New Research Presented at "The Competitive Strategy, Economics and Information Systems Research Workshop"

Senior Faculty from Wharton, Rochester and Minnesota Host HICSS Mini-Track at the January 2005 Hawaii International Conference on Systems Science (HICSS); Carlson School Faculty Mark Bergen (Marketing), Alok Gupta and Rob Kauffman Participating

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Every year in early January, MISRC Director, Rob Kauffman, and colleagues, Eric K. Clemons of the Wharton School at the University of Pennsylvania and Professor Rajiv M. Dewan of the Simon Graduate School of Business at the University of Rochester, host a one-day research workshop on competitive strategy, economics and IS strategy at the HICSS Conference. This year’s workshop was held in Kona at the Hilton Waikoloa Resort on the Big Island of Hawaii, and was well attended. The participants included the authors of the papers that were included in the workshop, as well as faculty and doctoral students from North America, Europe and Asia, as well as industry professionals and government agency staff members.

The full day consisted of four 1½ hour sessions covering some of the most current research themes on competitive strategy and economic analysis, coupled with leading managerial issues in IS and e-commerce. The first session was on the Economics of Network Pricing Mechanisms and Electronic Markets. Karl Lang and Roumen Vagrov of Baruch College of the City University of New York gave a joint presentation of “A Pricing Mechanism for Digital Content Distribution over Peer-to-Peer Networks.” They discussed how to create a usage-based pricing scheme for distributing digital content via P2P networks that rewards users who actively participate in the distribution process. They also described a broader-based research agenda in the area of P2P networks, and challenged the audience to identify where their own research on P2P (which hasn’t been given too enough attention yet). Hemant Bhargava of the University of California at Davis and Daewon Sun of Notre Dame University contributed “Quality-Contingent Pricing for Broadband Services.” To resolve consumption uncertainties, Sun proposed the use of contracts involving proportional rebates and threshold quality-contingent pricing. The final presentation of the session was by Anindya Ghose of New York University, who co-authored a paper entitled “Welfare Implications of Electronic Secondary Markets,” with Rahul Telang and Ramayya Krishnan of Carnegie Mellon University. His presentation elaborated on new modeling findings that suggest that the presence of used goods in the market should not be a deterrent for value-maximizing sellers to participate in electronic markets. The authors’ paper was nominated for a “Best Paper Award” this year, and sets up a broader spectrum for the welfare issues associated with the operation of electronic markets in various contexts.

The second session was titled Internet Economics, and included three papers. Chris Forman of Carnegie Mellon University presented a paper with Anne Gron of Northwestern University, “Vertical Integration, IT and Insurance: A Case Study of Internet Adoption.” Forman described their use of duration modeling methods to show that vertical disintegration slowed the rate of Internet adoption among insurers, but vertically-disintegrated insurers made greater investments in client-server technologies, increasing the adoption rate. This paper was also nominated for a “Best Research Paper” award at the conference, and is one of the first extensive empirical studies on investments in the insurance industry since Aks Zaheer (Minnesota) and N. Venkatraman (Boston University), and Joe Harris and Sid Katz (Georgia State University) published their own well known work in the early to mid-1990s. The second paper of the session was by Evangelos Katsamakas of Fordham University and was entitled “Competing Value Networks, Incomplete Contracts and IT.” His presentation analyzed the structure of competition between value networks when business partners invest in quality and the market is vertically differentiated. The first half of the day concluded with a paper by Rui Dai, Sri Narasimhan and D. J. Wu of the Georgia Institute of Technology, who studied the problem of the “E-Sourcing: Buyer’s Efficient Information Structure for Purchasing Preparation Process.” Wu explained that “e-sourcing” is the use of reverse auction e-markets for corporate and government procurement of supplies. The talk showed how the authors modeled the economic tradeoffs for internal and external communication complexity, frequency of usage, and extent of delay, leading to firm decisions on centralized structure vs. networked structure for the organizational design of the e-sourcing group.

