The importance of relationship management in establishing successful interorganizational systems

Journal of Strategic Information Systems 1995 4(2) 135-148

The importance of relationship management in establishing successful interorganizational systems

Johannes Meier McKinsey & Company, Inc, 31/F, Asia Pacific Finance Tower, Citibank Plaza, 3 Garden Road, Central, Hong Kong

The strategic management literature often cites interorganizational systems (10s) - automated information systems shared by two or more organizations - as examples of information technology used for competitive advantage. However, there is increasing awareness that 10s are becoming a strategic necessity and that their organizational impact demands attention. Examples show that IOS offer opportunities for enhanced organizational design. At the same time, however, 10s lead to mutual dependence between participating organizations that potentially limits their adaptability. This makes management of relationships between 10s participants a key issue in establishing and managing successful 10s. To gain a better understanding of this issue, it is important to go beyond existing functional typologies of 10s. A framework of different contexts of 10s usage is presented that helps in assessing the importance of relationship management between different groups of 10s participants. The framework classifies 10s contexts along two dimensions. First, does the system give the user a competitive advantage, or is it a strategic necessity for participating in the industry? Second, is the system an adjunct to the 10s provider’s primary product, or does it constitute a stand-alone business? The author concludes that trust between 10s participants is essential for successful 10% Analyzing 10s from the perspective of relationship management yields potential win-win outcomes amid all the rhetoric about the competitive battlegrounds.

Keywords: interorganizational systems, organizational impact of information technology, strategic use of information technology

Although the world is increasingly driven by high technology, it continues to be influenced and managed by high spirits - by emotion, energy, drive, persistence, and relationships that develop slowly over time between companies and individuals. Ironically, the more high-tech the world gets, the more important relationship management becomes for creating and keeping competitive advantage. (Levitt, 1991,

P 134)

Received January 1994; revised paper accepted for publication by Dr Marianne Broadbent, November 1994

0963-8687/95/$09.50 0 1995 Elsevier Science B.V. All rights reserved 135

Relationship management in interorganizational systems: J Meier

The most hotly debated question among senior managers concerning interorganizational systems nowadays is: Do such investments lead to enough competitive advantage to justify the large expenditure, or are they a strategic necessity - a sine qua ltolt of staying in business?

The conventional wisdom is that interorganizational systems (10s) offer a competitive advantage by harnessing the efficiency of electronic communication for all participants (Cash and Konsynski, 1985; Porter and Millar, 1985; Johnston and Vitale, 1988). Currently, most 10s are ordering systems or electronic markets. The examples of American Hospital Supply, American Airlines, and Foremost-McKesson show the strategic impact 10s can have on the relationship between supplier and customer or between wholesaler and retailer (Clemons and Row, 1988; Copeland and McKenney, 1988; Venkatraman and Short, 1991). Electronic markets, such as the new London Stock Exchange, provide a more efficient means of trading than traditional market mechanisms (Clemons and Weber, 1989). In fact, the efficiency gain associated with electronic data interchange (EDI) is often the motive for initiating such IOS, as elimination of paper, postage, and data entry personnel all result in cost savings (Benjamin et al, 1990; Emmelhainz, 1990; Hirschheim and Adams, 1991). In addition, ED1 tends to reduce time delays, thus improving internal operations, increasing responsiveness to customers, and strengthening trading relationships (Kekre and Mukhopadhyay, 1992; Swatman and Swatman, 1992). Swatman and Clarke emphasize that it is the EDI-induced changes in operation and function within and between organizations that make ED1 a strategic application (Swatman and Clarke, 1990). Finally, investments in 10s lead to significant switching costs for all participants, which can be another effective basis for gaining competitive advantage (Bakos, 1987).

Yet, to understand better the competitive impact of IOS, it is important not to focus solely on the efficiency aspects and switching costs. The efficiency benefits associated with 10s are based primarily on technology - and, in most cases, technology can be easily imitated. Sustainable competitive advantage from IOS, therefore, cannot be based solely on technological leadership.

Moreover, the benefits of many IOS, especially in electronic markets, tend to increase as the number of system participants grows. These participation externalities (also called network externalities), taken in conjunction with switching costs, make it all the more important for an 10s initiator to reach a critical mass of users in order to be successful (Chismar and Meier, 1992). The difficulties experienced by second movers in the fight against established 10s are best exemplified by the case of computerized reservation systems (CRS) (Copeland and McKenney, 1988).

