Migration to Open-Standard Interorganizational Systems: Network Effects, Switching Costs, and Path Dependency

Abstract

This study examines firms' migration across interorganizational systems (IOS) that are built on standards with relatively different degrees of openness. As firms seek to improve inter-firm coordination using adoption, yet the extant literature falls short of empirical testing of the theory. We examine our conceptual model on a large dataset of 1,394 firms. The empirical results demonstrate that network effects are a significant driver of migration to open-standard IOS. We also find that the effect of adoption costs is different for firms that are migrating from EDI (significantly negative) and firms that are not (no effect).While this finding may sound counter-intuitive, it illustrates the subtle role of path dependency in standards migration. Experience with older standards may keep the firm "trapped" and make it difficult to shift to open and potentially better standards. Our work also teases out finer-grained relationships such as the positive impact of trading community on the strength of network effects, and the importance of managerial complexity as a key determinant of adoption costs. Relative to the extant literature, this paper focuses on adoption of an open-standard network with broader impacts on value chain activities (compared to EDI networks), and with a wider scope of partner efforts involved in establishing network effects (compared to systems such as automated teller machine networks). Overall we believe that this study, based on a rigorous empirical analysis of a unique international dataset, provides valuable insights into a set of key factors that influence standards diffusion.

Improving the efficiency of Port Community Systems through integrated information flows of logistic processes

“…Accordingly, we implicitly consider both the benefits (more specifically: direct, indirect and strategic benefits; Chwelos et al, 2001;Iacovou et al, 1995;Jimenez-Martinez and Polo-Redondo, 2004;Weber and Kantamneni, 2002) and the costs of innovation processes, more specifically: relational costs (Allen et al, 2000;Hart and Saunders, 1998;Nakayama, 2000), development costs (Antonelli, 1994;Gupta et al, 2008), implementation costs (Irani and Love, 2000;2001) and switching costs (Zhu et al, 2006). According to this theoretical background, we adopt a case study approach (Yin, 1994), providing empirical descriptions of the logistic processes of the port of Salerno (situated in the south of Italy) and emphasizing the rich, real-world context in which the phenomena occur (Eisenhardt and Graebner, 2007).…”

Theoretical Foundations of Empirical Research on Interorganizational Systems: Assessing Past Contributions and Guiding Future Directions

“…As IOS migrate toward more open Internet-based standards, IOS adopters face a much broader range of potential trading partners (Zhu et al, 2006). Open IOS standards facilitate industry-wide initiatives that lower costs for all network participants (Christiaanse, Van Diepen, & Damsgaard, 2004).…”

Research on Quality of Transaction Standards: The Maturity of a Research Topic

“…Next to these three papers there are several studies that can be seen as fundament for this area of expertise, however many have a different viewpoint, like for instance the economics of standardization. In our research focussed at improving the quality of transaction standards, a good fundament for the development viewpoint is the conceptual framework of Zhao et al [23], while the conceptual model of Zhu et al [25] is appropriate for the adoption viewpoint.…”