Portfolios of Exchange Relationships

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Portfolios of Exchange Relationships An Empirical
Investigation of an Online IT Marketplace for
Small Firms Ulad Radkevitch, Eric van Heck,
Otto Koppius RSM Erasmus University ICIS
2006 Milwaukee, WI, December 12,
2006 uradkevitch_at_rsm.nl
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Introduction

• Common ways to investigate online markets
• Deductive approach
• Theory testing (e.g. Choudry et al., 1998)
• Strategic behavior, equilibrium models (e.g. Carr
  2004)
• Unit of analysis
• Transaction (e.g. Snir and Hitt, 2003)
  stakeholder (Kambil van Heck, 2002)
  marketplace (e.g. Choudry et al., 1998)
• Less common ways to investigate online markets
• Inductive approach, e.g. uncovering taxonomies of
  actors/relationships at online markets (Bapna et
  al. 2004)
• Unit of analysis portfolio or network
• Our Motivation How do buyers ACTUALLY organize
  their relationships with suppliers at online
  markets and what are the implications?

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Research Problem

• Objective To explore empirical configurations of
  buyer-supplier relationships and the use of
  exchange mechanisms by the buyers.
• Main Question What types of buyers portfolios
  of exchange relationships are formed at online IT
  marketplaces and what are the properties of these
  types?
• Methodology Inductive approach taxonomy
  development (Bapna et al, 2004 Bensaou and
  Venkatraman, 1995).
• Buyers portfolios of exchange relationship is
  defined as accumulated transactions and are
  analyzed and measured as buyers ego networks.

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Buyers Ego Network

• Ego buyers of IT services
• Alters suppliers IT services
• Ties executed projects, awarded by
  negotiations/auctions
• Mostly negotiations Mostly auctions
• Large proportion of projects Small proportion of
  projects
• with the most used supplier with the most used
  supplier

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Theoretical Background

• Buyer-supplier relationships types
• Derived from theory or found empirically (Cannon
  and Perreault, 1999).
• Transactional are relational are the two extremes
  (Dyer and Singh, 1998)
• Cluster dimensions
• Transactions can be organized in a transactional
  (short-term, distant) or relational (long-term,
  close) mode (Dyer and Singh, 1998 Macneil, 1980)
• Reverse auctions have pros and cons as exchange
  mechanisms have implications for relationships
  (Jap, 2003 Emiliani, 2004)
• Transaction characteristics define transaction
  governance (Malone et al, 1987)
• Antecedents and outcomes of cluster dimensions
• Buyer commitment/opportunism, buyer experience,
  buyer satisfaction

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Conceptual Model

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Data

• Source Leading online market for
  professional services over 100,000
  clients served over USD 90 million in
  transactions
• Focal categories Web design and development
  Web programming
• Data collected by Web data extraction tools
• Raw data 530 buyers with 20 to 300 projects
  each executed in 1999-2006
• Resulting dataset 104 ego networks 2,167
  projects with a total of USD 1,111,130

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Cluster Analysis Dimensions and Variables
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Finding the right number of clusters

• Dissimilarity ratio between cluster variance /
  within cluster variance (Bapna et al, 2004)
• Further criteria for cluster solution choice
  size and explanatory value of additional groups.

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Resulting Clusters of Ego Networks

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Resulting Clusters of Ego Networks
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Cluster Antecedents and Consequences
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Findings

• Four distinct types of buyer portfolios of
  supplier relationships (based on relational and
  transactional characteristics as well as on
  exchange mechanism use) identified
  transactional, relational, small diversifiers and
  large diversifiers.
• Long-term relationships with suppliers are
  wide-spread. Relational buyers tend to be more
  satisfied with the supplier performance than
  transactional buyers.
• Reverse auctions are associated mostly with
  short-term orientation, while negotiations are
  associated mostly with long-term orientation.

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The End

• Thank you for your attention!

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Propositions

• Proposition 1. Transactional buyers are more
  opportunistic than relational buyers in their
  contract award behavior.
• Proposition 2. Relational buyers enjoy better
  project performance than transactional buyers.
• Proposition 3. Reverse auctions are used on a
  pilot stage by relational buyer to select and
  test new suppliers.
• Proposition 4. Small and large diversifiers use
  reverse auctions and negotiations
  interchangeably.

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Summary of Contribution and Future Research

• Theoretical contribution understanding empirical
  configurations of buyer-suppliers relationships
  (and their properties) at online markets
• Methodological contribution application of the
  concept of ego networks and taxonomy development
  to the investigation of buyer-supplier
  relationships at online market
• Managerial contribution identifying
  opportunities for market-makers to increase their
  value proposition
• Future research longitudinal analysis of the
  evolution of buyers portfolios of relationships

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Cluster Description