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Discussion of the influence of scope and timing of reliability assurance in B2B E-Commerce
International Journal of Accounting Information Systems 7 (2006) 130 – 133
Discussion
Discussion of the influence of scope and timing of reliability assurance in B2B E-Commerce Ed O'Donnell University of Kansas, USA Received 12 November 2005; received in revised form 15 March 2006; accepted 16 March 2006
The paper I have been asked to discuss reports findings from a competent study by Mauldin, Nicolaou, and Kovar that examines research questions relevant to understanding the demand for information system assurance. The study examines how intent to use a B2B procurement exchange is influenced by (a) assurance about the reliability of the information system infrastructure versus assurance about the reliability of performance commitments made by participants in the exchange (scope) and (b) assurance that is continuous versus periodic (timing). The objective of my discussion is to provide additional insight regarding the interpretation of results and illuminate design constraints that should be considered by researchers who extend this study to address related research questions. Mauldin et al. suggest that results from their experiment provide support for two of three research hypotheses. I suggest that (a) the extent to which the two supported hypotheses flow from the theoretical framework and (b) the background of participants who provided data for testing those hypotheses must be considered before the results can be rigorously interpreted. The remainder of this discussion presents my understanding of the theoretical framework used to develop the research hypotheses, critiques the link between theory and hypotheses, and describes how participants' professional purchasing experience might have influenced the findings. 1. Theory The theoretical framework that drives the research hypotheses suggests that assurance reduces two types of transaction costs by increasing levels of trust. B2B exchanges can reduce the coordination cost of transactions by providing an efficient environment for matching buyers with sellers and executing transactions. Exchanges can reduce the motivation costs of transactions by making it difficult for buyers and sellers to misrepresent their capabilities. When parties to procurement transactions do business through an exchange, coordination costs should be reduced by increasing participants' trust in the reliability of the exchange infrastructure and motivation 1467-0895/$ - see front matter © 2006 Elsevier Inc. All rights reserved. doi:10.1016/j.accinf.2006.03.004
E. O'Donnell / International Journal of Accounting Information Systems 7 (2006) 130–133
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costs should be reduced by increasing participants' trust in the reliability of commitments made by the other party. Using a procurement exchange eliminates the initial relationship between buyer and seller before the transaction is executed. Participants who use an exchange must trust the exchange because they have no basis for developing trust in each other. Third-party assurance provides a mechanism for increasing participants' trust in performance assertions advanced by the exchange. Assurance regarding the reliability of exchange infrastructure strengthens user expectations that the system will reduce coordination costs by processing transactions efficiently, without errors and delays. Assurance regarding the reliability of participants' assertions reduces motivation costs by strengthening trust that the other party to the transaction will live up to their representations regarding product specifications, or their commitment to remit payments consistent with the specified terms of the transaction. In summary, the theoretical framework suggests that systems assurance increases trust in system reliability, which decreases coordination costs. Information assurance increases trust in representations made by the other party, which decreases motivation costs. Mauldin et al. predict that systems assurance will be more important to buyers who use the exchange than information assurance and that continuous assurance will be more important than static assurance. In other words, the hypotheses set up a horse race between systems and information assurance, and also between continuous and static assurance. 2. Hypotheses Hypothesis one predicts that systems assurance will be more important to buyers using an exchange than information assurance. Based on the theoretical framework, this hypothesis suggests that coordination costs (which are reduced by systems assurance) will be more important than motivation costs (which are reduced by information assurance). While it is easy to understand why coordination costs would be a concern of buyers using an exchange, it is not at all clear why coordination costs would be more important than motivation costs. The paper provides no theoretical explanation for why buyers would prefer to reduce coordination costs more than they would prefer to reduce motivation costs. As a result, it is difficult to link type of assurance to a desire to reduce transaction costs, which is the theoretical foundation that Mauldin et al. offer for the hypothesis. To provide support for the prediction made by hypothesis one, the paper cites a previous study that found evidence suggesting that application service provider customers were more persuaded by assurance about system security and availability than assurance about information integrity and system maintainability. The extent to which the decision context examined in the cited study map onto the decision context examined by Mauldin et al. is questionable. The cited study involves an outsourced service relationship between two parties that know each other. In this context, one would expect that commitments by both parties would be documented by a formal contract and trust regarding performance of the other party would not be nearly the issue it would be in the context of an exchange where parties do not know each other. In other words, trust in the cited study is provided by an enforceable contract while trust in the Mauldin et al. study is a matter of believing in the performance commitments of unfamiliar trading partners. Hypothesis two predicts that continuous assurance will be more important to buyers using an exchange than static assurance. Mauldin et al. argue that continuous auditing is more appropriate for managing the risk associated with continuous information flows through a B2B exchange because buyers are more concerned with being able to trust information provided by the seller than they are with
