Coordinating and Competing in Ecosystems : How Organizational Forms Shape New Technology Investments

We consider firms in the context of their business ecosystems and we explore how governance choices with respect to complementary activities and distribution channels shape their decisions to invest in new technologies. We argue that governance choices play an important role in the firm’s ability to coordinate accompanying changes in complementary activities so as to create value from the new technology. Governance choices also affect the firm’s relative bargaining power over other players and hence, the value that the firm can appropriate from the new technology. We explore these arguments in the context of the U.S. healthcare industry from 1995-2006. We examine how hospitals’ decisions to invest in new imaging technologies are shaped by their mode of governance with physicians - key complementors to hospitals, and with managed care organizations (MCOs) - primary distributors of hospital and physician services. We find that hospitals pursuing alliances with physicians are more likely to invest in new imaging technologies than hospitals that either have an arms-length relationship or are integrated and employ their own physicians. Among hospitals pursuing alliances, the likelihood of investments is increasing in the scope of the alliance and if the alliance is characterized by an equity arrangement. Finally, hospitals pursuing tapered integration with MCOs are more likely to invest in new technologies than hospitals pursuing market-based relationships. Overall, the study argues for extending research on firm boundary and governance choices to explore the link between coordination mechanisms and competitive outcomes, and to consider such choices in the context of the business ecosystems