In many industries, 10s have increasingly become a strategic necessity rather than an opportunity for competitive advantage (Benjamin et al, 1990; Meier and Sprague, 1991). As Hopper put it: “While it is more dangerous than ever to ignore the power of information technology, it is more dangerous still to believe that on its own, an information system can provide enduring business advantage. The old models no longer apply” (Hopper, 1990). 10s have become a necessity for doing business not only in the airline industry, but also in the health care, automotive, banking, retailing, transportation, and many other sectors (Keen, 1988; Clemons, 1989; Sacks, 1989; Benjamin et al, 1990; Cash et al, 1992; Lavery, 1993; Shaw, 1993).

If the old models no longer apply, how should we think about 10s going forward? Benjamin et al classify 10s by their functionality (transaction processing vs task support) and their structure of application (electronic hierarchies vs

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electronic markets) (Benjamin et al, 1990). While this taxonomy is useful in untangling the many overlapping definitions of 10s in the literature, it does not provide help in clarifying the issue of competitive advantage vs strategic necessity in 10s usage.

The remainder of this paper is divided into four sections.

l The first section argues that the organizational impact of 10s and the way an organization adapts to such systems are crucial for understanding competition involving 10s. The mutual dependence between 10s participants makes the management of relationships a key issue in harnessing the benefits of 10s.

l The second section presents a framework that defines four different contexts of 10s usage. This framework complements existing taxonomies of 10s in that it explicitly addresses the motivation behind the 10s introduction and points at 10s as products with their own competitive arena. The framework helps to characterize the different relationships involved in 10s introduction and usage. Building trust between 10s participants emerges as a central theme across the different contexts of 10s usage.

l The third section points at a trend of 10s to become a strategic necessity and products in their own rights, gives examples, and describes the evolution in terms of the framework.

l The last section presents conclusions.

Impact on organizational boundaries and flexibility The organizational impact of 10s and the way an organization adapts to such systems is crucial for understanding competition involving 10s. The following set of observations may provide a useful starting point by discussing the impact on organizational boundaries and flexibility of 10s providers and users. While 10s provide important opportunities for organizational design, the mutual dependence between 10s participants may in fact lead to reduced organizational flexibility.

IOS impact on organizational boundaries

Linking organizations electronically provides new opportunities for organizational design, because 10s may expand or reduce organizational boundaries.

l Expansive effects. The technological capability and efficiency of 10s allow organizations to exchange large amounts of information electronically and develop new forms of communication. A good example is the point of sale (POS) data collected by wholesalers today with the help of 10s. Having such data enables wholesalers to monitor retailers’ stock levels, replenish supplies faster, and provide more sophisticated service. The continuous information flow is the basis for electronically integrating the organizations of the 10s participants, in effect expanding their organizational boundaries (Bakos and Treaty, 1986; Malone et al, 1987; Konsynski and McFarlan, 1990).

The franchising systems developed by Benetton owe a large part of their success to this IOS-induced blurring of organizational boundaries (Harvard Business School, 1988; Roussel, 1990). The sharing of customer data by American Airlines, Citibank, and MCI provides a powerful means of increasing the marketing scope and organizational boundary for each of the participants in this 10s (Konsynski and McFarlan, 1990). In the words of Konsynski and McFarlan, these information partnerships - and the underlying 10s - “can make small companies look, feel, and act big, reaching for customers once

Journal of Strategic Information Systems 1995 Volume 4 Number 2 137


l

beyond their grasp” (Konsynski and McFarlan, 1990, ~115). Another important example is the use of ED1 networks in the grocery wholesale industry in Europe, which allows wholesalers to collect and compare prices throughout Europe (Klein and Kronen, 1993). This system enables small and medium-sized grocery wholesalers to present a much bigger combined purchasing power to large suppliers than they would have been able to without the 10s. Made possible by the underlying IOS, the peer network of wholesalers emerges as a large virtual organization.

Reductive effects. 10s may also shrink the boundaries of an organization. As transaction costs are a key determinant of such boundaries (Williamson, 198.5), lowered transaction costs as a result of 10s will result in smaller organizations. In particular, search, contracting, and control costs are transaction costs that can be lowered with 10s (Ciborra, 1987; Clemons and Row, 1989, 1992). Thus, a critical impact on 10s users is the increased potential for outsourcing functions of an organization and, as a result, reducing costs and management complexity. According to Clemons and Reddi, 10s tend to lead to a greater degree of outsourcing while at the same time firms tend to connect electronically with a small set of preferred suppliers with whom they have long-term cooperative relationships (Clemons and Reddi, 1993, 1994).