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E. O'Donnell / International Journal of Accounting Information Systems 7 (2006) 130–133
knowing the system is working reliably at any particular point in time. According to the theoretical framework, trusting information provided by other parties affects motivation costs, not coordination costs, and Mauldin et al. do not explain how continuous assurance influences transaction costs. As a result, hypothesis two could be interpreted as predicting that motivation costs are more important than coordination costs, which is a direct contradiction of the prediction made by hypothesis one regarding the importance of transaction costs. These issues may well be corrected by a more thorough explanation of how different types of transaction costs can be influenced by different types of assurance. However, based on the current theoretical framework, findings are difficult to interpret with respect to buyers' desire to minimize different types of transaction costs. In the absence of a more thorough explanation, the findings do not make theoretical sense and appear to be contradictory. 3. Participants Findings for the four treatment groups indicate that participants were more persuaded by systems assurance than by information assurance, and also more persuaded by continuous assurance than by static assurance. I have argued that results are not consistent with the theoretical framework as it is currently described. Perhaps these findings can be explained by the type of experience that participants brought to the experiment. Although participants had a significant amount of purchasing experience, we do not know how much experience they had procuring inventory through a B2B exchange. Without task-specific experience to provide the knowledge they need to interpret and distinguish between assurance alternatives, participant reaction to the four types of assurance provided in this study is hard to predict. Participants who had no experience using an exchange would likely be less sensitive to trust issues regarding representations of trading partners than participants who had experience using an exchange. Given the significant amount of purchasing experience participants brought to the experiment, they were likely to have had significant experience using a computerized system to interact with customers. However, they did not necessarily have experience buying from trading partners with whom they had no previous experience and, therefore, had no basis for trusting. If this was the case (and we do not know if it was or was not), then participants might be expected to be more concerned with assurance about system reliability than assurance about trading partner reliability. Participants would be likely to appreciate difficulties that can arise when the system does not work as intended, but they would be less likely to appreciate difficulties that can arise when trading partners do not live up to their performance commitments. Mauldin et al. report that participants in the control group who received no assurance were either just as likely or more likely to recommend using the system than participants in the four treatment conditions who received some type of assurance. A lack of experience with procurement through an exchange may also explain this result. Participants whose procurement experience did not involve an exchange are less likely to need assurance about transaction systems and trading partners because they can look to the results of past transactions to provide trust about the outcome of future transactions. If participants had no significant job-related experience relying on assurance to provide trust, then participants who received assurance may have been cued to think about system and information reliability issues that arise in an exchange setting but participants who received no assurance were not cued to think about those issues. If this was the case (and we do not know whether it was or was not), then participants who received assurance may have been more concerned about trust than participants who did not receive assurance because participants in the treatment group were inspired to think about trust but participants in the control group were not.
E. O'Donnell / International Journal of Accounting Information Systems 7 (2006) 130–133
133
4. Summary While this study provides interesting empirical findings that are useful for evaluating assurance alternatives in procurement domains, those findings must be interpreted with care. A clear understanding of how assurance influences intention to use an exchange requires a more thorough understanding of the specific relationships between alternative types of assurance and different types of transaction costs. Researchers who examine these issues should be careful to measure and account for the type of experience participants bring to their experimental tasks and carefully consider how that experience will interact with the types of decisions participants are asked to make during the study.
