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The Governance of Interorganizational Coordination Hubs
Industries such as financial services, mortgage lending, private healthcare and public safety are relying more and more on the information technology (IT)-enabled support of inter-organizational coordination hubs (ICHs) to communicate among participating independent organizations. Success often depends on how well member organizations such as banks and mortgage companies govern their relations – for example, make decisions about when and how to upgrade technology and determine fees.
Building on more than a decade of research on business-to-business coordination, M. Lynne Markus partnered with Bentley PhD student Quang “Neo” Bui to look at some familiar instances of these enterprises –stock exchanges and the Visa, Inc. credit card services company, for example – along with lesser known ones such as the MERS electronic mortgage registry. The research was supported by a grant from the U.S. National Science Foundation.
Although some aspects of ICH governance may mirror those of other kinds of inter-organizational relationships such as joint ventures between two pharmaceutical companies, there are also distinctive needs connected to the special purposes of ICHs and the central role of technology. For example, it is important to attract as many participants as possible from all segments of the relevant business community, because an ICH is most valuable with a broader network of business partners.
The authors’ findings challenge a well-established theory suggesting that, since governance is primarily influenced by the need for capital for investment in new technology, then the for-profit investor-owned form of governance works best because of its decision-making efficiency and its superiority in motivating investors. In fact, the authors found that ICH governance needs not only to ensure a good supply of capital for investment and operation, but also to ensure that the target population of ICH users actually participates in the ICH as intended, because all ICH participants stand to benefit most when participation is high. Governance is needed to assure potential participants that they will have a fair say in decisions about future technologies investments, new ICH features, operational policies, security measures, and data ownership.
Indeed, the best form of governance for ICHs is not always for-profit investor ownership. The authors found that even when ICHs were investor-owned, they sometimes had a goal of not making a profit because ICH investors are often also major ICH users. Raising ICH usage fees to make a profit would increase costs for both the investors and other users. Additionally, investor-owned ICHs sometimes have democratic member-oriented decision-making, rather than decision-making dominated by the investors. Again, this makes sense in light of the special needs and goals of ICHs.
Simply put, in ICHs, investor ownership and decision-making do not always go together as they do in many other enterprises. As more and more of the business is conducted through communal IT infrastructures rather than the private, company-to-company, IT-based exchanges that are common today, it is imperative to understand the increasingly important phenomenon of ICH governance—that is, decision-making and ownership/funding patterns. Specifically, ICH investors, operators, and participants need to understand how to balance the sometimes conflicting needs for capital to invest in new technology, participation of industry members, and the protection of data resources.
Governance is needed to assure potential participants that they will have a fair say in decisions.