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The Extroverted Firm: How External Information Practices Affect Innovation and Productivity

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Listed:
  • Prasanna Tambe

    () (Stern School of Business, New York University, New York, New York 10012)

  • Lorin M. Hitt

    () (The Wharton School, University of Pennsylvania, Philadelphia, Pennsylvania 19104)

  • Erik Brynjolfsson

    () (MIT Sloan School of Management, Massachusetts Institute of Technology, Cambridge, Massachusetts 02142)

Abstract

We gather detailed data on organizational practices and information technology (IT) use at 253 firms to examine the hypothesis that external focus--the ability of a firm to detect and therefore respond to changes in its external operating environment--increases returns to IT, especially when combined with decentralized decision making. First, using survey-based measures, we find that external focus is correlated with both organizational decentralization, and IT investment. Second, we find that a cluster of practices including external focus, decentralization, and IT is associated with improved product innovation capabilities. Third, we develop and test a three-way complementarities model that indicates that the combination of external focus, decentralization, and IT is associated with significantly higher productivity in our sample. We also introduce a new set of instrumental variables representing barriers to IT-related organizational change and find that our results are robust when we account for the potential endogeneity of organizational investments. Our results may help explain why firms that operate in information-rich environments such as high-technology clusters or areas with high worker mobility have experienced especially high returns to IT investment and suggest a set of practices that some managers may be able to use to increase their returns from IT investments. This paper was accepted by Sandra Slaughter, information systems.

Suggested Citation

  • Prasanna Tambe & Lorin M. Hitt & Erik Brynjolfsson, 2012. "The Extroverted Firm: How External Information Practices Affect Innovation and Productivity," Management Science, INFORMS, vol. 58(5), pages 843-859, May.
  • Handle: RePEc:inm:ormnsc:v:58:y:2012:i:5:p:843-859
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    File URL: http://dx.doi.org/10.1287/mnsc.1110.1446
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Viete, Steffen & Erdsiek, Daniel, 2015. "Mobile information and communication technologies, flexible work organization and labor productivity: Firm-level evidence," ZEW Discussion Papers 15-087, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
    2. Antonelli, Cristiano, 2017. "Digital Knowledge Generation and the Appropriability Trade-Off," Department of Economics and Statistics Cognetti de Martiis LEI & BRICK - Laboratory of Economics of Innovation "Franco Momigliano", Bureau of Research in Innovation, Complexity and Knowledge, Collegio 201705, University of Turin.
    3. Virginie Lethiais & François Deltour & Sébastien Le Gall, 2015. "Le rôle des TIC et du territoire dans la capacité d'innovation des PME : une étude empirique," Post-Print hal-01288937, HAL.
    4. Michael Beckmann & Thomas Cornelissen, 2014. "Self-Managed Working Time and Employee Effort: Microeconometric Evidence," SOEPpapers on Multidisciplinary Panel Data Research 636, DIW Berlin, The German Socio-Economic Panel (SOEP).
    5. Bertschek, Irene & Kesler, Reinhold, 2017. "Let the user speak: Is feedback on Facebook a source of firms' innovation?," ZEW Discussion Papers 17-015, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
    6. repec:eee:tefoso:v:120:y:2017:i:c:p:223-231 is not listed on IDEAS
    7. Richard Fabling & Arthur Grimes, 2016. "Picking up speed: Does ultrafast broadband increase firm productivity?," Working Papers 16_22, Motu Economic and Public Policy Research.
    8. Yeh, Chien Chi & Ku, Edward C.S. & Ho, Ching Hua, 2016. "Collaborating pivotal suppliers: Complementarities, flexibility, and standard communication between airline companies and travel agencies," Journal of Air Transport Management, Elsevier, vol. 55(C), pages 92-101.
    9. Sinan Aral & Erik Brynjolfsson & Lynn Wu, 2012. "Three-Way Complementarities: Performance Pay, Human Resource Analytics, and Information Technology," Management Science, INFORMS, vol. 58(5), pages 913-931, May.
    10. Ben-Assuli, Ofir, 2015. "Electronic health records, adoption, quality of care, legal and privacy issues and their implementation in emergency departments," Health Policy, Elsevier, vol. 119(3), pages 287-297.
    11. Salome Baslandze, 2015. "The Role of the IT Revolution in Knowledge Diffusion, Innovation and Reallocation," 2015 Meeting Papers 1488, Society for Economic Dynamics.
    12. Salome Baslandze, 2016. "The Role of the IT Revolution in Knowledge Di ffusion, Innovation and Reallocation," 2016 Meeting Papers 1509, Society for Economic Dynamics.

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