Coordination mechanism of IT service supply chain: an economic perspective

Abstract

Currently, there are two models of service delivery in the information technology (IT) arena: implementation agent and software-as-a-service (SaaS), and each model results in a different IT service supply chain (SSC) structure. When IT service is delivered via implementation agents, independent software vendors (ISV) form the core of the supply chain, while in SaaS chains, platform operators act as the core. It is important to clarify how to coordinate supply chain participants in their respective supply chains, because there is sparse research about supply chain coordination contracts in the IT service industry. This paper draws upon the theory of revenue sharing contracts and investigates IT SSC coordination mechanisms under both SaaS and implementation agent models. The analytical results indicate that a SaaS supply chain has an optimal IT service price that is only related to the variable costs (Cos) of the SaaS platform operator, and so if the variable cost (Cos) can be reduced to zero, perfect coordination would exist. In contrast, the implementation agent supply chain achieves perfect coordination when the variable cost of the implementation agent is equal to the average unit implementation fee. By comparing the two supply chain models and interpreting their respective coordination mechanisms, this study can further advance supply chain contract theory research.