This outsourcing potential is being realized most prominently in the automotive industry, where manufacturers such as Ford, Volkswagen and Chrysler make outsourcing to cut costs an explicit goal and do so for more than two-thirds the value of their automobiles (Hampton and Norman, 1987; Lorenz, 1993). Not surprisingly, Ford is pushing hard for ED1 introduction across its supply chain with a large majority of its suppliers using ED1 (Crossfield and Dale, 1991; Lorenz, 1993).

Another, less visible, form of outsourcing is the increasing access to external expertise through 10s. For example, Mead Data Central’s Lexis system’ enables users to access a wealth of legal expertise through online databases. Without such systems, companies have to invest heavily in internal specialists. Taking this idea a step further, technical specialists are increasingly able to work together using 10s without belonging to the same organization. For instance, today’s computer-aided design (CAD) systems may be augmented by a communication component to form a high-level 10s (Meier and Sprague, 1991).

IOS impact on flexibility

While 10s create opportunities to enhance organizational design, they also may have a restrictive influence, reducing the adaptability of both user and provider organizations.

l Constraints on IOS users. An 10s participant that is not the system owner may become locked into the system by high switching costs. This imposes obvious constraints on the participant’s strategy. For example, retailers connected to a wholesaler’s 10s may find they depend on the system not only for ordering supplies but also for managing their inventories, accounting, and handling their

‘Mead Corporation has put Mead Data Central Inc, the provider of the Lexis/Nexis online information business, up for sale. The business is expected to fetch more than $1 billion (The Asian Wall Street Journal, 1994) after having been bought for $6 million in 1968. The large size of the online information business is reflected in the fact that Mead Data Central employs about 3800 workers worldwide (Hannah, 1994).

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shelf-stocking logistics. In this situation, the retailer’s organization is effectively designed around the wholesaler’s IOS, and the freedom to make organizational changes depends to a large degree on the compatibility of such changes with the system. This puts severe limitations on the adaptability of 10s user organizations.*

The constraints imposed by 10s on user organizations are exemplified by the case of German tour operators. A prospective traveller chooses from a catalogue of tour operators’ products - packages that typically include airfares, accommodation, and optional special services, such as airport pick-up or sightseeing trips - and then makes the booking at a travel agency. Most travel agents connect to the reservation systems of several service providers via START, an 10s which is jointly owned by Lufthansa, the German national railway, tour operators, and travel agency chains. By using START, travel agents gain the widest access to service providers. However, START usage puts constraints on the tour operators, since they must adapt their reservation systems to the START interface standard. As START allows only a limited set of reservation commands, tour operators can offer only a limited variety of product options. Including pictures of hotels and resorts in the reservation system might be an attractive option for a tour operator seeking competitive advantage; however, this would require time-consuming coordination among the participants to make the necessary technological changes in START.

A consortium of the French and German telecom ministries, IBM, and tour operators is planning to introduce a new distribution system in Europe based on the integrated services digital network (ISDN) (Zero Un Informatique, 1990). This experimental project called EUROTOP, is now in prototype phase (Travel Trade Gazette UK & Ireland, 1992). It promises to open new avenues for the sale of travel services, including up-to-the-minute electronic catalogues. Constraints on ZOSproviders. As pointed out earlier, the benefits of 10s to users depend on the number of users in the system. These network externalities encourage all participants to stick to the current system standards. Even a system owner can be locked into an old standard if the users are not willing or financially able to modernize the system. Such constraints tend to be the most pronounced in situations where multiple service users use a common 10s as the basis for their transactions with multiple service providers. Thus, 10s may affect an organization’s ability to change not only its systems but also its business strategy and approach.

is clear from the above that 10s lead to mutual dependence between the participating organizations that potentially limits their ability to change. This makes the management of relationships between 10s participants a key issue in harnessing the benefits of 10s. Central to successful relationship management is the notion of trust. Trust has been viewed in two ways in the literature (Moormann et al, 1992). First, trust has been regarded as belief or expectation about a partner’s trustworthiness based on his or her expertise, reliability, or intentionality (Blau,

*It should be noted that competitors may try to offset these technological switching costs by providing users with translation services from one provider’s system to another provider’s system. However, learning curves of the users and established relationships may constitute an even stronger locking mechanism than purely technological factors. This can be witnessed in the continuously high market share that McKesson - a first-mover in introducing IOS for independent pharmacies - has maintained in spite of technological ways for competitors to overcome switching costs, eg reading another company’s bar-codes or freely adapting management reporting structures to users’ needs (Clemons and Row, 1992).

