Information Exploitation and Interorganizational Systems Ownership.

Author List: Han, Kunsoo; Kauffman, Robert J.; Nault, Barrie R.;
Journal of Management Information Systems, 2004, Volume 21, Issue 2, Page 109-135.
We develop a model based on the theory of incomplete contracts for how ownership structure of interorganizational systems (IOS) can affect information exploitation and information technology adoption. Our model yields several propositions that suggest the appropriate strategic actions that a firm may take when there is potential for IOS adopters to question whether adopting the IOS will be value-maximizing. We analyze and illustrate the related strategic thinking in a real-world context involving a financial risk management IOS. We present a case study of the ownership and spin-off of RiskMetrics, developed by New York City--based investment bank, J.P. Morgan, in the late 1980s. The firm first gave RiskMetrics to its correspondent banking, treasury, and investment clients for free, in the context of its clearing account relationship services. Later, the bank spun off the product to an independent company that offered fee-based services. We model the bank's clients in terms of their heterogeneous portfolio risks, and their effects on the value a client can gain from adopting the technology. We also examine the value they may lose if their private portfolio risk information is exploited. A key roadblock to the adoption of the free service may have been the potential for strategic information exploitation by the service provider. When Morgan spun off RiskMetrics with multiparty ownership, wider adoption occurred. Our theory interprets this strategic move as an appropriate means to maximize long-term profits when information exploitation may occur.
Keywords: economic theory; financial risk management; incomplete contracts; information sharing; information systems; interorganizational systems; ownership; value-at-risk
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#246 0.124 strategic benefits economic benefit potential systems technology long-term applications competitive company suggest additional companies industry operating costs difficult substantial total
#25 0.093 relationships relationship relational information interfirm level exchange relations perspective model paper interpersonal expertise theory study effects literature role social identify
#117 0.092 standards interorganizational ios standardization standard systems compatibility effects cooperation firms industry benefits open interoperability key heterogeneous vertical propose vendors collective
#170 0.081 information processing needs based lead make exchange situation examined ownership analytical improved situations changes informational examine developed receive perceptions facilitates
#5 0.079 consumer consumers model optimal welfare price market pricing equilibrium surplus different higher results strategy quality cost lower competition firm paper
#49 0.069 adoption diffusion technology adopters innovation adopt process information potential innovations influence new characteristics early adopting set compatibility time initial current
#70 0.068 contract contracts incentives incentive outsourcing hazard moral contracting agency contractual asymmetry incomplete set cost client parties examine effort structures double
#264 0.063 risk risks management associated managing financial appropriate losses expected future literature reduce loss approach alternative mitigate failures failure cause mitigation
#200 0.055 banking bank multilevel banks level individual implementation analysis resistance financial suggests modeling group large bank's services levels national data early
#143 0.052 value business benefits technology based economic creation related intangible cocreation assessing financial improved key economics assess question created create understanding