Report R4.13 Evaluating e-Procurement Strategies: A Game-Theoretic Approach Seminar Leader: Amit Agrahari, Business Transformation Laboratory, Infosys Technologies Ltd., Bangalore amit1978[at]gmail.com The study presented at the seminar was the doctoral work of the seminar leader on e-procurement systems. E-procurement systems are information systems employed in the procurement process of an organisation. Thus, the participants in e-procurement systems are the organisation and its various suppliers. E-procurement systems can be studied using a number of perspectives. Those commonly used are the value-chain perspective, the inter-dependency perspective, and the transaction-cost economics perspective. For the study under discussion, the researcher used the perspective of transaction-cost economics, which involves the application of a number of mathematical tools and techniques. This choice facilitated the subsequent development of a game-theoretic model. E-procurement systems can be classified as e-markets and e-hierarchies based on coordination mechanisms suggested by transaction-cost economics theory, namely market and hierarchy. E-hierarchies are the e-procurement systems that are owned by a single organisation. E-hierarchies require huge setup and implementation costs. Typically the organisation and a small number of suppliers are the main players in an e-hierarchy. In contrast, E-markets are co-owned by a number of organisations. They require relatively low setup and implementation costs. More than one organisation can participate in e-markets as buyers. Consequently, the number of suppliers participating in e-markets is relatively higher than that in e-hierarchies. The objective of the study was to model the variation in the adoption effort of the buyer and the supplier for various e-procurement systems. Adoption effort signifies the effort involved in the adoption of a new system of e-procurement by a company. The volume of document transactions between the buyer and the suppliers was used as an indicator to measure the concept of adoption effort. In the first phase of the study, an exploratory case study was conducted at a prominent Indian steel manufacturing firm. The firm was one of the early adopters of e-procurement systems. The firm had its own proprietary e-procurement system and also participated in a consortium-sponsored e-procurement system. Using the perspective of transaction-cost economics, the former systems can be identified as e-hierarchy and the latter as e-market. The study indicated that the internal e-procurement systems required higher adoption effort than that in consortium-sponsored systems. However, it was found that the company used both kinds of systems as deemed convenient. This resulted in a portfolio of e-procurement systems available to the company at any particular time. In the second phase of the study, based on the insights gathered from the case study a game-theoretic model to evaluate adoption effort was developed. This however involved a great deal of simplification of real life complexities. For example, the model represented a dyadic relation between a buyer and a single supplier ignoring influences of other competing suppliers. In addition, market conditions were assumed to be stable. Such simplifications have resulted from the researcher’s efforts to reduce the computational complexity of the resultant model. Researchers who apply modelling as a research method need to make informed choices regarding such simplifications and be aware how these can affect the usefulness of these models. The model developed by the researcher is yet to be tested empirically. Since e-procurement systems are still in a nascent stage of evolution in India, currently it is not feasible to collect empirical data for testing this model. The study however, is a pioneering work in the area of e-procurement systems in India and provides indications regarding the possibilities for future research in this area. References Pani, A. K. (2007). Perspectives from IOIS, EDI, and channel management: Research issues in e-procurement. In A. Agrahari & A. K. Pani (Eds.), E-procurement in emerging economies: Theory and cases (chap.1, pp. 1-20). Hershey, PA: IGI Global. Agrahari, A. (2007). Analyzing e-procurement adoption efforts: Case study of an Indian steel manufacturer. In A. Agrahari & A. K. Pani (Eds.), E-procurement in emerging economies: Theory and cases (chap.8, pp. 193-227). Hershey, PA: IGI Global.
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