Chronic excessive turnover among information technology (IT) professionals has been costly to firms for decades with annual turnover rates as high as 24% even among Computerworld's Ò100 Best Places to Work in IT.Ó Prior information systems literature has identified two key factors affecting turnover: boundary-spanning roles and low promotability in one's current firm. We draw on tournament theory, which is primarily concerned with inducing effort in employees, to decompose promotability into two distinct constructs: the likelihood of promotion and benefit from promotion, and demonstrate that each has a distinct role in affecting turnover rates. Our key result is that a job ladder motivating IT professionals with large, infrequent promotions will lead to higher turnover than a job ladder with smaller, more frequent promotions. We describe the conditions under which rearranging the job ladder creates economic value for the firm. We also offer an explanation for the observation that jobs characterized by boundary-spanning activities have higher turnover, and show that such jobs are more sensitive to the effect of likelihood of promotion on turnover. We test our hypotheses on a detailed data set covering 5,704 IT professionals over a five-year period. We confirm that likelihood of promotion has the predicted effects on turnover of IT professionals. A one standard deviation increase in likelihood of promotion decreases turnover by over 99%, consistent with our prediction. The empirical analysis also confirms the predicted effects of boundary spanning activities.
This paper extends prior research on the software vendors' optimal release time and patching strategy in the context of cloud computing and software as a service (SaaS). Traditionally, users are responsible for running on-premises software; by contrast, a vendor is responsible for running SaaS software, and the SaaS vendor incurs a larger proportion of defect-related costs than a vendor of on-premises software. We examine the effect of this difference on a vendor's choice of when to release software and the proportion of software defects to fix. Surprisingly, we find that, despite incurring a larger proportion of defect-related costs, it is optimal for the SaaS vendor to release software earlier and with more defects, and to patch a smaller proportion of defects, than the on-premises software vendor. Even though the SaaS vendor incurs higher defect-related costs, he obtains a larger profit than the traditional vendor. In addition, we find that for a vendor who uses the SaaS model, the optimal number of defects after patching may be lower than the socially efficient outcome. This occurs despite the fact that the number of defects after patching in the SaaS model is higher than in the traditional on-premises model.
How does the adoption of cloud computing by a firm affect the organizational structure of its information technology (IT) department? To analyze this question, we consider an IT department that procures IT services from a cloud computing vendor and enhances these services for consuming units within the firm. Our model incorporates the competitive environment faced by the cloud vendor, which affects the price of the cloud vendor. We find that when the cloud vendor faces intense competition, the cost-center organizational model is preferred over the profit-center model. Infrastructure services such as basic storage, e-mail, and raw computing face intense competition, and our results suggest that such services be offered as a free corporate resource under the cost-center organizational structure. When the cloud vendor has pricing power, a profit-center organizational structure is likely to be preferred. Our results suggest that highly differentiated services such as cloud-based enterprise-wide enterprise resource planning or business intelligence be offered under the profit-center structure. Finally, the profit-center structure provides greater internal quality enhancement to cloud-based IT services than the cost center.
There are two popular forms of business-to-business (B2B) marketplaces: public marketplaces and private channels. We study why firms choose either or both of these sourcing channels. Using a framework of decision making under uncertainty, we explain firms' choice of B2B channels as a hedging strategy and as a method of obtaining greater managerial flexibility for the future. We show that greater uncertainty can lead to higher investment with firms more likely to invest in both public and private channels. We find that the level of information technology (IT) capability and spending is an important factor in firms' decision making. When a firm chooses its level of IT investment simultaneously with the decision about which sourcing channels to use, the firm choosing both channels selects the highest level of IT capability and the firm implementing only one channel selects lower levels of IT capability.
Information goods vendors offer different pricing schemes such as per user pricing and site licensing. Why do competing sellers adopt different pricing schemes for the same information good? Pricing schemes affect buyers' usage levels and thus the revenue generated from different segments of buyers. This can allow competing firms in a duopoly to differentiate themselves by offering different pricing schemes. Such strategic use of pricing schemes can allow undifferentiated sellers to earn substantial profits in a friction-free market for a commoditized information good. These conditions would otherwise lead to the Bertrand equilibrium and zero profits. We show that adopting asymmetric pricing schemes can be a Nash equilibrium for information goods with negligible marginal cost of production. We extend our model to the case of information goods that are horizontally differentiated and show that sellers will offer a single-pricing scheme that is different from competitors when the sellers are weakly differentiated. When the sellers are strongly differentiated, each seller will offer multiple pricing schemes. We show that it can be optimal for a seller to offer multiple pricing schemes—metered and flat fee pricing schemes, even in the absence of transactions costs.
The widespread use of the Internet has led to the emergence of numerous information intermediaries that bring buyers and sellers together and leverage their knowledge of the marketplace to provide value-added services. Infomediaries offer matching services that facilitate establishment of a buyer-seller agreement, and value-added services that either provide a standalone benefit or enhance benefits from matching services. This paper develops and analyzes economic models of intermediaries to examine their pricing and product line design strategies. Intermediaries provide aggregation benefits: Buyers find an intermediary's service more valuable if it provides access to more sellers, and sellers value it more if it provides access to more buyers, but also when they compete with fewer sellers. Due to this unique combination of network effects, we find that an intermediary has stronger incentives to provide quality-differentiated versions of its service relative to other information goods sellers. When buyers have constant marginal valuations for service quality, the intermediary should offer only two levels of service. While it is optimal for the intermediary to offer two levels of service, increasing the quality of the low-level service reduces the intermediary's profits due to increased cannibalization of the premium service. Hence, the optimal menu consists of a basic matching service and a premium service that includes matching and value-added services. The intermediary's profits are larger when positive network effects are stronger, and lower when negative network effects are stronger.
Business-to-business (B2B) electronic commerce has become an important issue in the debate about electronic commerce. How should the intermediary charge suppliers and buyers to maximize profits from such a marketplace. We analyze a monopolistic B2B marketplace owned by an independent intermediary. The marketplace exhibits two-sided network effects where the value of the marketplace to buyers is dependent on the number of suppliers, and the value to suppliers is dependent on the number of buyers and suppliers. When these two-sided network effects exist, we find that the optimal price for buyers and the fraction of buyers in the electronic market are dependent on the switching cost and the strength of the network effect of both types: buyers and suppliers. The same is true for the optimal price for suppliers and the fraction of suppliers in the electronic market. In other words, the parameters that define the buyers also affect the optimal price for suppliers and the fraction of suppliers in the electronic market, and vice versa. Our results also point some counterintuitive optimal pricing strategies that depend on the nature of the industry served by the marketplace.
Second-degree price discrimination, that is, vertical differentiation, is widely practiced by firms selling physical goods to consumers with heterogeneous valuations. This strategy leads to market segmentation and has been shown to be optimal by many researchers. On the other hand, researchers have also demonstrated, under certain restrictive conditions, that vertical differentiation may not be optimal for information goods. We analyze vertical differentiation for a monopolist, continuing the practice of modeling consumer valuation as a linear function of product quality and consumer type but generalizing assumptions about marginal costs and consumer distributions. We show that the firm's optimal product line depends on the benefit-to-cost ratio of qualities in the choice vector. We find that a vertical differentiation strategy is not optimal when the highest quality product has the best benefit-to-cost ratio. Many information goods satisfy this property.