Week 2 - 6 questions

Question 1

What is the Electronic Markets Hypothesis?

Answer 1

The Electronic Markets Hypothesis (EMH) states that by reducing the costs of market coordination, IT will lead to an overall shift toward the use of markets, rather than hierarchies, to coordinate economic activity.

Question 2

What is the Electronic Hierarchy Hypothesis?

Answer 2

The Electronic Hierarchy Hypothesis (EHH) predicts the growth of electronic hierarchies because IT enables privileged access to market data formed by small groups of vertically arranged companies that develop vary close relationships.

Question 3

What is the Move to the Middle hypothesis?

Answer 3

The Move to the Middle Hypothesis (MMH) predicts a market structure between markets and hierarchies, in which companies move toward more outsourcing (more electronic markets), and at the same time build on a reduced set of stable partnerships.

Question 4

What is the Move to the middle hypothesis?

Answer 4

The Threatened Intermediary Hypothesis (TIH) predicts the decline of traditional intermediaries in the value chain because of IT-enabled data exchange.

Question 5

The effects of electronic auctions on markets and how they interact are evaluated by a model that distinguishes four factors that influence each other: Market structure, Market behaviour, market performance, and external determinants. Electronic auctions affect:

Explain cursed

Answer 5

• Market structure because they can influence the number of market participants (numbers can increase when market accessibility improves, and numbers can decrease if high (IT) investments are needed for market participants (entry and exit barriers)).
• Market behaviour because more market information can be made available to all or some market participants, and because multiple transactions and different auction mechanisms can be used to exchange smaller batches, for specific buyer groups, either sequentially or simultaneously.
• Market performance because electronic actions can lead to lower transaction cost, more transactions per hour and more complex transactions can be executed because of the use of auction-robots)

Question 6

List the careauction effects on market behaviour

Answer 6

• Preferences: Preferences for suppliers increased with 20% because care providers started instructing their clients to add them as a preferred supplier to the request submitted to insurance companies.
• Bidding behaviour: Per auction, the average winning bids strongly reduced because suppliers had decided not to make high bids anymore, possibly because they knew by then that most clients would indicate a preference, making high bids unnecessary and expensive.
• Drivers for using CareAucton: For insurance companies CareAuction provides opportunities for allocating care to preferred suppliers, to achieve better prices, and to introduce a system to assess customer satisfaction. Care providers don not regard CareAuction as a success because they see it as a cost factor and an administrative burden. However, they simply cannot afford to disregard the auction and are forced to use CareAuction because of their contracts with the insurance companies.
• Business processes: The insurance companies’ and the care providers’ business processes had to be changed. Insurance companies changed business processes to enter and remove care requests into CareAuction. Care providers would like more information per care request to bid accordingly (not place bids when they are not the preferred provider), but the insurance providers decided that all requests must be auctioned, including requests with preferences.
• Billing system: Achmea uses the online CareAuction billing systems as well as their internal billing system, leading to double data entry and higher transaction costs for care providers. Other insurance companies only use CareAuction.

Question 7

List the careauction effects on market performance

Answer 7

• Price: Because of CareAuction, fixed prices for maternity services no longer exist which resulted in variable prices per care request.
• Volume: CareAuction has resulted in a significant increase in the number of auctions for maternity care.
• Quality: During the test period, no changes in the quality of the care were found. The insurance compies and the care providers expect quality improvement after implementation of the customer satisfaction evaluation system.
• Costs: CareAuction has influenced various costs of matching acre providers to care requests. The net effect for care providers is negative. The net effect of CareAuction for insurance companies is positive: the new call center costs are compensated by benefits such as the elimination of commission costs for care brokers and intangible benefits due to increased transparency.

Question 8

What are intermediaries in business networks?

