Kunsoo Han

Information Exploitation and Interorganizational Systems Ownership

We develop a model based on the theory of incomplete contracts for how ownership structure of interorganizational systems (IOS) can affect information exploitation and information technology adoption. Our model yields several propositions that suggest the appropriate strategic actions that a firm may take when there is potential for IOS adopters to question whether adopting the IOS will be value-maximizing. We analyze and illustrate the related strategic thinking in a real-world context involving a financial risk management IOS. We present a case study of the ownership and spin-off of RiskMetrics, developed by New York City-based investment bank, J.P. Morgan, in the late 1980s. The firm first gave RiskMetrics to its correspondent banking, treasury, and investment clients for free, in the context of its clearing account relationship services. Later, the bank spun off the product to an independent company that offered fee-based services. We model the banks clients in terms of their heterogeneous portfolio risks, and their effects on the value a client can gain from adopting the technology. We also examine the value they may lose if their private portfolio risk information is exploited. A key roadblock to the adoption of the free service may have been the potential for strategic information exploitation by the service provider. When Morgan spun off RiskMetrics with multiparty ownership, wider adoption occurred. Our theory interprets this strategic move as an appropriate means to maximize long-term profits when information exploitation may occur.

Research Note---Returns to Information Technology Outsourcing

This study extends existing information technology (IT) productivity research by evaluating the contributions of spending in IT outsourcing using a production function framework and an economywide panel data set from 60 industries in the United States over the period from 1998 to 2006. Our results demonstrate that IT outsourcing has made a positive and economically meaningful contribution to industry output and labor productivity. It has not only helped industries produce more output, but it has also made their labor more productive. Moreover, our analysis of split data samples reveals systematic differences between high and low IT intensity industries in terms of the degree and impact of IT outsourcing. Our results indicate that high IT intensity industries use more IT outsourcing as a percentage of their output, but less as a percentage of their own IT capital, and they achieve higher returns from IT outsourcing. This finding suggests that to gain greater value from IT outsourcing, firms need to develop IT capabilities by intensively investing in IT themselves. By comparing the results from subperiods and analyzing a separate data set for the earlier period of 1987--1999, we conclude that the value of IT outsourcing has been stable from 1998 to 2006 and consistent over the past two decades. The high returns we find for IT outsourcing also suggest that firms may be underinvesting in IT outsourcing.

Information Technology Spillover and Productivity: The Role of Information Technology Intensity and Competition

We study interindustry information technology (IT) spillover wherein IT investments made by supplier industries increase the productivity of downstream industries. Using data from U.S. manufacturing industries, we find that industries receive significant IT spillover benefits in terms of total factor productivity growth through economic transactions with their respective supplier industries. More importantly, we find that two characteristics of downstream industries, namely, IT intensity and competitiveness, which have been shown to moderate the effect of internal IT investments, play an important role in IT spillovers as well. Our results suggest that IT intensity as well as competitiveness of the downstream industry moderate the effect of IT spillovers—industries that are more IT intensive and more competitive benefit more from IT spillovers. Finally, our results suggest that the long-term effects of spillovers are greater than short-term effects, suggesting that learning periods are required to reap the benefits from the IT spillovers.

Channel Capabilities, Product Characteristics, and Impacts of Mobile Channel Introduction

Drawing on the notion of channel capability, we develop a theoretical framework for understanding the interactions between mobile and traditional online channels for products with different characteristics. Specifically, we identify two channel capabilities — access and search capabilities — that differentiate mobile and online channels, and two product characteristics that are directly related to the channel capabilities — time criticality and information intensity. Based on this framework, we generate a set of predictions on the differential impacts of mobile channel introduction across different product categories. We test the predictions using a counterfactual analysis based on vector autoregression and a large panel dataset from a leading e-market in Korea that covers a 28-month period and contains all the transactions made through the online and mobile channels before and after the mobile channel introduction. Consistent with our predictions based on the theoretical framework, our results suggest that the performance impact of the mobile channel depends crucially on the two product characteristics and the resulting product-channel fit. We discuss implications for theory and multichannel strategy.

Relative importance, specific investment and ownership in interorganizational systems

Implementation and maintenance of interorganizational systems (IOS) require investments by all the participating firms. Compared with intraorganizational systems, however, there are additional uncertainties and risks. This is because the benefits of IOS investment depend not only on a firm’s own decisions, but also on those of its business partners. Without appropriate levels of investment by all the firms participating in an IOS, they cannot reap the full benefits. Drawing upon the literature in institutional economics, we examine IOS ownership as a means to induce value-maximizing noncontractible investments. We model the impact of two factors derived from the theory of incomplete contracts and transaction cost economics: relative importance of investments and specificity of investments. We apply the model to a vendor-managed inventory system (VMI) in a supply chain setting. We show that when the specificity of investments is high, this is a more critical determinant of optimal ownership structure than the relative importance of investments. As technologies used in IOS become increasingly redeployable and reusable, and less specific, the relative importance of investments becomes a dominant factor. We also show that the bargaining mechanism—or the agreed upon approach to splitting the incremental payoffs—that is used affects the relationship between these factors in determining the optimal ownership structure of an IOS.