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1964; Pruitt, 1981). This view has often been embraced by marketing researchers. Second, trust has been defined as a reliance on a partner that involves vulnerability and uncertainty (Deutsch, 1962; Coleman, 1990). Vulnerability and uncertainty, which are necessary conditions for trust according to the latter view, stem from the mutual dependence of IOS participants.

In the next section, a framework is presented that draws attention to critical aspects of relationship management and the role of trust in introducing and using 10s.

A framework for 10s introduction and usage The framework depicted in Figure I identifies four main strategic contexts for 10s introduction and usage by classifying 10s contexts along two dimensions.

l First, does the system give the user a competive advantage, or is it a strategic necessity in the industry? Given the importance of first-mover advantages in 10s introduction, this dimension tends to be closely linked to the degree of penetration that 10s have gained in an industry.

l Second, is the system an adjunct to the 10s provider’s primary product, or does it constitute a stand-alone business? This dimension touches on outsourcing issues for 10s providers and users.

Each of these four strategic contexts is discussed in more details below.

Context A: Competitors seek to differentiate primary product or service

With the information content of many products and services on the rise, information technology plays an increasingly important part in defining and

IOS usage for

competttive advantage

IOS usage as

strategic necessity

10s provision as

adjunct to primary product or service

Competitors seek to differentiate primary product or service

(A)

Competitors may agree to cooperate on IOS development

(C)

IOS provision as stand-alone business

Technology provider looks for product application

@)

IOS providers compete as system becomes secondary business

0

Figure 1 Contexts of 10s usage



differentiating products and services (Porter and Millar, 1985). Indeed, 10s can be a powerful tool for first movers to differentiate their existing products and services from ‘the rest of the pack’ and gain competitive advantage. Not surprisingly, most 10s have been introduced as product or service enhancements. For example, reservations can now be made instantaneously through IOS, replacing tedious manual procedures; the electronic ordering of supplies has rendered obsolete time-consuming and error-prone oral or written communication; and electronic markets accelerate trading transactions. In all these cases, 10s execute previously manual procedures electronically, improving the quality of the primary product (Porter and Millar, 1985; Benjamin et aE, 1990). 10s have been shown to increase service responsiveness as well (Rogers et al, 1992).

However, the challenge is to sustain the competitive advantage won by early introduction of 10s. Taking the perspective of relationship management points out a strategy for doing so: successful relationship management focuses 10s participants on creating win-win situations for both providers and users. Sharing benefits between providers and users builds trust in the relationship. Trust then becomes the basis for continued efficient and effective interaction between participants, resulting in lasting competitive advantage for the 10s provider. “Relationships are one of the most valuable resources that a company possesses. They have been built up over a long period of time and a lot of manpower, travel expenses, and other resources have been invested” (Groenewegen, 1992, p 293).

For example, Foremost-McKesson’s Economost electronic ordering system not only allowed McKesson to increase its market share significantly but essentially provided the basis for survival of US independent pharmacies in the face of national drug store chains. This system boosted the values of the distribution channel enormously for both McKesson and the pharmacies (Clemons and Row, 1988).

Another example of the importance of implementing an 10s with a cooperative supplier relationship is Motorola’s Cash Management Netting System which has been developed in cooperation with Citibank and includes Motorola suppliers in the currency netting process. The system has brought cash flows into line with product flows along the supply chain. As Holland et al point out, the success of the system “depends critically on organisations which expect to work closely with each other, i.e., they have a strong basis for trust and share common needs” (Holland et al, 1993, p 456).

Context B: Technology provider looks for product application

In some cases, 10s introduction is initiated not by a product or service provider seeking to differentiate itself but by a technology provider looking for an application. There is a danger that such systems, while offering state-of-the-art technology, do not meet their users’ demands. For example, McDonnell Douglas, the only CRS provider without a direct connection to an airline, failed to establish its CRS system as a viable alternative to the airline-initiated CRS SABRE and Apollo.