The third session, Economic Models for Product Launch, Strategic Pricing and Open Source Software, begins with an article “To Launch or Not to Launch? An Economic Analysis of Delayed Product Introduction,” by Qiuhong Wong and Kai Lung Hui of National University of Singapore. Wong, a doctoral student at NUS, described a three-step model of firm incentives to delay the introduction of a newly-improved version of a product, balancing the issues of quality improvement and product lifespan. Mark Bergen (Marketing Department), Rob Kauffman and Dongwon Lee (IDSc Doctoral Program) at the Carlson School of Management of the University of Minnesota, asked: “How Rigid Are Prices in E-Commerce? An Analysis of Daily Price Change Activity in Internet Retailing.” Lee presented empirical evidence for price rigidity in e-commerce based on observed price changes occurring over a period of months—not days—and with variations across product categories and retailers, for 377 book prices over 449 days in 2003 and 2004. Bergen and Kauffman helped the audience to grapple with the “massive quasi-experimental” research that was used, as well as their unique approach to building new theory with the help of Internet-based data collection. The final contribution of the session was by Geoff Parker of Tulane University and Marshall Van Alstyne of Boston University contributed “Mechanism Design to Promote Free Market and Open Source Software Innovation.” Van Alstyne described a valuation model that optimizes the balance between the time a software innovation remains proprietary and the openness of its platform to developers who create new products. A lively discussion followed, in which the audience and the presenter discussed how senior executives will learn to think in these “new strategy” terms, and how the authors should disseminate their findings to achieve high impact in the business community.

The day concluded with just one paper in the final session under the heading Leading Themes in the Economics of IS. Eric Clemons gave a rousing presentation on the subject of "Just Right Outsourcing: Understanding and Managing Risk." The paper was co-authored by his University of Pennsylvania colleague, Ravi Aron. The work explored some managerially-effective ways to reduce the risks of outsourcing-related tasks involving the loss of control over expertise and dealing with the potential misuse of financial information from a strategic risk management perspective. A key takeaway from this presentation was the idea of “chunkification” related to risk, the managerial decision process of breaking strategic investments and project in IT down so as to balance risk and opportunity. Clemons’ presentation followed up on the previous year’s work that he presented at HICSS, which dealt with the potential negative effects of “information exploitation” in interorganizational relationships involving technology.

We also took time throughout the day to discuss the relevant issues more broadly. Three themes came through very clearly in these discussions: (1) The current work that is being done in the IS field and which was presented at HICSS in 2005 is truly interdisciplinary. It has the potential to inform other disciplines, such as Marketing, Supply Chain Management, Economics and Strategy. (2) The work is also of high relevance to industry practitioners because it attempts to build new theory and suggests different managerial approaches to problem-solving in competitive strategy with technology. (3) Some of the new and very interesting work that we will see in the coming years will involve the study of outsourcing and offshoring, changes in corporate governance and risk management of IT investments, the transformation of markets for information goods, new approaches to studying competitive strategy among Internet-based sellers, and how to best leverage emerging technology and emerging approaches to existing technology.

Rob Kauffman warmly acknowledges the many reviewers who commented on the papers that were submitted: “These people make an unusually strong competition to our research work at HICSS through their thoughtful and thorough reviews. We couldn’t do this without them. The advance work that they do to help the authors shape their new ideas helps to make the day so valuable for us all.” Kauffman also notes that Vladimir Zwass, Editor-in-Chief of the Journal of Management Information Systems, provides space for a full special issue of papers on competitive strategy and IS drawn from HICSS and elsewhere. Last year’s special issue appeared in Fall 2004, and similar plans are in the making to invite selected papers for publication. That work will be during Winter and Spring 2005.

Next year’s Competitive Strategy, Economics and IS Research Workshop will be held in Kauai from January 4-7, 2006, when the HICSS Conference moves to a new location. The MISRC will continue to be a key sponsor of this activity. In addition, plans are underway with the University of Pennsylvania and Deloitte Research to create another half day session that will showcase some of the best new case study research that will show how leading organizations create high form performance through information technology.

The activities described above are on part of the MISRC’s set of annual conference, workshop and corporate seminar activities, which are now occurring both in Minneapolis, and in other places in the USA and around the world, where interesting opportunities for us to make a contribution arise. If any MISRC member companies would like to volunteer to participate in case study research on competitive strategy and IT, please contact Rob Kauffman (612-624-8562, rkauffman@csom.umn.edu) or Donna Sarppo (612-624-9520, dsarppo@csom.umn.edu).