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A Market for the Lemons?

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  • 1. Small and Medium-sized Enterprises (SMEs) and IT: A Market for Lemons? Jan Devos Ghent University Association Department Howest Prof. Dr. ir. Dirk Deschoolmeester Promoter & co-authorECIME 2011, Como, Italy © J. Devos 1
  • 2. Problem • acquisition of a Strategic IT artefact by SMEs • Independent Software Vendors (ISV) selling ERP, CRM, SCM, ... packages • However....ECIME 2011, Como, Italy © J. Devos 2
  • 3. Problem SME ISV INFORMATION ASYMMETRYECIME 2011, Como, Italy © J. Devos 3
  • 4. Theory of Lemon Markets = €1 = €0.1 ITECIME 2011, Como, Italy © J. Devos 4
  • 5. Theory of Lemon Markets €1 ? €0.1 ?ECIME 2011, Como, Italy © J. Devos 5
  • 6. Theory of Lemon Markets €0.55 - €1 = -€45 €0.55 €0.55 - €0.1 = €0.45ECIME 2011, Como, Italy © J. Devos 6
  • 7. Theory of Lemon Markets €0.55 - €0.1 = €0.45 €0.55 €0.55 - €0.1 = €0.45 €0.55 - €0.1 = €0.45ECIME 2011, Como, Italy © J. Devos 7
  • 8. Theory of Lemon Markets €0.23- €0.1 = €0.13 €0.23 €0.23 - €0.1 = €0.13 €0.23 - €0.1 = €0.13ECIME 2011, Como, Italy © J. Devos 8
  • 9. Research Question Are there indications of a lemon market in a setting where a SME-buyer buys a strategic IT artefact (ERP, CRM) from an ISV-seller ?ECIME 2011, Como, Italy © J. Devos 9
  • 10. Theory of Lemon Markets • A market place: buyers and sellers von Neumann- Morgenstein maximizers of Expected Utility • Information Asymmetry between transacting partners • Overall quality of goods and services offered is reflected to the entire group of sellers rather than on individual sellers • Lack of seller differentiation • There is incentive to market low quality (igniting condition) • High-quality sellers flee the market because their quality and reputation cannot be rewarded • Complete Market DeteriorationECIME 2011, Como, Italy © J. Devos 10
  • 11. Prospect Theory The value function A person is risk averse for gains (concave function) A person is risk seeking for losses (convex function)ECIME 2011, Como, Italy © J. Devos 11
  • 12. Prospect Theory • A falsification of the EUT • Theory of decision under risk A person is risk averse for gains and is risk seeking for losses “Losses loom larger than gains” • Propositions of the Prospect Theory A decision about prospects is a two phase process consisting of: (1) editing or framing phase (positive or negative framing) identical information is edited out (often a simpler representation) (2) evaluation phase taken the decision on the highest “value”ECIME 2011, Como, Italy © J. Devos 12
  • 13. Prospect Theory Framing a proposal Müller-Lyer illusionECIME 2011, Como, Italy © J. Devos 13
  • 14. Research Methodology – Screening of websites of 484 (Belgian ISVs) – Multiple case study (interviews with CIOs)ECIME 2011, Como, Italy © J. Devos 14
  • 15. Findings from the websites Checkpoint Score 0 Score 1 Score 2 Score 3 Not Present Minimally Moderately Maximally Present Present Present Direct focus to CP1 61.1% 12.7% 15.2% 11.0% SMEs CP2 Positive framing 37.8% 40.3% 12.7% 9.2% CP3 Negative framing 96.8% 2.5% 0.7% 0.0% CP4 References 22.6% 28.6% 14.5% 34.3% Use of formal CP5 41.7% 20.5% 20.1% 17.7% methodologyECIME 2011, Como, Italy © J. Devos 15
  • 16. Findings from the websites • 77,4% reference selling • 34,6% make use of case studies • 38,9% of the ISV’s is targeting also an SME market • 11,0% of the ISV’s is only targeting an SME market • Large ISVs are targeting LEs (and sometimes SMEs) • Small ISVs are targeting SMEsECIME 2011, Como, Italy © J. Devos 16
  • 17. Findings from the SME-CIO interviews • 4 of 6 not familiar with PPM • 1 of 6 uses a PPM • 6 of 6 had experiences with failed IT projects – Erroneous proposal by the ISV (too optimistic) – Not keeping promises ex ante – Underestimating budget and timing – Lack of skills • Importance of trust • Importance of real referencesECIME 2011, Como, Italy © J. Devos 17
  • 18. Conclusions • Elements of a lemon market are found • Lemons are small ISVs • Larger ISVs flea from the SME market • SME-customers are mainly served by SME-vendors • Self-cleaning mechanism of marketECIME 2011, Como, Italy © J. Devos 18
  • 19. Questions ?ECIME 2011, Como, Italy © J. Devos 19