Success of an application does not depend solely on technology; the way in which a firm implements the system internally will affect its level of benefits from the technology (Ciborra, 1987; Benjamin et al, 1990). Thus, a technology provider who wants to launch new technology for 10s applications needs to recognize that 10s success will depend to a large extent on the proper integration of the 10s with the business system of the primary product provider. An emphasis on the underlying technology is most likely not going to result in successful applications.



If an 10s is to be ‘pushed’ by a technology provider - in contrast to situations where primary product providers ‘pull’ for the 10s introduction - the 10s introduction must be closely linked to the needs of primary product providers. This requires intensive relationships between the technology supplier and potential technology users. Companies that are familiar with 10s technology and would like to offer 10s services to primary product providers in other markets may want to consider building a strategic alliance with a primary product provider to guarantee successful business needs-driven - rather than technology-driven - 10s introduction.

Context C: Competitors may agree to cooperate on IOS development

After an initial phase of 10s usage to gain competitive advantage, industry participants typically enter a phase in which 10s usage becomes a strategic necessity for success. This shift from competitive advantage to strategic necessity is largely due to the ease with which most 10s technology can be copied. Common access to technology and the potentially high impact of 10s lead all product providers to invest in 10s. Once the 10s component of a primary product has been established in the market as a significant product feature, not to invest in an 10s is tantamount to ceding the competitive battleground.

Airlines’ investment in CRS in the late 1970s and early 1980s provide a good example of 10s turning from an instrument of competitive advantage into a strategic necessity. By continually keeping ahead of the second movers in terms of 10s participation externalities and functionality, first movers American and United Airlines managed to prolong their competitive advantage through most of the 1980s. However, anti-bias rules, co-host agreements, and lawsuits on CRS functionality now make it very difficult - indeed, almost illegal - for airlines to sustain such advantage through proprietary 10s. Case studies of ED1 introductions at Midwest Tire, Inc, Office Technologies Corporation, and Western Food Company further support the notion that 10s today tend to be motivated by competitive necessity (Benjamin et al, 1990).

Managers looking for guidelines in this context may find game theory helpful. Imagine a market in which there are two competitors. Failing to match a competitor’s 10s investment is suicidal if 10s can contribute significantly to the product’s success. However, if both competitors invest in 10s at the same time, they will derive little competitive advantage, as both their products may be enhanced by similar 10s features and consumers will see no distinction.3 From the companies’ point of view, 10s investment in this case leads to diminishing returns. This situation is aggravated if technological innovation necessitates ongoing investments in 10s functional improvements. The question of whether to invest or not bears a striking resemblance to the famous Prisoner’s Dilemma, in which there is no pareto-optimal solution without cooperation between the participants. The only win-win solution in this case is to pursue joint 10s development efforts. For this to happen, there must first be cooperation and trust between the primary product providers. Insight into the economics of 10s investment as a strategic necessity is essential to provide the basis for such trust. At the same time, it should be noted that the network externalities inherent in 10s usage provide an incentive for participants not to go their own way and break a joint standard development

3The multitude of participants in an 10s tends to result in long development and roll-out times for 10s enhancements. Thus, competing 10s providers can copy potentially differentiating new features based on competitive intelligence during the early stages of testing or roll-out of the enhancements.



agreement. As the development of intra-industry 10s and ED1 standards gains momentum, it is becoming increasingly hard to sell proprietary systems to trading partners (Benjamin et al, 1990). Manufacturers have set up organizations that define and enforce international norms for the exchange of information using 10s. Joint ownership can be regarded here as a way to minimize risks and reduce development costs for 10s. The most prominent examples are the MAP and ODETTE standards in the automotive industry. Similar organizations and network standards exist for the chemical industry (CEFIC), computer and component suppliers (EDIFICE), the reinsurance industry (RINET), the grocery industry (UCS), and the shipping industry (DISH) (Poe, 1990).

