multimarket-competition-v_sambamurthy
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multimarket-competition-v_sambamurthy
Competing ill Crowded Markets: The Dynamics of Competition in the Enterprise Systems Software IndustryRainnath K. chellappaGoizueta Business School, E multimarket-competition-v_sambamurthyEmory University 1300 Clifton Road Atlanta GA 30322Nilesh Sara![n.wnifas/u.ctilSimon Fraser University, WMC 3323, 8888 University Dr, Burnaby, BC V5A ISO. CanadaV. Sainbainurthy[sambamunhy@bus.msu.ftlulEli Broad Graduate School of Management Michigan State University East Lansing, MI 48824Competing multimarket-competition-v_sambamurthyin Crowded Markets: The Dynamics of Competition in the Enterprise Systems Software Industry-AbstractVendors of Enterprise systems software (ESS) offermultimarket-competition-v_sambamurthy
a portfolio of software components to support a variety of specific business functions. Client organizations construct a digital platform for their bCompeting ill Crowded Markets: The Dynamics of Competition in the Enterprise Systems Software IndustryRainnath K. chellappaGoizueta Business School, E multimarket-competition-v_sambamurthyomponent (e.g., ERP, CRM, analytics) forms a market, with multiple ESS firms competing in each of those markets. As a result, the ESS industry' is characterized by multimarket competition. The existing literature in strategy suggests that multimarket competition is characterized by two findings: (i) multimarket-competition-v_sambamurthy Greater multimarket contact improves firm performance because of the potential for mutual forbearance and tacit collusion (ii) Greater domain overlapmultimarket-competition-v_sambamurthy
exposes a firm to the whirlwinds of intense competition and adversely affects its performance. Yet, the ESS industry' exhibits another unique charactCompeting ill Crowded Markets: The Dynamics of Competition in the Enterprise Systems Software IndustryRainnath K. chellappaGoizueta Business School, E multimarket-competition-v_sambamurthy from multiple firms will integrate relatively easily and at low integration costs. Therefore, domain overlap might in fact create the potential for positive performance gains in the ESS industry'. Therefore, the nature of multimarket competition in the ESS industry' deserves fresh attention. We exa multimarket-competition-v_sambamurthymine these competitive dynamics by analyzing data from a set of ESS firms that account for more than 95% of the revenue in this market over 3 time-permultimarket-competition-v_sambamurthy
iods. Our research suggests that the combination of multimarket contact and domain overlap do lead to findings that are contrary' to extant research. Competing ill Crowded Markets: The Dynamics of Competition in the Enterprise Systems Software IndustryRainnath K. chellappaGoizueta Business School, E multimarket-competition-v_sambamurthyere is clear evidence of economies of scale and scope in expanding a functional component to sene multiple vertical industry' segments. On the other hand, our research suggests that when firms strategically expand their component portfolio so as to increase their domain overlap, they show positive p multimarket-competition-v_sambamurthyerformance gains. We propose that the potential for indirect externality effects trumps traditional domain overlap considerations, whereby competing imultimarket-competition-v_sambamurthy
n markets with high overlap may actually be preferable for a firm in the ESS or digital goods industries. Thus, presence in highly competitive marketsCompeting ill Crowded Markets: The Dynamics of Competition in the Enterprise Systems Software IndustryRainnath K. chellappaGoizueta Business School, E multimarket-competition-v_sambamurthympact of multimarket contact on firm performance is positive and consistent with prior findings, we find that firms are able to extract further value from their multimarket contact when they also have high a degree of market overlap thus underlining the strategic aspects to market selection. We conc multimarket-competition-v_sambamurthylude with recommendations for theory' and practice.Keywords: Enterprise software, standards, multimarket contact, network externality.21. Introductionmultimarket-competition-v_sambamurthy
