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The Distinct Effects of Information Technology and Communication Technology on Firm Organization

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Author Info
Nick Bloom
Luis Garicano
Raffaella Sadun
John Van Reenen

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Abstract

Empirical studies on information communication technologies (ICT) typically aggregate the"information" and "communication" components together. We show theoretically and empirically thatthese have very different effects on the empowerment of employees, and by extension on wageinequality. If managerial hierarchies are devices to acquire and transmit knowledge and information,technologies that reduce information costs enable agents to acquire more knowledge and 'empower'lower level agents. Conversely, technologies reducing communication costs substitute agent'sknowledge for directions from their managers, and lead to centralization. Using an original dataset offirms in the US and seven European countries we study the impact of ICT on worker autonomy, plantmanager autonomy and spans of control. Consistently with the theory we find that better informationtechnologies (Enterprise Resource Planning for plant managers and CAD/CAM for productionworkers) are associated with more autonomy and a wider span of control. By contrast, communicationtechnologies (like data networks) decrease autonomy for both workers and plant managers. Ourfindings are robust to using exogenous variation in cross-country telecommunication costs arisingfrom differential regulatory regimes.

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Paper provided by Centre for Economic Performance, LSE in its series CEP Discussion Papers with number dp0927.

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Date of creation: May 2009
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Handle: RePEc:cep:cepdps:dp0927

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Related research
Keywords: organization; delegation; information technology; communication technology; the theoryof the firm;

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Find related papers by JEL classification:
O31 - Economic Development, Technological Change, and Growth - - Technological Change - - - Innovation and Invention: Processes and Incentives
O32 - Economic Development, Technological Change, and Growth - - Technological Change - - - Management of Technological Innovation and R&D
O33 - Economic Development, Technological Change, and Growth - - Technological Change - - - Technological Change: Choices and Consequences; Diffusion Processes
F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business

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