Discussion
Discussion of the influence of scope and timing of reliability assurance in B2B E-Commerce Ed O'Donnell University of Kansas, USA Received 12 November 2005; received in revised form 15 March 2006; accepted 16 March 2006
The paper I have been asked to discuss reports findings from a competent study by Mauldin, Nicolaou, and Kovar that examines research questions relevant to understanding the demand for information system assurance. The study examines how intent to use a B2B procurement exchange is influenced by (a) assurance about the reliability of the information system infrastructure versus assurance about the reliability of performance commitments made by participants in the exchange (scope) and (b) assurance that is continuous versus periodic (timing). The objective of my discussion is to provide additional insight regarding the interpretation of results and illuminate design constraints that should be considered by researchers who extend this study to address related research questions. Mauldin et al. suggest that results from their experiment provide support for two of three research hypotheses. I suggest that (a) the extent to which the two supported hypotheses flow from the theoretical framework and (b) the background of participants who provided data for testing those hypotheses must be considered before the results can be rigorously interpreted. The remainder of this discussion presents my understanding of the theoretical framework used to develop the research hypotheses, critiques the link between theory and hypotheses, and describes how participants' professional purchasing experience might have influenced the findings. 1. Theory The theoretical framework that drives the research hypotheses suggests that assurance reduces two types of transaction costs by increasing levels of trust. B2B exchanges can reduce the coordination cost of transactions by providing an efficient environment for matching buyers with sellers and executing transactions. Exchanges can reduce the motivation costs of transactions by making it difficult for buyers and sellers to misrepresent their capabilities. When parties to procurement transactions do business through an exchange, coordination costs should be reduced by increasing participants' trust in the reliability of the exchange infrastructure and motivation 1467-0895/$ - see front matter © 2006 Elsevier Inc. All rights reserved. doi:10.1016/j.accinf.2006.03.004
E. O'Donnell / International Journal of Accounting Information Systems 7 (2006) 130–133
131
costs should be reduced by increasing participants' trust in the reliability of commitments made by the other party. Using a procurement exchange eliminates the initial relationship between buyer and seller before the transaction is executed. Participants who use an exchange must trust the exchange because they have no basis for developing trust in each other. Third-party assurance provides a mechanism for increasing participants' trust in performance assertions advanced by the exchange. Assurance regarding the reliability of exchange infrastructure strengthens user expectations that the system will reduce coordination costs by processing transactions efficiently, without errors and delays. Assurance regarding the reliability of participants' assertions reduces motivation costs by strengthening trust that the other party to the transaction will live up to their representations regarding product specifications, or their commitment to remit payments consistent with the specified terms of the transaction. In summary, the theoretical framework suggests that systems assurance increases trust in system reliability, which decreases coordination costs. Information assurance increases trust in representations made by the other party, which decreases motivation costs. Mauldin et al. predict that systems assurance will be more important to buyers who use the exchange than information assurance and that continuous assurance will be more important than static assurance. In other words, the hypotheses set up a horse race between systems and information assurance, and also between continuous and static assurance. 2. Hypotheses Hypothesis one predicts that systems assurance will be more important to buyers using an exchange than information assurance. Based on the theoretical framework, this hypothesis suggests that coordination costs (which are reduced by systems assurance) will be more important than motivation costs (which are reduced by information assurance). While it is easy to understand why coordination costs would be a concern of buyers using an exchange, it is not at all clear why coordination costs would be more important than motivation costs. The paper provides no theoretical explanation for why buyers would prefer to reduce coordination costs more than they would prefer to reduce motivation costs. As a result, it is difficult to link type of assurance to a desire to reduce transaction costs, which is the theoretical foundation that Mauldin et al. offer for the hypothesis. To provide support for the prediction made by hypothesis one, the paper cites a previous study that found evidence suggesting that application service provider customers were more persuaded by assurance about system security and availability than assurance about information integrity and system maintainability. The extent to which the decision context examined in the cited study map onto the decision context examined by Mauldin et al. is questionable. The cited study involves an outsourced service relationship between two parties that know each other. In this context, one would expect that commitments by both parties would be documented by a formal contract and trust regarding performance of the other party would not be nearly the issue it would be in the context of an exchange where parties do not know each other. In other words, trust in the cited study is provided by an enforceable contract while trust in the Mauldin et al. study is a matter of believing in the performance commitments of unfamiliar trading partners. Hypothesis two predicts that continuous assurance will be more important to buyers using an exchange than static assurance. Mauldin et al. argue that continuous auditing is more appropriate for managing the risk associated with continuous information flows through a B2B exchange because buyers are more concerned with being able to trust information provided by the seller than they are with
