Proprietary and Open Systems Adoption in E-Procurement: A Risk-Augmented Transaction Cost Perspective

ROBERT J. KAUFFMAN, HAMID MOHTADI
2004 Journal of Management Information Systems  
This article presents an economic model that enables the study of incentives for business-to-business (B2B) e-procurement technology investments which permit inventory coordination and improved operational control. We focus on the information technology (IT) adoption behavior of firms in the presence of transaction costs, agency costs and information uncertainty, and conclude that it is appropriate to rethink prior theory in lieu of a more explicit risk-adjusted transactions cost theory
more » ... cost theory perspective, following Clemons, Reddi and Row (1993). We distinguish among three kinds of B2B e-procurement technology platforms that can be selected: traditional interorganizational systems (IOSs), open B2B platforms associated with electronic markets on the Internet, and hybrid solutions that involve elements of both. The key dependency appears to be firm size. We find that larger firms tend to adopt costlier solutions, but rely upon procurement technologies with more certain-to-deliver value, such as proprietary EDI. Smaller firms tend to adopt less costly procurement technologies that entail greater supply uncertainties, such as open B2B procurement platforms. We arrive at our findings through the specification of an analytical model that captures the key elements of our perspective-transaction costs, agency costs and information uncertainty-and attempts to specify the limits of the conditions under which one can make strong conclusions about the likely observed equilibrium e-procurement solutions of firms. _____________________________________________________________________________________ KEYWORDS: B2B, economic analysis, electronic commerce, electronic procurement, IT infrastructure, open systems, proprietary systems, risk exposure, supply chain management, technology adoption, uncertainty. _____________________________________________________________________________________ ___________________________________________________________________________________ "Electronic commerce is a regime transition. It is now evident that the challenges of B2B e-commerce are more daunting than first imagined. More than just deliver technology, a B2B platform must address fundamental problems of strategy, cooperation, behavior, and finance. Even the simplest service-a standard transaction platform-requires enormously complex interactions." Quoted from SureFoods Web site, July 2001 (www.surefoods.com)
doi:10.1080/07421222.2004.11045798 fatcat:pmww2l2rxbaylavvnowhspfsua