge (Lee & Kingsley, 2009), with positive repercussions on intra-organizational communication. Network studies might be helpful to understand how informal relationships between employees in the principal organization and its contractors might facilitate access to external information and stimulate its internal dissemination, examine the characteristics of these relationships (e.g., trust, reciprocity), and explore how employees might differently manage their internal and external communication networks.
Our results have important implications for public management in a hollow state, where contracting is gaining prevalence across multiple policy areas, including transportation, education, health care, human service, and housing. Notably, the ongoing COVID-19 has laid bare the massive consequences of excessive outsourcing and hollowed out public agencies in dealing with unexpected shocks (Balz, 2020). For practitioners, our analysis suggests that the complexity of contractual relationships and communication ineffectiveness quickly escalates as agencies contract a high proportion of their services and with a large number of contractors. Public organizations in these conditions should proactively intervene (e.g., improve information systems and codify routines) to prevent information loss. Public managers should also be mindful of contracting with public organizations rather than private ones. In the public transportation sector, the ratio of contracting with private organizations has increased in the past twenty years (Smirnova & Leland, 2014), and relatively few transit agencies contract with other public agencies. Cross-sector contracting is found to hurt organizational communication in a way that echoes previous research on the difficult relationship between private and public organizations (Dawes et al., 2009; Fusi, 2021). Greater specialization in the provision of public services may be more effective when it occurs within the boundaries of the public sector wherein organizations operate by a similar logic.
Footnotes
Appendix
Declaration of Conflicting Interests
The author(s) declared no potential conflicts of interest with respect to the research, authorship, and/or publication of this article.
Funding
The author(s) received no financial support for the research, authorship, and/or publication of this article.