132
E. O'Donnell / International Journal of Accounting Information Systems 7 (2006) 130–133
knowing the system is working reliably at any particular point in time. According to the theoretical framework, trusting information provided by other parties affects motivation costs, not coordination costs, and Mauldin et al. do not explain how continuous assurance influences transaction costs. As a result, hypothesis two could be interpreted as predicting that motivation costs are more important than coordination costs, which is a direct contradiction of the prediction made by hypothesis one regarding the importance of transaction costs. These issues may well be corrected by a more thorough explanation of how different types of transaction costs can be influenced by different types of assurance. However, based on the current theoretical framework, findings are difficult to interpret with respect to buyers' desire to minimize different types of transaction costs. In the absence of a more thorough explanation, the findings do not make theoretical sense and appear to be contradictory. 3. Participants Findings for the four treatment groups indicate that participants were more persuaded by systems assurance than by information assurance, and also more persuaded by continuous assurance than by static assurance. I have argued that results are not consistent with the theoretical framework as it is currently described. Perhaps these findings can be explained by the type of experience that participants brought to the experiment. Although participants had a significant amount of purchasing experience, we do not know how much experience they had procuring inventory through a B2B exchange. Without task-specific experience to provide the knowledge they need to interpret and distinguish between assurance alternatives, participant reaction to the four types of assurance provided in this study is hard to predict. Participants who had no experience using an exchange would likely be less sensitive to trust issues regarding representations of trading partners than participants who had experience using an exchange. Given the significant amount of purchasing experience participants brought to the experiment, they were likely to have had significant experience using a computerized system to interact with customers. However, they did not necessarily have experience buying from trading partners with whom they had no previous experience and, therefore, had no basis for trusting. If this was the case (and we do not know if it was or was not), then participants might be expected to be more concerned with assurance about system reliability than assurance about trading partner reliability. Participants would be likely to appreciate difficulties that can arise when the system does not work as intended, but they would be less likely to appreciate difficulties that can arise when trading partners do not live up to their performance commitments. Mauldin et al. report that participants in the control group who received no assurance were either just as likely or more likely to recommend using the system than participants in the four treatment conditions who received some type of assurance. A lack of experience with procurement through an exchange may also explain this result. Participants whose procurement experience did not involve an exchange are less likely to need assurance about transaction systems and trading partners because they can look to the results of past transactions to provide trust about the outcome of future transactions. If participants had no significant job-related experience relying on assurance to provide trust, then participants who received assurance may have been cued to think about system and information reliability issues that arise in an exchange setting but participants who received no assurance were not cued to think about those issues. If this was the case (and we do not know whether it was or was not), then participants who received assurance may have been more concerned about trust than participants who did not receive assurance because participants in the treatment group were inspired to think about trust but participants in the control group were not.
E. O'Donnell / International Journal of Accounting Information Systems 7 (2006) 130–133
133
4. Summary While this study provides interesting empirical findings that are useful for evaluating assurance alternatives in procurement domains, those findings must be interpreted with care. A clear understanding of how assurance influences intention to use an exchange requires a more thorough understanding of the specific relationships between alternative types of assurance and different types of transaction costs. Researchers who examine these issues should be careful to measure and account for the type of experience participants bring to their experimental tasks and carefully consider how that experience will interact with the types of decisions participants are asked to make during the study.