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We investigate how operational governance formalization and flexibility affect organizational performance, both directly and jointly. We build our arguments using learning mechanisms. Based on 434 observations from project managers in a large multi-department government organization, we hypothesize a positive-increasing U-shaped learning curve effect regarding governance formalization and a positive effect regarding governance flexibility. Most importantly, we hypothesize that governance formalization and flexibility exhibit joint effects. We find that governance flexibility increases performance when formalization is low and decreases performance when formalization is high. Our finding that flexibility can be counter-productive to performance is novel. Overall, this paper contributes to the operational governance literature by clarifying how learning mechanisms explain the joint effects of governance formalization and flexibility.

We investigate organizational performance by considering the influence of goals and governance, both directly and interactively. Specifically, we theorize a linear relationship regarding goal importance and a curvilinear relationship regarding the degree of formalization of operational-level governance. We test our model on 348 Information Technology professionals in a large American government organization. We find support for our hypotheses and we find that goals and governance are substitutes in the condition of low to moderate governance, and are complements in the condition of moderate to high governance. While our theory is constrained to goals with high group-efficacy, our provocative findings contribute to both scholarly literature and managerial practice. Managers should select governance systems based on the characteristics of the organization's goals.