Information technology (IT) services vendors operate in a highly competitive but also institutional environment that render their service-line offerings mutually observable. This suggests that imitation of rivals' decisions can be an efficient means for IT vendors when reconfiguring their service-line offerings. To explore how such imitation unfolds in this sector, we estimate a series of logistic regression models of 116 IT vendors' service-line choices over three time periods. First, from the strategic imitation literature we identify the key imitation Òreferents,Ó which is a group of firms or a single firm with specific traits, and we test the relative influence of each referent. All of our analysis includes these referents as predictors of service-line choice. Next, we tested more nuanced models using theoretically guided subsamples as follows. One, based on information systems (IS) literature, we consider the IT vendors as embedded in three distinct Òinstitutional spheres,Ó each corresponding to a knowledge domain, namely, technical, functional, and vertical industry domains. We separately examine imitation in each subsample corresponding to the three types of service lines. Two, based on strategy literature, we consider that the influence of the imitation referents differs when the choice under consideration is the addition of a new service line versus a withdrawal. Our results across all of these subsamples uncover a nuanced pattern of imitation that sometimes contrasts the full-sample results. The most prominent result is that although imitation is highly salient, the different imitation referents are not universally influential across all knowledge domains and between development versus withdrawal decisions. Specifically, the imitation of similar firms is widespread, whereas the imitation of largest firms or offering popular service-lines, which indicates bandwagon effects, are at play only selectively. This study contributes to the IS literature by laying a basis for a variety of research directions including resource spillovers and vicarious learning in IT sectors.
As more and more firms seek to digitize their business processes and develop new digital capabilities, the enterprise systems software (ESS) has emerged as a significant industry. ESS firms offer software components (e.g., ERP, CRM, Marketing analytics) to shape their clients' digitization strategies. With rapid rates of technological and market innovation, the ESS industry consists of several horizontal markets that form around these components. As numerous vendors compete with each other within and across these markets, many of these horizontal markets appear to be crowded with rivals. In fact, multimarket contact and presence in crowded markets appear to be the pathways through which a majority of the ESS firms compete. Though the strategy literature has demonstrated the virtues of multimarket contact, paradoxically, the same literature argues that operating in crowded markets is not wise. In particular, crowded markets increase a firm's exposure to the whirlwinds of intense competition and have deleterious consequences for financial performance. Thus, the behavior of ESS firms raises an interesting anomaly and research question: Why do ESS firms continue to compete in crowded markets if they are deemed to be bad for financial performance? We argue that the effects of rivalry in crowded markets are counteracted by a different force, in the form of the economics of demand externalities. Demand externalities occur because the customers of ESS firms expect that software components from one market will be easily integrated with those that they buy from other markets. However, with rapid rates of technological innovation and market formation and dissolution, customers experience significant ambiguity in deciding which markets and components suit their needs. Therefore, they look at crowded markets as an important signal about the legitimacy and viability of specific components for their needs. Through their presence in crowded markets, ESS firms can signal their commitment to many of the components that customers might need for their digital platforms. Customers might find that such firms are attractive because their commitments to crowded markets can mitigate concerns about compatibilities between the components purchased across several markets. This unique potential for demand externality across markets suggests that ESS vendors might, in fact, benefit from competing in many crowded markets. We test our explanations through data across three time periods from a set of ESS firms that account for more than 95% of the revenue in this market. We find that ESS firms do reap performance benefits by competing in crowded markets. More importantly, we find that they can enhance their benefits from crowded markets if they face the same competitors in multiple markets, thereby increasing their multimarket contact with rivals. These results have interesting implications not just for understanding competitive conduct in the ESS industry but also in many of the emerging digital goods industries where the markets have similar competitive characteristics to the ESS industry. Our ideas complement emerging ideas about platform models of competition in the digital goods industry and provide important directions for future research.
Enterprise systems software (ESS) is a multibillion dollar industry that produces systems components to support a variety of business functions for a widerange of vertical industry segments. Even if it forms the core of an organization's information systems (IS) infrastructure, there is little prior IS research on the competitive dynamics in this industry. Whereas economic modeling has generally provided the methodological framework for studying standards-driven industries, our research employs social network methods to empirically examine ESS firm competition. Although component compatibility is critical to organizational end users, there is an absence of industry-wide ESS standards and compatibility is ensured through interfirm alliances. First, our research observes that this alliance network does not conform to the equilibrium structures predicted by economics of network evolution supporting the view that it is difficult to identify dominant standards and leaders in this industry. This state of flux combined with the multifirm multicomponent nature of the industry limits the direct applicability of extant analytical models. Instead, we propose that the relative structural position acquired by a firm in its alliance network is a reasonable proxy for its standards dominance and is an indicator of its performance. In lieu of structural measures developed mainly for interpersonal networks, we develop a measure of relative firm prominence specifically for the business software network where benefits of alliances may accrue through indirect connections even if attenuated. Panel data analyses of ESS firms that account for over 95% of the industry revenues, show that our measure provides a superior model fit to extant social network measures. Two interesting counterintuitive findings emerge from our research. First, unlike other software industries compatibility considerations can trump rivalry concerns. We employ quadratic assignment procedure to show that firms freely form alliances even with their rivals. Second, we find that smaller firms enjoy a greater value from acquiring a higher structural position as compared to larger firms.
This study examines how capabilities of information systems (IS) applications deployed in the context of interfirm relationships contribute to business performance. We propose that these capabilities augment the relational value that a firm derives from its business partners—channel partners and customer enterprises—in the context of the distribution channel. Two cospecialized relational assets are considered as key to realization of relational value—knowledge sharing and process coupling. Hypotheses linking two IS capabilities (IS flexibility and IS integration) to the relational asset dimensions, and ultimately to firm performance, are proposed. The research model is tested based on data collected through a survey of business units of enterprises embedded in customer and channel partner ties in the high-tech and financial services industries. We find that IS integration with channel partners and customers contributes to both knowledge sharing and process coupling with both types of enterprise partners, whereas IS flexibility is a foundational capability that indirectly contributes to value creation in interfirm relationships by enabling greater IS integration with partner firms. We find that two types of relational assets are significantly associated with business performance—knowledge sharing with channel partners and process coupling with customers—pointing to underlying mechanisms that differentially leverage resources of different types of channel partners. Implications for theory development and practice based on these findings are proposed.
We develop and test a theoretical model to investigate the assimilation of enterprise systems in the post-implementation stage within organizations. Specifically, this model explains how top management mediates the impact of external institutional pressures on the degree of usage of enterprise resource planning (ERP) systems. The hypotheses were tested using survey data from companies that have already implemented ERP systems. Results from partial least squares analyses suggest that mimetic pressures positively affect top management beliefs, which then positively affects top management participation in the ERP assimilation process. In turn, top management participation is confirmed to positively affect the degree of ERP usage. Results also suggest that coercive pressures positively affect top management participation without the mediation of top management beliefs. Surprisingly, we do not find support for our hypothesis that top management participation mediates the effect of normative pressures on ERP usage, but instead we find that normative pressures directly affect ERP usage. Our findings highlight the important role of top management in mediating the effect of institutional pressures on IT assimilation. We confirm that institutional pressures, which are known to be important for IT adoption and implementation, also contribute to postimplementation assimilation when the integration processes are prolonged and outcomes are dynamic and uncertain.