A NETWORK ROI

Tim Weitzel, Institute of Information Systems, Johann Wolfgang Goethe University

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

In this paper, a method for determining the equilibrium under which firms will cooperate concerning their standardization decisions is developed. From a theoretical perspective, the network ROI concept is aimed at synchronizing local and global efficiency disturbed by network effects by explicitly determining the value impact of standardization and using it for optimizing enterprise internal decisions concerning standards (i.e. internalizing network effects). From a managerial perspective, ROI based methods are reasonably simple and especially widely accepted. Since the costs of solution determination are considered (by a "virtual instance"), the concept might be applied by a cost center unit responsible for standardization. Methodologically, the solution is developed using basic game theory to understand the discrepancy between local and global efficiency in standardization decisions and later applied to a network of six enterprises as part of an extensive case study.