Information Exploitation and Interorganizational System Ownership

Journal of Management Information Systems, 21, 2 (Fall 2004), 109-135

42 Pages Posted: 20 Sep 2015

See all articles by Kunsoo Han

Kunsoo Han

McGill University

Robert J. Kauffman

Singapore Management University; Singapore Management University - School of Information Systems

Barrie R. Nault

University of Calgary - Haskayne School of Business

Date Written: May 20, 2015

Abstract

We develop a model based on the theory of incomplete contracts for how ownership structure of interorganizational systems (IOS) can affect information exploitation and 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 spinoff 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 which offered fee-based services. We model the bank’s 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 multi-party ownership, wider adoption occurred. Our theory interprets this strategic move as an appropriate means to maximize longterm profits when information exploitation may occur.

Keywords: Economic theory, financial risk management, incomplete contracts, information sharing, information systems, interorganizational systems, ownership, value-at-risk

Suggested Citation

Han, Kunsoo and Kauffman, Robert J. and Nault, Barrie R., Information Exploitation and Interorganizational System Ownership (May 20, 2015). Journal of Management Information Systems, 21, 2 (Fall 2004), 109-135, Available at SSRN: https://ssrn.com/abstract=2608646

Kunsoo Han

McGill University ( email )

1001 Sherbrooke St. W
Montreal, Quebec H3A 1G5
Canada

Robert J. Kauffman

Singapore Management University ( email )

Li Ka Shing Library
70 Stamford Road
Singapore 178901, 178899
Singapore
65-6828-929 (Phone)

Singapore Management University - School of Information Systems ( email )

80 Stamford Road
Singapore, 178902
Singapore

Barrie R. Nault (Contact Author)

University of Calgary - Haskayne School of Business ( email )

2500 University Drive, NW
Calgary, Alberta T2N 1N4
Canada

HOME PAGE: http://ucalgary.ca/bnault

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