Are there contagion effects in information technology and business process outsourcing

We model the diffusion of IT outsourcing using announcements about IT outsourcing deals. We estimate a lognormal diffusion curve to test whether IT outsourcing follows a pure diffusion process or there are contagion effects involved. The methodology permits us to study the consequences of outsourcing events, especially mega-deals with IT contract amounts that exceed US

Firms' Social Media Efforts, Consumer Behavior, and Firm Performance: Evidence from Facebook

1billion. Mega-deals act, we theorize, as precipitating events that create a strong basis for contagion effects and are likely to affect decision-making by other firms in an industry. Then, we evaluate the role of different communication channels in the diffusion process of IT outsourcing by testing for the fit of the mixed influence model at the industry level. This helps us to evaluate the consistency of evidence at two different levels of analysis. We also evaluate two flexible diffusion models: the Gompertz and Weibull models. Our results show that the diffusion patterns of IT outsourcing do not appear to be lognormal, suggesting that IT outsourcing does not follow a pure diffusion process. Instead, we find the presence of contagion effects in the diffusion of IT outsourcing. During periods of the most rapid outsourcing growth - the contagion periods - the actions of the large and more visible firms may provide exemplars for smaller firms, reducing their inhibitions about committing to IT outsourcing. We also find that the results of the mixed influence and the Weibull models, which provide the best fit for overall IT outsourcing diffusion patterns, are potentially indicative of the existence of spillovers that might drive the observed contagion effects at the industry level.

Firm’s social media efforts, consumer behavior, and firm performance

Despite the increasing attention paid to the business value of social media, it is still not clear how they affect firm performance. This study theorizes and empirically examines how firms’ social media efforts — in terms of intensity, richness, and responsiveness — influence consumer behavior (engagement and attention) and firm performance. Using detailed data collected from the Facebook pages of 63 firms over the 2010-2012 period, we find that the richness and responsiveness of a firm’s social media efforts are significantly associated with the firm’s market performance, captured by abnormal returns and Tobin’s q. Interestingly, the intensity of a firm’s social media efforts is not significantly associated with firm performance. We also find that not only do consumer engagement and attention directly impact firm performance, but they also mediate the relationship between a firm’s social media efforts and firm performance. Unlike prior studies that examine the impact of third-party or consumer-initiated social media, such as blogs and consumer ratings, our study focuses on estimating financial returns to firms’ own efforts on firm-initiated social media, thereby assessing the business value of social media directly.

Does Give-and-Take Really Matter? Dynamics of Social Interactions in Social Network

Despite the increasing attention paid to the business value of social media, it is still not clear how they affect firm performance. This study theorizes and empirically examines how firms’ social media efforts — in terms of intensity, richness, and responsiveness — influence consumer behavior (engagement and attention) and firm performance. Using detailed data collected from the Facebook pages of 63 firms over the 2010-2012 period, we find that the richness and responsiveness of a firm’s social media efforts are significantly associated with the firm’s market performance, captured by abnormal returns and Tobin’s q. Interestingly, the intensity of a firm’s social media efforts is not significantly associated with firm performance. We also find that not only do consumer engagement and attention directly impact firm performance, but they also mediate the relationship between a firm’s social media efforts and firm performance. Unlike prior studies that examine the impact of third-party or consumer-initiated social media, such as blogs and consumer ratings, our study focuses on estimating financial returns to firms’ own efforts on firm-initiated social media, thereby assessing the business value of social media directly.

Financial Returns to Firms’ Communication Actions on Firm-Initiated Social Media: Evidence from Facebook Business Pages

Despite the increasing attention paid to the social interaction in online social networks, it is still not clear how social media users interact with each other, consume different content, and expand their social network. This study conceptualizes two types of user engagement (internal and external) and empirically examines the dynamics between user’s engagement, friends’ engagement, and network size. Using detailed social media activity data collected from over 20,000 Facebook users for three years, we find that when people externally engage in their friends’ social space rather than one’s own space, they can make more friends and also receive friends’ engagement in one’s own social space. However, when people receive more friends’ engagement in their social space and make more friends, they are likely to reduce their engagement in social media (both externally as well as internally). Our findings can provide useful insights for the literature on social ties, user-generated content, and online peer influence.