Making Lemonade from Lemons: A TCE Perspective on Third-party Disruptions in a Multi-vendor IT Service

Abstract

In modern enterprise computing environments, multiple IT services from first and third parties are often integrated to form coherent solutions for business customers. Using Transaction Cost Economics (TCE) as a theoretical foundation, we seek to understand how uncertainties introduced by third-party services shape enterprise customers’ use of various IT services in these multi-vendor service settings. Specifically, we analyze a case of service disruption caused by a third party that affects the multi-vendor service but does not directly affect the first-party services. In line with the tenets of TCE, we find a temporary increase in the use of first-party services that can serve as similar-goal substitutes to fulfill the organization’s needs during the disruption; however, on average, we observe a net decline in the total use of services in the long run. We empirically analyze the role of first-party technical support during the disruption. Based on textual data from the first party’s technical support log, we use deep learning to assess what actions the first party can take during such disruptions to turn the challenge into an opportunity. We find that if the first party offers high-quality technical support that specifically addresses issues related to its product, it may be able to make lemonade out of lemons: Such technical support effectively boosts customers’ use of first-party services in the long run. Curiously though, similar efforts by the first party in the pre-disruption period are ineffective in achieving the same effect.

Keywords: IT service, IT service use, multi-vendor services, third party, service disruption, service recovery, technical support