Answer 8

Intermediaries may influence the structure of a network over time. A firm (intermediary) that enters a business network may lead to: ➢ Dis-intermediation (other firms (intermediaries) disappear; they lose their role in the network) ➢ Cyber-mediation (other non-cyber firms (intermediaries) become online firms (intermediaries)) ➢ Re-intermediation (firms (intermediaries) that have disappeared some time ago, may re-appear) How and when a firm intermediate depends on: ➢ The functions offered by the intermediary to the network ➢ The functions needed by the other firms in the network ➢ The strategy of the network

Question 9

Name the 3 scenarios what can happen to intermediaries and network structure over time:

Answer 9

➢ Disintermediation scenario: As electronic markets decrease the transaction costs for both buyers and sellers, markets will tend to ‘clear’ without the need for intermediation facilities. Traditional intermediaries will continue to face increasing pressure for survival and large numbers of them will be eliminated. ➢ Reintermediation scenario: Traditional intermediaries may find opportunities to leverage their expertise and economies of scale, and continue to play an important role in facilitating commercial transactions. Furthermore, traditional intermediaries may also find opportunities to differentiate themselves (through price, service, augmented products etc.) and/or concentrate on specific market function ‘niches’. ➢ Cybermediation scenario: The advent of electronic markets will create unprecedented opportunities for wholly new types of intermediaries that will provide the necessary infrastructure support for those market functions that will be fundamentally restructured in the electronic commerce world. Some of these cybermediaries may even assume public roles, assisting legal and regulatory bodies in providing institutional support for electronic markets.

Question 10

What does Careauction do?

Answer 10

. Careauction is a new intermediary on the market for maternity care. After an unsuccessful start in 2004 as cybermediary (online IT-enabled mediary) in the market between patients and care providers, CareAuction successfully moved in march 2005 to the care contracting market between insurance companies and care providers

Question 11

What are the benefits of CareAuction?

Answer 11

Careauction had effects on market performance (lower prices), market structure (more bidding care providers) and market behaviour (bidding behaviours and user preferences).

It concludes that IT and cybermediation results in the evolution of electronic markets, influenced by complex interactions among market structure, market conduct and market performance.

Question 12

List the careauction effects on market structure

Answer 12

• Market participants: Two large insurance companies, Achmea and Menzis use CareAuction since 2005.
• Accessibility: The accessibility of the market has improved since the introduction of CareActuin, because insurance companies can contact more care providers directly and care providers can now bid on each request individually, letting insurance companies bypass care brokers.
• Products: CareAuction has not affected product variety, but insurance companies and care providers expect changes in the near future to allow for more customized care.
• Transparency: CareAuction has increased market transparency for care providers.

Question 13

What is a “whole network”

Answer 13

inter-organizational networks at the network level of analysis. Only by examining the whole network can we understand such issues as how networks evolve, how they are governed and ultimately, how collective outcomes might be generated.

Question 14

What are dyads?

Answer 14

Dyads are relationships between two organizations.

Question 15

Egocentric or organization-level theories and related research can help to answer questions such as: (4)

Answer 15

• A: The impact of dyadic or network ties on organizational performance;
• B: Which types of links are most or least beneficial to individual network members;
• C: Which network positions might be most or least influential;
• D: How the position of organizations in a network might shift over time in response to changes within and outside the network.

Question 16

What is in-degree and out-degree centrality?

Answer 16

In-degree and out-degree centrality: Does an organization occupy a central or more peripheral position in the network based on the number of network ties it maintains with other organizations?

Question 17

What does degree centrality mean?

Answer 17

Degree centrality is based on the number of direct links maintained by an organization with others in the network.

Question 18

How is in-degree and out-degree centrality calculated?

Answer 18

Calculation of in-degree and out-degree centrality is also possible and is based on the extent to which assets such as resources, information, and clients are coming into an organization from others in the network versus those being sent out to other organizations.

Question 19

what is closeness centrality?

Answer 19

Closeness centrality: Is an organization in a structural position to spread such assets as information or knowledge that might reside in any organization in the network, even through indirect ties? Central organizations have short paths (connections) to all other organizations in the network.

Question 20

What is betweenness centrality?

Answer 20

• “Betweenness” centrality: Does an organization serve as a gatekeeper within the network? If so, it must maintain intermediary links between organizations that are not directly connected with one another. Hence, the organization’s betweenness centrality is calculated by considering the extent to which an individual’s position in the network lies between the positions of other individuals.