Context D: IOS providers compete as system becomes secondary product

Once sufficient demands exists to make provision of 10s services a business in its own right, industry participants have other options besides the me-too investments and joint development efforts described in Context C. In this situation, primary product providers tend to gravitate toward either (1) treating the provision of 10s as a stand-alone, secondary business, or (2) outsourcing their 10s needs from a neutral third party. The neutrality of the third-party provider may be a key asset from the competitors’ point of view. The increasing independence’ in terms of ownership and financial results of the Apollo and SABRE CRS from their initial parent airlines United and American Airlines exemplifies the first trend. An example of the second trend is the increasing provision of ATM networks by independent providers, such as PLUS or CIRRUS. The PLUS network was originally conceived as a means of competing with bigger banks by Colorado National Bank (Snitzer, 1987). However, in 1982 26 commercial banks incorporated the PLUS system as a not-for-profit membership organization aimed at establishing a nationwide shared ATM network. PLUS has been competing against other networks, in particular CIRRUS, which has similar origins in the attempt by a group of banks in 1982 to achieve national coverage (Gifford and Spector, 1985) and which in 1988 was aquired by MasterCard.4

In context D, success in the 10s market is directly associated with the characteristics of IOS, in particular, the harnessing of network externalities and functional leadership.

As noted earlier, the network externalities that are characteristic of many 10s make achieving a critical mass of users essential for success in many cases. Thus, being an early mover is crucial. If the 10s provider cannot attain a critical mass of users within a short time, it has little chance of persuading newcomers to sign on or get users of competitors’ 10s to switch. Arguably, sponsorship of 10s technology is crucial for success of a new 10s product in this phase (Chismar and Meier, 1992). Rapid technological improvement means that continuous innovation in 10s products and services is required to prevent users from switching to another system. To meet this challenge, an 10s provider organization must possess state-of-the-art technological expertise and understand the evolution of 10s. The evolution of 10s is likely to reflect the evolution of intraorganizational systems, which have evolved from the support of well-structured tasks in

4Kauffman and Wang provide an econometric analysis of CIRRUS and PLUS (Kaufmann and Wang, 1993). Competition between the two network operators has taken an interesting turn in that when the size of the networks grew into the range of market saturation, CIRRUS and PLUS decided to share their assets while maintaining separate corporate identities.



transaction processing and management information systems to the support of increasingly less-structured tasks in decision support, executive information, and expert systems (Meier and Sprague, 1991).

However, technological innovation will not bear fruit if 10s participants cannot adapt to changes, pointing again to the importance of relationship management. Coordination and communication between participants has to involve not only system designers but also organization designers and top management. A trust-based relationship between 10s users and providers facilitates this coordination and communication, and thus is key to maintaining 10s effectiveness.

Because third-party provision of 10s reduces control compared with in-house provision, this adds to the vulnerability (or perception of vulnerability) on the part of 10s participants. A third-party 10s provider must understand these concerns of 10s users. The literature on trust generation stresses the importance of demonstrating expertise, showing reliability, and proving intentionality over time. In fact, 10s provider may use these strengths as a basis for a competitive strategy. Being able to establish and maintain trust as a differentiating factor may very well be a sustainable foundation for competitive advantage. Given the fast pace of technological evolution, I would argue that trust-oriented relationship management is a better way to achieve and sustain competitive advantage for an 10s provider than functional or even cost advantages of a specific 10s.

Evolution of 10s context The framework described above helps to characterize the different relationships involved in IOS introduction and usage. It also describes the typical trend in 10s usage - ie industries tend to evolve from Context A to Context D either directly or via Context C. This corresponds to the proposition by Malone et al that there is a move from biased to unbiased networks (Malone et al, 1987). Three examples may illustrate this trend and its management challenges.

The classic example of the trend toward 10s as separate products is American Airlines’ SABRE system. Having moved from Context A directly to Context D, SABRE today provides essentially an electronic market for many airlines. “For the carriers, the CRS business is turning from a reliable source of cash flow into a business that is almost as difficult as air service itself” (Bartimo, 1990, p 78). Success in Context D depends on different factors than it did in earlier phases; for instance, display neutrality is now an asset whereas the display bias of earlier versions of SABRE was an effective mechanism to gain competitive advantages due to the halo-effect5 (Hopper, 1990). Similarly, the Analytical Systems Automated Purchasing (ASAP) system developed by American Hospital Supply Corporation (now Baxter) has gone through an interesting evolution. ASAP has moved from a phase of 10s for competitive advantage toward an era distinguished by a redefined relationship between Baxter and its customers. This era is characterized by “a fundamental shift in technology away from dedicated, customer-supplier, electronic order entry, and toward a multivendor electronic infrastructure” (Venkatraman and Short, 1991, p 2). Using the framework terminology, we can see that ASAP, which began as a differentiating feature of Baxter’s service to customers, is

