Assessing the risk for opportunism in collective IT investment: a Principal-Agent based framework for use in inter-firm networks

When managing information technology (IT) infrastructure investments, companiestraditionally try to evaluate the monetary costs and benefits of this information system(IS) or seek to implement prudent IT governance structures. However, when collective,cooperation-specific investments in interorganizational information system (IOS)are needed, these classic approaches are flawed as they do not account for centralorganization-theoretic specifics of investing in cooperation. There is a need for amore comprehensive instrument which includes economic network welfare as perceivedindividual utility inequalities will keep partners from joining, thereby diminishingnetwork welfare and impeding a successful establishment of the cooperation. Thecentral economic influence on individual utility in collective investments, as identifiedby Williamson (1985), is the risk for opportunism associated to an investment.The risk for opportunism in collective IT investment is operationalized in three steps:model construction, structured qualitative analysis of relevant investment scenarioswith the help of Principal-Agent theory and result aggregation. In the end a novel riskassessment framework is presented. The framework allows any potential IOS participantto quickly read off the risk for opportunism he faces with different IOS alternatives.The discussion shows that purposeful collective IT investments have the followingcharacteristics: every partner actively invests into the IOS, IOS operation is outsourcedand, if the IOS is nevertheless sourced from within the cooperation, a decentralizedIOS architecture is chosen. A concluding real life case demonstrates the applicationof the easy-to-use framework....