Value Destruction in Information Technology Ecosystems: A Mixed-Method Investigation with An Interpretive Case Study and Analytical Modeling

Abstract

Much of today’s software systems are created by leveraging ecosystems consisting of heterogeneous “complementors” and “hub” firms. In fact, the reliance on ecosystems is also prevalent in the enterprise resource planning (ERP) domain, where larger ERP vendors form collaborative relationships with smaller industry-specific vendors to co-create value for themselves and their customers. However, value creation and destruction processes are often intertwined. A key motivation for this study is to shed light on the behavioral contingencies and underlying mechanisms that might lead to value destruction over time instead of the initially intended value co-creation. Further, while value co-creation in collaborative relationships associated with ecosystems is often highlighted, research has been scarce on offering an in-depth analysis of the challenges in these relationships that can destroy value. This study attempts to address this issue by uncovering the underlying mechanisms that lead a hub firm and its complementors toward value destruction. Our mixed-methods approach involves the use of a combination of interpretive case study and analytical modeling to highlight nuances and develop conceptual propositions about the conditions that can potentially lead to value destruction. Our context is a globally reputed IT firm known for providing business solutions (SOFTCo, a pseudonym) and numerous relatively small, less powerful customer-facing service firms (PartnerCos, a pseudonym). Our findings show that opportunism, unjust appropriation of rents, shirking, exploitation of asymmetric power, and undue dependence can initiate a value destruction process. Furthermore, our study revealed an unexpected emergence of a “pack of wolves,” where resentful PartnerCos formed a collective to tackle the opportunistic behaviors of SOFTCo by starting to align with its competitor, further destroying value for SOFTCo’s ecosystem. Overall, this study contributes to the literature on value co-creation/destruction in IT ecosystems. It also offers an illustration of a mixed-methods study where seemingly incommensurable approaches are harnessed to develop a theoretical understanding.

Keywords: information technology ecosystems, business-to-business alliances, value destruction, value co-creation, ERP systems for SMEs, economic game theory, opportunism, agency, power, ecosystem failure, qualitative study, case study, hermeneutic circle, analytical modeling, mixed-methods

JEL Classification: M1, M15, M10, M13, M19