Enterprise Systems Software (ESS) is a breed of applications that arc used by most medium and laigc oiganizations to support, reengineer and enhance tCompeting ill Crowded Markets: The Dynamics of Competition in the Enterprise Systems Software IndustryRainnath K. chellappaGoizueta Business School, E multimarket-competition-v_sambamurthyanagement (CRM),. Supply chain Management (SC.M). Client organizations1 invest in several applications as they seek Io build digital platfoims to support their goals of global connectivity, reach, and operations (Davenport, 1998). With the growth in demand for suc h applications, the FSS industry ha multimarket-competition-v_sambamurthys rapidly emerged as one of the salient sectors of the global economy. This industry’ boasts of giants such as SAP and Oracle, and it had sales exceedmultimarket-competition-v_sambamurthy
ing 60 billion in 2003 (AMR Research) while a recent Gartner report forecasts this number to be $222.6 billion in 2009-. With the continued and growinCompeting ill Crowded Markets: The Dynamics of Competition in the Enterprise Systems Software IndustryRainnath K. chellappaGoizueta Business School, E multimarket-competition-v_sambamurthysalient characteristics of this industry. First, it consists of several horizontal markets, where each market represents software modules with functionality for specific business processes, such as human resources, accounting, sales, or marketing (see Table 1 for a listing of some of these markets a multimarket-competition-v_sambamurthynd the number of firms providing those components). Enterprises make two decisions: which software modules (i.c.. markets) should they choose for theimultimarket-competition-v_sambamurthy
r digital platform and which vendor(s) should they select within eac h market (Kaldkota and Robinson 2061). There are substantial costs involved in acCompeting ill Crowded Markets: The Dynamics of Competition in the Enterprise Systems Software IndustryRainnath K. chellappaGoizueta Business School, E multimarket-competition-v_sambamurthy1 We use rhe terms “enterprise" or “client organizations" to refer to users of ESS and rhe terms “ESS firms" or -vendors” to refer to producers of business software components.AMR Research - http://www.amrresearch.com: Gartner research - http:,7Rartncr.com'3https://khothuvien.cori!implementation). I multimarket-competition-v_sambamurthyn addition, there are substantial risks in integrating the different software modules into a seamless platform for business operations (Markus 2000, Mmultimarket-competition-v_sambamurthy
cKeen and Smith 2002). Therefore, enterprises experience considerable ambiguity in making their software procurement decisions, such as: Which softwarCompeting ill Crowded Markets: The Dynamics of Competition in the Enterprise Systems Software IndustryRainnath K. chellappaGoizueta Business School, E multimarket-competition-v_sambamurthychosen for most modules, or should a best-of-breed strategy be applied? These demand-side dilemmas also pose unique challenges to ESS vendors in their own strategic decisions: Where (i.e., markets) should they compete? Should they compete in one, many, or all markets? How should customers’ concerns multimarket-competition-v_sambamurthyabout the integration challenges influence their strategic choices about market selection?Second, individual ESS firms typically do not develop all somultimarket-competition-v_sambamurthy
ftware modules needed for their client’s digital platforms. Instead, each firm offers varying number of these components (Markus 2000). For example, 1Competing ill Crowded Markets: The Dynamics of Competition in the Enterprise Systems Software IndustryRainnath K. chellappaGoizueta Business School, E multimarket-competition-v_sambamurthysuch as CRM and product data management modules. As a result, each ESS firm chooses to compete in different number of markets. Conversely, individual ESS markets vary in the number of rivals.4Advanced Planning and Scheduling (19)Customer Response Management (7)E-Business (16)Enterprise Resource Plan multimarket-competition-v_sambamurthyning (23)Product Data Management (10)Component Management (10)Groupware (10)Supply Chain Planning (23)Forecasting & Demand Management (9)Supply Chainmultimarket-competition-v_sambamurthy
Execution (17)Transportation & Logistics (9)Competing ill Crowded Markets: The Dynamics of Competition in the Enterprise Systems Software IndustryRainnath K. chellappaGoizueta Business School, ECompeting ill Crowded Markets: The Dynamics of Competition in the Enterprise Systems Software IndustryRainnath K. chellappaGoizueta Business School, EGọi ngay
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