5The halo-effect describes the tendency among travel agents to make reservations from the first screen of available flights displayed.


l

Relationship management in interorganizational systems: .I Meier

gradually becoming a secondary product as its competitive arena has been repositioned. This shift is partly due to competitors’ actions: after several years of imitating ASAP with their own versions of proprietory order-entry systems, competitors introduced their own versions of multivendor systems: Johnson & Johnson’s Cooperative Action Plus (COACT) and Abbott’s Quik Link can be viewed as secondary products competing with Baxter’s multivendor system. Each of these products is still a biased electronic market, as product availability remains restricted to main vendors and co-vendors, and no true price comparisons are supported yet by these systems. However, hospitals are mounting the pressure to reduce the bias and move to a common network infrastructure (Short and Venkatraman, 1992). In this context, Baxter’s business role has shifted from that of a manufacturer and distributor toward that of a value-added partner, where the competitive and adversarial relationship gives way to collaboration (Venkatraman and Short, 1991).

The US financial services industry has long used 10s in the form of quotation systems to provide real-time data to traders. The recent trend has been to further develop these information services into electronic markets, by opening proprietary services to other traders. For example, New York-based Merrill Lynch has transformed the governmental bond data service of Bloomberg Financial Markets into an electronic marketplace by making it available to other dealers (Clemons, 1991). At the same time, other big bond dealers have formed the Electronic Joint Venture (EJV) group to implement a competing system.6 Altogether, six or more competing electronic market systems are likely to emerge to serve the US bond market (Bakos, 1991). In this case, the evolution is from Context A to Context C and via joint ventures toward third-party competition in Context D.

This trend from Context A to Context D can be further witnessed in the growing provision of 10s services by industry outsiders. IBM, GE Information Services, Telenet, Control Data, McDonnell Douglas, EDS, and AT&T are emerging as major players in the Context D of competing 10s systems. They can leverage their knowledge of technology across different industries and spread the large fixed costs of 10s networks across different applications. With the opportunity for competitive advantage decreasing as 10s move from Context A to Context D, many original 10s providers are ready to sell shares of their systems to third-party providers.’

Conclusion Participation in an 10s should not be viewed as a zero-sum game but rather as a challenge in mutually beneficial management of relationships between 10s participants. As noted, trust is a key ingredient in establishing and maintaining a successful 10s because of the mutual dependency of system participants and the ensuing coordination requirements. This insight holds true in all contexts of 10s usage where different relationships are affected. The concept of trust may well be the missing link in forging an understanding of the organizational and competitive

6Salomon Inc, Goldman, Sachs & Co, Morgan Stanley Group Inc, CS First Boston Inc, a Citicorp subsidiary, and Shearson Lehman Hutton Inc want to invest $100 million in a competing system (Herman and Power, 1990). It is noteworthy that the EJV is aiming for an open-architecture format so that third-party information vendors can use it to distribute services (Investment Dealers’ Digest, 1993).

‘Texas Air has agreed to sell to EDS 50 per cent of its System One CRS for $250 million (Bartimo, 1990). AT&T has signed a five-year $50 million agreement to provide and manage the Worldspan CRS throughout Europe (The Wall Street Journal Europe, 1993).



impact of 10s. Technology can be copied easily, but a trusting relationship is an enormous asset. Thus, the introduction and usage of an 10s should be based not only on a short-term assessment of cost or functional advantage but on a long-term perspective on the relationships of all participants. The main contribution of this paper is that through its emphasis on trust it directs attention from the design aspect of 10s to the management of relationships between 10s participants. By making the strategic motivation in 10s introduction explicit and separating 10s as products with their own competitive arena, the paper adds to the understanding of 10s beyond the analysis of the functional characteristics of 10s mostly found in the literature. The resulting framework on 10s strategic contexts and the discussion of systems evolution along this framework will help 10s participants focus on the management challenges in 10s usage and capture the potential benefits of 10s.

Acknowledgements The author would like to express his gratitude to Julie Pierce from McKinsey & Company, Hong Kong, for editorial support and to two anonymous referees for their comments.

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Documents

The importance of relationship management in establishing successful interorganizational systems