PRODUCT INTEROPERABILITY IN THE ENTERPRISE SOFTWARESYSTEMS INDUSTRY: A SOCIAL NETWORK APPROACH

Ramnath Chellappa, Information and Operations Department, Marshall School of Business, and Nilesh Saraf, College of Business, Florida Atlantic University

1/01/2005
(Original Publish Date: 2003)

An important criterion for organizations when they purchase application software products from different vendors is that these components should adhere to a consistent set of interfaces. These interfaces are typically a part of the organization’s IT standards. However, the enterprise software systems (ESS) industry consisting of application software vendors, has established neither open high-level compatibility standards nor a single set of leading standards of a dominant vendor. While prior research identifies access to user bases as the primary technical benefits of these alliances we argue that these alliances also yield other benefits along the social dimension such as knowledge spillovers of current technology, reputation transfer and third party investments in integration tools (or expertise). We also argue that benefits from such compatibility are transmitted through both, direct and indirect partners in the alliance network. We use the social network approach to conceptually aggregate alliance benefits into the construct of Sociotechnical capital. Our key proposition is that rather than merely maintaining a higher number of alliances, those vendors that have higher socio-technical capital by virtue of these alliances, perform better. Data on 97 ESS vendors is used to test this proposition where relative prominence is used as a proxy measure for socio-technical capital and outdegrees indicates the number of alliances in vendor’s network. To address the limitations of extant social network measures we develop an alternative theoretically grounded metric for prominence and then use it in our empirical testing. Results indicate that socio-technical capital is indeed strongly related to software licensing revenue. These results suggest that in systems industries, rather than a dyadic level focus, a greater focus on the network mechanism is necessary to understand factors leading to better vendor performance.