Question 21

Explain multiplexity

Answer 21

• Multiplexity: What is the strength of the relationship an organization maintains with network partners, based on the number of types of links (e.g., research ties, joint programs, referrals, and shared personnel) connecting them? Multiplex ties are thought to be an indicator of the strength and durability of an organization’s links because they enable the connection between an organization and its linkage partner to be sustained even if one type of link dissolves.

Question 22

Explain broker relationships

Answer 22

• Broker relationships: To what extent does an organization span gaps or structural holes in a network and what are the implications of this for the organization? Organizations that span structural holes are considered to be brokers, often occupying positions of considerable influence.

Question 23

Explain Cliques

Answer 23

• Cliques: Cliques are clusters of three or more organizations connected to one another. At the egocentric level, the extent of an organization’s connectedness to a clique may affect organizational outcomes in ways that are different than when the organization is connected only through a dyad.

Question 24

Explain the network level perspective

Answer 24

Network-level perspective focusses on the overall network structure and processes, such as centralization or density of the network as a whole, instead of examining how organizational centrality might affect the performance of other individual organizations. This perspective presumes that a network involves many organizations collaboratively working toward a more or less common goal and that the success of one network organization may or may not be critical to the success of the entire network and its customer or client group.

Question 25

Explain density

Answer 25

* **Density:** What is the **overall level of connectedness** among organizations in the network? Are some networks more fully connected than others? And more importantly, how much **density** is beneficial versus detrimental to the effectiveness of the network? Higher levels of **density** are not necessarily advantageous, especially in light of the increased coordination burden placed on network members.

Question 26

Explain fragmentation and structural holes

Answer 26

* **Fragmentation and structural holes: Are all or most network members connected**, either directly or indirectly (i.e., through another organization), or is the network broken into fragments of unconnected organizations, dyads and cliques? **Fragmented networks** may exhibit connections among organizations that are themselves unconnected or only loosely connected to other clusters of connected organizations. This means that the network has many **structural holes**.

Question 27

Explain governance

Answer 27

* **Governance: What mechanism is used to govern and/or manage the overall network?** Even if networks are considered as a distinct form of governance, the mechanism used can considerably vary and range from self- governance to hub-firm or lead-organization governed, to a network administrative organization (NAO) model.

Question 28

Explain centralization

Answer 28

* **Centralization: To what extent are one or a few organizations in the network considerably more centrally connected than others?** Highly centralized networks may be organized in a manner approximating a hub-and- spoke pattern, recently popularized as **scale-free** networks. **Decentralized networks** are far more dispersed with links spread more evenly among members.

Question 29

Network development: “How do networks (structures) develop over time?”

Answer 29

**Network development may be seen as the result of the use not only of resources but also of rules and norms produces as steering mechanisms to drive development in the network.** These rules are dependent on the meaning the individual actors attach to them, so the **development of the network** is dependent on the knowledge of those mechanisms and the **meanings, goals, and values** of all organizations within the network.

Question 30

Network governance: "who controls the network". Three types of governance are distinguished within networks:

Answer 30

* **Shared governance networks** occur when the organizations composing the network collectively work to make both strategic and operational decisions about how the network operates. There is no unique, formal governance structure other than through the collaborative interactions among members themselves. Control over activities may be formally conducted through the meeting of network members or more informally conducted through ongoing interactions and collaboration. * **Lead-organization (focal firm) or hub-firm governance** occurs in networks in which all organizations may share a common purpose (strategy) but where there is a more powerful, perhaps larger, organization that has sufficient resources and legitimacy to play a lead role. Activities and decision making are coordinated through a single organization or small group of organizations that are responsive to network members. A lead organization provides products and services and conducts business much like the other members of the network but is also responsible for the maintenance of existing internal relationships and the development of external relationships. * **Network Administrative Organization (NAO) governance** is similar in nature to the lead organization model in that all decisions are coordinated through one organization. The difference is that the **NAO** is an organization (or even an individual) specifically created to oversee the network. The **NAO** is not involved in the manufacturing of goods or provision of services, unlike a lead-organization. The task of the **NAO** may be primarily to support (rather than execute) network leadership so that this type of governance may sometimes coexist with one of the other two.