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SMEs and IT: evidence for a market for 'lemons'

Jan Devos UGent, Hendrik Van Landeghem UGent and Dirk Deschoolmeester UGent (2012) ELECTRONIC JOURNAL OF INFORMATION SYSTEMS EVALUATION. 15(1). p.25-35
abstract
It is well known that Small- and Medium-sized Enterprises (SME) suffer from a lack of IT proficiency and therefore depend heavily on external IT expertise. The acquisition of a strategic IT artefact by an SME is mainly initiated in a market where Independent Software Vendors (ISV) and customers meet. This complex process is dominated by information asymmetry and leads to the ‘lemons’ problem, where low-quality vendors drive out high-quality vendors as predicted by the Lemon Market Theory (LMT). The diversity in quality makes it difficult for prospective buyers to evaluate a product or service with complete certainty and makes the decision to acquire risky. According to LMT, there is incentive for vendors selling poor quality, where quality of services is linked to an entire group rather than to an individual vendor. Although many scholars refer to this phenomenon in their work, empirical evidence is scarce. In this paper, we present the results of an enquiry into the ‘lemon’ problem within a group of 484 Belgium ISVs that target the SME market. A survey of the websites of the selected ISVs was conducted, in which we examined the way the products and services were presented. This was followed by six case studies, in which Chief Information Officers (CIOs) of SMEs were interviewed about the way they perceive the services of the ISVs. Our findings suggest that there are elements of a ‘lemons’ market present. However, there are also indications of a self-cleaning mechanism present in the market within the group of ISVs, leading to a globally higher degree of quality and leading to positive filtering from ‘the buy side’. However, the strongest conclusion is that some SMEs are encouraged by ISVs to withdraw from progressing further with their software acquisition process due their inferior IT capabilities and practices.
Please use this url to cite or link to this publication:
author
organization
year
type
journalArticle (original)
publication status
published
subject
keyword
lemon market theory, IT/IS, SMEs, ISV
journal title
ELECTRONIC JOURNAL OF INFORMATION SYSTEMS EVALUATION
Electron. J. Inf. Syst. Eval.
volume
15
issue
1
pages
25 - 35
ISSN
1566-6379
language
English
UGent publication?
yes
classification
A2
copyright statement
I have transferred the copyright for this publication to the publisher
VABB id
c:vabb:335513
VABB type
VABB-1
id
1970123
handle
http://hdl.handle.net/1854/LU-1970123
date created
2011-12-19 15:33:45
date last changed
2013-04-05 11:27:14
@article{1970123,
  abstract     = {It is well known that Small- and Medium-sized Enterprises (SME) suffer from a lack of IT proficiency and therefore depend heavily on external IT expertise. The acquisition of a strategic IT artefact by an SME is mainly initiated in a market where Independent Software Vendors (ISV) and customers meet. This complex process is dominated by information asymmetry and leads to the {\textquoteleft}lemons{\textquoteright} problem, where low-quality vendors drive out high-quality vendors as predicted by the Lemon Market Theory (LMT). The diversity in quality makes it difficult for prospective buyers to evaluate a product or service with complete certainty and makes the decision to acquire risky. According to LMT, there is incentive for vendors selling poor quality, where quality of services is linked to an entire group rather than to an individual vendor. Although many scholars refer to this phenomenon in their work, empirical evidence is scarce. In this paper, we present the results of an enquiry into the {\textquoteleft}lemon{\textquoteright} problem within a group of 484 Belgium ISVs that target the SME market. A survey of the websites of the selected ISVs was conducted, in which we examined the way the products and services were presented. This was followed by six case studies, in which Chief Information Officers (CIOs) of SMEs were interviewed about the way they perceive the services of the ISVs. Our findings suggest that there are elements of a {\textquoteleft}lemons{\textquoteright} market present. However, there are also indications of a self-cleaning mechanism present in the market within the group of ISVs, leading to a globally higher degree of quality and leading to positive filtering from {\textquoteleft}the buy side{\textquoteright}. However, the strongest conclusion is that some SMEs are encouraged by ISVs to withdraw from progressing further with their software acquisition process due their inferior IT capabilities and practices.},
  author       = {Devos, Jan and Van Landeghem, Hendrik and Deschoolmeester, Dirk},
  issn         = {1566-6379},
  journal      = {ELECTRONIC JOURNAL OF INFORMATION SYSTEMS EVALUATION},
  keyword      = {lemon market theory,IT/IS,SMEs,ISV},
  language     = {eng},
  number       = {1},
  pages        = {25--35},
  title        = {SMEs and IT: evidence for a market for 'lemons'},
  volume       = {15},
  year         = {2012},
}

Chicago
Devos, Jan, Hendrik Van Landeghem, and Dirk Deschoolmeester. 2012. “SMEs and IT: Evidence for a Market for ‘Lemons’.” Electronic Journal of Information Systems Evaluation 15 (1): 25–35.
APA
Devos, Jan, Van Landeghem, H., & Deschoolmeester, D. (2012). SMEs and IT: evidence for a market for “lemons.” ELECTRONIC JOURNAL OF INFORMATION SYSTEMS EVALUATION, 15(1), 25–35.
Vancouver
1.
Devos J, Van Landeghem H, Deschoolmeester D. SMEs and IT: evidence for a market for “lemons.”ELECTRONIC JOURNAL OF INFORMATION SYSTEMS EVALUATION. 2012;15(1):25–35.
MLA
Devos, Jan, Hendrik Van Landeghem, and Dirk Deschoolmeester. “SMEs and IT: Evidence for a Market for ‘Lemons’.” ELECTRONIC JOURNAL OF INFORMATION SYSTEMS EVALUATION 15.1 (2012): 25–35. Print.